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IV. TRADE POLICIES BY SECTOR
(1) OVERVIEW
1. Malawi is principally an agrarian economy, heavily dependent on a few crops.  Agriculture is
by far the main source of employment and foreign exchange.  Tobacco is the predominant cash and
export commodity, while maize is the country's main staple.  About four fifths of agricultural
production comes from smallholder family-operated farms, which have benefited most from the
Government's production and marketing reforms.  Farm outputs and inputs have largely beenderegulated and government intervention substantially reduced. Insecure land tenure associated with
communal land ownership and the lack of a well f unctioning agricultural land market disadvantages
farming and reduces productivity and investment.  Government policy is to promote food security
through, inter alia, accumulation of grain reserves, especially maize, by the National Food Reserve
Agency. Access to credit also constrains farming.  The main trade policy instrument affectingagriculture is the tariff;  the average MFN rate on such products in 2000-01 was 12.2%.
2. Government measures have, with little success, aimed to encourage manufacturing, including
certain food processing activities.  Government policy is aimed at substantially expanding the relative
contribution of the manufacturing sector to the economy.  The tariff has been the main policy tool;
MFN rates averaged 13.7% in 2000-01.  The escalatory tariff structure, with tariffs of up to 25% onconsumer goods and certain foodstuffs, encourages local processing by providing relatively high
effective protection.  Such products include clot hing, footwear, and tobacco.  Widespread tariff
concessions on imported inputs may also make the tari ff structure more escalatory in practice, thereby
providing additional production incentives.  Because of the relatively small domestic market, the
Government is attempting to increase the export orientation of the sector.  It has introduced export-processing zones to provide generous tax and other incentives to encourage exports.  However, such
assistance, even if successful in raising exports, may undermine Malawi's resource-use efficiency and
entail large budgetary costs.  The performance of the manufacturing sector has been disappointing.
3. Services have an important bearing on the economy's performance.  The Government is
taking steps to improve efficiency by liberalizing key services and encouraging greater private-sectorparticipation.  Reform of financial services has been a government priority.  A major bank and an
insurance company have been privatized and prudential regulation of the financial subsector is being
strengthened.  Telecommunications is being deregulated, and Malawi Telecom is to be partially sold
to a foreign investor.  Other utilities are also to be  deregulated, such as electricity and water.  Further
liberalization of the transport subsector, including allowing cabotage, would improve efficiency and
help overcome the added costs of Malawi's landlocked position.  Malawi made minimal commitments
under the GATS, and did not participate in the extended WTO negotiations on financial services orbasic telecommunications.
(2) A
GRICULTURAL AND RELATED ACTIVITIES
(i) Main features
4. Malawi's agriculture sector employs more than 85% of the labour force, contributes some
38% to GDP and provides most exports, accounting for 81% of the total in 1999 (Table IV.1).Tobacco remains the predominant export crop, accounting for 61% of total exports in 1999, down
slightly from 67% in 1994.  Other major exports include tea, sugar, coffee, cotton, and pulses.  Non-
traditional exports have also grown, albeit intermittently, and government policy is aimed at
diversifying Malawi's export base.  Malawi also produces, mainly for domestic consumption, cereals,Malawi WT/TPR/S/96
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especially maize (the staple food), sorghum and rice, groundnuts, cassava and sweet potatoes.
Malawi's livestock comprises mainly subsistence grazing of sheep, cattle, goats, poultry, and pigs.
Table IV.1
Contribution of agriculture to Malawi’s exports, 1993-99(US$ million and per cent)
Exports 1993 1994 1995 1996 1997 1998 1999
Agriculture 275.5 273.8 342.9 399.6 450.6 444.4 360.3
Other (including re-exports) 41.7 53.0 61.3 83.8 88.8 94.2 86.8
Total 317.2 326.8 404.2 483.4 539.4 538.6 447.1
S h a r e  o f  t o t a l  e x p o r t s 8 78 48 58 38 48 3 8 1
Source: IMF (2001), "Selected Issues and Statistical Appendix", p. 69.  Available at:  http://www.imf.org/external/pubs/ft/ 
scr/2001/cr0132.pdf.
5. About 80% of agricultural production in 1999 came from smallholder family-operated farms,
producing both subsistence and cash crops mainly on customary land holdings of less than 1 hectare.1
This segment grew substantially during the 1990s, especially burley tobacco growing, and has been
the major beneficiary of the Government's marketing and other structural reforms.  Smallholder
production comprises mainly food crops for local consumption, such as maize, groundnuts, and
cassava, and cash crops for export, especially cotton and tobacco.  Traditional large leasehold estates,
producing mainly tobacco, tea, coffee, and sugarcane, have performed poorly, but still occupy asubstantial share of Malawi's fertile farmland.  Only about one third of estate land is under cultivation.
Agricultural output is heavily dependant on climatic conditions;  droughts and floods occur
commonly.  Production is also negatively affected by pests, disease, and fluctuations in world prices.
Livestock production is relatively minor, accountin g for about 12% of agricultural production.
6. Insecure land tenure associated with communal land ownership is likely to disadvantage
farming and reduce its productivity.  Most (75%) of land in Malawi is customary land, which is
owned communally and belongs to the people of Malawi.  It is vested in the President, and individualshave only user rights, which are administered by uncodified customary laws that vary across regions.
Such land is perceived as having no commercial value and cannot be sold; all transactions are
informal.  The resulting absence of a well functioning land market with secure title may be a major
cause of inefficient land fragmentation and of inadequate investment to improve farm land.  It may
also be a major factor behind the shortage of rural credit, as farmers are unable to provide their land asloan collateral.
2  Malawi also has public land acquired by the Government (about 20% of total land
area), and private land, consisting of freehold and leasehold title, which constitutes about 5% of the
total and can be sold freely, subject to government notice.3  Land disputes are handed in the normal
court system.
7. The Government is committed to ensuring equitable access to, and security of, land
ownership, and is formulating a National Land Policy aimed at land reform.  It has been attempting to
reform land ownership policies, including land registration.  Malawi has two systems of land
registration;  deeds registration, where deeds provide evidence of title, and title registration, whereby
the ownership of land is registered and is guaranteed by the Government.  The latter system applies
                                                          
1 About three quarters of Malawians are subsistence farmers.
2 The lack of a land market also introduces other ri gidities into the economy, which are likely to impair
economic performance, such as labour immobility, since people are reluctant to leave their customary land.
3 For instance, sale of freehold land must be first notified to the Government to enable it to exercise its
option to purchase the land.  The principle of "eminent  domain" also enables the Government to compulsorily
acquire private land in the public interest.WT/TPR/S/96 Trade Policy Review
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mainly in urban centres but is being used increasingly throughout the country.  The Minister
Responsible for Land Matters controls public land, but may also grant dispositions over customary
land for development purposes.  Such dispositions are normally on a leasehold arrangement.  The
proposed developer initiates this process by applying to the Minister.
(ii) Policy developments
8. Agricultural development, including crop dive rsification, food self-sufficiency and increased
exports, is an important component of the Go vernment's Vision 2020 and Poverty Reduction and
Growth Strategy (Chapter II(4)).  The Government places a high priority on agriculture as a means of
alleviating poverty and providing economic growth, and aims to accelerate broad-based agricultural
and rural development to raise farm incomes.  The Government's Agricultural and Livestock
Development Strategy and Action Plan of 1995 was reviewed by the Ministry of Agriculture and
Irrigation through the Agriculture Se ctor Investment Programme in 1999,  a ten-year rolling
investment plan.  The review, which largely expanded on the earlier objectives and policies of the
Action Plan, also identified a number of key new prior ity areas.  It also examined the respective roles
of both the private and public sectors, and made a number of important recommendations, including
to:
- develop an agricultural finance policy to guide investment and mobilize resources in
farming, especially to establish an agricultural bank;
- formulate an agricultural marketing policy covering crops, livestock, irrigation, farm
power, and machinery, including government incentives for private-sector
involvement;
- promote an efficient and equitable land-tenure and husbandry policy, including
implementing long-term national soil-fertility improvement and efficient land
utilization programmes based on market incentives;
- strengthen inter-sectoral links, including restructuring of the agricultural ministry;
and
- tackle land-resource and conservation problems (Table IV.2) as well as implementing
policies on irrigation and in other sector-wide areas (Table AIV.1).
