Foreign Direct Investment in Blantyre, Malawi - Millennium Cities ...

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OIBM Opportunity and Investment Bank of Malawi RBM Reserve Bank of Malawi SADP Smallholder Agribusiness Development Project SARRNET South African Root Crops Research Network SCFT Smallholder Coffee Farmers Trust SHMPA Southern Highlands Milk Producers Association SIPA School of International and Public Affairs SME Small and Medium-sized Enterprise TNM Telecom Networks Malawi UNDCF United Nations Capital Development Fund UNDP United Nations Development Program UK United Kingdom US United States of America USAID United States Agency for International Development WSSD World Summit on Sustainable Development ZISFA Zikometso Smallholder Farmers Association Currency and Units MK Malawi Kwacha (1 US Dollar = 137 MK, as of February 1, 2009) 1 US$ US Dollar °F Fahrenheit °C Celsius Ha Hectare (1 ha = 10,000 square meters) Kg Kilogram (1 kg = 2.2 pounds) mm Millimeter (1/25 inch) m³ Cubic meters ppb Parts per billion 1 Oanda.com. http://www.oanda.com FDI in Blantyre Page 8
Executive Summary Introduction In 2006, the Earth Institute at Columbia University launched the Millennium Cities Initiative (MCI), an urban counterpart to the Millennium Villages Project (MVP), to assist nine mid-sized cities across sub- Saharan Africa in achieving the Millennium Development Goals (MDGs). MCI provides research and policy analysis in order to attract foreign direct investment (FDI) to the cities. Increased FDI flows can help to create employment opportunities and foster local enterprise development and sustainable economic growth. In addition, MCI is helping the Millennium Cities to carry out needs assessments in a number of social sectors. The data from these assessments will enable MCI to generate integrated City Development Strategies to help each city meet the MDGs. Currently, the principal destination for FDI in Malawi is agriculture, most notably in tobacco and sugar. According to the World Investment Report 2007, Malawi had US$30 million of FDI inflow in 2006, compared to only US$7 million in 2003. Major sectors of investment in addition to agriculture include telecommunications, manufacturing, tourism, and mining. The bulk of FDI inflows come from the UK, the US, and South Africa. Malawi has been relatively politically stable since its independence in 1964. Moreover, the transition from one-party rule to a multi-party democracy has been largely peaceful. The Government encourages both domestic and foreign investors to establish and own business enterprises in most sectors of the economy. Furthermore, Malawi is party to numerous multilateral and regional trade agreements including the Common Market for Eastern and Southern Africa (COMESA), Southern African Development Community (SADC), the US African Growth and Opportunities Act (AGOA), and the Cotonou Agreement/Everything But Arms (EBA) Initiative. Additionally, bilateral trade agreements exist with South Africa, Zimbabwe and Mozambique, and a customs agreement with Botswana. A number of tax incentives in Malawi are enshrined in the main tax legislation that includes the Customs and Excise Act, the Income Tax Act and the Export Processing Zones (EPZ) Act. While Malawi's investment climate has been strengthened during the last decade, the country is still facing a number of major challenges. In addition to its landlocked position, which can result in high transport costs of more than 30 percent of the country’s total import bill, Malawi’s poor power and water infrastructure also impedes the attraction of investment. In 2004, companies on average suffered power disruption of 50 days, compared to 48 days in Tanzania and 15 days in Zambia. In addition, interest rates are among the highest in Africa. According to the IMF, the 2009-projected lending rate is 25.0%, compared to 13.5% in South Africa. The cost of finance is a major obstacle for firms in Malawi. 2 Malawi ranked 118th (out of 180 countries) in the 2007 Transparency International Corruption Perceptions Index. To address this issue, President Bingu Wa Mutharika has made the fight against corruption a top priority. Using information gathered from literature reviews and the first field visit, the authors assessed investment opportunities across eleven industries: cassava, chili, coffee, pigeon pea, cotton, macadamia nuts, tea, diary, banking, telecom, and tourism. Using the investment evaluation framework described in Section I, the authors identified the textile manufacturing sector as having considerable investment potential, distinguished by higher impact and feasibility. Investment in this sector is expected to have high positive impacts on employment and productivity, as well as high feasibility measured by demand, supply, enabling market and profitability factors. Currently, garment producers in Malawi are uniquely positioned to benefit from the preferential 2 Economist Intelligence Unit. EIU DataServices. https://eiu.bvdep.com/frame.html. FDI in Blantyre Page 9
Page 1 and 2: MCI AND VCC WORKING PAPER SERIES ON
Page 3 and 4: Table of Contents Table of Contents
Page 5 and 6: Acknowledgements The authors would
Page 7: Acronyms and Abbreviations ADMC Agr
Page 11 and 12: I. Mandate and Investment Evaluatio
Page 13 and 14: • Spillover effects - What effect
Page 15 and 16: shedding occurring regularly due to
Page 17 and 18: III. Industry Assessments 1. Cotton
Page 19 and 20: Figure 5: Cotton Hectarage and Prod
Page 21 and 22: Opportunities The textile productio
Page 23 and 24: Impact and Feasibility Assessment I
Page 25 and 26: According to the 2006 - 2007 Annual
Page 27 and 28: for thickening, binding, texturing,
Page 29 and 30: y urban residents and a distributio
Page 31 and 32: Figure 11: Production Supply of Pig
Page 33 and 34: the world demand. 91 In other words
Page 35 and 36: Figure 14: Blantyre Chili Productio
Page 37 and 38: Lack of Adequate Supply and Quality
Page 39 and 40: Figure 15: Blantyre Groundnuts Prod
Page 41 and 42: Investment recommendation Given som
Page 43 and 44: Under AGOA, Malawi is one of the mo
Page 45 and 46: Enabling environment AGOA offers du
Page 47 and 48: Advocate for the Alleviation of Sup
Page 49 and 50: fourteen microfinance institutions
Page 51 and 52: Constraints Low and Volatile World
Page 53 and 54: Because local producers are only ab
Page 55 and 56: eaching 1.57 million tons. In terms
Page 57 and 58: volume. The new market that the com
Page 59 and 60:
Africa, where there is an average o
Page 61 and 62:
The number of visitors to Malawi ha
Page 63 and 64:
General Incentives • Allowances o
Page 65 and 66:
• Southern African Development Co
Page 67 and 68:
president Bingu wa Mutharika, has m
Page 69 and 70:
Edward Labuwana Kholomana, Nali Ltd
Page 71 and 72:
Press Corporation. Chombe Tea. http
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