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TRADE POLICY REVIEWS: FIRST PRESS RELEASE, SECRETARIAT AND GOVERNMENT SUMMARIES

PRESS RELEASE
PRESS/TPRB/188
8 Febuary 2002
Malawi: February 2002

The WTO Secretariat report, along with the policy statement by the Government of Malawi, will serve as a basis for the first Trade Policy Review (TPR) of Malawi by the Trade Policy Review Body of the WTO on 6 and 8 February 2002.

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See also:

Second press release
Chairperson’s concluding remarks


Continued structural reforms could improve the growth prospects and dynamism of Malawi's economy   Back to top

Continued structural reforms, including further trade and investment liberalization, and the pursuit of the privatization programme, could improve the dynamism and growth prospects of Malawi's otherwise weak and vulnerable economy, according to a WTO Secretariat report on the trade policies and practices of Malawi.

The report explains that Malawi's current economic difficulties, including fiscal uncertainties, if not improved, may weaken the Government's resolve for further trade liberalization. Trading partners can contribute to the reforms by ensuring stable, increased access to their markets, especially in agricultural products, where Malawi's prospects appear strongest. Enhancing and complying with its WTO commitments may help sustain Malawi's unilateral reforms.

The report points out that structural adjustment programmes since the mid 1980s substantially liberalized the Malawi economy, contributing to high economic growth (almost 9% in 1996) and to the reduction of inflation to single-digit rates (9% in 1997). However, in the late 1990s, policy slippages, especially expansionary fiscal policies, resulted in macroeconomic imbalances, which precipitated an economic and currency crisis. Growth slowed to under 2% in 2000.

Monetary policy, until recently, accommodated expansionary fiscal policies and fuelled inflation, which peaked at 45% in 1999. Real interest rates were maintained at a high level. The public sector “crowded out” private sector growth, which stagnated. Moreover, despite a more liberal regime and efforts to attract investment, including the formation of the Malawi Investment Promotion Agency and various tax and other financial incentives, foreign direct investment (FDI) inflows remain erratic and relatively low: inflows (concentrated in manufacturing, construction and distribution) have declined, from US$70 million in 1998 to US$51 million in 2000. Unfavourable climatic conditions, declining export prices for tobacco (the main cash crop), and institutional weaknesses have compounded the economic difficulties. Malawi's GDP per capita stood at US$200 in 1999, and its external debt of US$2.6 billion was equivalent to about 150% of GDP. Malawi is eligible for debt relief under the Enhanced Heavily-Indebted Poor Countries (HIPC) Initiative.

The authorities, according to the report, have recently moved to improve Malawi's stabilization policies. A Parastatal Enterprise Reform and Monitoring Unit is now in place to control financial operations of parastatals, and a Monetary Policy Committee monitors monetary issues. Monetary targets are set, and Government borrowings from the Reserve Bank are now limited to 20% of annual budgeted domestic revenue. Exchange rate reforms have been strengthened and the export surrender requirements on traditional commodities (e.g. tobacco) reduced from 60% to 40% with a view to improving the international competitiveness of Malawi's exports.

Despite liberalization, Malawi's trade in goods fell from 97% of GDP in 1994 to 74% in 1999, i.e. from 30% to 27% for exports and from 67% to 47% for imports. Malawi's trade is relatively concentrated, especially in commodities. Primary products, overwhelmingly tobacco, account for most exports. Minimal export diversification has occurred; non-traditional exports accounted for only 13% of exports in 1999. Most manufactured products, including fuels, machinery, transport equipment, chemicals, and other intermediate inputs, are imported. The share of developing countries in Malawi's trade has decreased. Over two thirds of exports are sold to developed countries. South Africa has been surpassed by Germany and the United States as Malawi's main export market (its share fell to 12% in 1999). Imports are increasingly being sourced from industrialized countries, which accounted for 42% of Malawi's imports in 1999. South Africa remains the main source of Malawi's imports although its share fell from 44% in 1995 to 32% in 1999. Zimbabwe's share also declined, to 10% in 1999, ranking it third behind the United Kingdom, whose share rose to 16% (up from 4% in 1995). Malawi's regional trade, including with other COMESA and SADC members, is relatively minor. Malawi is a net importer of services, especially in transport and insurance.