9. The review also identified a number of specific problems in the livestock sector.  These were
low stock numbers and productivity of livestock species and shortage of improved breeds;
widespread disease and parasites;  stock theft;  closed, non-functional or non-existent livestock
markets; expensive and poor availability of manufactured feeds;  and poor livestock husbandry and
feeding practices.  High costs of livestock feeds, inflated by tariffs on imports, have disadvantaged the
livestock industry and threatened the collapse of the poultry, pig, and dairy industries.  The reviewrecommended that these import regulations be changed, and also identified a number of other key
government policies (Table IV.3).  The recommendations have been fully endorsed by the
Government and are being implemented by the Mi nistry of Agriculture and Irrigation with donor
assistance.Malawi WT/TPR/S/96
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Table IV.2
Priority land resource problems, 2001
Problem/issue Policy/objective Legislation Strategy
Declining land
productivityImprove and sustain land
productivity throughpromotion of better land
husbandry practices by
all farmersEnact Agricultural Land Use
and Management Act:Formulate long-term national soil fertility initiative
programme based on better land husbandryconcept;  integrate conservation in all agricultural
programmes and projects;  promote community-
based conservation activities of planting materialsfor conservation;  control subdivision of
landholdings;  support policies in land resource
management
Lack of
comprehensive
policy andlegislation on land
usePromulgate regulations
under the existing
Environmental ManagementAct 1996Monitor land use in estates and ensure compliance
with lease covenants;  rehabilitate degraded areas;
annual appraisal of land use and managementreport to Parliament;  provide appropriate
guidelines on use and management of different
kinds of environmentally fragile areas;  control lossof prime agriculture land to infrastructure
developments like buildings;  control use of fragile
areas like steep slopes, river banks and wetlands
Inadequate landresources
information for
planning anddeveloping area
specific
conservation
technologiesImprove the acquisition
and utilization of land
resources information for
proper planning andmanagement of
agricultural programmeNo need for legislation Establish and maintain land resources information
centre using geological information system;
acquire and provide high quality data that is
compatible with national and internationalstandards;  contract out aerial surveys and resource
surveys for big areas to the private sector;
disseminate land resource information to land users
Source: Ministry of Agriculture and Irrigation (undated), "Review of Malawi Agricultural Policie s and Strategies (Draft)", 
p. 57.
10. The Government's agricultural policies are based on greater private-sector development.
Restrictions in the growing and marketing of crops, such as tobacco, have been substantially relaxed
under its market liberalization policy.  The monopoly of the Agricultural Development and Marketing
Corporation (ADMARC), which previously intervened  by purchasing mainly from smallholders, and
distributing maize and other crops, including for export, was eliminated in 1987.  It is being further
commercialized, although the Government’s commitmen t to achieving its full privatization by the end
of 2002 is being hampered by difficulties in finding private traders to take over its non-profitable
marketing operations in remote regions.  Future policy on the privatization of the ADMARC will
depend on the results of a current impact study of its effects.4  Moreover, the National Food Reserve
Agency (NFRA), established in 1999, which effectively operated as a state marketing board by
purchasing maize within set price bands well in excess of disaster requirements, has ceased such
purchases.  The price bands on maize were also terminated in 2000 and replaced by indicative prices.
Another important reform was the repeal of the Special Crops Act in 1995, which removed
restrictions preventing smallholder farmers from producing and marketing high-value crops, such astobacco, coffee, tea, and sugar cane, which were reserved for the estate sector.  Exchange rate
reforms, which allowed the currency to depreciate, also reduced the implicit tax imposed on
agricultural exports.
11. Supply of all inputs has been de-controlled and subsidies mostly removed, aimed at
encouraging private-sector involvement.  However, removal of fertilizer subsidies has reduced its useby farmers, and access to quality seeds is also constraining production.  The Starter Pack Initiative
                                                          
4 As well as performing its traditional marketing functions, now as a non-monopolist, ADMARC has a
range of equity interests in various commercial ventures.  For example, it has a stake in the country's only textileweaving factory, David Whitehead and Sons, and owns the cereal milling company, Grain and CompanyMilling Limited.WT/TPR/S/96 Trade Policy Review
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was launched in 1998 to provide farm extension support and free fertilizer and seeds to the rural poor,
primarily to help alleviate poverty.  Initially supplied to all farmers, this contributed to the bumper
maize harvests in 1998 and 1999, which generated large surpluses bought and stored by the NFRA.
The Starter Pack Programme has been transformed into a Targeted Input Programme aimed at
assisting only the poorest households, estimated at 1 to 1.5 million.  Farm inputs were also distributed
to 140,000 farm households.
Table IV.3
Livestock policies, 2001
Problem/issue Policy/objective Legislation Strategy
Low livestock
populations and
productivity,farmers’ lack of
access to
improved breedsIncrease numbers and
productivity (quality) of
the national herds andflocks by utilizing adapted
breeds, including imported
ones, depending uponfarmer management level,
production system or agro-
ecological zone, whileavoiding indiscriminate
breeding with exotic herdsMeat and Meat
Products Act;  Milk
and Milk ProductsAct;  Control of
Diseases of Animals
Act to deal withimported breeding
stock;  and legislation
to preventindiscriminate
breeding with exoticbreedsRehabilitate the bull centre and the nitrogen plant at
Mikolongwe to guarantee adequate supplies of semen
beyond current milkshed boundaries on cost-recovery basisEstablish private breeders, ranches and feedlots, AI
services and 'send-an-animal' schemes and hatcheries,
supported by favourable credit to encourage investment inselection and cross breeding
Promote imports of semen and suitable breeds by private
stud breeders for saleEnforce rules and regulations controlling indiscriminate
breeding and livestock theft
Diseases andparasitesControl major animal
diseases and meet
international obligations;improve animal health by
involving private sector
and farmers in delivering
animal healthControl of Diseases of
Animals Act 1967;
The Pharmacy,Medicines and Poisons
Act; Veterinary
Private PracticeRegulations; and
Fertilizers, Farm Feeds
and Remedies Act
1973Establish comprehensive disease surveillance
Strengthen livestock products inspection, tuberculosis
testing, animal movement and rabies controlsSupport cost-effective basic or primary animal health care
with private sector
Provide effective and comprehensive management and
nutrition packages
Stock theft Provide secure
environment for livestock
investment and
developmentLegislation needed Form farmers’ groups, community security
Enforce rules and regulations over livestock slaughter,movements, and marketing
Closed or no
marketsPromote and develop
markets and regulatemarkets on slaughter of
breeding stock, diseases,
theft, and monopolistic
cartel of buyersLegislation needed Assist farmers’ organizations to own and rehabilitate cattle
markets and rural abattoirs, mini-dairies, storage areas, andegg grading
Regulate and monitor marketing activities on stock
slaughter, theft, diseases, and inspections
High costs of
manufactured
feedPromote development of
local feed-manufacturing
industry by providing taxincentives on essential
inputsShould be separate
Livestock Feeds Act in
place of the Fertilizer,Farm Feeds and
Remedies ActProvide support, such as favourable credit, to increase
production of cereals and oilseeds of estates and
commercialized smallholdersReview tax rules and regulations on importation of raw
feed materials such as vitamin and feed mineral premixes
to encourage investment in feed formulation, processingand marketing
Establish independent body to monitor and enforce
regulations on feed standards
Promote research on non-traditional feeds
Source: Review of Malawi Agricultural Policie s and Strategies (Draft), Ministry of Agriculture and Irrigation, pp. 38-39.
12. Crop diversification is to be promoted by th e private sector based on commercial decisions.
Food security is to be handled nationally by the NF RA ensuring adequate reserves of grain and other
supplies to meet disasters.  These interventions are to be targeted to the poor so as not to stifle private-
sector participation.  The Government is to promote policies to ensure that farmers have sufficientsupplies of essential inputs, such as fertilizer, seeds, pesticides, and adequate technology (Table IV.4).
It is reviewing its input policies to ensure that seeds, fertilizers, and pesticides are available atMalawi WT/TPR/S/96
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affordable prices.  The Government is implemen ting the seed multiplication programme through the
National Smallholder Seed Producers Association, with  donor assistance, aimed at ensuring farmers
have access to improved seed varieties.
Table IV.4
Agricultural policies and strategies, 2001
Problem Policy Legislation Strategy
Lack of
fertilizerDevelop a comprehensive
fertilizer policy to improve
accessibility and utilizationReview Fertilizer, Farm
Feeds and Remedies ActProvide fertilizer coupons for public works;
develop crop and area specific recommendations for
fertilizer use;  improve management practices;promote affordable low-cost soil fertility enhancing
technologies (agri-forestry, manure)
Lack of seed Review existing policy and
incorporate sustainability
mechanisms in order to
enhance seed availability of
all cropsReview Seed Act Develop and promote sustainable small-scale and
large-scale private seed enterprises;  facilitate
provision of start-up capital and technical skills to
prospective seed entrepreneurs;  provide efficientcertification and regulatory services on a cost
recovery basis;  establish breeder and foundation
seed production programmes
Lack of
pesticidesDevelop a comprehensive
plant protection policy to
control diseases and pestsPlant Protection Act;
Pesticide legislation (draft to
be enacted)Develop integrated pest management control
programme;   train farmers in pest management
control;  institute disease surveillance programme;
provide pesticide coupons for public works
Endemic
povertyFormulate a sustainable
intervention policy to
resource poor and
disadvantaged communitiesTarget interventions;  design participatory
approaches in problem identification and solutions;
conduct ex-ante market analysis
Low technology Develop a policy that will
promote technology
development and utilizationSeed Act;  Fertilizer, Farm
Feeds and Remedies ActPromote use of participatory methodologies in
technology development and transfer
Source: Ministry of Agriculture and Irrigation, "Review of Malawi  Agricultural Policies and St rategies (Draft)", p. 25.
13. The main trade policy instrument for the agricult ure sector is the tariff.  The average rate for
agriculture, hunting, forestry and fishing (Major Division 1 of ISIC Rev.2 classification) was 12.2% at
end 2000/01, and ranged from zero to 25% (Table AIV.2).  Malawi does not maintain any export
subsidy programmes for the agriculture sector.
