AGOA ELIGIBILITY REVIEW - MALAWI

UNCLAS SECTION 01 OF 03 LILONGWE 000595

SIPDIS

DEPT FOR AF/EPS - ANN BREITER AND GABRIELL MALLORY, AF/S - ELIZABETH
PELLETREAU
DEPT PLEASE PASS TO USTR FOR CONNIE HAMILTON

E.O. 12958: N/A
TAGS: ETRD ECON XA MI
SUBJECT: AGOA ELIGIBILITY REVIEW - MALAWI

REF: STATE 85086


1. Per REFTEL, Embassy Lilongwe submits the following updated AGOA
eligibility information in the requested format.


2. Country: MALAWI
Current AGOA Status: Eligible

Country Background Summary: Malawi's current estimated population
is about 13 million and GDP at current prices is USD 3.8 billion.
Agriculture forms the mainstay of Malawi's economy and it accounts
for over a third of its GDP. Tobacco, tea, and sugar together
generate over 80 percent of export earnings, with tobacco providing
the lion's share (over 60 percent). The agricultural sector employs
nearly half of those in formal employment, and directly or
indirectly supports an estimated 85 percent of the population. The
government has for the past three years demonstrated strong
macroeconomic management. Macroeconomic stability has been
restored. Interest rates are stable and prospects for further
decline in interest rates are high considering that Malawi goes for
general and presidential elections next year. A single digit
inflation rate has prevailed since February 2007. The exchange rate
has been stable and predictable for the last three years. The
country has enjoyed three years of food surplus. Foreign direct
investment has tripled over the same period. AGOA continues to play
an important role in the economy. AGOA exports of over USD 30
million constitute close to 8 percent of total exports. AGOA
exporters employ a significant number of people; close to 5000
Malawians are currently employed in AGOA-registered apparel
companies. The government of Malawi is keen to maintain its AGOA
eligibility status.


Comments on Eligibility Requirements


I. Market-based Economy:


A. Major Strengths:

** Malawi has been following a market-based economy since its
independence from Britain in 1964.

** Government participation in the market has existed along side the
private sector, although the role of the private sector has grown
substantially over the years.

** To speed up the government's intention to have a private
sector-led economy, the government instituted a privatization
program in 1996 and several companies have been privatized; others
are still being considered for privatization.

** Government has pursued a number of reform programs to improve the
economic environment with support of various donors including the
IMF and World Bank. Development programs have been initiated to
improve infrastructure, utilities, human capital and institutional
management. The reforms being undertaken are broad and include
stimulation of private sector activity and participation through the
elimination of price controls and industrial licensing,
liberalization of trade and foreign exchange, rationalization of
taxes, privatization of state-owned enterprises, and civil service
reform.

** Malawi's macroeconomic stability has greatly improved over the
past three years.

** Malawi operates a liberal import- and export-licensing system
with restrictions largely based on health, safety and national
security reasons.

** All Current Account transactions are fully liberalized.

** Domestic protection through tariffs is gradually diminishing as
the government continues to shift sources of revenue collection from
customs duties to consumption and direct taxes.

** In 2007, government established a commercial court division in
the Malawi High Court to facilitate resolution of commercial
disputes.

** In June 2008 Malawi completed a successful Millennium Challenge
Account Threshold program focused on control of corruption,
legislative and judicial strengthening, promoting independent media
coverage, and expanding and intensifying the work of civil society
organizations.

** In December 2007, Malawi was selected by the Millennium Challenge
Corporation (MCC) as "compact eligible;" development is underway on
a compact proposal for submission to MCC in 2009.


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B. Major Issues:

** Barriers to economic growth, investment and trade include high
transport costs, poor infrastructure, unreliable utility services
especially water and energy, limited access to technology and
credit, lack of capacity for quality accreditation and limited
industrial skills

** Capital account transactions are still controlled.

** In 2008, the Government of Malawi displayed an increased
willingness to intervene in the market. Minimum buying prices were
set for tobacco, maize and cotton; government has indicated it may
set minimum prices for other agricultural commodities next year.