The tariff is Malawi's main trade policy instrument. Its simple average MFN tariff was almost 14% in 2000/01, down from almost 16% in 1997/98 and 21% in 1996/97. Virtually all tariffs are ad valorem. The tariff structure is escalatory, with six bands; rates of zero or 5% apply to “necessities” and of 10% to intermediate goods. The maximum duty rate applied to consumer goods is currently 25%. With a coefficient of variation of about 0.7, tariffs were moderately dispersed in 2000/01. Lower, more uniform duties would improve the tariff structure and economic efficiency.

In he context of the Uruguay Round, Malawi bound tariffs on all agricultural products at a ceiling rate of 125% (except for a few products with ceiling rates of 50%, 55%, and 65%), and on less than 1% of tariff lines for non-agricultural products, at ceiling rates ranging from 30% to 65%. Other duties and charges on these products are bound at a ceiling rate of 20%.

Malawi is heavily dependent on agriculture, especially tobacco. Agriculture accounted for 38% of GDP in 1999, and about 85% of employment. Following the Government's deregulatory policies, the main trade instrument affecting agriculture (ISIC definition) is the tariff; the average MFN rate on such products was 12.2% in 2000/01. Controls on the production and marketing by smallholders of traditional crops, including tobacco, have been removed. Manufacturing accounted for about 14% of GDP in 1999. The share of services in Malawi's GDP fell from 57% in 1994 to 47% in 1999. The existence of many state-owned services enterprises reflects the delays in liberalizing this sector.

The report notes that more efficient infrastructure services should raise the competitiveness of downstream activities and encourage foreign direct investment (FDI). And extending the coverage of tariff bindings beyond agriculture and narrowing the gap between bound and applied rates would benefit Malawi and its trading partners by increasing the predictability of the tariff.

  
Note to Editors

Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member countries’ trade and related policies are examined and evaluated at regular intervals. Significant developments which may have an impact on the global trading system are also monitored. For each review, two documents are prepared: a policy statement by the government of the member under review, and a detailed report written independently by the WTO Secretariat. These two documents are then discussed by the WTO’s full membership in the Trade Policy Review Body (TPRB). These documents and the proceedings of the TPRB’s meetings are published shortly afterwards. Since 1995, when the WTO came into force, services and trade-related aspects of intellectual property rights have also been covered.

For this review, the WTO’s Secretariat report, together with a policy statement prepared by the Government of Malawi, will be discussed by the Trade Policy Review Body on 6 and 8 February 2002. The Secretariat report covers the development of all aspects of Malawi trade policies since the previous review, including domestic laws and regulations, the institutional framework, trade policies by measure, and developments in selected sectors.

Attached to this press release are the Summary Observations of the Secretariat report and parts of the government policy statement. The Secretariat and the government reports are available under the country name in the full list of trade policy reviews. These two documents and the minutes of the TPRB’s discussion and the Chairman’s summing up, will be published in hardback in due course and will be available from the Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

