US embassy cable - 04LILONGWE154

UNCLAS SECTION 01 OF 03 LILONGWE 000154 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR AF/S, AF/EPS 
DEPT PASS USTR/WJACKSON 
TREASURY FOR OASIA 
DOC FOR 4510/ITA/MAC/ANESA/OA 
 
E.O. 12958: N/A 
TAGS: ETRD, EFIN, KPAO, MI, Economic, Trade 
SUBJECT: MALAWI UPDATE FOR PRESIDENT'S AGOA REPORT 
 
REFS: A) 03 Lilongwe 332; B) 03 Lilongwe 892; C) 03 Lilongwe 
 
1004; D) 03 Lilongwe 1121; E) 03 Lilongwe 1202 
 
Summary 
------- 
1. (SBU) Malawi's AGOA exports (excluding GSP) continued to 
grow in 2003, and now exceed $58 million.  More than $20 
million of those exports are clothing, and a fifth garment 
company began operations.  Privatization and reorganization 
of Malawi's primary textile manufacturer may extend the AGOA 
supply chain down through Malawi's cotton ginners to cotton 
growers, spreading AGOA's benefits to more Malawians.  The 
GOM's weak fiscal performance, deteriorating perceptions 
about anti-corruption efforts, and approaching 2004 
elections have led to some uncertainty for investors. 
Additional regional assistance for local exporters to comply 
with U.S. sanitary and phyto-sanitary regulations would 
remove a potential irritant in the trade relationship.  End 
Summary. 
 
AGOA Trade and Investment 
------------------------- 
2.  (U) Most new economic activity in Malawi that has 
occurred under AGOA has been in the textile and apparel 
sector.  Malawi was approved for AGOA textile and apparel 
benefits in August 2001.  Two Taiwanese-owned firms, HAPS 
Investments and Chirimba Garments, immediately began 
exporting under AGOA once Malawi was approved.  Currently, 
five companies -- HAPS, Chirimba, Crown Fashions (local), 
and Giant Clothing (South African), and Knitwear Industries 
(local) -- are approved under the AGOA visa system. 
 
3.  (U) The fifth company, Knitwear Industries, started its 
AGOA exports during 2003.  With its operations, the number 
of jobs tied to AGOA producers grew slightly in 2003, with 
the five companies now employing approximately 7,500 
workers.  (Note: Managers are reporting more variety in 
their export contracts, making it difficult to label 
particular positions "AGOA jobs.") 
 
4.  (U) A further positive development in 2003 was the 
privatization of David Whitehead and Sons (DWS), Malawi's 
primary textile producer.  Mismanagement at DWS had kept it 
from supplying textiles to Malawi's garment-makers and had 
led to fears that the expiration of the "third country 
fabric" provision of AGOA would leave garment-makers without 
a ready source of AGOA-eligible (and competitively priced) 
fabrics. 
 
5.  (SBU) Comment: Embassy is pleased to note that Knitwear 
Industries's AGOA exports and the privatization of DWS.  The 
owner of Knitwear Industries is Chairman of Malawi's Garment 
and Textile Manufacturers' Association, and he has been a 
key partner of the Embassy's in advancing AGOA.  DWS's 
privatization has been an Embassy goal since 2001, and it is 
hoped that its revitalization under new ownership will link 
garment-makers to Malawi's cotton growing and ginning 
sectors, deepening Malawi's AGOA supply chain, and spreading 
AGOA's economic benefits to more Malawians.  End Comment. 
 
Market Economy/Economic Reform/Trade Barrier Elimination 
--------------------------------------------- ----------- 
6.  (U) The GOM has made a basic commitment to the 
principles of market economies.  It encourages both domestic 
and foreign investment in most sectors of the economy, 
without restrictions on ownership, size of investment, 
source of funds, and destination of final product.  The 
Competition and Fair Trading Act -- passed in November 1998 
and made operational in April 2000 -- aims to regulate and 
monitor monopolies and the concentration of economic power, 
protect consumer welfare, and strengthen the efficient 
production and distribution of goods and services.  Although 
basic structures are in place, weak government fiscal 
performance has hampered growth and continues to create 
excessively high interest rates. 
 
7.  (U) The government continued to make progress in 2003 
with its multi-sector privatization program, under which it 
has sold off 61 of approximately 110 targeted companies 
since 1996.  Completed privatizations in 2003 included the 
Cold Storage Company, Grain and Milling, and the 
aforementioned David Whitehead and Sons.  On-going 
privatizations include Malawi Telecommunications Limited and 
Air Malawi. 
 
