Malawi Country Profile
General Information
Political Climate
Despite being one of the least developed countries in the world, Malawi has experienced substantial economic growth in recent years, with GDP growth rates around 7% since 2008. However, GDP per capita has hardly changed over the past 10 years. The economy is heavily reliant on agriculture with tobacco being the main export. Inflation rates have also steadily declined and the country has completed its three-year Poverty Reduction and Growth Facility (PRGF), meeting almost all targets.
Democratic elections have been held regularly in Malawi since 1994, when the one-party rule of President Banda came to an end. Today, the country enjoys political stability, while the state retains a monopoly on the use of force and a general framework for good governance is in place. President Bingu Wa Mutharika was elected for a second term in office in May 2009. Since his first term, he has made the fight against corruption a top priority of the government. This priority led him to leave the United Democratic Front (UDF) party through which he was elected in order to form a new party, the Democratic Progressive Party (DPP). He left the UDF due to the party's opposition to his anti-corruption campaign. However, his government has not been free from political corruption and the opposition and civil society groups have criticised the anti-corruption campaign for being biased, as it mostly targets political opponents. During Mutharika's first time in office several former ministers and senior UDF party officials were arrested on corruption charges and, in April 2008, former Minister of Education Sam Mpasu was sentenced to six years imprisonment for accepting bribes. In February 2009, former President Muluzi was arrested by Malawi's Anti-Corruption Bureau charged for allegedly diverting money meant for development projects into his private account. The arrest made UDF accuse the government of launching a witch hunt. The trial began in March 2011, but was adjourned shortly after due to the poor health of Muluzi.
Malawian society remains highly affected by corruption and, according to EISA 2007, the Malawian government is estimated to lose more than MWK 22 million a year to corruption. Petty, political and grand corruption is widespread. The government launched the National Anti-Corruption Strategy in 2009, with a broad approach to dealing with corruption. The Anti-Corruption Bureau (ACB) lacks the necessary support, giving rise to allegations that there is a lack of political will to fight corruption. The ACB has achieved 60 corruption convictions since 2004, according to Freedom House 2010. More and more sources agree that the anti-corruption campaign is genuine, but what they all agree upon is that a system of political patronage and that accessing personal wealth through politics continue.
Nevertheless, since President Mutharika took office in 2004, many corrupt figures from the former government of Bakili Muluzi have been prosecuted and, according to Afrobarometer 2008, 60% of Malawians believe that the government is fighting corruption well. Moreover, according to the Transparency International Global Corruption Report 2008, corruption in Malawi has not had a negative impact on the public's perception of government institutions. Despite this perception, however, it is generally perceived among Malawians that the level of corruption is pervasive and increasing. According to Afrobarometer 2007, approximately 9% of the Malawian population has personally experienced corruption. However, data from a World Bank Governance and Corruption Baseline Survey 2006 of households and companies indicates that 90% of citizens believe corruption is a serious problem for the country's development and as much as 70% believe the problem worsened over the previous decade. Moreover, although the judiciary operates relatively independently, its meagre resources are overstretched and abuse of office and corruption continue to increase. According to the World Bank Governance and Corruption Baseline Survey 2006, the courts receive lower ratings from citizens than from companies. Some political actors within the government do not accept the independent status of the judiciary or the legislature, and civil society in Malawi is very weak.
Business and Corruption
Malawi belongs to a group of the world's least developed countries and thus faces many problems. The country is heavily dependent on donor funding to support the national budget and as a contribution to foreign exchange. In 2007, net external development aid to the country reached USD 735 million. Business development is marked by macroeconomic instability, which has resulted in private companies mainly operating in the informal sector.