Since December 1989, the following reports have been completed: Argentina (1992 and 1999), Australia (1989, 1994 and 1998), Austria (1992), Bahrain (2000) Bangladesh (1992 and 2000), Benin (1997), Bolivia (1993 and 1999), Botswana (1998), Brazil (1992, 1996 and 2000), Brunei Darussalam (2001), Burkina Faso (1998), Cameroon (1995 and 2001), Canada (1990, 1992, 1994, 1996, 1998 and 2000), Chile (1991 and 1997), Colombia (1990 and 1996), Costa Rica (1995 and 2001), Côte d’Ivoire (1995), Cyprus (1997), the Czech Republic (1996 and 2001), the Dominican Republic (1996), Egypt (1992 and 1999), El Salvador (1996), the European Communities (1991, 1993, 1995, 1997 and 2000), Fiji (1997), Finland (1992), Gabon (2001), Ghana (1992 and 2001), Guatemala (2002), Guinea (1999), Hong Kong (1990, 1994 and 1998), Hungary (1991 and 1998), Iceland (1994 and 2000), India (1993 and 1998), Indonesia (1991, 1994 and 1998), Israel (1994 and 1999), Jamaica (1998), Japan (1990, 1992, 1995,1998 and 2000), Kenya (1993 and 2000), Korea, Rep. of (1992, 1996 and 2001), Lesotho (1998), Macao (1994 and 2001), Madagascar (2001), Malaysia (1993, 1997 and 2001), Malawi (2002), Mali (1998), Mauritius (1995 and 2001), Mexico (1993 and 1997), Morocco (1989 and 1996), Mozambique (2001), New Zealand (1990 and 1996), Namibia (1998), Nicaragua (1999), Nigeria (1991 and 1998), Norway (1991, 1996 and 2000), OECS (2001), Pakistan (1995 and 2002), Papua New Guinea (1999), Paraguay (1997), Peru (1994 and 2000), the Philippines (1993 and 1999), Poland (1993 and 2000), Romania (1992 and 1999), Senegal (1994), Singapore (1992, 1996 and 2000), Slovak Republic (1995 and 2001), the Solomon Islands (1998), South Africa (1993 and 1998), Sri Lanka (1995), Swaziland (1998), Sweden (1990 and 1994), Switzerland (1991, 1996 and 2000 (jointly with Liechtenstein)), Tanzania (2000), Thailand (1991, 1995 and 1999), Togo (1999), Trinidad and Tobago (1998), Tunisia (1994), Turkey (1994 and 1998), the United States (1989, 1992, 1994, 1996, 1999 and 2001), Uganda (1995 and 2001), Uruguay (1992 and 1998), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).

  
  
The Secretariat’s report: summary  Back to top

TRADE POLICY REVIEW BODY: MALAWI
Report by the Secretariat — Summary Observations

Malawi is a landlocked southern African country, independent since 1964. Structural adjustment programmes since the mid 1980s substantially liberalized the Malawi economy, contributing to high economic growth (almost 9% in 1996) and to the reduction of inflation to single-digit rates (9% in 1997). However, in the late 1990s, policy slippages, especially expansionary fiscal policies, resulted in macroeconomic imbalances, which precipitated an economic and currency crisis. Growth slowed to under 2% in 2000.

Monetary policy, until recently, accommodated expansionary fiscal policies and fuelled inflation, which peaked at 45% in 1999. Real interest rates were maintained at a high level. The public sector “crowded out” private sector growth, which stagnated. Moreover, despite a more liberal regime and efforts to attract investment, including the formation of the Malawi Investment Promotion Agency and various tax and other financial incentives, foreign direct investment (FDI) inflows remain erratic and relatively low: inflows (concentrated in manufacturing, construction and distribution) have declined, from US$70 million in 1998 to US$51 million in 2000. Unfavourable climatic conditions, declining export prices for tobacco (the main cash crop), and institutional weaknesses have compounded the economic difficulties. Malawi's GDP per capita stood at US$200 in 1999, and its external debt of US$2.6 billion was equivalent to about 150% of GDP. Malawi is eligible for debt relief under the Enhanced Heavily-Indebted Poor Countries (HIPC) Initiative.

The authorities have recently moved to improve Malawi's stabilization policies. A Parastatal Enterprise Reform and Monitoring Unit is now in place to control financial operations of parastatals, and a Monetary Policy Committee monitors monetary issues. Monetary targets are set, and Government borrowings from the Reserve Bank are now limited to 20% of annual budgeted domestic revenue. Exchange rate reforms have been strengthened and the export surrender requirements on traditional commodities (e.g. tobacco) reduced from 60% to 40% with a view to improving the international competitiveness of Malawi's exports.