(iii) Policy by key product category
(a) Tobacco
14. Tobacco remains the dominant traditional cash crop.  About three quarters of output is burley
leaf.  Tobacco output has remained fairly consistent in recent years at about 140,000 tonnes annually.
Traditionally, most tobacco was grown on estates.  However, following the marketing and production
liberalization policies started in 1995, smallholder (farmers with up to two hectares) output has grown
substantially, from 69,000 tonnes in 1996 to around 90,000 tonnes in recent years.  However, this hasbeen offset largely by declining output from the estates. In 2000, the value of tobacco exported from
Malawi was US$246.8 million, down from US$260.5 million in 1999.
15. The tobacco industry is regulated by the Tobacco Control Commission (TCC), which
registers and licences all tobacco growers, sellers, commercial graders, and buyers, and issues import
and export licences.  Imports of raw tobacco are banned except for tobacco intended for processing
from SADC members.WT/TPR/S/96 Trade Policy Review
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16. Bans on smallholder farmers growing burley tobacco were lifted in1995. Export marketing of
tobacco has also been substantially liberalized and ADMARC is no longer the sole marketing agent of
smallholder tobacco.  Licensed intermediate buyers can now purchase tobacco from growers and sell
at auction.  Buyers are allocated a marketing quota, and purchase tobacco from growers to grade, bale
and deliver to the auction.  This has provided grea ter competition and flexibil ity to growers, enabled
them to sell throughout the growing season, and he lped compensate for the scarcity of credit.
Growers, through smallholder clubs of up to ten members, may also be licensed to sell directly to theauction up to 300 kg. of tobacco leaf annually.  Production by estate growers is restricted by the
requirement that only 25% of their land can be used to grow tobacco.  Licensed annual production
limits of from 1,500 to 2,500 kg. are estimated by the TCC based on annual tobacco yields.
According to authorities, these restrictions are aimed at encouraging crop diversification and
preventing deforestation.
17. All exported tobacco (except oriental), must be sold through the single auction house.  The
auction floor, which was previously owned by ADMARC, has been privatized.  There are five major
brokers.  They pay storage costs on any tobacco st ock carried over at the auction.  The Government's
position is to remove the single auction house monopoly, but this has not yet been implemented, due
partly to opposition from the brokers.  Improving tobacco quality and reducing the monopolistictendencies of the auction floor would offer farmers better competitive prices.
5
18. The industry has suffered in recent years from declines in international prices.  For example,
in 2000 average prices received at auction fell by 25% for burley tobacco.  Consequently, tobacco
export receipts have fallen substantially, after peaking at US$352 million in 1997.  However, factors
other than weak world demand have contributed to reduced prices.  The average quality of Malawiantobacco leaf has declined, and theft of leaf has increased.  The Government is concerned that this is
the result of weak regulation of intermediate buyers, and intends to revise the current licensing
arrangements for buyers without aversely affecting the marketing opportunities for smallholders.
Buyers must now be trained in tobacco selling and can only operate within one region, but no limits
apply on the number of buyers per region.  The Intermediate Buying Scheme (IBS) was also recentlyreplaced by the Designated Tobacco Buying Scheme, whereby licensed buyers must be recognized by
the tobacco growers.  The Government does not wa nt such changes to  undermine the benefits to
smallholders of liberalization and greater competition among buyers.
19. Customs tariffs on imports of tobacco and tobacco products average 22.5%;  imports of
tobacco products are dutiable at a tariff of 25%.
(b) Cereals
20. Smallholders grow most maize, although estate  maize is also significant.  About three
quarters of smallholdings are planted to maize.  As the main staple, maize has become the chief
subsistence crop of smallholders.  In 1999, surplus maize was purchased by the NFRA at government-
set price bands, aimed at supporting prices to growers.  Large debts were incurred to finance these
operations, and most maize remained in storage.  The Government has agreed to again meet the debt
servicing costs of the Agency in 2000-01, amounting to MK 356 million.
6  However, the Government
removed these price bands in 2000 and abandoned such intervention purchases by the Agency, which
                                                          
5National Economic Council (2001), p. 2.  It has been alleged that the tobacco buyers, who are mainly
subsidiaries of major international companies, practice collusive bidding (Ministry of Commerce and Industry,2000, p. 8).
6 The total debt amounted to MK 992 million.Malawi WT/TPR/S/96
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can no longer borrow funds for maize purchases.7  The NFRA reduced its strategic grain reserve of
maize to a maximum of 60,000 tonnes during 2000/01, down from 167,000 tonnes, and has had to
import maize from South Africa and elsewhere in 2001 due to the poor 2000/01 growing season.
Public borrowings by the NFRA, as well as ADMA RC, have placed a heavy burden on the budget and
contributed to fiscal non-discipline.  The Government has decided to reform its national food-security
policies, and will revamp their roles during 2001.
21. The Agricultural Productivity Investment Programme, with donor assistance, provides hybrid
maize seeds and fertilizer through credit guarantees, to enable private traders to buy fertilizers and
seeds for sale to farmers.
22. Other cereals grown in Malawi include mainly rice, sorghum, and millet.  Paddy rice
production, however, declined from 92,000 tonnes in 1999 to 72,000 tonnes in 2000, mainly due to
inadequate rain.  Most rice is exported to South Africa and Zimbabwe.  The Government is attemptingto encourage farmers to replace maize with sorghum and millet in marginal areas.
23. Marketing of cereals is reserved for Malawian nationals.  Imports of cereals are subject to
customs tariffs averaging 5% and ranging from zero to 10%.
(c) Sugar and cotton
24. Sugar cane production comprises the Dwangwa Sugar Estate under the Dwangwa Sugar
Corporation, the Smallholder Sugar Authority (SSA), and the Sugar Corporation of Malawi
(SUCOMA).  The Authority was privatized, along wi th the operations of the Dwangwa Cane Growers
Company from October 1999.  Its special marketing and licensing powers were revoked in February
2000.  Illovo Sugar (MW) Ltd, which is owned by ADMARC and several foreign interests, is a
vertically integrated monopoly, which grows, refines and distributes sugar.
8  Malawi exports mostly
raw sugar, mainly under quota to preferential markets, such as the EU, United States and South Africa
(Chapter II(5)(iii)).  Only about one-quarter of Malawi's sugar exports are sold on the open market, at
much lower prices.9  Total production in 2000 was 209,000 tonnes, compared with 200,000 tonnes in
1999 and 224,000 tonnes in 1995.  Almost three quar ters of production is consumed domestically.
25. Cotton production has declined substantially, from 83,000 tonnes in 1996, to 37,000 tonnes in
2000.  The decline in production is due to low prices for smallholder growers and poor access to
inputs, especially pesticides.10  It has been alleged that the two cotton merchants purchasing raw
cotton collude in determining the prices paid.11
26. The simple average tariff rate on imports of sugar is 23%;  the rates range from 10% to 25%.
Tariffs on imports of cotton average around 17%, with rates ranging from 5% to 25%.
                                                          
7 Most stocks were disposed of on the domestic market on credit, including to parastatals, such as
ADMARC, which reportedly owes the Agency some MK 300 million.
8 Illovo Sugar also operates a restrictive private licensing system for the wholesale distribution of
sugar. See Ministry of Commerce and Industry (2000), p. 11.
9 The average price of sugar exported under special arrangements in 2000 was approximately
US$567 per tonne compared with US$307 per tonne for regional sales on the open market.  National EconomicCouncil 2001, p. 11.
10 National Economic Council, (2001), p. 11.
11 Ministry of Commerce and Industry (2000), p. 8.WT/TPR/S/96 Trade Policy Review
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(d) Tea, coffee, and other products
27. Tea is grown primarily on estates, although smallholders under the Smallholder Tea Authority
grow some 15% of output.  The Authority was provided marketing and production controls over
smallholder tea under the Special Crops Act.  These powers were revoked in 1995.  A tax (paid by
growers) is levied on all tea produced and sold in Malawi.  Tea is increasingly sold through auction at
Blantyre/Limbe.  The Malawi Tea Authority has been privatized as a farmers’ cooperative, partly to
offset concerns that the small number of traders and processors in the Malawian tea market may havebeen setting their purchase prices by colluding.
12  In 2000, Malawi exported 43,000 tonnes of tea,
mainly to the United Kingdom, South Africa, and Kenya.
28. Coffee production amounts to about 4,000 tonnes, mainly arabica, grown by smallholders
organized by the Smallholder Coffee Authority.  Groundnuts have been traditionally an important
crop;  production was 126,000 tonnes in 2000 compared with 40,000 tonnes in 1996.  The ban onexports of groundnuts was repealed in the early 1990s.  Deregulating the prices of groundnuts has
improved prices and encouraged farmers to increase production. Cashews and macadamia nuts are
also grown on estates.
29. Malawi also produces spices, especially chillies, cardamom, turmeric, vanilla, and ginger.  A
wide range of fruits, such as mangoes, citrus, and avocado, are also suited to Malawi's climate.Guavas and papaya are grown widely throughout the country.  Following the closure of the
ADMARC Canning Factory in Mulanje Malawi has no fruit canning plant, which has discouraged the
production of some fruits, especially pineapples.
30. Imports of coffee, tea, maté, and spices are subject to average customs tariffs of almost 23%;
the rates on these products range from 10% to 25%.  Customs tariffs average 22% on edible fruit andnuts, and on peel of citrus fruit or melons, with rates ranging from 10% to 25%.
