MALAWI UPDATE FOR PRESIDENT'S AGOA REPORT

UNCLAS SECTION 01 OF 03 LILONGWE 000154

SIPDIS

SENSITIVE

DEPT FOR AF/S, AF/EPS
DEPT PASS USTR/WJACKSON
TREASURY FOR OASIA
DOC FOR 4510/ITA/MAC/ANESA/OA

E.O. 12958: N/A
TAGS: ETRD EFIN KPAO MI
SUBJECT: MALAWI UPDATE FOR PRESIDENT'S AGOA REPORT

REFS: A) 03 Lilongwe 332; B) 03 Lilongwe 892; C) 03 Lilongwe

1004; D) 03 Lilongwe 1121; E) 03 Lilongwe 1202

Summary
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1. (SBU) Malawi's AGOA exports (excluding GSP) continued to
grow in 2003, and now exceed $58 million. More than $20
million of those exports are clothing, and a fifth garment
company began operations. Privatization and reorganization
of Malawi's primary textile manufacturer may extend the AGOA
supply chain down through Malawi's cotton ginners to cotton
growers, spreading AGOA's benefits to more Malawians. The
GOM's weak fiscal performance, deteriorating perceptions
about anti-corruption efforts, and approaching 2004
elections have led to some uncertainty for investors.
Additional regional assistance for local exporters to comply
with U.S. sanitary and phyto-sanitary regulations would
remove a potential irritant in the trade relationship. End
Summary.

AGOA Trade and Investment
--------------

2. (U) Most new economic activity in Malawi that has
occurred under AGOA has been in the textile and apparel
sector. Malawi was approved for AGOA textile and apparel
benefits in August 2001. Two Taiwanese-owned firms, HAPS
Investments and Chirimba Garments, immediately began
exporting under AGOA once Malawi was approved. Currently,
five companies -- HAPS, Chirimba, Crown Fashions (local),
and Giant Clothing (South African),and Knitwear Industries
(local) -- are approved under the AGOA visa system.


3. (U) The fifth company, Knitwear Industries, started its
AGOA exports during 2003. With its operations, the number
of jobs tied to AGOA producers grew slightly in 2003, with
the five companies now employing approximately 7,500
workers. (Note: Managers are reporting more variety in
their export contracts, making it difficult to label
particular positions "AGOA jobs.")


4. (U) A further positive development in 2003 was the
privatization of David Whitehead and Sons (DWS),Malawi's
primary textile producer. Mismanagement at DWS had kept it
from supplying textiles to Malawi's garment-makers and had
led to fears that the expiration of the "third country
fabric" provision of AGOA would leave garment-makers without
a ready source of AGOA-eligible (and competitively priced)
fabrics.


5. (SBU) Comment: Embassy is pleased to note that Knitwear
Industries's AGOA exports and the privatization of DWS. The
owner of Knitwear Industries is Chairman of Malawi's Garment
and Textile Manufacturers' Association, and he has been a
key partner of the Embassy's in advancing AGOA. DWS's
privatization has been an Embassy goal since 2001, and it is
hoped that its revitalization under new ownership will link
garment-makers to Malawi's cotton growing and ginning
sectors, deepening Malawi's AGOA supply chain, and spreading
AGOA's economic benefits to more Malawians. End Comment.

Market Economy/Economic Reform/Trade Barrier Elimination
-------------- --------------

6. (U) The GOM has made a basic commitment to the
principles of market economies. It encourages both domestic
and foreign investment in most sectors of the economy,
without restrictions on ownership, size of investment,
source of funds, and destination of final product. The
Competition and Fair Trading Act -- passed in November 1998
and made operational in April 2000 -- aims to regulate and
monitor monopolies and the concentration of economic power,
protect consumer welfare, and strengthen the efficient
production and distribution of goods and services. Although
basic structures are in place, weak government fiscal
performance has hampered growth and continues to create
excessively high interest rates.


7. (U) The government continued to make progress in 2003
with its multi-sector privatization program, under which it
has sold off 61 of approximately 110 targeted companies
since 1996. Completed privatizations in 2003 included the
Cold Storage Company, Grain and Milling, and the
aforementioned David Whitehead and Sons. On-going
privatizations include Malawi Telecommunications Limited and
Air Malawi.