Despite liberalization, Malawi's trade in goods fell from 97% of GDP in 1994 to 74% in 1999, i.e. from 30% to 27% for exports and from 67% to 47% for imports. Malawi's trade is relatively concentrated, especially in commodities. Primary products, overwhelmingly tobacco, account for most exports. Minimal export diversification has occurred; non-traditional exports accounted for only 13% of exports in 1999. Most manufactured products, including fuels, machinery, transport equipment, chemicals, and other intermediate inputs, are imported. The share of developing countries in Malawi's trade has decreased. Over two thirds of exports are sold to developed countries. South Africa has been surpassed by Germany and the United States as Malawi's main export market (its share fell to 12% in 1999). Imports are increasingly being sourced from industrialized countries, which accounted for 42% of Malawi's imports in 1999. South Africa remains the main source of Malawi's imports although its share fell from 44% in 1995 to 32% in 1999. Zimbabwe's share also declined, to 10% in 1999, ranking it third behind the United Kingdom, whose share rose to 16% (up from 4% in 1995). Malawi's regional trade, including with other COMESA and SADC members, is relatively minor. Malawi is a net importer of services, especially in transport and insurance.

Malawi, a unitary republic, introduced multi-party democracy in 1994 following adoption of a new Constitution, which vests executive power with the President and legislative authority with the National Assembly. Parliament comprises the Assembly and the President, who is both Head of State and of the Government. He appoints cabinet ministers; executive functions are performed by the Office of the President and Cabinet.

The main ministries involved in setting and implementing trade-related policies are Commerce and Industry; Finance and Economic Planning; and Agriculture and Irrigation. Several other ministries and government bodies are responsible for policies in certain subsectors, such as tobacco, minerals, timber, fishing, and tourism. Private-sector input on trade-related policies is facilitated by the new National Working Group on Trade Policy and its National Task Force. This is intended to improve private-sector interaction and trade policy coordination, until now dispersed over several ministries, none with overriding authority.

The Government's Poverty Reduction Strategy Paper, completed in November 2001, has undergone substantial public discussion. The Government's long-term economic development plan for Malawi to become a middle-income country by 2020 – Vision 2020 – proposes doubling the size of the manufacturing sector to 25% of GDP, and encouraging mining, tourism, and agriculture. Industrial development is to be promoted through an integrated trade and industry policy aimed at removing bottlenecks to private-sector development. Industrial linkages are to be expanded, and small and medium-sized enterprises encouraged. Key infrastructure is to be improved. Export promotion and diversification are to be encouraged; and preferential access to developed markets is to be better utilized, by reducing supply-side constraints.

Malawi is an original Member of the WTO, and grants at least MFN treatment to other WTO Members, to non-WTO ACP states, and to independent Commonwealth countries or UN-administered protectorates. The authorities are of the opinion that implementing Malawi's multilateral commitments will assist Malawi's ongoing reforms and economic recovery. However, without technical assistance from the international community, it will be virtually impossible for Malawi to implement WTO-consistent policies in areas such as intellectual property protection and contingency trade remedies. Therefore, Malawi looks to bilateral and multilateral donors for technical assistance and support in meeting its WTO commitments. It is one of the pilot countries under the Integrated Framework (IF) for Trade-Related Technical Assistance to Least-Developed Countries, jointly managed by six multilateral institutions, including the WTO.

Malawi is a member of the Common Market for Eastern and Southern Africa (COMESA), and the Southern African Development Community (SADC). It is a signatory to a bilateral trade agreement with Zimbabwe, and it is negotiating such agreements with Mozambique, Tanzania, and Zambia. Malawi receives non-reciprocal preferential treatment from the European Union under the Cotonou Agreement and the “Everything But Arms” scheme; from the United States under the African Growth and Opportunity Act; from other developed countries under the Generalized System of Preferences (GSP); and under a separate agreement with South Africa.

Malawi's cross membership of overlapping regional and bilateral arrangements with different trade liberalization agendas and trading rules makes its trade regime more complex. It may distort Malawi's trade and incentive patterns and entail undertaking inconsistent obligations.

The tariff is Malawi's main trade policy instrument. Its simple average MFN tariff was almost 14% in 2000/01, down from almost 16% in 1997/98 and 21% in 1996/97. Virtually all tariffs are ad valorem. The tariff structure is escalatory, with six bands; rates of zero or 5% apply to “necessities” and of 10% to intermediate goods. The maximum duty rate applied to consumer goods is currently 25%. With a coefficient of variation of about 0.7, tariffs were moderately dispersed in 2000/01. Lower, more uniform duties would improve the tariff structure and economic efficiency.