31. Chillies and paprika show substantial potential, aided by relatively high prices in the main
export markets of Europe and South Africa.  Cut fl owers are also produced for export, mainly to the
Netherlands, Germany, and South Africa.
(e) Livestock farming
32. Livestock grazing contributes about one fifth of Malawi's total value of agricultural
production.  It produces about 45,000 tonnes of red meat annually, 12,000 tonnes of chicken meat,
and 20,000 tonnes of milk.  Malawi produces about 20,000 tonnes of beef, about half of its
requirements.  Most marketed production is from a small number of large-scale commercial
enterprises located near major urban centres producing mainly poultry meat, eggs, and pork.  The
Government's National Livestock Development Master Plan runs until 2010, but includes a five-year
planning horizon until 2005.  A key objective of the Plan is to integrate livestock production moreclosely with rain-fed and irrigated crop production both on smallholder farms and on estates.  A
livestock monitoring programme has also been introduced.  Meat inspection services are being
strengthened, and the number of small private abattoirs has increased.
33. The poultry industry has suffered severe contraction due, according to the authorities, to
cheaper imports from South Africa and Zimbabwe, aggravated by the Malawi/Zimbabwe TradeAgreement.  Malawi also recently imposed restrictions on imported livestock commodities, especially
table eggs and chicken meat, under the SADC Trade Protocol provisions on "infant industries" to
protect its livestock industry.  The development of an efficient feed industry that will reduce feed
                                                          
12 Ministry of Commerce and Industry (2000), p. 8.Malawi WT/TPR/S/96
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costs is important for the development of the livestock sector, including pigs and poultry.  Imports of
essential raw materials for poultry feed manufacture attract relatively high tariffs.
34. The dairy industry is relatively small;  about half of production comes from smallholder
farms, which are organized into Milk Buying Groups.  Malawi imports about 90% of its dairy
products.
35. Malawi exports raw hides and skins to neighbouring countries, such as Tanzania.  Malawi's
only leather tanning facility, Liwonde Tannery, is to be revamped in an effort to promote leatherprocessing.
36. An average customs tariff of some 9% applies on imports of live animals (rates range from
zero to 10%);  some 11% on meat and edible meat offal (rates range from 10% to 25%, with the latter
also applying to preparations of these products);  and 17% (with rates ranging from zero to 25%) on
imports of animal products such as dairy products, eggs, and natural honey.
(f) Fisheries
37. Fisheries are managed under the Fisheries Conservation and Management Act of 1997,
administered by the Department of Fisheries and the Fisheries Advisory Board.  Malawi's fishing
resources include mainly its territorial waters of Lake Malawi.  A Fisheries Fund exists to supplement
government funding of conservation and management of fishery resources.  Fisheries management isbased on participatory management involving join t institutions of the local community and the
Government.  Malawi has also established several fish-farming trials, such as at Domasi in the Zomba
district.
38. Commercial fishing operators must be licensed.  The Department of Fisheries may authorize
fishing generally or with limited rights, such as the area to be fished;  the time periods or frequency ofvoyages;  or fishing method.  Any licence may contain conditions on how the catch can be used;  the
landing of caught fish;  and where transshipment of fish is allowed, including times, frequency, and
quantities, as well as any conditions on the export of fish considered in the "economic benefit" of
Malawi.  Any such decision can be appealed to the Minister within 30 days, and subsequently to the
High Court.  These measures are designed to ensure sustainable management of fish resources.
39. The Government controls imports and exports of live fish.  Imports of fish and aquatic
invertebrates are subject to a standard customs tariff of 10%, while the tariff on imports of
preparations of these products is 25%.
(g) Forestry
40. About 28% of the country's land area is covered by forests, which supply by far the major
source of energy (95%) through fuel wood.  State softwood plantations are being managed for pine
timber and poles.  Current annual production is about 53,000 cubic metres, but illegal felling is amajor problem.  Malawi introduced new forestry legislation in 1997 (Forestry Act).  It is administered
by the Department of Forestry in the Ministry of Natural Resources and Environmental Affairs,
assisted by the Forest Management Board.  The Board advises the Minister on all matters relating to
forest management, including the import, export, and re-export of tree species.  Licences are required
to commercial timber processing, including tobacco curing, brick and tile making, wood carving, limemaking, bamboo and chair making, as well as wood-processing industries, such as sawmilling, veneer
and plywood manufacture.WT/TPR/S/96 Trade Policy Review
Page 76
41. The Department of Forestry issues import and export licences to commercial traders.  Export
licences are valid for one year.  The exporter must also obtain a permit from the Department for each
consignment.  These are imposed to prevent excessive deforestation.  Transfer certificates are also
needed to transfer forestry products from one area in Malawi to another.
42. A Forest Development and Management Fund has been established to fund forest
conservation and management.  The Department of Forestry received revenues totalling
MK 10 million in 1998, up from MK 6 million in 1997.  These comprised royalties, stumpage fees,and log sales to wood industries.  The Department revises log prices annually according to a cost
recovery basis, subject to approval by the Minister of Natural Resources and Environmental Affairs.
They were revised in May 1999 and November  2000.  The Department is also promoting
commercialization of forests through the provision of concessions and co-management agreements
with licensed operators.  Concessions are granted to private operators to use an area, subject to:payment of a flat-rate royalty of US$2 per cubic metre;  the issue of export permits;  and certain
reforestation commitments.  For example, Raiply, a Kenyan company that started operations (making
sawn timber and panel boards) in Malawi by purchasing assets from the privatization of Viply, has
negotiated a 30-year renewable logging concession for 20,000 hectares of the Chikangawa Forest
Plantation.
43. Phytosanitary measures imposed by Malawi are administered by the Forestry Research
Institute of Malawi, under the Department of Forestry.  The measures include quarantine regulations,
import and export restrictions, treatment of materials, and phytosanitary certificates.  These measures,
such as requirements on the importation of small seedlings, are implemented solely to prevent entry of
pests and disease into Malawi or from spreading overseas.  Imports of forestry materials, includinghoney, require a permit from the Forestry Research Institute.  A phytosanitary certificate is also
needed from the exporting country.  The Institute issues phytosanitary certificates confirming disease-
free status of exported timber materials from Malawi.
44. Imports of logging products are subject to a standard customs tariff of 10%;  tariffs on
imports of articles of wood range up to 25%.
(3) M
INING AND ENERGY
(i) Mining
45. Malawi does not have a well-developed mining sector, but has substantial deposits of mineral
sands, bauxite, phosphate, uranium and rare earth elements (Table IV.5).  Three mineral sand deposits
have been explored:  the Tengani, Mpyupyu/Kachul u, and Chipoka deposits.  An overseas company is
also examining the feasibility of mining the Kayelekera uranium deposit.  The country's sole coal
supplier, the Mchenga mine, produced 55,000 tonnes in 2000, up from 44,000 tonnes in 1999;  it wasfully privatized in 1995.  About half of production is exported to Tanzania, while Malawi imports coal
from Mozambique, mainly in the southern border regions where transportation costs are lower for
imported coal.
13  Exports of minerals in 2000, mainly consisting of coal, gemstones, and cement,
amounted to MK 22 million.  However, official export values for mineral products, especially
gemstones, are likely to be understated due largely to smuggling aimed at avoiding royalty payments.The Government's target is to increase the mining sector’s contribution to GDP from 1% to 3% within
three years.
                                                          
13 Through the Agricultural Research and Extension Trust Fund, the Government promotes the use of
coal instead of firewood for curing tobacco.Malawi WT/TPR/S/96
Page 77
Table IV.5
Mineral reserves, 2000(Million tonnes)
Mineral Location Reserves
Bauxite Mulanje Mountain 28.8
Vermiculite Feremu, Mwanza District 2.2
Rare earths Kangankude, Balaka, Nthache, Phalombe, Songwe, Chitipa 13.0
Strontianite Kangankude, Balaka 11.0
Phosphates Tundulu, Phalombe, Chingale, balaka 10.8
Graphite Katengeza, Dowa 2.7
Limestone Bwanje, Ntcheu 14.9
Chenkumbi, Balaka 10.0
Chamama/Livwezi, Kasungu 30.0
Kaolinitic clays Linthipe, Dedza 15.0
Senzani, Ntcheu 0.5
Glass or silica sand Mchinji 1.6
Lakes Chiuta/Chirwa 25.0
Titanium minerals Tengani, Nsanje 100.0
Uranium Ilomba & Kayerekera, Chitipa 0.06
Coal Lengwe, Mwabvi, Ngana, Livingstonia 20.0
Source: National Economic Council, Economic Report 2000,  p. 45.
46. Mining is governed by the Mines and Minerals Act of 1981, and is administered by the
Commissioner of Mines and Minerals (Ministry of Natural Resources and Environmental Affairs).
Government policy is to encourage exploration and development aimed at maximizing the economic
benefit to Malawi.  Mineral right ownership and control are vested in the State (Table IV.6).
