Malawi National Export Strategy (NES) 2013-2018

1.1 Purpose of the NES. .......................................................................................... 12

1.2 Status of Development, Exports and Imports. ................................................. 12

1.3 Underlying Principles of the Strategy . ............................................................ 18

1.4 Key Elements of the NES .................................................................................. 19

1.5 The NES and Development Partner Support .................................................... 19 Chapter 2 – Broad Strategy Direction 20

2.1 Goal.................................................................................................................... 20

2.2 Outcomes........................................................................................................... 20

2.3 Objectives of the NES........................................................................................ 21 Chapter 3 – The Strategy and its Priority Areas 23

3.1 Priority Area 1a – Three Prioritised Export-Oriented Clusters for Diversification. .................................................................................................. 24

3.2 Priority Area 1b – Existing Clusters.................................................................. 34

3.3 Priority Area 2 – Conducive Environment for Productive Economy. ............... 37

3.4 Priority Area 3 – Supportive Economic Institutions for a Productive Economy............................................................................................................ 45 2 Volume 1 - Contents

3.5 Priority Area 4 – Competencies, Skills & Knowledge for the Productive Economy............................................................................................................ 51 Chapter 4 – Implementation Mechanism 54

4.1 The Mechanism................................................................................................. 54

4.2 Critical Success Factors. .................................................................................. 59

4.3 Rationale for this Implementation Mechanism................................................ 60

4.4 Technical Working Groups for the Three Prioritised Export Clusters.............. 61

4.5 Monitoring and Evaluation................................................................................ 62 Presentation of the Annexes to the Strategy........................................................... 63 This document was developed by the Ministry of Industry and Trade between August 2011 and September 2012.It is a working document that will be guided by the implementation mechanism set out in Chapter 4 of this document It was developed in close collaboration and through extensive consultation with the private sector, other Government Ministries and agencies, civil society and development partners. It was support- ed by the United Nations Development Programme (UNDP) and received technical support from Imani Development. December 2012 3 2013 - 2018 Foreword As we are aware, Malawi’s recent priority areas focused on welfare (subsidy for food security) rather than productivity and increased incomes. The paradigm shift is a precondition for achieving sustainable growth because the structures of delivering welfare and of delivering a productive base and economic empowerment are not the same. The welfare can be addressed through direct interventions, whereas productivity is determined by policy coherence and comprehensiveness, the degree and quality of policy implementation, communication mechanisms and the day-to-day work of stakeholders including farmers, youth, women, micro and small businesses, large business and most importantly government. Therefore securing this balance is essential if the growth in exports is to deliver true economic empowerment of the poor, youth, women and vulnerable groups and help close the trade balance Malawi made important strides in its development process for our economy. between 2006 and 2010 where the nation registered an average growth of 7 per cent. Major gains were made in food securi- It is for this reason, that my Government has developed the Malawi ty, healthcare (50% reduction in the prevalence of HIV) and National Export Strategy (NES) to serve as a critical component of infrastructure development. This progress was made under the the MGDS IIand hence of the Economic Recovery Plan by providing overarching policy framework of Malawi Growth and Development a framework and focus on how Malawi may build its productive Strategy I (MGDS I). capacity. It provides a clearly prioritised and realistic roadmap that Malawi needs in order to develop the productive base of the During that time the country’s trade balance worsened from economy. The NES is fully aligned to the priorities set out in the MK69.3 billion in 2007 to MK90.5 billion in 2008. The trade MGDS II and the Economic Recovery Plan. deficits were attributed to high import costs of petroleum fuels and fertilizers. The total export value increased by 23 percent from The NES provides clearly prioritised and phased plans of action MK117.7 billion in 2007 to MK144.7 billion in 2008, most of which in four key areas. The first area is developing priority export is attributed to non-traditional exports. Import value, on the other clusters that can complement the exports of traditional products hand increased by 25.7 percent from MK187 billion in 2007 to such as tobacco and tea. Second are plans to improve the enabling MK235.2 billion in 2008. The trade balance