Widespread use of exemptions and rebates, including under several local-content schemes, is non-transparent, and provides tailor-made protection to certain industries by increasing tariff escalation and effective protection. Their discretionary use is extensive and their rationale, other than as a distorting protective measure is unclear. A duty drawback system operates, with refunds no longer based on ratios, but on materials used in exports. Refunds are said to incur long delays.

Since 1992, Malawi has been applying mandatory preshipment inspection on most imports, which is due to stop in March 2003. Import documentation has been simplified. Transaction value has applied, in principle, for customs valuation since 1990, but minimum prices exist, for example on used cars. Discriminatory internal taxes have been eliminated, and broadening the surtax and excise coverage has reduced government reliance on tariff revenue, thereby facilitating duty reductions.

In the context of the Uruguay Round, Malawi bound tariffs on all agricultural products at a ceiling rate of 125% (except for a few products with ceiling rates of 50%, 55%, and 65%), and on less than 1% of tariff lines for non-agricultural products, at ceiling rates ranging from 30% to 65%. Other duties and charges on these products are bound at a ceiling rate of 20%.

Malawi has removed most formal non-tariff barriers, including import quotas. Such restrictions apply for environmental, health, safety, and security reasons, some under international conventions. Standards, including mandatory technical regulations, are set by the Malawi Standards Board on the basis of regional and international norms such as ISO and Codex Alimentarius; they do not discriminate against imports. Although no formal mutual recognition agreements exist, overseas test results are usually unilaterally accepted by Malawi. Sanitary and phytosanitary requirements apply, but do not appear generally to impede imports, except for prohibitions on genetically modified food, and meats subject to growth hormones.

Malawi is preparing new anti-dumping legislation and introducing rules on countervailing and safeguard measures, with a view to meeting the provisions of the relevant WTO Agreements. Existing anti-dumping legislation has a “public interest” provision, but its application is unclear, since no anti-dumping action has been taken. Malawi intends to make greater use of trade remedy measures to encourage domestic production. However, there is a risk that the use of such measures may protect inefficient industries.

Government procurement is decentralized, but must be approved by the newly formed Contracting-Out Unit or, for large amounts, by the Office of the President and Cabinet. A Public Procurement Authority will administer new legislation, expected in 2002, to improve transparency and monitoring of public procurement. Open tender is to be the main method of procurement. Larger price preference margins are expected to apply to domestic suppliers: 20% for goods and 10% for works and construction, compared with currently 15% and 7.5%, respectively.

Malawi's export regime is relatively open. Since 1998, all export taxes have been removed and exports are not subject to quotas; export prohibitions reflect international conventions. Export surrender requirements were abolished in 1994, except on traditional products of tobacco, tea, and sugar. Export licences are maintained on a few products, to protect the environment and to ensure adequate domestic supplies, such as fuels and maize. Exports of unmanufactured tobacco and tea are also subject to licence.

Exports are assisted through various incentive schemes. Non-traditional exporters receive a deduction from income tax of 12% of gross receipts and of 25% of their international transport costs. From December 1995, those with EPZ status pay no income tax. This requires all production to be exported (although up to 20% may be allowed onto the domestic market in certain cases, provided all appropriate duties are paid on materials). While these policies reflect the Government's efforts to promote export-oriented firms, generous export incentives may discriminate against non-exporting firms and, even if successful in raising exports, entail large budgetary costs.

Certain, mainly agricultural, activities are assisted by tax concessions, and investment incentives apply. Several public enterprises have been privatized. However, problems of preparing highly indebted companies for divestment, and a lack of buyers, have slowed down the implementation of the privatization programme, suspended for review from July to October 2001. In consequence, state-owned companies still play an important role in the economy. The Government has introduced competition legislation to be administered by a Competition Commission, and it intends to amend Malawi's legislation on intellectual property to meet its multilateral obligations.