Exploration is covered by reconnaissance licences issued for one year for an agreed programme
covering a maximum area of 100,000 square kilometres.  No sub-surface activities are permitted
unless specifically authorized.  Exclusive prospecting licences provide exclusive rights to conduct a
prospecting programme for specified minerals over a certain area.  The applicant must submit adetailed exploration programme, including expected expenditures, and must include a proposal for
training and employment of Malawians.  The licence is valid for up to three years, and can be
renewed twice for a maximum of two years each.  The area of exploration is limited initially to
2,500 square kilometres, and this is reduced by 50% at each renewal.  Holders of these licences are
automatically entitled to a mining licence should they be successful.
47. Applications for a mining licence require a detailed feasibility study, a programme of mining
operations, and an environmental impact study.  The operations must include proposals to employ and
train Malawians.  Non-holders of an exclusive prospecting licence may apply for a mining licence for
a maximum area of 250 square kilometres.  Others are limited to the area covered by their exploration
licence.  Mining licences provide the exclusive right to prospect, mine, produce, and sell specified
minerals from the designated area.  They are for an initial maximum of 25 years or if shorter, the
estimated life of the mine.  Renewal for 15 years is permitted.  Reserve mineral licences apply todealers of gemstones.  Although the total number of mining and prospecting licences issued or
renewed fell in 2000, from 95 to 89, the number of mining licences increased substantially, from 15 to
27 (Table IV.7).  Mining projects are eligible for the general investment incentives administered by
the MIPA.WT/TPR/S/96 Trade Policy Review
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Table IV.6
Summary of main features of minerals policy
Issue Position
Ownership and participation Mineral right ownership and control over minerals vested in the State.
Government regulates, promotes and facilitates the mining sector.
Private sector invests in the mineral industry.
Marketing State monitors marketing of minerals and it receives its share of profit
based on royalties and taxation.
Infrastructure Mining companies to provide infrastructure of major long term project.
Government to support the improvement of infrastructure with the
involvement of private investors where necessary.
Benefits and economic linkages Encouraging production of minerals that can be processed locally to
develop industries to increase export earnings and employment.
Human resources The major objective is the creation of productive employment
opportunities for Malawian citizens.
Environmental conservation Mining and quarry inspection and supervision target the effective control
and preservation of the environment.  Fostering the use of best practice
in environmental management systems in mining.
Small-scale mining State encourages development of small-scale mining to ensure the
exploitation of small-scale deposits and to enable the sector to make a
positive contribution to the economy.
Institution support Department of Mines administers mining legislation including
monitoring mining and prospecting activities.  Department of Geological
Survey evaluates mineral resources and makes available geological data.
Both departments provide services to the private sector.
Source: Mines and Minerals Act of 1981;  and Malawian authorities.
Table IV.7
Mining and prospecting licences issued, 1998-00
Licences issued
Type of licence Main minerals
1998 1999 2000
Non-exclusive prospecting licence Semi-precious stones in Mzimba,
Ntcheu and Rumphi79 40 39
Exclusive prospecting licence Base metals and corundum 2 22 19
Reconnaissance licence Base metals and corundum 0 3 4
Mining licence Aggregate, limestone, vermiculite, coal
and precious/semi-precious stones01 52 7
Reserve minerals licence Precious and semi-precious stones 1 15 0
TOTAL 82 95 89
Source: Malawian authorities.
48. The Government does not set any joint-venture or domestic ownership requirements, and has
no direct involvement in mining operations.  Royalties on mining projects are set at 5% to 10% of thegross value of the minerals extracted. The Government intends to lower the rates on processed
minerals as a means of encouraging investment in pro cessing activities.  It is also encouraging the use
of domestic minerals to replace imports, such as silica imported from South Africa and Zimbabwe,
which is also found in Malawi, by providing information on the availability of reserve deposits.
Mineral exports are controlled and monitored by the Department of Mines, which issues mineralcertificates of inspection and export permits.
49. Small-scale mining activities are effectively reserved for Malawians or foreigners that have
resided in Malawi for a minimum of four years.  Such persons may apply for an annually renewable
non-exclusive prospecting licence in several districts to explore for specified minerals.  The licenceMalawi WT/TPR/S/96
Page 79
holder must have permission from landowners before commencing operations.  Holders of these
licences may apply for a mining claim (maximum of two hectares).
50. Imports of articles of stone, plaster, cement, asbestos, mica and similar materials are subject
to an average customs tariff of about 11%;  the rates range from 5% to 25%.  An average customs
tariff of around 17% (with rates ranging up to 25%) applies on imports of natural or cultural pearls,
precious or semi-precious stones, precious me tals, and articles thereof, and to jewellery.
(ii) Energy
(a) Electricity
51. Most of Malawi's energy (about 95%) comes from wood fuel.  This has eroded Malawi's
natural forests and the Government is attempting to expand electrification into rural areas and expand
electricity generation through its Rural Electrification Programme.  Malawi's generation capacity in
2000 was 285 MW, and peak demand  was 197 MW.  Capacity increased significantly with thecommissioning of hydropower generation;  the Te dzani plant has been operating with 1996 and
further plants have been commissioned more recently, such as Phase I of the Kapichira Hydro Scheme
in June 2000.  However, further capacity increases will be needed to meet projected demand of
294 MW in 2005, rising to 767MW in 2020.  Hydro-generation accounts for about 98% of electricity,
and water shortages in the three dams frequently co nstrain supply.  About two thirds of electricity is
consumed for business purposes, and only about 4% of the population has access to electricity.  Small
quantities of electricity are exported to Zambia and Mozambique.
52. Electricity is generated and distributed by the state-owned Electricity Supply Commission
(ESCOM), which was commercialized in 1998.  The Electricity Act of 1998 provided for
commercialization and privatization of ESCOM as well as the establishment of an independentregulator, the National Electricity Council.  A task force established in 1999 prepared a draft Power
Sector Policy Statement on reforming the power sector.  The strategy involves the vertical separation
of electricity generation from distribution and transmission, to inject competition and private
participation.  As a result of these reforms, it  is proposed to make ESCOM a holding company
comprising three separate firms.  Distribution is envisaged as the first activity for introducing private-sector participation.  The Policy Statement has been incorporated into an overall Energy Policy for
Malawi, which the Government is expected to approve in 2001.  Electricity charges have been de-
controlled, and were increased nominally by 44% in 2000.  However, they are still some 50% below
long-run marginal.  Electricity prices vary between industries and households.  To date, there has been
no private-sector participation.  A South Africa n company is commissioned to manage ESCOM.
53. Malawi signed a Memorandum of Understanding and an Agreement with Mozambique in
1998 for the interconnection of power supply.  This may lead to Malawi's full membership of theSouthern Africa Power Pool.
(b) Petroleum
54. Oil exploration is governed by the Petroleum (Exploration and Production) Act, which is
currently being reviewed.  No oil reserves have so far been discovered in Malawi, and all of its
requirements for refined petroleum products are imported.  Oil-derived products meet about three-quarters of its commercial energy needs.  The st ate-owned Petroleum Control Commission (PCC) had
an import monopoly on these products until May 2000 when a private consortium, Petroleum
Importers Ltd, began importing the country's en tire petroleum requirements as a private-sectorWT/TPR/S/96 Trade Policy Review
Page 80
monopoly.14  The PCC is now only a regulatory authority.15  In 2001 the Government dissolved the
parastatal, ORTEX, which was initially split off from the PCC to develop a private oil retailer
(including storage).  Maximum retail prices, formerly set by the Government for petrol, paraffin, and
diesel under the Automatic Pricing Mechanism introduced in 1998, are now determined by the private
sector (a committee chaired by the Chamber of Commerce) according to import parity, and all cost
increases are passed onto the consumer.16  Any change to the In-Bond Landed Cost beyond 5%
triggers price revisions.17  The Ministry of Natural Resources and Environmental Affairs may only
challenge the calculations within a two-week grace period.
55. Four private companies traditionally market petroleum products;  60% of the market is held
by the Oil Company of Malawi Ltd (OILCOM).  A new company, Petroda, entered the market in
1999.
56. The energy levy on the sale of petroleum products was recently re-introduced to finance the
Energy Fund.  It helps cover the costs of the Government's Rural Electrification Programme, which
was delayed by funding shortages due to the earlier removal of the levy (in June 2000).
57. A small amount of liquid fuel is produced by  blending home-made ethanol with imported
petrol.  The aim is to achieve an ethanol to petrol blend ratio of 20:80, but due to constraints on the
production of ethanol, the ratio is currently 13:87.
58. Customs tariffs on imports of mineral fuels, mineral oils, and products of their distillation,
bituminous substances, and mineral waxes range from zero to 20% and average around 3%.
(4) MANUFACTURING
59. Malawi's manufacturing sector remains relatively small and underdeveloped.  It contributed
about 14% of GDP in 1999 down from 17% in 1994.  Malawi's main manufacturing activities are
foodstuffs, including beverages, which accounted for 42% of manufacturing value added in 1998, up
from 35% in 1994.  Production of beverages grew substantially over this period.  Other important
activities include chemicals (16% of manufacturing value added in 1998);  fabricated metal products
(9%);  non-metallic mineral products (8%);  paper and paper products (7%);  textiles (6%);  and non-
electrical machinery (5%).  Manufactured products account for about 10% of export earnings.  In2000, production for the domestic market declined by almost 6% while production for export rose by
10%.  Textile production expanded substantially during the late 1990s.  However, clothing and
textiles production contracted sharply in 2000, due primarily to difficulties faced by Malawi exports
on the South Africa market (Chapter II(5)(iii)).
