MALAWI EXPORT PROMOTION PROGRAMME: AN OVERVIEW OF OBJECTIVES, STRATEGIES, CONSTRAINTS AND OPPORTUNITIES A PRESENTATION AT THE REGIONAL EXECUTIVE FORUM ON NATIONAL EXPORT STRATEGIES: NAIROBI, KENYA: 26-28 NOVEMBER,2001 BLANTYRE MALAWI OCTOBER 2001
1.0 INTRODUCTION 1. 1 CORPORATE OBJECTIVES AND INSTITUTIONAL FRAMEWORK 1.1.1 In Malawi, the Malawi Export Promotion Council (MEPC) is the designated institution responsible for promotion of exports. In pursuance of its mandate, MEPC is supported by other institutions such as the Malawi Investment Promotion Agency (MIPA), Malawi Confederation of Chambers of Commerce and Industry (MCCCI)., Malawi Bureau of Standards (MBS), and Small Enterprise Development Organisation of Malawi (SEDOM). 1.1.2 The Malawi Export Promotion Council was established by an Act of Parliament in 1971 with the objective of facilitating the development of Malawi s export trade. Its main functions as prescribed in the Act are: (i) (ii) (iii) (iv) (v) To promote the export of agricultural and manufactured goods produced in Malawi; To gather, collate and make available to exporters in Malawi information and statistics in export marketing and export market trends; To coordinate the operations of statutory bodies and of other persons directed towards the export of Malawi products; To organize and operate trade fairs inside and outside Malawi and to organise and arrange for representation by Malawi exhibitors at trade fairs organised by other bodies in Malawi and elsewhere; and To implement Government export policy. 1.1.3 In order to effectively meet its corporate objectives, the council is organised on the basis of its four professional sections namely: Product and Market Development; Trade Information and Publicity; Finance, Procedures and Training; and Commercial Representation abroad, with a supportive administrative wing. 1.1.4 The Council s corporate mission s export strategy aims at:- (i) (ii) (iii) Maintaining the already developed export markets while concentrating on improvement on quality so as to be competitive on the international markets. Developing new products for export Penetrating and developing new markets for existing and new products
(iv) (v) (vi) Encouraging investment for export oriented development programmes. Developing a cadre of trained personnel in international marketing management. Creating awareness of Malawi s export products abroad and enhancing information flow on foreign trade opportunities to Malawi s exporting and business community. 2.0 THE EXPORT DEVELOPMENT STRATEGY The strategy for achieving the corporate objectives and achievements are reflected in the Council s five-year strategic plans. Primarily, the Council s strategy in meeting the set objectives entails the creation and enhancement of Malawi s export competitiveness through product and market development (research and development), trade information dissemination, training, institutional capacity building and trade representation abroad. 2.1 Product and Market Development The product development strategy focuses on product diversification through promotion of high-value products through further processing and manufacturing in an effort to broaden the export product base.. Efforts hinges on selected products with established supply and market potential. The strategy also entails undertaking country-wide supply surveys to establish supply potential and production bottlenecks and identify appropriate solutions such as establishment of export production villages (EPVs) to enhance product quantity for export, among others. Under the strategy, various feasibility studies have been undertaken including one on horticultural production for export which led to the establishment of the horticultural pilot project. Furthermore the Council successfully developed Paprika as an alternative foreign exchange earner to traditional exports as part of the Councils product diversification strategy. Presently the Council is working on a number of products including mushrooms for export development. In total a list of up to 8 products is lined up for export development in the Council s next 5 year strategic plan from 2002 to 2006. Under market development, the overall strategy aims at export market diversification, consolidation and expansion through market surveys. In its efforts to identify export opportunities for Malawi products and diversify the market base, the Council has undertaken a number of market surveys mostly with donor assistance. Such surveys have been undertaken in COMESA/SADC region (Zimbabwe, Zambia, Botswana, Mauritius, Kenya, Burundi, Tanzania, Mozambique, South Africa, Zambia, Zanzibar, and Zaire), the EU (UK, West Germany, France and the Netherlands), the USA and Canada, Sweden, Finland, Japan, Cameroon, Gabon, and the Middle East. In most cases the surveys revealed that there were good market opportunities for a wide range of Malawi products. The surveys have usually been followed up by trade fair participation and contact promotion programmes. Consequently, the Council has over the years been organising Malawi s participation in 2