Malawi is heavily dependent on agriculture, especially tobacco. Agriculture accounted for 38% of GDP in 1999, and about 85% of employment. Following the Government's deregulatory policies, the main trade instrument affecting agriculture is the tariff; the average MFN rate on such products was 12.2% in 2000/01 (ISIC definition). Controls on the production and marketing by smallholders of traditional crops, including tobacco, have been removed. Licensed private intermediate buyers can now market tobacco, and the Government intends to de-monopolize the auction house used for tobacco exports. The Tobacco Control Commission regulates the tobacco industry, including production controls on estate growers.

The marketing (including export) monopoly of the state-owned Agricultural Development and Marketing Corporation (ADMARC) was eliminated in 1987. Price bands on maize also ceased in 2000 and the grain purchase practices of the National Food Reserve Agency were curtailed to meet only disaster requirements. Farm inputs, such as seeds and fertilizers, are supplied mainly by the private sector, although the government-run Targeted Input Programme provides them to the poorest farmers. Due to communal ownership, there is no land market in Malawi; this may constrain agricultural development.

Manufacturing accounted for about 14% of GDP in 1999. Most prices have been de-controlled, and industrial licensing removed, except for health, safety, and environmental reasons. The Government plans to introduce incentives that will target production of up to 20 selected products, especially textiles, clothing, and agri-processing activities. Firms will be assisted based on their export orientation, import substitution capacity, product quality, and financial performance. MFN tariffs on manufactured products averaged 13.7% in 2000/01(ISIC definition).

The share of services in Malawi's GDP fell from 57% in 1994 to 47% in 1999. The existence of many state-owned services enterprises reflects the delays in liberalizing this sector. However, efforts are under way to deregulate and privatize public utilities. The telecommunications market is being liberalized, and Malawi Telecom is slated for partial sale to foreign investors. The Communications Regulatory Authority is responsible for ensuring that new entrants gain competitive access to the public network.

More efficient infrastructure services should raise the competitiveness of downstream activities and encourage foreign direct investment (FDI). Greater transport liberalization, including allowing cabotage and third-country road carriers, would improve efficiency and lower the high transportation costs aggravated by Malawi's landlocked position. Private tourism development is a government priority.

Substantial progress has been made in liberalizing banking and insurance services, including improved regulatory supervision and divestment of the National Insurance Company in 2000 and the Commercial Bank in 2001. Under the GATS, Malawi made commitments in business services, construction, health and social services, tourism and travel-related services, and banking services. Measures affecting presence of natural persons are unbound.

Malawi participates in the multilateral trading system and also in various preferential arrangements to increase trade flows. Regional integration is seen by Malawi as a first step towards further participation in the multilateral trading system. However, Malawi's membership of overlapping preferential agreements with different geographical coverage, trade liberalization agendas, and trading rules and goals makes its trade regime more complex, inconsistent, and difficult to manage.

Extending the coverage of tariff bindings beyond agriculture and narrowing the gap between bound and applied rates would benefit Malawi and its trading partners by increasing the predictability of the tariff. Continued structural reforms, including further trade and investment liberalization, and the pursuit of the privatization programme could improve the economy's dynamics and growth prospects. Moreover, further tariff rationalization might reduce widespread exemptions and rebates, and pave the way for better resource allocation.

The Malawi economy remains relatively weak and vulnerable to external commodity price movements and other shocks, such as weather conditions. Current economic difficulties, including fiscal uncertainties, if not improved, may weaken the Government's resolve for further trade liberalization. Trading partners can contribute to the reforms by ensuring stable, increased access to their markets, especially in agricultural products, where Malawi's prospects appear strongest. Enhancing and complying with its WTO commitments may help sustain Malawi's unilateral reforms. Malawi seeks technical assistance to improve its understanding of the WTO Agreements so as to better meet its obligations. This would also help it to identify the opportunities offered by the multilateral trading system.