60. The manufacturing sector had to restructure during the 1990s in the face of increased import
competition following Malawi's trade liberalization and tariff rationalization.  The average MFN
                                                          
14 It has been alleged that this arrangement has en abled the private consortium to set petroleum product
prices in collusion.  A potential independent importer that emerged following liberalization ended up joining the
consortium.  Allegations also exist that pump prices ar e fixed by a cartel of major retailers.  See Ministry of
Commerce and Industry (2000), p. 8.
15 The PCC made large losses in 1997-98, amounting to 3.5% of GDP, reflecting also, according to the
Auditor-General's 1998 report, fraudulent activities and misappropriation of funds.  Investigations by theauthorities are continuing.
16 Under the previous pricing and marketing arrangements, domestic prices set by the PCC failed to
keep up with rising import parity levels generated by the depreciating Malawi kwacha.  Consequently, fuelprices were subsidized by the large government-funded losses incurred by the PCC.
17 The In-Bond Landed Cost is the f.o.b. price plus freight (rail and road), insurance, handling and in-
transit losses (allowable losses of 0.5%).Malawi WT/TPR/S/96
Page 81
applied tariff on manufactured products (Major Di vision 3 of ISIC Rev.2 classification) was 13.7%,
and rates ranged from zero to 25% (Table AIV.2).  The Government continues to hold major interests
in a number of industries through the Malawi Development Corporation and ADMARC, although
some of these holdings have been relinquished through privatization.18  A substantial, albeit declining
share of commercial activities – comprising an estimated 15% of GDP (down from 40% previously) –
is also held by the Press Corporation Ltd, a quasi-public trust listed on the stock exchange.  The Press
Corporation is 49% state owned and has diverse interests in manufacturing and distribution (TableIV.8).  The Government recognizes strongly the need  to create an enabling environment and a legal as
well as a regulatory framework for the development of micro, small and medium-scale enterprises,
mainly in the manufacturing sector.
Table IV.8
Commercial holdings by the Press Corporation Ltd, 2001
Company Principal activity
Carlsberg Malawi Brewery Ltd Brewery
Enterprise Containers Ltd Plastic containers manufacturers
Hardware and General Dealers Ltd Hardware and manufacturers of furniture
Malawi Distilleries Ltd Import and manufacture of spirits, wines, and fruit cordials
Malawi Pharmacies Ltd Pharmacy chain
Maldeco Fisheries Ltd Fishing
National Insurance Company Ltd Insurers
Oil Company of Malawi (1978) Ltd Fuel and oil distribution
People's Trading Centre Ltd Supermarket chain
Press (Bakeries) Ltd Property holding company
Press Foods Ltd Food distributor and manufacturer
Press (Produce) Ltd Property holding company
Press (Properties) Ltd Property investment and development
Press and Shire Clothing Ltd Garment manufacturers
Sales Services Ltd Property holding company
Source: KPMG (1996), Investment in Malawi, pp. 82-83;  and Malawian authorities.
61. The Government's key policy objective is to promote manufactured exports by diversifying
the country's export base into more value-added manufacturing.  It has finalized a draft FiscalIncentives Bill to provide a more efficient and transparent means of granting fiscal incentives.
19
Eligible manufacturing industries are being identified to receive seed money from the Government.20
The programme will involve a Committee assessing appl ications to select  financially well managed
manufacturers (already established firms) of some selected 20 products, based on certain criteria, such
as import substitution;  quality;  export orientation, subject to registration with the Malawi ExportPromotion Council;  and financial performance.  Targeted activities include agri-processing and
textiles.  The Government expects to provide funds of MK 200 million for concessional loans under
this scheme in 2001/02.  The Government will also assist firms in obtaining access to leased land.
                                                          
18 For example, the MDC has full equity in Plastic Product Ltd, and in Optichem Ltd, which produces
fertilizers;  30% ownership of Leopard Matches;  and a 49% equity in Bata Shoes Company.
19 National Economic Council (2000), p. 58.
20 Government of Malawi, Budget Statement 2001/2002, June 2001, p. 26.WT/TPR/S/96 Trade Policy Review
Page 82
62. The Government is also developing a Private Sector Strategy and Action Plan for the
manufacturing sector, which will focus on activities in which Malawi is competitive.  Increasing the
sector’s productivity and provision of the necessary infrastructure are key components.
63. Industrial licensing has been eliminated, but remains for health, safety, and environmental
reasons on a few products, such as firearms, ammunition, chemical and biological weapons,
explosives and hazardous waste, and radio active elements.  Prices of manufactured goods have been
de-controlled and are market determined.
64. Clothing, footwear, and tobacco industries are among the most tariff-protected activities in
Malawi (Chart IV.1).
(5) SERVICES
65. Services constitute around half of Malawi's GDP.  Their share fell from 57% in 1994 to 47%
in 1999.  The main growth in services has occurred in "financial and professional" services, whichaccounted for 8% of GDP in 1999.  Other significant components included distribution (21% of GDP)
and transport and telecommunications (4%).
66. Malawi consistently records a substantial deficit on services trade.  In 1999, this deficit was
US$90 million, equivalent to almost 40% of that year's trade deficit.  Most of the services deficit is
attributable to freight and insurance.
67. Under the GATS, Malawi scheduled sectoral commitments covering a few subsectors.  In
business services, it bound, without limitations on market access and national treatment, measures
affecting all modes of supplying accountancy, medical and dental, and midwifery services, except for
temporary movement of people.
21  Identical commitments were made for certain other business
services (technical testing and analysis, and incidental to mining and exploration);  construction;health and social services of hospitals and other human health services;  tourism and travel-related
services;  and banking.  Measures affecting presence of natural persons were unbound.  Malawi
requested and received a five-year waiver from providing MFN treatment to computer reservation
system services in air transport.
22  This was requested because Malawi was unable to submit an
Article II exemption before the cut off date of 15 April 1995.
68. Malawi did not participate in the latest WTO negotiations on telecommunications services
(Fourth Protocol) and the extended WTO negotiations on financial services (Fifth Protocol).
                                                          
21 Unbound, except for measures concerning the entry and temporary stay of people employed in
management and expert jobs for implementing foreign investment.  The employment of such persons shall be
agreed and approved by the Ministry of Home Affairs.  Its horizontal commitments also placed an upper limit
on loans and overdrafts obtained with the Reserve Bank's permission by a foreign-controlled company of one-third of its paid up capital.
22 WTO document S/L/37, 21 may 1997.  The request was made jointly with Burkina Faso, Central
African Republic, and Uganda.Malawi WT/TPR/S/96
Page 83
0510152025Chart IV.1
Average Malawi tariffs by ISIC classification, 2000
ISICPer cent
Source :ISIC
111
121
122130
210
220230
290
311
312
313314
321
322323
324
331332Major groups
Agriculture and livestock production
Forestry
LoggingFishing
Coal mining
Crude petroleum and natural gas productionMetal ore mining
Other mining
Food products
Other food products and animal feeds
BeveragesTobacco
Textiles
ClothingLeather products
Footwear
Wood productsFurniture except metalISIC
341
342
351352353
354
355356
361
362369
371
372381
382
383384
385
390Major groups
Paper products
Printing
Industrial chemicalsOther chemicals, incl. pharm.Petroleum refineries
Petroleum and coal products
Rubber productsPlastic products
Pottery and china
Glass and productsOther non-metallic mineral products
Iron and steel
Non-ferrous metalsFabricated metal products
Non-electrical machinery incl. computers
Electrical machineryTransport equipment
Professional and scientific equipment
Other manufactured products
WTO Secretariat estimates, based on data 
provided b y the Malawi authorities.Overall tariff average
(13.6%)WT/TPR/S/96 Trade Policy Review
Page 84
(i) Banking and insurance services
69. There are five commercial banks in Malawi.  The main two are the National Bank of Malawi
and the Commercial Bank of Malawi, which togeth er hold about 90% of deposits, but lend to a
restricted number of companies.  The Press Corporation Ltd (PCL) and the public sector have
dominated ownership of both of these banks, but th e Government has taken some divestment steps as
part of its deregulation of the financial sector.  In August 2000, the National Bank was listed on the
Stock Exchange and, as a first stage in its privatization, ten percentage points of the 39% shareholdingof ADMARC was privatized:  seven percentage points was subscribed publicly by Malawians, while
the PCL, which already owned 48%, was granted a one-year option over the remaining three
percentage points.  If exercised, PCL would have majority ownership of the Bank.  Efforts to privatize
the Commercial Bank, which was owned by PCL (23%), Malawi Development Corporation (17%),
Government (22%), National Insurance Company of Malawi (26%), and the general public (12%),were delayed, mainly due to difficulties in finding a strategic partner.  Substantial interlocking
ownership remained between the two large commerci al banks, which would normally raise prudential
concerns.  The Commercial Bank, however, was privatized in 2001.