Trade Fairs. The strategy has included participation in general as well as specialised fairs both within the sub-region and in Europe. This promotional strategy has also included organisation of buyer/seller meetings and Trade Missions in various countries including Zambia, Zimbabwe, Tanzania, South Africa, Mozambique, Mauritius, Botswana, Sweden, Netherlands, West Germany, UK, Kenya, Burundi, the United States of America, Switzerland and France. In view of the rapid changes in the market place, there is need to undertake follow-up surveys in the target markets so as to avail exporters with latest market information. In addition, an Enterprise programme could be launched to target assistance to selected companies with established production capacity and export potential. The assistance would involve exploration of export markets; advising the companies on product adaptation and eventually taking them on marketing/trade missions. 2.2 Trade Information Services The strategy in trade information involves the collation and dissemination of trade information to the business community both in Malawi and abroad through publications, inquiry-reply service, and a documentation centre. The Council has consequently continued to provide advisory services to the business community on trade related issues. It has been disseminating market information through the quarterly Export News. The Council has also continued to produce the Malawi Products Handbook bi-annually which provides information on Malawi s economy and exporters profiles by company and products. In addition, the COMESA trade information data base incorporating trade statistics, COMESA enterprises and trade control measures has been computerised. This has enabled improved dissemination of trade information particularly from the COMESA region. Despite this, the network is not adequate to meet the ever increasing trade information needs of the private sector. Malawi Export Promotion council also operates a trade documentation unit which acts as a reference library for the business community. The library contains books, periodicals and published statistics in various aspects of international trade. The Council is presently in the process of setting up a business information center to offer trade information services including internet services to the business community. This project is being jointly funded by Commonwealth Secretariat (COMSEC) and the Malawi Government. There is however need for more computer hardware and software to enhance its long-term effectiveness. 3
2.3 Finance and Procedures This programme is intended to assist in the creation of a climate conducive to export business through identification of constraints and solutions thereof. The Council has initiated consultations with both the Government and the business community with regard to creating an enabling environment for exporters. These consultations culminated in the enactment of the Export Incentives Act. While the Act has been attacked for being inadequate and for offering mainly tax exemptions which cannot be used for quoting competitively, it is still considered a step in the right direction. Added to this has been the establishment of Export processing Zones (EPZs). 2.4 Manpower Development The Council has been organising export training events locally and facilitated Malawians participating in such events abroad. Essentially the manpower development strategy involves the training of both potential and existing exporters and MEPC staff in various fields of export management in order to initiate and enhance understanding of the export business. However the private sector feels the training should be more focused by targeting exporters with the ability to adapt training skills to realities of third world economies upon return. 2.5 Commercial Representation Abroad The strategy for commercial representation involves placement of trade attaches in main export markets to enhance market penetration and development. The Council considers this activity to be of strategic importance as it is the conventional way of gathering, evaluating and interpreting market intelligence for the formulation of appropriate marketing programmes. Initial efforts have rested with the establishment of Trade Attaché offices in Zimbabwe (Harare) and South Africa (Johannesburg). Efforts are currently underway to establish trade and investment attaché offices in UK (London) and USA (Washington) and hopefully funds permitting, the programme will extend to European Union (Brussels) and Asia (Taiwan). Exporters have expressed the need to place well qualified and experienced professionals in the missions. 2 EXPORT PERFORMANCE AND DIRECTION OF TRADE TO-DATE 3.1 Malawi s domestic exports have on average been increasing in nominal terms over the years, mainly due to the depreciation of the Malawi Kwacha in the first half of the last decade and subsequent years. In real terms average export prices declined as a result of depressed market conditions and low volumes on most export products. In the successive years to 1994, the agricultural sector 4