was on a free fall from environment for private sector growth through enhancing the 2000 to 2005 but improved slightly in 2006 and 2007 but declined productive base of the economy. Third are plans to develop key further from 2008 to 2012. institutions that are key for sustainable growth. Fourth are plans on how Malawi can address its current skills gap in the productive In 2010 the country imported US$2.3 billion worth of goods and economy-this is critical for job creation and economic empowerment. services, about 43% of GDP against its exports of US$1.2 billion, about 22 per cent of GDP. This implies that overall the country Implementation of the NES will be driven by the Government, in continues to import more than what it exports. close collaboration with the private sector, civil society, farmer organisations and women and youth groups. Its implementation will However, the economic crisis of 2011 which has spilled over into be closely tied into the implementation of MGDS II and the Economic 2012 is very instructive about the structure andcharacteristic of Recovery Plan. our economy. This means that as a nation without a concerted, strategic and sustained effort to build the productive base of the It is my sincere hope that the cooperation that prevailed during economy, we cannot develop. the preparation of the NES will continue during the implementation period for the wellbeing of mother Malawi. Pro-active stakeholder We need to reorganise our industries to allow large businesses, participation in the implementation mechanism is critical for Malawi farmers, the government, the small medium enterprises and the to develop a productive economy and my Government looks forward academics to work in harmony and feed into the supply chain of our to broad stakeholder participation to realise the objectives of NES. industries.We need to align our educational priorities in technical, entrepreneurial and vocational education and training in our May God bless our country. secondary, higher and tertiary education with the needs of industry if we have to realise the needed productive base. We need to create an enabling business environment for the country’s productive base. To achieve this for our country’s Mrs. Joyce Banda productive base, for exports and for economic empowerment,we need a paradigm shift. PRESIDENT OF THE REPUBLIC OF MALAWI 4 Remarks by the Minister of Industry and Trade The Malawi National Export Strategy (NES) is the first strategy that Malawian stakeholders have developed that takes the country’s ability to export as its overarching objective. The aim is to perma- nently develop Malawi’s capacity to export, such that the goals and ambitions set out in the Malawi Growth and Development Strategy II may be achieved. Malawi’s development gains ultimately need to be financed through domestic value addition. In other words Malawi’s imports need to be matched by exports if Malawi is to graduate from being a Less Developed Country (LDC). Crucially, the NES has been developed in way that views poverty reduction, development and private-sector led export growth as inextricably linked. Malawi’s development requires a significant in- crease in export capacity, while export-led growth needs to create jobs, reduce poverty and economically empower the poor, small- holder farmers, women and youths. It is for this reason that the NES provides a clearly prioritised road map on how Malawi may build the productive base of the economy in a manner that will allow not only export and private-sector led growth, but also improved incomes for smallholder farmers, women’s groups and youth entrepreneurs, together with job opportunities for the urban poor and youths. Hon. Sosten Gwengwe, M.P. Through extensive stakeholder consultation and robust econom- Minister of Industry and Trade ic analysis, the NES has identified oil seed products, sugar cane products and manufacturing as clusters that have the potential to equate to over 50 per cent of exports by 2027, thereby comple- menting tobacco as a major export. However a key difference is that these clusters will allow this through value added and job cre- ation, rather than through the export of raw or semi-raw commodi- ties such as tobacco. The NES is therefore critical to allow Malawi to transform its economy away from low value exports. The NES also prioritises the enabling environment for other clusters by providing stakeholders with a clear roadmap for what needs to be done to kick start the productive economy. Priorities are se- curing an improvement in policy coordination and implementation capacity, addressing the existing skills gap in the economy, and de- veloping institutions that need to support the productive economy such as the Malawi Investment and Trade Centre and the Small and Medium Enterprise Development Institute. In addition it iden- tifies the financial sector, energy, standards, land reform, farmer information, farmer organisations and transport as major areas for attention, and provides clear action plans within each of these areas.Through extensive national stakeholder consultations, the NES has been endorsed by the private sector, civil society, farmer organisations and government as a critical strategy for the devel- opment of the Malawian economy. The government has established a participatory implementation mechanism because this is critical to ensure that the NES is implemented and therefore, that Malawi’s export capacity and productive base may be built. We look forward to your pro-active support in the NES’ implementation through this mechanism. Special gratitude goes to the UNDP for their financial support and technical assistance in the development of this im- portant strategy. 