70. Supervision of banks and financial institutions is the responsibility of the Reserve Bank
(Reserve Bank Act of 1989).  The Government intends to strengthen the regulatory and supervisorypowers of the Bank, and issued an action plan for introducing a new comprehensive financial sector
regulatory framework during 2001.  Progress has been slow, however, due to capacity constraints at
the Bank, but is expected to advance following the privatization of the Commercial Bank.  All banks
and financial institutions must be licensed by the Reserve Bank.  The criteria applied cover minimum
capital requirements; shareholder capacities to support the bank to maintain an adequate capital base;and fit and proper managers and shareholders.  In considering whether to issue a banking licence, the
Bank is also required to consider "the interest of the national economy and the public interest".  The
minimum paid-up capital requirements are US$1.5 million for banks and US$0.75 million for leasing
companies.  Such limits may be waived by the Rese rve Bank if considered to be in the public interest
or that of the national economy.  The Commercial and National Banks, Leasing and FinanceCompany of Malawi and the Mercantile Credit Ltd are subject to prudential supervision.  The
Commonwealth Development Corporation is exempt from these provisions.  Licences are issued by
the Minister of Finance and Economic Plan ning on the Reserve Bank's recommendation.
71. According to authorities, the Reserve Bank generally adopts Basle International Standards in
setting prudential requirements. Banks must maintain a Tier 1 core capital ratio of 6% and a Tier 2
ratio of 10%.  Loans to any single customer are limited to 25% of the bank's core capital, and a bank's
foreign currency exposure cannot exceed 35% of its capital.
72. The Reserve Bank is also responsible for regulating and supervising the capital market as
provided for in the Capital Market Development Act of 1992.  Trading in securities is permitted only
by registered entities.  Stockbrokers Malawi Ltd (SML) is the only registered stockbroker.
Investment companies, mutual funds, and investme nt trusts must be licensed by the Reserve Bank.
The Malawi Stock Exchange was formed in 1996.  Its activities are now overseen by the StockExchange Committee following the split of regulatory functions and privatization of the broker
operations of SML in April 2000.  There are currently eight companies listed on the stock exchange.
Regulations limit foreign investment in any company listed on the stock exchange to 49%, and by any
individual foreign investor to 10%.
73. Insurance activities fall under the Insurance Act.  All insurance companies must be licensed
by the Reserve Bank.  Certain prudential regulations are prescribed, such as minimum share capital;
minimum insolvency margins of 20%;  and net asset levels.  External insurers must provide evidenceMalawi WT/TPR/S/96
Page 85
that their accounts are audited, and maintain detailed records of local policies, obligations, and
premiums within Malawi.
74. The National Insurance Company was fully privatized in 2000.  It is 76.8% foreign owned.  It
is the largest local insurance company and provides both life and general insurance services.  Old
Mutual Life Assurance, which has a 13% interest in the National Bank of Malawi, is a branch of the
South African Mutual Life Assurance Society, and provides life and general insurance as well as
financial services
(ii) Telecommunications
75. In 2000, Malawi had 58,000 fixed telephone lines, corresponding to a teledensity (number of
main fixed telephone lines per 100 inhabitants) of 0.5, ranging from 1 in urban areas to 0.1 in rural
areas.  Average recorded waiting times for a telephone line to be installed can be up to ten years,
especially in the more isolated rural areas.  Recen t improvements in the subsector include increases in
the public fixed network’s equipped capacity to 90,000 lines, and digitalization of the Public
Switching Telephone Network. The private sector has cited the lack of reliable telecommunications as
the single most significant impediment to doing business in Malawi.23
76. The Government released a Communications Sector Policy Statement in 1998, and
implemented changes in the Communications Act of December 1998.  The deregulatory policy isaimed at raising the number of working telephone lines in Malawi to at least 150,000 by 2004/5, with
22% of the lines serving rural subscribers;  providing internationally acceptable standards of service;
and reducing real prices.  This is based on allowing private-sector participation.  The Ministry of
Information is responsible for telecommunications policy.  An important aspect of the reforms was the
separation of the Malawi Posts and Telecommunicat ions Authority into two autonomous state-owned
commercial entities, Malawi Telecom and Malawi Posts, from May 2000.  Malawi Telecom has large
long-term foreign debts and has had difficulties in servicing its foreign debt payments of
MK 385 million in 2000/01.
77. The Malawi Communications Regulatory Authority (MACRA) was established to regulate
and monitor broadcasting, telecommunications, and postal services.  This separated the regulatoryfrom the policy functions of the Ministry.  The Authority, funded mainly by licence fees, ensures "as
far as practicable" that open entry exists in providing public telecommunication services.  It licenses
all providers.  Access to the local public networ k, which is owned by the incumbent state-owned
Malawi Telecom, the only supplier of fixed telephone services, is assured for any licensed entrant.
Any such telecommunications provider may agree access terms and conditions with Malawi Telecom,
subject to approval from the Authority, which can declare void any part of the agreement within
28 days from being notified.  Where the parties cannot agree on access terms, the Authority shall, atthe request of the parties, determine the conditions.  The Authority may, as a condition of obtaining
the licence, include an obligation for the provider to  extend such services to rural or other specified
areas, as well as payment for the licence as a proportion of the annual turnover of the licensed
network.
78. International telecommunications services were liberalized in 2001.  The Government
recently invited another operator of fixed telephone services.  The Government was also well
advanced in selecting a foreign strategic partner to partially privatize 30% of Malawi Telecom, until
the recent suspension of the privatization programme.
                                                          
23 Privatisation Commission (2000).WT/TPR/S/96 Trade Policy Review
Page 86
79. The Authority intends to set public guidelines for determining interconnection charges, which
may include issuing a price range to guide operators’ negotiations.  To date, the only interconnection
arrangement has been with the second mobile phone operator.  In this case, no fees were set, but
instead the parties agreed to a revenue-sharing arrang ement.  This is to be reviewed within two years,
by which time the Authority intends to apply a system of interconnection fees.  The existing
arrangement is claimed to have been the main factor causing mobile phone charges to increase
following issuance of the second licence.  The Authority is also developing a plan for provision ofnational universal services.  These obligations are to be met by Malawi Telecom, and funded through
the creation of a Rural Telecom Development Fund.  It will be financed by a levy on all
telecommunications operators.
80. Telephone charges are being re-balanced to reduce the degree of cross-subsidy between
various users.  Prices of fixed line services are subject to Authority approval based on a price-cappingformula.  The operators freely set mobile prices subject to no objections from the Authority.
81. The Government also liberalized non-basic telecommunication services, including Internet,
e-mail, data transmission, and paging.  As of July 2000, three new Internet service providers
competed with the incumbent, Malawinet Inc., and there are currently about eight licensed Internet
service providers.  Further suppliers are planned.  A second mobile phone operator, Celtel, which is40% owned by Malawi Telecom and 60% by Malaysian interests, commenced operations in July 1999
in competition with the state-owned Telecom Networks Ltd, and has expanded its coverage
substantially.  There are currently about 25,000 cellular customers.  Both operators are required under
their licences to attain full coverage within five y ears as part of their universal service obligations.  A
third mobile phone licence is planned.
82. Telecommunications equipment must meet Malawi's standards, which conform with
international norms.  Subscribers can supply their own equipment and do not have to source it from
Malawi Telecom.  Shops selling such equipment do not need to be licensed.  Type approval is
required.
(iii) Transport
83. Being landlocked, Malawi is dependent on its neighbours for access to seaports.
Transportation costs therefore have an important bearing on Malawi's international competitiveness.
Exports must be hauled by rail to the Mozambique port of Nacala or by road through Mozambique to
the South African port of Durban, the main interna tional route.  High transportation costs penalize
exports directly, but also indirectly by raising the costs of essential imported inputs.  On the other
hand, such transport costs provide considerable natural protection to domestic import-competing
industries.
24 Wars in neighbouring countries have also contributed in the past to Malawi's high
international transportation costs brought about by insecure and unreliable routes.
84. The Government recently embarked on a number of policy reforms designed to promote a
competitive and efficient transportation system.  Private-sector participation and investments will be
encouraged by further deregulating transport modes.  The goal of the National Transport Policy is to
provide a coordinated transport network compri sing commercially viable and environmentally
                                                          
24 Nominal protection provided by tariffs is also high er when rates are levied on landed-duty-free (ldf)
values, as in Malawi, instead of on free-on-board (f.o.b .) values.  For example, a 25% tariff levied on the
import's landed-duty-free price will provide nominal tariff protection of 25%, since this is the wedge providedby the tariff between the assisted and unassisted price.  However, tariffs levied on an f.o.b. basis provide lowernominal protection;  the difference depends upon the level of natural protection provided by transportation costson imports.Malawi WT/TPR/S/96
Page 87
friendly service providers.  Competition within and between transportation modes is to be promoted.
The Government's guidelines require each mode to bear the full cost, and restrictions on the ability of
any mode to respond to market forces or compete freely with other modes be removed.  A Rural
Transportation Programme is also to be formulated.
85. The Ministry of Transport and Public Works was formed by merging the Ministry of Works
and Supplies with the Ministry of Transport and Civil Aviation.  The most popular freight transport
modes are rail and road;  little is carried by water an d air.  Total volume of international freight traffic
increased by 30% in 2000.  The growth in export cargo, at 47%, exceeded that for imports, at 26%.
