Transparency of the Regulatory System
The Government of Malawi continues to undertake various reforms to ensure that no tax, labor, environment, health, safety, or other laws distort or impede foreign or domestic investment. The legal, regulatory, and accounting systems are somewhat transparent and consistent with international norms. However, procedural delays continue to impede the business and investment environment.
The Government of Malawi uses a mix of fiscal, financial, and regulatory instruments to administer its investment policy, and thus management and responsibility is spread across multiple ministries and agencies. Taxation policy is the jurisdiction of the Treasury Department in the Ministry of Finance. The Malawi Revenue Authority (MRA) is the main implementing agency for tax policy; it administers the Taxation Act and other relevant legislation. Some regulatory incentives are within the jurisdiction of their respective ministries. The Reserve Bank of Malawi (RBM) administers the market-based exchange rate of the Malawi kwacha, as well as liberal exchange controls to allow free flow of capital and earnings — repatriation of dividends, profits, and royalties. The Ministry of Home Affairs’ immigration department administers the Employment of Expatriates Policy, Temporary Employment Permits (TEPs), and Business Residence Permits (BRPs). The Ministry of Lands, Housing and Urban Development is responsible for land policy administration. Technical regulations are developed by relevant government Ministries, Departments, and Agencies (MDAs) and forwarded to the Ministry of Justice for final review and gazetting.
There are no specific regulatory guidelines for periodically reviewing regulations or conducting impact assessments. Furthermore, there are no specific criteria for determining which proposed regulations are subject to an impact assessment nor is there a specialized government body tasked with reviewing and monitoring regulatory impact assessments conducted by other individual agencies or government bodies. All technical regulations are enforced by relevant government Ministries, Departments, and Agencies.
Certain professional associations have sectorial rule-making power that amounts to regulatory power. These professional bodies include the National Construction Industry Council, Malawi Law Society, Malawi Accountants Board, and the Employers Consultative Association of Malawi. Some of these associations have set regulations that require the use of local labor, local contractors, or other means to achieve localization or skills transfer to Malawians. Such rules are printed in the Government Gazette, available from the official government printing office. As they are set by associations with closed membership, the rule-making process is not always transparent to firms that have not yet entered the Malawi market, but are considering doing so.
In 2001, the Institute of Chartered Accountants in Malawi adopted the International Financial Reporting Standards (IFRS), which are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. The IFRS are the applicable framework for all companies incorporated under the Companies Act in Malawi. Subsequently, the Institute of Chartered Accountants in Malawi has also adopted the IFRS for Small and Medium Entities Standard as the applicable framework for all non-publicly accountable entities.
Almost all proposed laws, regulations, and policies are subject to public consultation before they are submitted to Cabinet, Parliament, or the Ministry of Justice. However, sometimes the public notice of such consultations is not issued in a timely manner, with the effect that only insiders are aware of and able to plan to attend the meetings. Parliamentary procedure calls for draft bills to be debated in relevant committees before being presented on the floor for a vote. Parliamentary rules do, however, permit fast-tracking bills to avoid this step.
Copies of recent laws can generally be purchased from the government printing office or accessed at the National library and in the High Court libraries in major cities. An increasing number of laws are also available online at www.malawilii.org . The Government of Malawi has no central repository for technical regulations. Regulations are managed by relevant government Ministries, Departments, and Agencies (MDAs). These are published in the Malawi Government Gazette and form part of schedules to relevant acts. Although some of the MDAs do not have operational websites, those that do often have these laws and regulations available online. Some older regulations can be difficult to locate.
Regulations and enforcement actions are legally reviewable in the national court system. However, there is no existing requirement that regulations be periodically reviewed. The Ministry of Justice and Constitutional Affairs is mandated to provide oversight or enforcement mechanisms to ensure MDAs follow administrative processes for developing and implementing regulations. If they feel procedures were not followed, private individuals and entities can bring a case against the government in court or seek redress through the Office of the Ombudsman.