5 Executive Summary Malawi’s development agenda for 2012-2016 is set out in the Malawi Growth and Development Strategy II (MGDS II). Under its predecessor, the MGDS I, Malawi achieved economic growth, poverty reduction, national food security and a 50 per cent reduction in the prevalence of HIV. The objective of MGDS II is to reduce poverty and achieve the Millennium Development Goals (MDGs). Yet in 2010 Malawi imported US$2.3 billion worth of goods and services (43 per cent of GDP), but only exported US$1.2 billion1 (22 per cent of GDP). This reflects a major unsustainable structural trade deficit and if maintained, will undermine the goals of MGDS II. The strategic imperative and goal for Malawi should now be to build productive capacity such that exports may match imports in the long-term. This is essential to allow the MGDS II to build on the gains made under MGDS I. This document supports the MGDS II by presenting Malawi’s strategy to develop its ability to export. Benchmarking Malawi’s capacity to export against its import bill is essential because, as experi- enced with the foreign exchange and aid crisis in 2011, Malawi’s structural trade deficit may lead to a reduction in Malawi’s ability to export and undermine the emergence of the productive base of the economy. Often the instinctive reaction in times of crisis is to protect welfare without supporting the productive economy. Imports and exports cannot be detached from each other, just as the realities of poverty reduction, development and export competitiveness are inextricably linked. Therefore a strategy to develop Malawi’s capacity to export needs to account for the wide range of factors that determine the willingness and ability of exporters, potential exporters and suppliers to exporters to collectively export on the scale required by Malawi’s import and consumption bill. The current extent of the structural trade deficit means that Malawi’s National Export Strategy (NES) is not just about exports in the most direct form. Crucially, it is also about how Ma- lawi can build the productive base of its economy and therefore is a critical complement to the Economic Recovery Plan of 2012. For exports to grow to a level that balances imports and consumption, it is critical that this base be developed. Therefore the development of Malawi’s productive base is central to Malawi’s development agenda as set out in the MGDS II. The component of the MGDS II that the National Export Strategy provides is a road map for how Malawi can build its productive base in a manner that will drive export growth on a sufficient scale to maintain the level of imports. The NES is also central to accomplishing Malawi’s desired move into the export of high value goods and services and to reducing Malawi’s reliance on the export of raw or semi-raw commodities. These have left Malawi’s poor and vulnerable exposed to commodity price fluctuations, crop fail- ures, aid shocks and climate change. The development of the productive base is also fundamental 1 Comtrade, www.trademap.org. These figures exclude informal cross-border trade. 6 for the economic empowerment of youths, women, smallholder farmers, job seekers and the poor. Malawi’s demographics, characterised by a youth bulge, also require the development of a healthy and expanded productive base, capable of absorbing youths to drive rather than hinder Malawi’s development agenda. Malawi, therefore, urgently needs to develop its productive base to: a) Drive Malawi’s export capacity on a scale that exports can maintain the pace of imports. b) Economically empower youths, women, small-holder farmers, job seekers, micro and small businesses and the poor through ensuring that they are included in the productive base. By setting out a way forward that addresses this dual concern, the NES serves as a critical compo- nent of the MGDS II. The Aim of the NES This strategy provides a prioritised road map for developing Malawi’s productive base to allow for both export competitiveness and economic empowerment. The Components of the Strategy The strategy to build Malawi’s productive base and export capacity in a manner that empowers the poor, farmers, youth, women and other vulnerable groups, is based on four areas of focus: 1. Priority Area 1 – Export Clusters: this Priority Area is divided into two parts: a. Three prioritised export-oriented clusters for diversification: Through coordination and a concerted effort, develop priority clusters that have the potential to complement tobacco and drive exports through value addition, mostly to neighbouring and regional markets, in a manner that exports can maintain the upward pressure of imports. These clusters are: i. Oil Seed Products – cooking oil, soaps, lubricants, paints, varnishes, meals and flours, bio-fuel, animal feed, fertilizer, snacks and confectionery derived from sunflower, groundnuts, soya and cotton ii. Sugar Cane Products – sugar, high value sugar through branding, 7 2013 - 2018 sugar confectionery (such as syrups, sweets, caramel etc), sweetener, ethanol, spirits, cane juice, fertilizer, animal feed, electricity, cosmetics iii. Manufactures – beverages, agro-processing (including dairy and maize, wheat, horticulture and pulse value addition), plastics and packaging, assembly. a. Supporting exports of existing clusters: The NES includes support plans to stakeholder efforts in other major existing clusters: tobacco, mining, tourism, tea and services. 