production slacked due to persistent drought that the country experienced. Thereafter, Malawi s export performance improved mainly due to favourable weather conditions that resulted in increased agricultural output. The liberalised economic policies also contributed to the increased output in the agricultural sector. 3.2 Since 1995 to 2000 exports have been increasing at an average 56.2% per annum in nominal terms, from MK6,785.2 million in 1995 to MK25,842.5 million in 2000 (see table 1 attached). 3.3 The bulk of Malawi s exports have continued to be destined for the traditional markets of the United States of America, Germany, South Africa, United Kingdom, Switzerland, Japan and the Netherlands, who together account for more than 60% of Malawi s total exports (see table 2 attached) 4.0 CONSTRAINTS Despite the opportunities existing for Malawi products and some achievements made, full implementation of the strategic plan has been constrained by a number of factors including the following:- 4.1 Financial Constraints The Council s promotional programmes have been inadequately funded. The Council is funded by Government subvention which is mostly not adequate. As a result some of the Council s promotional activities have been funded by external donors notably, UNDP (through ITC, UNCTAD/GATT), EU and Commonwealth Secretariats Fund for Technical Cooperation (CFTC). With the assistance from these organisations, complemented by counterpart funding from Government, the Council has been able to undertake a number of activities. This financing has mostly been forthcoming for activities of the donors interests. Such funding has generally been unassured and limits long term strategic planning. It is for this reason that consultancies on the Council s long term export development strategy and its assured source of funding have recommended the raising of funds through a levy on luxury imports, which has unfortunately not been approved by Government. The financial base to support export activities has been broadened due to the establishment of additional financial institutions. Despite this positive development, it is still difficult for the exporters to access the finance due to high interest rates and conservative lending terms which require reasonable collateral before credit is extended. 4.2 Low Supply Position While the Council has made some efforts in establishing market demand and contacts in a number of export markets, a major constraint to developing these market leads into actual business has been inadequate supply on the part of Malawian exporters. Main factors affecting supply positions has been:- 5
(i) Weather Conditions Agricultural Exports which form the bulk of Malawi s exports tend to be affected by both weather conditions and decline in prices on the international markets. In the first half of the 1990 s, a variety of exportable commodities were affected by poor weather conditions resulting in both reduction in volumes and deterioration in quality. (ii) Fragmented Production and Low Productivity Production by smallholder farmers is not properly organised. For a number of non-traditional agricultural products, production is fragmented leading to low surpluses as a result of small land holdings and product uncompetitiveness due to long distances exporters have to travel in various parts of the country to obtain enough produce to meet their export orders which increase the unit cost of the product. For agro-processed exports, low output of the agricultural materials which serve as inputs to export production have led to capacity under utilization leading to low production. 4.3 Unstable Macro-Economic Environment The depreciation of the Kwacha against currencies of major trading partners makes it expensive to import raw materials including agricultural inputs leading to reduced production. Similarly high interest rates and inflation are a disincentive for exporters to borrow for pre-shipment finance as such rates are not conducive to long-term investment. 4.4 Expensive Transport Routes Being a land locked country, exporters have no choice but to use the long and expensive routes to the sea. While FOB prices for most Malawi s products could be competitive, the high transport costs have made some of these products uncompetitive on the world export market. 4.5 Lack of Expertise in Export Management There is generally lack of expertise in export operations among Malawian exporters. There is significant lack of business management know-how which would have otherwise enabled them to do a proper market analysis before plunging into any business deal and react quickly to changing market situations. It is for this reason that training is one of the major functions of the Council. 6