The Government of Malawi has made positive steps toward increasing regulatory transparency and improving the foreign investment environment, including the review of several rules and regulations that are relevant to foreign investors. These include: regulations on minimum wage that increase the minimum wage for apprentices; insurance regulations that increase the minimum capital and solvency requirements for life insurers to USD 1.4 million; and a customs and excise tariffs order which gives duty exemptions on capital goods and building materials for agro-processing and electricity generation, transmission and distribution.
Over the past 24 months, the Government of Malawi has implemented a number of reforms to improve the ease of doing business, such as streamlining procedures for dealing with construction permits, resolving insolvency, registering property, and consolidating procedures at the borders to facilitate smooth flow of goods. These reforms, among others, have helped Malawi improve its Doing Business ranking from 141 in 2016 to 110 in 2018.
International Regulatory Considerations
Malawi is a member of the Common Market for Eastern and Southern Africa (COMESA) Customs Union and the Southern African Development Community (SADC) Free Trade Area, which is governed by the SADC Protocol on Trade. All regulations are developed in line with the regulatory policy provisions that are set out by COMESA and SADC, but national regulations rule if there is a conflict.
As a member of both SADC and COMESA, Malawi is bound by their respective norms and standards. Details can be found on the organizations respective websites:
Since 1995, there is no record of Malawi providing notification on draft technical regulations to the WTO Committee on Technical Barriers to Trade. The last time Malawi submitted a statement on implementation and administration of the WTO Agreement on Technical Barriers to Trade was in 2007.
Malawi signed the Trade Facilitation Agreement on July 12, 2017. Malawi has made progress on implementing the FTA provisions through the launch a trade information portal with the aim of increasing transparency and predictability and ultimately boosting trade, investment, and growth. The portal provides all regulatory information on cross-border trade including laws, regulations, prohibitions, restrictions, technical standards, applicable tariffs, fees, procedures for license and permit application and clearance, copies of all forms and plain language instructions. The portal can be accessed at https://www.malawitradeportal.gov.mw/ .
Legal System and Judicial Independence
Malawi’s legal system is based on English Common Law. The judiciary consists of local courts and a local appeals court in every district. The higher tiers consist of the Supreme Court of Appeal, the High Court, and the magistrates’ courts. A chief justice and four judges, appointed by the president, preside over the High Court. It has judicial authority over all civil and criminal cases, and sits in Blantyre, Lilongwe, Mzuzu, and Zomba. Magistrates’ courts are located in cities and towns in 24 districts throughout the country. Appeals from the magistrates’ courts are heard by the High Court and those arising from the High Court by the Supreme Court of Appeal in Blantyre. The Commercial Division of the High Court deals exclusively with disputes of a commercial or business nature and is presided over by a single judge. The Industrial Relations Court handles labor disputes and issues relating to employment.
Malawi does not have written commercial law or contractual law but has legislation that governs commercial transactions which include the Sale of Goods Act, Companies Act, Employment Act, Hire Purchase Act, Insolvency Act, and Control of Goods Act. By local standards, the Commercial Courts work reasonably efficiently, with dedicated judges and their own registries. There is an established mediation process to promote agreements between parties in disputes before court proceedings start. Enforcement of judgments can be slow.
Both foreign and domestic investors have access to Malawi’s legal system, which functions fairly well and is generally unbiased. Heavy caseloads, staffing limitations, and inadequate funding, however, mean that legal remedies can take a long time to achieve. The judicial system has also been criticized for the ease with which court injunctions are granted, further contributing to the backlog and delays.
Regulations and enforcement actions are appealable and are adjudicated in the national court system. In the financial sector, regulations and enforcement actions are appealable through the Financial Services Appeals Committee. If the decision by the Appeals Committee is not accepted, local and foreign investors are free to seek judicial review through the High Court of Malawi.
Laws and Regulations on Foreign Direct Investment
Malawi recently passed a number of laws aimed at improving the investment environment, these include:
- Taxation (Amendment) Act 2017 which, among other things, increases the tax free bracket for salaried employees (up to USD 41/month) and introduces an additional income tax bracket for high income earners (over USD 4,100/month).
- Value Added Tax (Amendment) Act 2017 which revises penalties and interest for various offenses under the Act and gives tax exemption for certain essential commodities including milk, eggs, and honey.