Rule of Law/Political Pluralism/Anti-Corruption
-------------- --

8. (U) Malawi's fledgling democracy has produced elections
in 1994 and 1999 declared substantially free and fair by the
international community. Its third presidential and
parliamentary elections are scheduled for May 2004. Some
inter- and intra-party violence has occurred in the run-up
to the elections, and opposition access to state-owned media
will be a key question in assessing the election's fairness.


9. (U) Malawi's Constitution guarantees basic freedoms and
respect for civil liberties, including freedom of speech,
religion, and assembly. Malawi has a fairly independent but
overburdened judiciary, which derives its procedures from
English Common Law. The judiciary demonstrated its
independence in 2003, putting injunctions in place against
several parliamentary actions deemed illegal.


10. (U) The GOM's Anti-Corruption Bureau (ACB) has actively
pursued public and private corruption. The ACB, however,
has not been successful in prosecuting high-profile cases,
and the Government has blocked attempts to give the ACB more
prosecutorial independence. This has led to a deterioration
in perceptions of corruption in Malawi.

Poverty Reduction
--------------

11. (U) Since 1981, Malawi has undertaken economic
structural adjustment programs supported by the World Bank
(IBRD),the International Monetary Fund (IMF),and other
donors. Malawi reached the decision point for its Highly
Indebted Poor Country (HIPC) debt relief program in December
2000 and has since developed its Poverty Reduction Strategy
Paper, which was launched in 2002. While Malawi continues
to work with these institutions and to use the Poverty
Reduction Strategy as the central planning document for
government budgeting, a lack of fiscal discipline has led to
weak growth and macroeconomic instability, limiting overall
poverty reduction.

Labor/Child Labor/Human Rights
--------------

12. (U) Malawi's labor laws cover the majority of the ILO's
core labor standards. However, a lack of resources hampers
government enforcement and tripartite cooperation.


13. (U) On child labor, Malawi's Constitution and
employment laws comply with the Minimum Age Convention (ILO
138),and the Worst Forms of Child Labor Convention (ILO
182),but resource constraints -- both human and financial -
- hamper enforcement. A 2000 Malawi Demographic and Health
Survey estimated that 9% of Malawian children aged 5-14 were
working for non-relatives, about two-thirds without pay, and
that 27% of Malawian children were either working for a non-
relative (paid or unpaid) or doing more than four hours of
household chores per day.


14. (U) During 2003, the public-private Child Labor Task
Force has continued to expand its membership among labor,
private sector, and NGO organizations. The Task Force's
2003 initiatives have included lobbying the Ministry of
Labor to develop an action plan specifically devoted to
curbing child labor. The Ministry agreed, and it increased
its personnel to include desk officers for child labor
issues.


15. (U) Embassy is unaware of any GOM activities that 1)
undermine the foreign policy or national security interests
of the United States, 2) engage in gross violations of human
rights, or 3) provide support for international terrorism.

AGOA Outreach/Technical Assistance
--------------

16. (U) The following are examples of outreach or technical
assistance projects that have occurred in Malawi in the past
year:

--The Mission solicited and then supported visits from
regional APHIS and USAID representatives to provide
technical assistance and outreach on pest risk assessments
and more general sanitary and phyto-sanitary issues.

--The Public Affairs Section programmed the regional APHIS
representative to speak to students at the Bunda College of
Agriculture on agricultural opportunities under AGOA.

--The Public Affairs Section continued a campaign to promote
AGOA awareness. This included print interviews with the
Ambassador and Econ/Commerical Officer, public speakers, and
a radio call-in show featuring Embassy personnel.

--The Mission, in conjunction with the regional USAID hub,
provided technical assistance to Malawians interested in
exporting under AGOA's Article 9 provisions on hand-crafted
items.

--The Mission sent the CEO of Malawi's Confederated Chambers
of Commerce and Industry on an International Visitor program
covering U.S.-Africa economic ties. The visitor, who has
been active in promoting AGOA through various GOM task
forces, participated in the annual AGOA forum as part of his
I.V. program.

Trade Capacity Building Needs
--------------

17. (SBU) The Mission continues to advocate that Malawian
exporters think beyond garments and textiles, and the
natural avenue for Malawi should be agricultural exports.
As noted by other posts in the region, difficulties in
dealing with U.S. sanitary and phyto-sanitary requirements
are starting to be perceived as a deliberate non-tariff
barrier to trade. Greater regional resources devoted to
helping countries understand and comply with U.S.
regulations would both reduce this misperception and broaden
AGOA's local beneficiaries.

Browning