(a) Road
86. Road transport is the most heavily used mode in Malawi.  The road network covers
approximately 15,000 kilometres, of which about 10% are paved.  Significant capital investment is
needed to improve the road network.  The Governme nt's current policy is to upgrade and maintain the
existing network rather than to develop new roads.  A Road Fund, financed by a fuel levy, was
recently introduced to help meet the costs of a comprehensive road maintenance programme.  The
levy was increased by MK 1 in the 2001 Budget to MK 4.75 per litre for diesel and MK 6.75 per litre
for petrol.  A commercially oriented National Roads Authority was established in 1998 to maintain
and construct national roads through engagement of contractors and consultants.  The Authoritymonitors activities related to its functions.  Various roads were constructed and rehabilitated in 2000,
such as the Blantyre-Chikwawa road.
87. Road freight and passenger transport are not subsidized and there are no restrictions on
Malawians entering the trucking and bus industries.  Passenger and freight charges are market
determined and there are no entry restrictions.  Bilateral arrangements with neighbouring countriesallow foreign haulers to operate in Malawi on a reciprocal basis.  However, cabotage, together with
third-country operators carrying goods in Malawi is prohibited, thereby raising haulage rates.  A
public bus company owned by ADMARC, Shire Bus Lines, operates nationwide, but has recently
pulled out of loss-making rural areas.
88. Passenger car registrations continued to decline, by 8% in 2000, after peaking in 1998.  This
was due mainly to the depreciation of the Malawi kwacha and the resultant increase in car prices.
Another factor, however, is the requirement that importers pay customs duties on cars before the
vehicles enter the country to ensure that duties are paid, and the application of minimum prices by
customs to calculate tariffs.
89. The Government is considering build-operate-tra nsfer (BOT) schemes in order to involve the
private sector in road construction and maintenance.  These would grant concessions to private
operators to build and operate roads by charging tolls.  At the end of the concession period, the roadwould transfer to public ownership.
(b) Railways
90. Malawi Railways (1994) Ltd was formed in 1994 when railway and lake transport services
were split to commercialize both operations for privatization.  It was privatized in late 1999, under a
concession agreement, initially for 20 years.  The operator, an international consortium called theCentral East African Railways Company Ltd, co mprises CFM, a Mozambique railway and port
company;  Rail Development Corporation of the U. S.A.;  and Edlow Resources Ltd.  The Government
retained ownership of the rail network and buildi ngs, while the operator acquired the rolling stock.
The Central East African Railway Company operates the Nacala rail link.  Since Malawi Railways
was privatized, freight tonnage has risen by 30%.WT/TPR/S/96 Trade Policy Review
Page 88
91. The operator is required, as part of the concession agreement, to continue providing passenger
services under a personal service obligation (PSO).  Government subsidies will be granted for a
minimum of five years.
92. The "northern rail/road corridor" through Tanzania to the Dar es Salaam port has also grown
in importance, especially for transporting containers and fuel.  Dedicated Malawi cargo centres also
operate in Tanzania at Mbeya.
(c) Water93. Malawi Lake Services operates passenger and freight services on Lake Malawi.  However, the
company's performance continues to be affected by high debt (much inherited from Malawi Railways
at the time of the split) and declining business.  Passenger traffic declined by 14% in 2000, and cargo
traffic mostly disappeared because of mismanagement of the company and increased competition
from road transport.  This has led to financial prob lems that have limited purchases of spare parts and
made most vessels inoperative.  Water transport prices are still based on tariffs set in 1994 by Malawi
Railways, at the time both rail and water transport services were operated by the Malawi Railways.
The four commercial ports are state owned and managed by Lake Malawi Ports, a state-owned
company.
94. In March 2000, the Government selected a private operator with which a concession
agreement will be concluded for the management of  Malawi Lake Services.  As at October 2001, the
operator has not yet commenced its activities.  It is envisaged that both passenger and freight services
will be provided.
(d) Air
95. The national carrier is the state-owned Air Malawi.  It has been performing poorly,
financially, due largely to declining traffic demand.  Losses increased in 1999/00 from MK 89 million
to MK 118 million.  Air Malawi currently operates four aircraft.  It was commercialized in 1997, and
the privatization process commenced in 1999.  A privatization advisor has been appointed.  The
Government is seeking a joint-venture operation involving a foreign partner and would consider
divesting more than 50% equity.  Malawi has two international airports, Lilongwe InternationalAirport and Chileka International Airport at Blantyre, and regional airports at Mzuzu and Karonga.
96. Traffic rights are allocated according to bilateral air service agreements, which cover such
factors as frequency of service and passenger volumes.  Malawi has signed such agreements with 21
countries, although most have never operated.  Only five foreign airlines currently operate
international services to Malawi:  Air Zimbabwe, British Airways, Ethiopian Airlines, Kenya Airways
and South African Airways.
25  No agreement provides foreign carriers with fifth freedom rights to
pick up passengers in Malawi for onward internationa l destinations.  About half of these agreements,
including those with countries of airlines currently operating services to Malawi, allow for multiple
carriers.  However, only single carriers operate.  All international flights of foreign airlines operate
from Lilongwe, except for flights also provided be tween Blantyre and Johannesburg by South African
Airways.  Foreign airlines can operate services between Malawi destinations as part of their
international service, but cabotage is prohibited.  Air Malawi is strongly interested in forming code
                                                          
25 Other countries with which Malawi has signed  bilateral agreements are Botswana, Cameroon,
Comoros Island, Cyprus, Ghana, France, Lesotho, Madagascar, Mauritius, Mozambique, the Netherlands,
China, Seychelles, Swaziland, Tanzania, and Zambia.  The most recent bilateral agreement was signed withSouth Africa in 1992.Malawi WT/TPR/S/96
Page 89
share arrangements with national airlines from Tanzania, Zimbabwe, and Kenya for strategic and
financial reasons.
97. Airlines can set their own fares, subject to government approval.  The Government's
responsibility is to ensure that such increases are fair.  There are no regulatory restrictions on entry of
air carriers on domestic routes, provided the operator is licensed by the Department of Civil Aviation.
A licence was issued to a second domestic carrier (in addition to Air Malawi), but was recently
cancelled due to non-use.  The Department also manages all airports, except Lilongwe InternationalAirport, which is managed by Airport Developmen t Limited, a state-owned company.  The Lilongwe
Handling Company, an Air Malawi subsidiary, is responsible for ground handling at Lilongwe.
98. Airport taxes of US$20 for foreigners and MK 950 for Malawi passport holders are collected
by the Government.
(iv) Tourism
99. The Ministry of Tourism, Parks and Wildlife formulates tourism policy.  A National Tourism
Industry policy was released in December 1998, based on a Tourism Master Plan developed with
assistance from the World Tourism Organization.  The Plan aims to maximize the contribution of
tourism to national income, employment, and foreign exchange earnings.  The industry is expanding,
with international visitors mainly from Africa, but  also from the United Kingdom, United States and
Canada.  The target is to increase tourist numbers to over 500,000 and receipts to more than
MK 1 billion by 2005.  Following significant increases during the 1990s, to 254,000 visitors in 1999,
the number of international visitors dropped by some 10% in 2000, to 228,000.  As of October 2001,
Malawi had 89 hotels.  The main constraints identified on tourism growth are:  inadequate
infrastructure, including poor telecommunication, electricity, and water services, and financing;  lackof clear investment incentives;  and limited direct air access from major markets, like Europe and
America.
26  Moreover, existing facilities (hotels) are mostly for mass tourism.  About half of
international visitors to Malawi are for business purposes.
100. The Government is committed to the privatization of commercial public tourism facilities,
and several such divestments have occurred in order to increase private-sector development.  Publicownership of tourist hotels is high, about 80%, mainly held through parastatals, such as the Malawi
Development Corporation, which owns Sunbird Hotels.  In some cases, state-owned hotels are
managed by foreign contractors, such as the two "Le Meridien" hotels.  Foreign investment is
encouraged to expand and raise facilities to international standards, and up to 50-year leases are
available on land used for tourist resorts.  From March 2001, the current Master Plan is being
reviewed to formulate a Strategic Development Framework for implementing policy reforms.
101. The Ministry's Department of Tourism Services is responsible for developing, regulating, and
promoting tourism.  The Tourism and Hotel Act, which established the Hotels and Tourism Board, is
being revised to provide better regulation of tourist facilities and services.  The Minister licenses
hotels, based on the Board’s recommendations.  However, by far the majority of accommodation
available is unlicensed.  It is planned to replace the Board with a statutory Malawi Tourism Authority.
A hotel star grading system is also to be introduced by March 2002.  This will be run by the Boarduntil the Authority is created.  The Board may dictate hotel prices, but according to authorities does
not do so in practice.  Tour operators, guides, and restaurants will be subject to licences;  the Act is
being amended accordingly.  There are no nationality or training requirements for guides;  the
introduction of registration requirements for guides is planned.  Environmental impact studies are
required on new resorts.
                                                          
26 Department of Tourism Services (1999).WT/TPR/S/96 Trade Policy Review
Page 90
102. The Government recently introduced special tourism incentives, such as tax concessions.
Investors of minimum specified amounts in designated  tourism areas are to receive duty-free status on
selected goods following the 2001/02 Budget.  Hotel services are subject to a 10% service charge (of
which 5% is retained by the Government, 4% by the hotels and 1% for training), and to the 10%
surtax.Malawi WT/TPR/S/96
Page 91
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