Some sources indicate that corruption, traditionally a major problem for doing business in Malawi, has become less of a problem in recent years. The previous World Bank & IFC Enterprise Surveys 2006 reported that almost half of the companies surveyed considered corruption in Malawi to be a major constraint for operating a business, while more than 35% of companies reported paying bribes in order to 'get things done'. However, the World Bank & IFC Enterprise Surveys 2009 reports that only 12.8% of the companies surveyed now perceive corruption as a major constraint for doing business and 10.8% indicate that they expect to pay bribes to 'get things done'. The World Economic Forum Global Competitiveness Report 2010-2011 paints a similar picture. Corruption has dropped down on the list of obstacles that companies face, as business executives perceive corruption as the fifth most problematic factor for doing business in Malawi. Surveyed business executives give the level of diversion of public funds to companies, individuals or groups due to corruption a score of 3.9 on a 7-point scale (1 being 'very common' and 7 being 'never occurs'). This change in perception might be influenced by the establishment of the Business Action Against Corruption (BAAC) initiative and the drafting of a Business Code of Conduct in 2006. The BAAC was established in Malawi as a joint initiative between the business community and representatives of government, civil society and donor agencies as well as the media - see 'Private Anti-Corruption Initiatives' in the Initiatives section to read more about the BAAC.
Companies should note that although trade is in the process of being liberalised and import and export licences are only required for a few products, Malawi still has some competition and market restrictions.
Regulatory Environment
In general, bureaucracy in Malawi is considered to be fairly cumbersome. Companies frequently complain about officials that demand facilitation payments and about rules and regulations that are applied selectively and discriminatorily. Decision-making in connection with the business and investment approval process is neither transparent nor based purely on merit, and the US Department of State 2011 states that the process suffers from delays and red tape. The fact that almost every official document or licence requires an official stamp and has an economic value attached to it has created a regulatory environment conducive to corrupt practices. However, positive developments have been made, including the establishment of regulatory authorities in the energy and communication sectors. According to the World Bank & IFC Doing Business 2011, it takes an average of 39 days to start a company, and there is data indicating that a company spends an average of 157 hours a year on paying taxes, although the total tax rate is competitive. Just 9% of companies surveyed by the World Bank & IFC Enterprise Surveys 2009 identified licensing and permits as a major constraint on doing business.
According to the World Bank Governance and Corruption Baseline Survey 2006 conducted among households and companies, more than a third of the companies surveyed were generally dissatisfied with the legal and regulatory environment in the country, and 32% believed that laws and regulations have become less predictable over the past several years. Moreover, 50% of companies surveyed report having difficulty obtaining information about the laws and regulations affecting their company. Inconsistent availability and slow processing of temporary employment permits has also been a problem for some foreign investors. However, the access to information on regulations might have improved, as business executives surveyed in the World Economic Forum Global Competitiveness Report 2010-2011 indicate that Malawi offers competitive business advantages in relation to the ease of obtaining information about changes in government policies and regulations affecting their industries as well as when complying with administrative requirements (permits, regulations, reporting) issued by the government.
The Malawi Investment Promotion Agency (MIPA - link is unstable) functions as a one-stop centre with a purpose to facilitate investment in Malawi. MIPA proposes identification of partners for joint ventures and the agency's website offers information about investment procedures and legislation as well as costs of transportation and public utilities. Application forms for documents such as investment certificates and business residence permits can be downloaded from the website.
The US Department of State 2011 reports that Malawi has legislation that recognises property rights and both acquiring and disposing of property are facilitated and protected in the law. Nevertheless, Malawi's legal system functions very slowly and the cost of enforcing a claim appears counter-productive as reported by the World Bank & IFC Doing Business 2011. However, according to the US Department of State 2011, the processing of commercial court cases has improved in recent years and the commercial courts are now working efficiently. Besides that, a mediation process has been established to promote agreements between parties before court proceedings start. Despite the improvements in the legal system, enforcement of court judgments is still a problem in Malawi. According to US Department of State 2011, only 57% of the court decisions had been enforced by mid-December 2010. Malawi is a member of the International Centre for Settlement of Investment Disputes (ICSID), and thus accepts binding international arbitration of investment disputes between foreign investors and the state as long as provisions for such recourse have been specified in a written contract. Access the Lexadin World Law Guide for a collection of legislation in Malawi.