Rule of Law/Political Pluralism/Anti-Corruption 
--------------------------------------------- -- 
8.  (U) Malawi's fledgling democracy has produced elections 
in 1994 and 1999 declared substantially free and fair by the 
international community.  Its third presidential and 
parliamentary elections are scheduled for May 2004.  Some 
inter- and intra-party violence has occurred in the run-up 
to the elections, and opposition access to state-owned media 
will be a key question in assessing the election's fairness. 
 
9.  (U) Malawi's Constitution guarantees basic freedoms and 
respect for civil liberties, including freedom of speech, 
religion, and assembly.  Malawi has a fairly independent but 
overburdened judiciary, which derives its procedures from 
English Common Law.  The judiciary demonstrated its 
independence in 2003, putting injunctions in place against 
several parliamentary actions deemed illegal. 
 
10.  (U) The GOM's Anti-Corruption Bureau (ACB) has actively 
pursued public and private corruption.  The ACB, however, 
has not been successful in prosecuting high-profile cases, 
and the Government has blocked attempts to give the ACB more 
prosecutorial independence.  This has led to a deterioration 
in perceptions of corruption in Malawi. 
 
Poverty Reduction 
----------------- 
11.  (U) Since 1981, Malawi has undertaken economic 
structural adjustment programs supported by the World Bank 
(IBRD), the International Monetary Fund (IMF), and other 
donors.  Malawi reached the decision point for its Highly 
Indebted Poor Country (HIPC) debt relief program in December 
2000 and has since developed its Poverty Reduction Strategy 
Paper, which was launched in 2002.  While Malawi continues 
to work with these institutions and to use the Poverty 
Reduction Strategy as the central planning document for 
government budgeting, a lack of fiscal discipline has led to 
weak growth and macroeconomic instability, limiting overall 
poverty reduction. 
 
Labor/Child Labor/Human Rights 
------------------------------ 
12.  (U) Malawi's labor laws cover the majority of the ILO's 
core labor standards.  However, a lack of resources hampers 
government enforcement and tripartite cooperation. 
 
13.  (U) On child labor, Malawi's Constitution and 
employment laws comply with the Minimum Age Convention (ILO 
138), and the Worst Forms of Child Labor Convention (ILO 
182), but resource constraints -- both human and financial - 
- hamper enforcement.  A 2000 Malawi Demographic and Health 
Survey estimated that 9% of Malawian children aged 5-14 were 
working for non-relatives, about two-thirds without pay, and 
that 27% of Malawian children were either working for a non- 
relative (paid or unpaid) or doing more than four hours of 
household chores per day. 
 
14.  (U) During 2003, the public-private Child Labor Task 
Force has continued to expand its membership among labor, 
private sector, and NGO organizations.  The Task Force's 
2003 initiatives have included lobbying the Ministry of 
Labor to develop an action plan specifically devoted to 
curbing child labor.  The Ministry agreed, and it increased 
its personnel to include desk officers for child labor 
issues. 
 
15.  (U) Embassy is unaware of any GOM activities that 1) 
undermine the foreign policy or national security interests 
of the United States, 2) engage in gross violations of human 
rights, or 3) provide support for international terrorism. 
 
AGOA Outreach/Technical Assistance 
---------------------------------- 
16.  (U) The following are examples of outreach or technical 
assistance projects that have occurred in Malawi in the past 
year: 
 
--The Mission solicited and then supported visits from 
regional APHIS and USAID representatives to provide 
technical assistance and outreach on pest risk assessments 
and more general sanitary and phyto-sanitary issues. 
 
--The Public Affairs Section programmed the regional APHIS 
representative to speak to students at the Bunda College of 
Agriculture on agricultural opportunities under AGOA. 
 
--The Public Affairs Section continued a campaign to promote 
AGOA awareness.  This included print interviews with the 
Ambassador and Econ/Commerical Officer, public speakers, and 
a radio call-in show featuring Embassy personnel. 
 
--The Mission, in conjunction with the regional USAID hub, 
provided technical assistance to Malawians interested in 
exporting under AGOA's Article 9 provisions on hand-crafted 
items. 
 
--The Mission sent the CEO of Malawi's Confederated Chambers 
of Commerce and Industry on an International Visitor program 
covering U.S.-Africa economic ties.  The visitor, who has 
been active in promoting AGOA through various GOM task 
forces, participated in the annual AGOA forum as part of his 
I.V. program. 
 
Trade Capacity Building Needs 
----------------------------- 
17.  (SBU) The Mission continues to advocate that Malawian 
exporters think beyond garments and textiles, and the 
natural avenue for Malawi should be agricultural exports. 
As noted by other posts in the region, difficulties in 
dealing with U.S. sanitary and phyto-sanitary requirements 
are starting to be perceived as a deliberate non-tariff 
barrier to trade.  Greater regional resources devoted to 
helping countries understand and comply with U.S. 
regulations would both reduce this misperception and broaden 
AGOA's local beneficiaries. 
 
Browning