INVESTMENT AND INVESTMENT PROMOTION Investment Trends in Africa Overall the bulk of the FDI inflows in 2005 went to South Africa, Egypt and Sudan in that order, all of which recorded inflows in excess of USD 1 billion each during this period. Within the SADC region South Africa recorded an 800 per cent increase in its inflows, which surged to USD 7.2 billion, boosted by Barclay's acquisition of a controlling stake in South African based ABSA bank. Angola remains the other key destination of FDI inflows in the region. During 2005, Malawi's performance in attracting FDI inflows improved substantially over that in 2004. At the level of USD 52 million, FDI inflows recorded an 80 per cent over increase the levels recorded in 2004. FDI inflows into Africa are projected to increase further in the medium term. For most countries, the bulk of this FDI will remain concentrated in resources-based industries, whereas FDI flows and corporate investor interest in other sectors will be limited to just a few key markets. When viewed in the global context, the African continent captures just about 3 percent of total global FDI compared with developing Asia, which receives nearly one in every four FDI dollars. Furthermore, FDI remains more of a lagging than a leading factor in growth and development in the region. There is need for targeted public and private sector initiatives that link industry, education, human capital and institutional capacity-building in order for the bulk of the FDI to assist in a creating a cycle of economic growth, job creation and rising incomes. Investment Performance in 2005 Foreign Direct Investment into Malawi increased from USD 28.9 million in 2004 to USD 52.0 million in 2005. According to the UNCTAD's inward FDI performance index for 2004, Malawi dropped in rankings from 110 in 2003 to 119 out of 140 economies that were surveyed. The World Investment Report 2005 classifies Malawi among the economies that are still performing below their potential in attracting FDI inflows. Inward investment in 2005 generated employment opportunities for about 5,700 people. Most of the FDI inflows recorded in 2005 were in the form of new investments and there was very little investment in the form of mergers and acquisitions or expansion of existing investments. In terms of origin, the bulk of the FDI (about 80 per cent in volume terms) originated from a few sources namely; Republic of China (Taiwan), South Africa, Pakistan and India. Domestic investment was also quite significant, amounting to over 12 per cent of the total investment. On the sectoral composition of the FDI, the bulk of the inflows went to the manufacturing sector with about 76.6 per cent. This was followed by services with 14.7 per cent and tourism with 7.2 per cent. These statistics show a very heavy concentration of private investment both in terms of their origin as well as sectoral composition. Investment Prospects for 2006 Both domestic investment and FDI inflows into Malawi are expected to continue on the upward trend. This is largely attributed to the further consolidation of prudent macroeconomic policies as well as other policy and structural reforms being undertaken by Government. All these initiatives are part of the broader policy context of private sector development aimed at creating a competitive economy that is both production and export oriented. During the last quarter of 2005, the Malawi Investment Promotion Agency (MIPA) initiated the review of the Statement of Investment Policy and investment incentives. This initiative is aimed at updating the policy in order to make it more relevant to the current economic development agenda. By addressing the uncompetitive elements within the current investment environment, the review will improve Malawi's competitiveness relative to the region as an attractive environment for doing business and locating investments. Beyond the exercise of reviewing the policy, the Investment Promotion Act (1991) will subsequently be updated to reflect the changes in the policy. In the past few years, investment promotion activities have been greatly affected by the delays in the implementation of the merger of the Malawi Investment Promotion Agency (MIPA) and the Malawi Export Promotion Council (MEPC). Government has now signalled its commitment to conclude the MIPA/MEPC merger during 2006. This is a welcome development, as it will enable the successor institution to refocus its approach and undertake effective investment promotion for Malawi. The Balance of Payments and Investors Perceptions Survey was undertaken during 2005 and the results are expected in 2006. This survey of private sector firms throughout the country is aimed at generating information on capital flows into and out of Malawi, private sector debt and the investor perceptions on the investment and business environment in Malawi. The results from this exercise will feed into the investment policy review process as well as programming for investment promotion by MIPA. As part of the effort to integrate into the regional investment framework, Malawi is participating in the negotiations for the agreement to establish the COMESA Common Investment Area (CCIA). Two rounds of negotiations on the draft agreement were held during the period under review. One of the requirements of this agreement is for member countries to prepare exclusion list/sensitive lists of the sectors and economic activities that may not be covered by the provisions in the agreement. Malawi will develop its exclusion list during 2006. Investor Applications A total of 180 applications for Temporary Employment Permits were made during 2005 to the Investment Approvals Committee under the One Stop Investment Centre out of which 153 were approved, representing an approval rate of 85.0 percent. Table 6 shows the numbers of Investment Certificate, Temporary Employment and Business Residence permit approvals for 2005 by quarter. Table 6: During the same period, a total of 74 applications for Business Residence Permits were made, of which 47 were approved, representing an approval rate of 63.5 percent. The total number of Investment Certificates that were issued through the One Stop Investment Centre during 2005 were 56 out of the total of 72 applications representing an approval rate of 77.8 per cent. Key Issues Affecting FDI Economic infrastructure remains a major impediment to increased investment in the Malawi economy. The privatization of the Malawi Telecommunications Limited (MTL), the sole fixed telephone network operator to Telecom Holdings Limited (THL), a consortium of private sector firms led by Press Corporation and NICO Holdings, offers the opportunity to substantially upgrade the capacity and network of the fixed telephone lines, leading to increased coverage and better levels of service. The energy sector capacity constraints continue to pose serious threats to the medium term prospects for attracting substantial new investment into the economy. The utility provider ESCOM embarked on a rehabilitation exercise of Tedzani 1 and 2 to return to the system the capacity that was lost when the two plants were non- operational. The efficiency and cost of the transportation, logistics and distribution chain in Malawi continues to impose very high costs of operation to business enterprises in Malawi and consequently, making the economy uncompetitive and a less attractive location for private investment. Bureaucratic and administrative procedures continue to negatively affect investment and business operations in Malawi. The bureaucracy is manifested in unclear demarcation of responsibility between key stakeholders and the spread of authority on the various elements of the investment process. These obstacles lead to many problems including weaknesses in enforcing regulations; overlapping regulations that lead to coordination problems; lengthy and bureaucratic procedures unnecessary delays in the processing and decision-making as well as limited transparency. In order to improve on these issues, the administrative, regulatory and legal framework for investment will feature very highly in the ongoing investment policy review.
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