** In August 2008, Government banned all private trade of maize,
designating the parastatal Agricultural Development and Marketing
Corporation (ADMARC) as the sole dealer, with set buying prices.



2. Rule of Law/Political Pluralism/ Anti-Corruption:


A. Major Strengths:

** Malawi has an independent judiciary.

** There is a free press with significant independent
participation.

** Malawi has strong governance institutions such as the Office of
the Ombudsman, Law Commission and the Malawi Human Rights
Commission.

** Malawi has held three democratic presidential and parliamentary
elections since 1994.

** A functioning anti-corruption bureau exists.


B. Major Issues:

** Local government elections, scheduled for 2005, have still not
been held.

** The judiciary is inefficient, largely due to lack of resources
such as human capital, equipment and finances.

** Continued political feuding has delayed action on needed economic
legislation, such as development loans, and undermines confidence in
continued economic stability. Passage of the 2008-2009 budget was
delayed for three months.

** The President has refused to implement a constitutional provision
regarding parliamentary floor-crossing, drawing criticism for not
respecting the rule of law.

** While independent media are allowed to operate without major
interference, State television and radio are used as propaganda
tools against opposition parties.



3. Poverty Reduction:


A. Major Strengths:

** Government for the past four years has sponsored an agricultural
input subsidy that has improved food security for the rural and
urban poor.

** Government has also begun directing resources toward irrigation
programs to diminish the country's dependence on rain-fed
agriculture.

** Government allocates significant resources to primary education
and health services targeting the rural poor, and such resources are
protected in the national budget.

** Government is implementing a poverty reduction program with
assistance from the IMF, World Bank and other donors. These
programs target the promotion of education, health, agriculture and
private sector development.


B. Major Issues:

** The fertilizer subsidy program has not been adequately targeted,
and currently represents the bulk of the budget for the Ministry of
Agriculture.



4. Human Rights/Labor/Child Labor:

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A. Major Strengths:

** The government generally respects the human rights of its
citizens.

** Malawi labor laws cover the majority of the International Labor
Organization's core labor standards.

** Workers have the right to freely associate and to bargain
collectively. Unions must register with the Ministry of Labor, but
this is largely a formality.

** On child labor, Malawi's constitution and employment laws comply
with the ILO Convention 182. The Malawi constitution complies with
the Minimum Age Convention (ILO 138) and the Worst Forms of Child
Labor Convention (ILO 182). Malawi has ratified both conventions.

** The government in association with the private sector, unions,
employers and other stakeholders has developed and implemented a
national Code of Conduct on Child Labor and placed child labor
officers in each district of the country.

** Government has established Child Labor District/Area Committees,
Child Labor Inspectors and Child Labor Youth Activists. All have
been trained on child labor monitoring and reporting. The Child
Labor Youth Activists have been equipped with bicycles donated by
UNICEF.

** Child labor offenders have been prosecuted and, if convicted can
be sentenced to up to five years in prison.



B. Major Issues:

** Union membership is low due to small workforce in the formal
sector and lack of awareness about the benefits of such membership.

** Incidences of child labor seem not to be abating despite
government child labor elimination programs. Many children continue
to be engaged in the agricultural sector, especially on tenant
farms.

** Incidences of tampering with freedom of the press have been
reported though justified on account of irresponsible journalism.

** Prison conditions continue to remain harsh and a threat to human
rights.

** Prisoners on remand often experience long waits before being
brought to trial, especially for murder cases. The judiciary
continues to lack resources to try such cases in a timely manner.

** HIV and AIDs remain the biggest threat to human life and the
labor force.


5. International Terrorism/U.S. National Security


A. Major Strengths:

** Malawi passed the Money Laundering, Proceeds, and Serious Crimes
and Terrorist Financing Act in August 2006 to address money
laundering and terrorist financing.

** A Financial Intelligence Unit has just been established with the
help of United States government through the MCC Threshold Program
that investigates irregular and large value monetary transactions.


B. Major Issues: None.

SULLIVAN