US embassy cable - 04LILONGWE849

UNCLAS SECTION 01 OF 02 LILONGWE 000849 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF/S, AF/EPS 
STATE PLEASE PASS TO EX-IM FOR C. MORIARTY 
STATE PLEASE PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: ETRD, ELAB, PREL, EFIN, PHUM, MI, AGOA, Economic, Industry, Trade 
SUBJECT: AGOA UPDATE FOR MALAWI 
 
REF: A. STATE 168472 
 
     B. LILONGWE 821 
     C. LILONGWE 696 
 
1. (U) SUMMARY: Malawi meets AGOA eligibility requirements 
for 2004.  The GOM continues to liberalize its economy to a 
market-based model, improve rule of law, remove barriers to 
trade and investment, reduce poverty through economic policy, 
combat corruption, and protect worker rights.  AGOA benefits 
have driven steady growth in Malawi's garment industry over 
the past year, one of the bright spots in a generally 
stagnant economy.  Malawian leadership recognizes the 
importance of AGOA's contribution to growth in the 
manufacturing sector and is committed to maintaining AGOA 
eligibility.  END SUMMARY. 
 
2. (U) MARKET ECONOMY: Malawi continues to move from the 
predominantly state-controlled economy of the Banda years to 
a market-based economy.  The Privatization Commission was 
established shortly after political liberalization and has 
privatized 68 companies since 1996.  Several large and 
profitable state enterprises were privatized in 2003, 
including the country's fabric manufacturer and a large grain 
milling operation.  The state telecommunications company is 
in the final stages of a privatization deal, and other 
state-owned utilities are targeted for privatization in the 
near to medium term.  President Mutharika has instituted a 
temporary moratorium on privatizations, with the stated 
objective of ensuring financial probity in pending deals. 
The GOM encourages domestic and foreign investment in most 
sectors of the economy, without restrictions on ownership or 
size of investment.  The Competition and Fair Trading Act is 
aimed at strengthening the private sector by regulating and 
monitoring monopolies and protecting the interests of the 
consumer.  Malawi's macroeconomic problems, mainly a result 
of fiscal indiscipline, have hampered liberalization to some 
extent, but we anticipate that stability on this front will 
bring further liberalization. 
 
3. (SBU) RULE OF LAW, POLITICAL PLURALISM, DUE PROCESS: 
Malawi's fledgling democracy held its third democratic 
elections in May 2004 and saw a peaceful first transition 
between democratically elected presidents.  International 
observers noted several shortcomings in the electoral 
process, including inequitable access to the state-owned 
media, the ruling party's use of state resources to campaign, 
and poor planning and administration by the Electoral 
Commission.  Without meaningful public discussion of the 
issues and without reasonable confidence in the Electoral 
Commission's handling of the process, the Malawi elections 
lacked some key elements of a fully democratic process. 
Since the election, however, there has been an active public 
debate about the Commission's performance, and the head of 
the Commission has since resigned.  Although no political 
party won an outright majority in Parliament, the ruling 
party secured a working majority through alliance building. 
In addition to the eight political parties represented in the 
House (up from four), a record number of independents won 
seats. 
 
4. (U) BARRIERS TO U.S. TRADE AND INVESTMENT: Malawi is a 
member of the WTO and two regional trading blocs: SADC and 
COMESA.  Through these organizations, the country has adopted 
a substantially free and fair trade regime.  Real barriers to 
trade and investment are nearly all practical: transport 
costs, infrastructure gaps, and macroeconomic problems.  The 
GOM participates actively in the National Action Group, a 
forum for government, private industry, and civil society to 
jointly guide policy for trade, investment, and private 
sector development. 
 
5. (U) POVERTY REDUCTION: The GOM has had an active poverty 
reduction strategy since at least 2000, as part of the Highly 
Indebted Poor Countries debt relief initiative.  It is 
currently under consideration for assistance from both the 
World Bank and the International Monetary Fund, following 
suspension by both institutions in the last year of former 
president Muluzi's second term.  Both institutions consider 
the new administration to be making great progress toward 
fiscal responsibility.  The IMF is expected to institute a 
Staff Monitored Program in September, and the Bank is 
expected to begin a structural adjustment credit in the same 
month.  The GOM works closely with these international 
financial institutions, and with donor states, in setting the 
direction of Malawi's spending on pro-poor expenditures, 
which are currently at 6.5 percent of GDP.  GOM policies 
place special emphasis on education, health, agriculture, and 
private sector development. 
 
6. (SBU) COMBATTING CORRUPTION: Malawi's new president has 
made fiscal responsibility, good governance, and 
anti-corruption efforts his top priorities.  Funding for the 
generally effective Anti Corruption Bureau has been doubled, 
and the Director of Public Prosecutions has been replaced, as 
has the Attorney General.  Several high-level political 
figures have been named as targets for investigations and 
pending prosecutions.  While it is still early for 
convictions, all signs are that the GOM is finally committed 
to rooting out corruption. 
 
7. (U) WORKER RIGHTS: Malawi's labor laws are mostly in 
compliance with the ILO's core labor standards.  A chronic 
lack of resources continues to hamper enforcement, however. 
The Constitution and employment laws comply with the Minimum 
Age Convention (ILO 138), and the Worst Forms of Labor 
Convention (ILO 182).  Bound by limited resources, the GOM 
has yet to realize its plans for a public education program 
on child labor, and focuses on the underlying conditions for 
child labor, including rural poverty and the impact of 
HIV/AIDS on families and the labor force. 
 
8. (SBU) Embassy considers that despite periodic setbacks, 
Malawi is making progress in its AGOA eligibility measures. 
The 2004 elections may represent a step forward in many 
areas, particularly in achieving macroeconomic stability and 
reestablishing good governance.  In view of this and of the 
substantial benefits of AGOA to date, we strongly recommend 
that Malawi remain eligible for AGOA. 
 
 
 
RASPOLIC