- Customs and Excise (Amendment) Act 2017 which imposes an excise duty on airtime, television subscriptions, gaming and betting (including lotteries), in accordance with the rate prescribed by the Minister.
Competition and Anti-Trust Laws
The Competition and Fair Trading Commission (CFTC, www.cftc.mw ) was established in 2005. Since 2013, the institution has overseen 26 applications for merger and acquisition and dismantled five cartels. The CFTC’s role is to encourage competition in the economy, to regulate and monitor monopolies and concentrations of economic power, to protect consumer welfare, and to ensure the best possible fair market conditions. So far the CFTC has not disapproved any mergers or acquisitions. CFTC decisions may be appealed, first to the Board and subsequently to the Commercial (High) Court.
Expropriation and Compensation
Malawi’s constitution prohibits deprivation of an individual’s property without due compensation. There are laws that protect both local and foreign investment. However, measures that carry expropriation effects are occasionally imposed, including export bans (and implicit bans due to the government’s authority to require export licenses for any good at any time) for key commodities. These restrictions applied equally to foreign and domestic investors.
The government can employ land acquisition procedures set forth in the Land Acquisition Act of 2016. According to this Act, the government must justify its acquisition as being in the public interest and must pay fair market value for the land. If the private landowner objects to the level of compensation, it may obtain an independent assessment of the land value. According to the Act, however, such cases may not be challenged in court; the Ministry of Lands, Housing, and Urban Development remains the final judge. In most cases, land is expropriated to give way to development projects, most commonly, the construction of roads. Some have refused to relocate due to disagreements; however, these cases are usually settled amicably.
Malawi has ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). Malawi is a member of the International Center for Settlement of Investment Disputes (ICSID), accepting binding international arbitration of investment disputes between foreign investors and the Government of Malawi. Malawi’s current president is a former arbitrator for ICSID.
The Investment Disputes (Enforcement of Awards) Act of 1966 makes provision for the enforcement in Malawi of awards of the Tribunal of the International Centre for Settlement of Investment Disputes.
Malawi is not a signatory to the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Malawi does not have a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with an investment chapter with the United States. Since 1996, there have been no major investment disputes involving U.S. companies.
The court system in Malawi accepts and enforces foreign court judgments that are registered in accordance with established legal procedure. There are reciprocal agreements among Commonwealth countries to enforce judgments without this registration obligation. There is no such agreement between Malawi and the United States, but judgments involving the two countries can still be enforced if the judgment is registered appropriately in Malawi. The Embassy is not aware of any extrajudicial actions that have been taken against foreign investors in the recent past.
With respect to litigation, most cases commenced in the High Court of Malawi or any subordinate court must, where the defendant indicates an intention to defend, first go to mediation. The Assistant Registrar of the High Court maintains a list of mediators and a list of experts. The mandatory mediation is conducted by a person chosen by the agreement of the parties from the list of mediators maintained by the Assistant Registrar or, if the parties consent, a person who is not named on the list. If the matter is not settled during mediation, the action will proceed in the court in which it was commenced.
Malawi does not have an arbitration body. There is no statutory requirement for parties who have contractually agreed to arbitration to go through mediation. Parties will only be required to go through mediation before proceeding to arbitration if an agreement entered into between them requires them to do so.
The Embassy does not have available statistics on investment disputes involving State Owned Enterprises (SOEs).
The courts govern all bankruptcies under the provision of the consolidated Insolvency Act of 2016. The Act encourages alternatives to bankruptcy such as receivership and reorganization and gives secured creditors – rank-ordered based upon investment registration dates – priority over other creditors. Monetary judgments are usually made in the investor’s currency. Cross border provisions of the Insolvency Act are modeled after United Nations Commission on International Trade Law model laws. In 2017, Malawi made resolving insolvency easier by introducing a reorganization procedure, facilitating continuation of the debtor’s business during insolvency proceedings, and introducing regulations for insolvency practitioners.
Malawi has two licensed credit reference bureaus (CRBs): CRB Africa Limited and Credit Data Credit Reference Bureau Ltd. Though more banks are now willing to share data with credit reference bureaus since the passing of the Credit Reference Bureau Act came into force in August 2016, some players within the financial sector are still reluctant to share client information with the CRBs.