MALAWI - AGOA ELIGIBILITY REVIEW

UNCLAS SECTION 01 OF 04 LILONGWE 000554 SIPDIS STATE FOR AF/EPS - GABRIELLE MALLORY, AF/S - PHAEDRA GWYN COMMERCE FOR KEVIN BOYD TREASURY FOR ANTHONY IEROMINO STATE PASS USTR FOR CONSTANCE HAMILTON E.O. 12958: N/A TAGS: ETRD ECON XA MI SUBJECT: MALAWI - AGOA ELIGIBILITY REVIEW REF: STATE 97769 ¶1. Per reftel request, 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 population is approximately 13 million and GDP at current prices is USD 4.6 billion. Agriculture forms the mainstay of Malawi's economy, accounting for over one third of GDP. Tobacco, tea, and sugar together generate over 80 percent of export earnings, with tobacco alone providing 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 country has enjoyed four years of food surplus. The Government has demonstrated strong macroeconomic management for the past four years and the country generally enjoys macroeconomic stability. Interest rates are stable. A single digit inflation rate has prevailed since February 2007. Government has held the exchange rate unchanged for the last three years, despite increasing pressure on foreign exchange reserves, which fell to less than one month's import cover in mid-2009. The construction of a major new uranium mine in the north of the country contributed significantly to a substantial rise in foreign direct investment over the past five years. AGOA continues to play an important role in the economy. AGOA exports of about USD 30 million constitute close to three percent of total exports. AGOA exporters employ a significant number of people, although the number has declined recently due to reduced orders. Over 4000 Malawians are currently employed in AGOA-registered apparel companies. The Government of Malawi is keen to maintain its AGOA eligibility status. Malawian President Bingu wa Mutharika was re-elected in May 2009 for a second and final term in presidential and parliamentary elections that were generally acknowledged to have been free and fair. 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. ** The Government instituted a privatization program in 1996 and several companies have been privatized. ** 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 industrial licensing, liberalization of trade, rationalization of taxes, privatization of state-owned enterprises, and civil service reform. ** Malawi has enjoyed macroeconomic stability over the past four years. ** Malawi operates a liberal import- and export-licensing system with restrictions largely based on health, safety and national security reasons. ** Current Account transactions are generally 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 December 2007, Malawi was selected by the Millennium Challenge Corporation (MCC) as "compact eligible." Development is underway on LILONGWE 00000554 002 OF 004 a compact proposal with a signing target in mid-2010. ¶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 ** Severe shortages of foreign exchange have led to a system of rationing that hampers the private sector's ability to pay for imports. ** The Government requires that all dollar payments for tobacco be deposited with the Reserve Bank of Malawi. ** Capital account transactions are still controlled. ** The Government of Malawi has displayed an increased willingness to intervene in the market. Minimum buying prices have been set for tobacco, maize and cotton. In September 2009 four senior executives from three major tobacco buying companies were deported on the grounds that the low prices being paid at auction were exploiting Malawi's farmers. ** 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. [The ban on private trade was lifted in June, 2009.] II. Political Reform/Rule of Law/Anti-Corruption: ¶A. Major Strengths: ** Malawi has an independent judiciary. ** There is a free press with significant independent participation. ** Malawi has functioning good governance institutions such as an Office of the Ombudsman, a Law Commission and a Human Rights Commission. ** Malawi has held four democratic presidential and parliamentary elections since 1994. Elections in 2009 were peaceful and generally acknowledged to have been free and fair. ** 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. ** A functioning anti-corruption bureau exists. ¶B. Major Issues: ** Constitutionally mandated local government elections scheduled for 2005 were never held. There has been no official announcement concerning a firm date for local elections in 2010. ** The judiciary is inefficient, largely due to lack of human capital, equipment, and finances. ** During the 2004-2009 term, presidential and ruling party obstructionism prevented implementation of Constitutional provisions regarding Members of Parliament changing political parties. ** While independent media are allowed to operate without major interference, state controlled television and radio are used as propaganda tools against opposition parties. III. Poverty Reduction: ¶A. Major Strengths: ** Government has sponsored an agricultural input subsidy for the past five years that has improved food security for the rural and urban poor. ** Government has begun directing resources towards a "Green-Belt Initiative" promoting irrigation programs to decrease the country's dependence on rain-fed agriculture. ** Government allocates significant resources to primary education LILONGWE 00000554 003 OF 004 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 been inadequately targeted, with some legitimate claims of politicization. Its cost represents the bulk of the budget for the Ministry of Agriculture and is widely considered unsustainable. IV. Workers' Rights/Child Labor/Human Rights: ¶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 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. ** 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 the small workforce in the formal sector and lack of awareness about the benefits of such membership. ** Although outreach and investigations have reduced child labor on commercial tea and tobacco farms, it remains a problem in smallholder agriculture. ** Prison conditions remain harsh. Prison authorities lack the resources to make improvements. ** Prisoners on remand often experience long waits before being brought to trial, especially for murder cases. The judiciary lacks the resources to try cases in a timely manner. ** Trial by jury is not guaranteed by law. Trial by jury in murder cases has been indefinitely suspended. ** HIV/AIDs and malaria remain the largest threats to human life and the labor force. ¶V. 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 (FIU) has just been established with the help of United States Government through the MCC Threshold Program. The FIU investigates irregular and large value monetary transactions. ¶B. Major Issues: ** Porous and unmonitored borders limit the Government's ability to control or monitor the entry or movement of foreign elements. LILONGWE 00000554 004 OF 004 ** Malawi has become an established transit country for immigrants/refugees traveling to South Africa from north and east Africa, including Somalia. Limited Government capacity to monitor this flow leaves Malawi vulnerable to extremists in this population. SULLIVAN