US embassy cable - 05LILONGWE188

UNCLAS SECTION 01 OF 02 LILONGWE 000188 
 
SIPDIS 
 
AIDAC 
 
USAID FOR AFR/DP SMITH, KNEPP 
USAID FOR AFR/SD WESTNEAT, SIEGEL 
USAID FOR AFR/SA TOURE, HAGELMAN, LOKEN, FLEURET 
USAID FOR PPC/AA FELDSTEIN 
USAID FOR EGAT/PR/MD, CHALMERS, FIELD, YOUNG 
DEPT FOR AF/S, INR/CGI, PM/ISP 
 
E.O. 12958: N/A 
TAGS: EAID, EAGR, ECON, EINV, EFIN, ETRD, KMCA, MI 
SUBJECT: NATIONAL ACTION GROUP 
 
1. Summary: Over the past year, Malawi has seen a 
remarkable reversal in the level of importance the GOM 
has placed on the role of the private sector in 
contributing to economic growth and poverty reduction. 
Now, more than ever, the US Mission is uniquely 
positioned to contribute significantly to the advancement 
of prosperity by increasing economic growth through 
expanded trade and investment. While this most positive 
development began to take root several years ago with the 
creation of the National Action Group NAG - a senior 
level forum for the discussion and resolution of issues 
that affect the performance of the private sector in 
Malawi - it has now become a national priority for the 
new Government. The NAG, with USG support, has achieved a 
number of successes through improved dialogue. Central 
has been the development of the Malawi Economic Growth 
Strategy which has become a key document for the GoM on 
how to address problems with the development of a 
thriving private sector that can generate growth, jobs, 
exports, improved incomes and governmental revenues. 
While many of these solutions have been incremental and 
opportunistic, they typify this new, more collaborative 
approach toward improving the business climate in Malawi. 
 
2. The country's new President, Bingu Wa Mutharika, who 
assumed responsibility for development of the Malawi 
Economic Growth Strategy while former Minister of 
Economic Development, now serves as the major champion in 
the process of transforming the economy from one 
predominantly owned and controlled by the state to one 
where private sector actors and decision makers are the 
engine of economic growth. The President underlined this 
important policy shift in his "Road to Prosperity" 
inaugural speech, setting the stage for future private 
sector reforms: I am convinced that the roadmap to 
prosperity dictates that we should have effective private 
sector reforms that aim at creating a conducive and 
enabling environment for domestic and foreign investment. 
 
3. The Mission continues to take advantage of this new 
government willingness to enhance the competitiveness of 
Malawi's private sector. USAID is providing technical and 
logistical support for a private sector reform agenda led 
by the National Action Group NAG. The NAG is a tri- 
partite body made up of ministerial-level representatives 
from the GOM, CEOs of leading private investment and 
business organizations, and Heads of Missions and 
technical specialists from donor agencies working to make 
Malawi a better place to do business. The NAG is 
apolitical and seeks only to advance the development of 
the private sector to assist in alleviating poverty in 
Malawi. The NAG is a forum, not a formal organization - 
it has no legal basis or identity, but draws its mandate 
from its participants who are able to commit their 
respective organizations to specific activities that they 
jointly decide to pursue. 
 
4. Rather than seeking to ensure that all disparate 
interests are directly represented, in a deliberate 
effort to keep the size of the group small and efficient, 
the NAG seeks to bring together the key decision makers 
that affect the national economic environment. However, 
to ensure accountability and representation of wider 
views, the NAG is developing mechanisms for consulting 
more widely with all stakeholders and for improved 
feedback processes. The NAG's forum is its bi-monthly 
meetings, with an emphasis on decision-making and 
reporting of action and progress. The method of working 
is businesslike, with participants held accountable for 
the commitments they make; and the style is informal, 
with first name terms for all members. Discussion has 
been robust, honest and constructive - it is not a forum 
to criticize other stakeholders, but controversial issues 
are discussed openly to promote achievement of the 
Group's private sector development objectives. This also 
involves events with wider stakeholders and an e- 
bulletin. 
 
5. The NAG has achieved a number of successes through 
this improved dialogue. Many of these accomplishments 
have been centered around the development of the Malawi 
Economic Growth Strategy which has become a key document 
for the GoM on how to address problems with the 
development of a thriving private sector that can 
generate growth, jobs, exports, improved incomes and 
governmental revenues. Many of the solutions achieved to 
date have been incremental and opportunistic, but 
together they are working to improve the business climate 
in Malawi. Some examples include: 
 
-a. Highlighting the uneven application of the rules on 
cross rates when converting one currency to another to 
pay international suppliers. 
 
-b. Review of withholding tax implementation for 
smallholders to receive more equitable treatment in key 
sub-sectors. 
 
-c. Raising the issue of license fees for electricity 
generation meant to apply only to those who generate 
electricity for sale, rather than for consumption. This 
problem has been resolved by legislation. 
 
-d. Highlighting a list of pending applications for duty 
rebate by the Ministry of Finance for timely subsequent 
government action. 
 
-e. Facilitating dialogue on the electricity crisis 
during the first quarter of 2004, increasing the focus 
for medium and longer-term energy solutions. 
 
-f. Completing value-chain assessments of the priority 
sectors identified in the Malawi Economic Growth 
Strategy, including the three existing "core" sub-sectors 
for the economy i.e., tea, sugar and tobacco, and five 
high potential growth sub-sectors i.e., cotton, textiles 
and garments, agro-processing, mining and tourism. 
 
-g. Spearheading the appointment of desk officers for key 
sub-sectors of the economy. The NAG has been instrumental 
is seeking the appointment of desk officers for key sub- 
sectors of the economy at Ministry of Commerce and 
Industry, and Ministry of Agriculture to act as primary 
points of contact in government for industry. Such desk 
officers are now in place for the textiles and garments, 
agro-processing, trade and cotton sub-sectors. 
 
6. Comment: In the past, one of the major contributing 
factors to poor policy-making in Malawi has been the weak 
dialogue between public and private sectors at all 
levels. The Malawi Economic Growth Strategy and the 
National Action Group have attempted to address this 
weakness by providing a forum for a direct dialogue 
between key government decision makers and their private 
sector counterparts on key issues affecting the country's 
private sector growth and development. As a result of its 
initial successes, the NAG has progressively become the 
focal point for dialogue between government, private 
sector and donors on issues relating to private sector 
development in Malawi. The key challenge for the NAG will 
be to build on these initial successes to maintain the 
excellent results and momentum the Group has achieved to 
date. 
 
GILMOUR