 
  
Government report Back to top

TRADE POLICY REVIEW BODY: MALAWI
Report by the Government — Part I

Malawi is a landlocked, highly indebted, least developed country situated in Central Africa, surrounded by Mozambique in the southeast, Tanzania in the northeast and Zambia in the west. Malawi comprises of an area of almost 118 500 square kilometres out of which about 24,420 square kilometres is covered by Lake Malawi. According to a 1998 population census, the country has an estimated population of about 10 million with about 75 per cent living in the rural areas. It has a GDP per capita of US$200 (1999). 65.3 per cent of the population lives below the poverty line and has severe health problems. The HIV/AIDS pandemic is arguably the biggest challenge to Malawi’s development plans.

The country became independent in 1964 from the British rule. For much of the 30 years, Malawi was under a one-party rule. In early nineties, multiparty democracy was introduced and the elections of 1994 ushered in the current government of the United Democratic Front (UDF).

In the first fifteen years after independence in 1964, Malawi’s Gross Domestic Product (GDP) grew at an average annual rate of nearly 6 per cent. But the fruits of this growth were poorly distributed, and growth itself was based on estate-owned agriculture and large public and private conglomerates protected by pervasive barriers to entry. Since then government has been working towards attaining similar growth rates and improved distribution of this growth.

Malawi’s economy remains very fragile with a narrow base, lacking in key social services and infrastructure. The size of its market and its landlockedness pose a particular challenge to meeting the needs of the private sector for high quality infrastructure at the lowest possible cost. It is an economy that is vulnerable to various shocks, making it challenging for the country to attain a sustainable economic growth.

Agriculture is the primary economic activity of the country and it contributes nearly 36 to 39 per cent to Gross Domestic Product and over 90 per cent of export earnings. It employs about 80 per cent of the labour force. This dependence on agricultural commodities also makes the country vulnerable to the frequent fluctuations in world commodity prices. The country’s staple crop is maize, while tobacco is, by far, Malawi’s largest export crop, followed by tea, sugar, coffee and cotton. Tobacco exports mainly go to the USA and the European Union. Its heavy dependence on tobacco and the growing anti-smoking lobby in the U.S., EU and elsewhere in the world pose an additional risk and uncertainty to the sustenance of the economy.

The economic performance of Malawi has remained quite unsatisfactory in the past five years. Relative stability and growth have been experienced but only to limited extent. The major reasons for this are numerous. They include high levels of inflation, fiscal imbalances, external shocks, depreciation of the Kwacha, high interest rates and poor tobacco prices offered at the auction floors.

In facing this challenge, Malawi has been undertaking a number of policy reforms: Among others, these include the ‘Cash budget system’ preventing Government Ministries from spending more than they were allocated in the national budget as one way of controlling expenditures to reduce budget deficit; the privatisation programme and establishing a sound institutional mechanism to manage the programme; introducing the Medium Term Expenditure Framework; and the preparation of the Poverty Reduction Strategy Paper (PRSP) to facilitate the attainment of the appropriate conditions for the poor to gain and improve their social welfare status; and trade liberalisation programme to encourage diversification of both imports and exports.

Malawi has, since the early 1980, implemented the IMF and World Bank-supported Structural Adjustment Programmes (SAPs). The major thrust of these programmes has been the liberalisation of the economy to create an enabling environment for both domestic and foreign investments. In recent budgets, for example, maximum tariffs have successively been reduced to the current level of 25 per cent. Duties on capital goods have been brought down to 0 per cent. However, this liberalisation process has failed to bring about a marked change in either the share of GDP or in the structure of Malawi’s trade.

Malawi’s economic development prospects will depend on its ability to adjust. In this regard, there will be need for increased support or assistance from the international community so as to meet adjustment costs, including providing unrestricted market access to products of export interest to Malawi. The country has, through a widely consultative process, developed a national Vision which provides that ‘by the year 2020, Malawi, as a God-fearing nation, will be secure, democratically mature, environmentally sustainable, self reliant with equal opportunities for and active participation by all, having social services, vibrant cultural and religious values and a technologically driven middle-income economy.’ The challenge is to consolidate the Vision and other policy initiatives into a development framework with clear strategies and priorities for short.