NATIONAL ACTION GROUP

UNCLAS SECTION 01 OF 02 LILONGWE 000188

SIPDIS

AIDAC

USAID FOR AFR/DP SMITH, KNEPP
USAID FOR AFR/SD WESTNEAT, SIEGEL
USAID FOR AFR/SA TOURE, HAGELMAN, LOKEN, FLEURET
USAID FOR PPC/AA FELDSTEIN
USAID FOR EGAT/PR/MD, CHALMERS, FIELD, YOUNG
DEPT FOR AF/S, INR/CGI, PM/ISP

E.O. 12958: N/A
TAGS: EAID EAGR ECON EINV EFIN ETRD KMCA MI
SUBJECT: NATIONAL ACTION GROUP


1. Summary: Over the past year, Malawi has seen a
remarkable reversal in the level of importance the GOM
has placed on the role of the private sector in
contributing to economic growth and poverty reduction.
Now, more than ever, the US Mission is uniquely
positioned to contribute significantly to the advancement
of prosperity by increasing economic growth through
expanded trade and investment. While this most positive
development began to take root several years ago with the
creation of the National Action Group NAG - a senior
level forum for the discussion and resolution of issues
that affect the performance of the private sector in
Malawi - it has now become a national priority for the
new Government. The NAG, with USG support, has achieved a
number of successes through improved dialogue. Central
has been the development of the Malawi Economic Growth
Strategy which has become a key document for the GoM on
how to address problems with the development of a
thriving private sector that can generate growth, jobs,
exports, improved incomes and governmental revenues.
While many of these solutions have been incremental and
opportunistic, they typify this new, more collaborative
approach toward improving the business climate in Malawi.


2. The country's new President, Bingu Wa Mutharika, who
assumed responsibility for development of the Malawi
Economic Growth Strategy while former Minister of
Economic Development, now serves as the major champion in
the process of transforming the economy from one
predominantly owned and controlled by the state to one
where private sector actors and decision makers are the
engine of economic growth. The President underlined this
important policy shift in his "Road to Prosperity"
inaugural speech, setting the stage for future private
sector reforms: I am convinced that the roadmap to
prosperity dictates that we should have effective private
sector reforms that aim at creating a conducive and
enabling environment for domestic and foreign investment.


3. The Mission continues to take advantage of this new
government willingness to enhance the competitiveness of
Malawi's private sector. USAID is providing technical and
logistical support for a private sector reform agenda led
by the National Action Group NAG. The NAG is a tri-
partite body made up of ministerial-level representatives
from the GOM, CEOs of leading private investment and
business organizations, and Heads of Missions and
technical specialists from donor agencies working to make
Malawi a better place to do business. The NAG is
apolitical and seeks only to advance the development of
the private sector to assist in alleviating poverty in
Malawi. The NAG is a forum, not a formal organization -
it has no legal basis or identity, but draws its mandate
from its participants who are able to commit their
respective organizations to specific activities that they
jointly decide to pursue.


4. Rather than seeking to ensure that all disparate
interests are directly represented, in a deliberate
effort to keep the size of the group small and efficient,
the NAG seeks to bring together the key decision makers
that affect the national economic environment. However,
to ensure accountability and representation of wider
views, the NAG is developing mechanisms for consulting
more widely with all stakeholders and for improved
feedback processes. The NAG's forum is its bi-monthly
meetings, with an emphasis on decision-making and
reporting of action and progress. The method of working
is businesslike, with participants held accountable for
the commitments they make; and the style is informal,
with first name terms for all members. Discussion has
been robust, honest and constructive - it is not a forum
to criticize other stakeholders, but controversial issues
are discussed openly to promote achievement of the
Group's private sector development objectives. This also
involves events with wider stakeholders and an e-
bulletin.


5. The NAG has achieved a number of successes through
this improved dialogue. Many of these accomplishments
have been centered around the development of the Malawi
Economic Growth Strategy which has become a key document
for the GoM on how to address problems with the
development of a thriving private sector that can
generate growth, jobs, exports, improved incomes and
governmental revenues. Many of the solutions achieved to
date have been incremental and opportunistic, but
together they are working to improve the business climate
in Malawi. Some examples include:

-a. Highlighting the uneven application of the rules on
cross rates when converting one currency to another to
pay international suppliers.

-b. Review of withholding tax implementation for
smallholders to receive more equitable treatment in key
sub-sectors.

-c. Raising the issue of license fees for electricity
generation meant to apply only to those who generate
electricity for sale, rather than for consumption. This
problem has been resolved by legislation.

-d. Highlighting a list of pending applications for duty
rebate by the Ministry of Finance for timely subsequent
government action.

-e. Facilitating dialogue on the electricity crisis
during the first quarter of 2004, increasing the focus
for medium and longer-term energy solutions.

-f. Completing value-chain assessments of the priority
sectors identified in the Malawi Economic Growth
Strategy, including the three existing "core" sub-sectors
for the economy i.e., tea, sugar and tobacco, and five
high potential growth sub-sectors i.e., cotton, textiles
and garments, agro-processing, mining and tourism.

-g. Spearheading the appointment of desk officers for key
sub-sectors of the economy. The NAG has been instrumental
is seeking the appointment of desk officers for key sub-
sectors of the economy at Ministry of Commerce and
Industry, and Ministry of Agriculture to act as primary
points of contact in government for industry. Such desk
officers are now in place for the textiles and garments,
agro-processing, trade and cotton sub-sectors.


6. Comment: In the past, one of the major contributing
factors to poor policy-making in Malawi has been the weak
dialogue between public and private sectors at all
levels. The Malawi Economic Growth Strategy and the
National Action Group have attempted to address this
weakness by providing a forum for a direct dialogue
between key government decision makers and their private
sector counterparts on key issues affecting the country's
private sector growth and development. As a result of its
initial successes, the NAG has progressively become the
focal point for dialogue between government, private
sector and donors on issues relating to private sector
development in Malawi. The key challenge for the NAG will
be to build on these initial successes to maintain the
excellent results and momentum the Group has achieved to
date.

GILMOUR