4.6 Lack of Export Financing Facilities There is significant lack of export financing to carter for the short medium term credit needs of the small and medium scale exporters despite the introduction of additional financial institutions due to high interest rates and conservative lending terms which require availability of acceptable collateral. As a result such exporters have been unable to aggressively pursue export inquiries and orders. Sometimes financial institutions have accessed off-shore funds but information about such funds is not readily available to the private sector. Even when a loan is successfully negotiated, it usually takes long (up to 4 months) for the credit to be extended resulting in less impact as it may be given at a time when the money is no longer needed. There is also nonavailability of credit cards which hampers the development of on-line business (e-commerce) in the country. 4.7 Tariff and Non Tariff Barriers Malawi has sometimes found it difficult to export a number of products due to high tariff rates and non-tariff restrictions (Quotas, phytosanitary requirements, etc) in the target markets. 5.0 OPPORTUNITIES Among the many trade opportunities which Malawi can profitably exploit are the following:- 5.1 Accession to the Lome Convention and now the Successor Cotonou Agreement under which Malawi benefits from financial and technical assistance provided by the European Community such as stabex facility as well as her access to markets to the community on preferential terms. 5.2 Accession to Common Market for Eastern and Southern Africa (COMESA) Free Trade Area under which member countries are offering duty free status on reciprocal basis. 5.3 Malawi s membership of the Southern African Development Community (SADC) whose mission is to become a Common Market offering a free trade zone by the year 2008. 5.4 Malawi Preferential market access to developed countries under the Generalised System of References (GSP) Scheme. 5.5 Malawi s bilateral trade agreements with a number of countries including Botswana, Zimbabwe, and South Africa which accord her opportunities to export there on reduced duty, preferential treatment or non-quota basis. 7
5.6 The opening up of new markets as a result of favourable political and economic changes in Eastern Europe. 5.7 The opening up of the United States of American market to duty and quota free under the African Growth and Opportunity Act (AGOA). 5.8 Market opportunities for a wide of Malawi products which have been identified in a number of countries through market surveys and trade missions conducted by the Council. 5.9 A generally favourable climate responsive to the growing of a wide variety of crops with high export potential including high value low volume products such as paprika, chillies, cut flowers etc. 5.10 Political stability, peace, law and order and the confidence which the donor community has in the country s leadership which have resulted in Malawi receiving considerable financial and technical support from the external donor community. 6.0 CONCLUSION It will be noted that despite some achievements made, implementation of the strategic plan has largely been constrained by inadequate funding and inherent weak institutional capacity. Funding of the planned activities has significantly depended on Government subvention which is mostly inadequate. In an effort to contain expenditure within the limited resources, most planned activities had to be curtailed. Staffing levels and operating facilities continued to be low thereby affecting the level of activities undertaken at any one point in time. Some disincentives to export continued to exist thereby affecting the performance of the export sector adversely. 8
TABLE 1 : PRINCIPAL DOMESTIC EXPORT COMMODITIES, 1995-2000 (K million) 1995 1996 1997 1998 1999 2000 *1 Agricultural Crops: Tobacco 4,523.0 4,797.0 5,780.3 10,306.0 12,109.1 14,428.1 Tea 407.3 355.0 701.1 1,247.8 1,734.6 3,170.7 Sugar 395.8 892.4 393.1 1,563.1 1,019.5 2,697.2 Cotton 56.8 186.5 190.6 154.8 235.0 466.2 Rice 21.5 24.8 29.2 74.0 110.1 105.6 Coffee 236.5 159.8 209.1 327.1 392.2 419.6 Pulses 125.4 94.5 105.8 134.1 284.9 171.4 Maize 80.5 - - - - - Other 745.7 1,166.7 1,643.6 1,963.2 2,558.7 3,901.2 Total Domestic Exports 6,592.5 7,676.7 9,052.8 15,770.1 18,444.1 25,360.0 Re-exports 192.7 220.5 249.5 964.5 1,351.6 482.5 Total Exports 6,785.2 7,897.2 9,302.3 16,734.6 19,795.7 25,842.5 Equivalent US$ 000 *2 443,944 515,402 561,815 540,302 449,004 434,014 Source: National Statistical Office Notes: *1 : Provisional figures *2 : Own Estimate using an annual average of buying and selling rates. TABLE 2 : DIRECTION OF TRADE : 1997 1999 VALUE MK 000 COUNTRY 1997 1998 1999 Market Share (1999) Germany 901,414 1,654,722 3,106,697 15,69 United States of America 1,101,216 2,102,018 2,712,569 13.70 South Africa 1,163,133 2,251,400 2,280,570 11.52 United Kingdom 702,196 1,324,385 1,812,732 9,16 Switzerland 816,299 1,175,081 1,294,522 6.54 Japan 479,763 709,710 1,168,561 5,90 SADC /COMESA* 323,192 405,774 864,525 4.37 Netherlands 879,194 1,317,306 828,242 4.18 France 243,561 356,534 478,411 2.42 Zimbabwe 579,336 355,240 477,513 2.41 Mozambique 50,928 147,728 397,130 2.01 Other 2,062,069 4,934,701 4,374,228 22.10 TOTAL 9,302,300 16,734,600 19,795,700 100 Excludes South Africa, Zimbabwe and Mozambique 9