2. Priority Area 2: Conducive Environment – Develop an environment conducive to economic competitiveness and economic empowerment of youth, women, farmers and MSMEs. 3. Priority Area 3: Supportive Economic Institutions to Build the Productive Base of the Economy – Invest in supportive economic institutions and organisations. Improve communication through ongoing dialogue and devote high-level attention to develop agencies that are central to the development of Malawi’s productive base and export competitiveness. 4. Priority Area 4: Competencies, Skills and Knowledge – Invest significantly in competencies, skills and knowledge because these are the foundation of Malawi’s productive base and its export capacity, while also being critical if the develop- ment goals of the MGDS II are to be achieved. The four Priority Areas will be composed of a number of components. These components have been prioritised based on the need of the economy. These components will be implemented through the NES’ implementation mechanism, which is the Trade, Industry and Private Sector Development Sector Wide Approach. This SWAp will contain seven Technical Working Groups whose mandate will be to ensure the implementation of the various components. Policy Coherence and Alignment Required by NES For the strategy to meet its objectives, it requires policy coherence and alignment, including: • Monetary and foreign exchange policies shall establish and maintain a competitive exchange rate. • Fiscal policy shall provide adequate funds for public sector investment necessary to support the productive economy. • Financial sector development policy shall focus on ensuring the provision of affordable access to finance for micro, small and medium enterprises (MSMEs), large businesses, smallholder farmers, cooperatives, youth entrepreneurs and women’s groups. This policy shall be prioritised by central government. • Agricultural policies shall build up the viability and competitiveness of the agriculture sector and facilitate its linkage to agri-industrial base. • Land reform shall be expedited so that land policy can allow for suitable access to land and secure tenure of property by private operators, who plan to ensure an economic return from the land, including farmers and businesses. • Transport policy shall be tied to the development of NES priority clusters, both in terms of accessing key regional growth centres (Tete, Lusaka, Mbeya, Harare) and ports and also in terms of affordable domestic transport for smallholder farmers to urban centres. Transport policy shall not only focus on infrastructure – particularly rail and the improvement of rural feeder roads tied to the NES priority clusters and crops – but also on competition policy. • Trade, tariff and customs policies shall engender the competitiveness of the priority NES clusters and facilitate their partici- pation in regional and international trade. • Technical support policies shall be adopted to improve the quality of export products, particularly those relating to technol- ogy transfer, R&D and technical training. • Urgent attention is to be given to policies affecting infrastructure to ensure affordable and reliable access to energy and water/irrigation. • Favourable policies to MSMEs, cooperatives, farmer organisations, women’s groups, youths, rural businesses and export 8 processing zones to boost rural and farm-based entrepreneurship in geographic areas matched to the NES priority cluster. • Labour and industrial relations policies must recognise the inevitable industrial shifts that will occur in the effort to achieve international competitiveness. Focus shall be given to the formulation of accords between labour and management, which shall provide for sustainable increase in productivity and competitiveness. • Education and training policy shall ensure the provision of the competencies, skills and knowledge, including through primary and secondary education, that are required by the productive sectors and the key enabling sectors such as energy and finance. • All government agencies whose actions affect exporters, such as the MITC, MRA, MBS, SMEDI, various business regulators and others shall simplify procedures to minimize red tape. • Provisions of existing laws deemed detrimental to exporters and potential exporters shall be reviewed and repealed. Comparison of Expected Revenues and Indicative Costs of NES In Table E1 below we present a comparison of the total indicative costs required to implement the NES with the expected additional revenues to be generated by the NES, should the NES be successfully and fully implemented. These revenues are consistent with the guideline targets presented in Chapter 2 of the main NES document. It is essential to note that financial allocations are necessary but not sufficient to generate the expected export revenues present- ed below. What is more important is the allocation of sufficient and appropriate management time to ensure: • appropriate prioritisation of export clusters and key cross-cutting issues • alignment and coherence • the pooling of resources • policy coherence • development of institutional capacity • proper human resourcing • development of the competencies, skills and knowledge necessary to develop the productive base of the economy. Table E1: Comparison of NES Indicative Costs to Expected Additional Revenues Generated by NES Total Cost over 5 years US$, million By Government $350 By Development Partners $226 Total Government & Dev. Partner Cost excluding Energy and Transport $566 Total Cost Including Energy but not Transport Infrastructure $1,088 Revenues Generated by NES per year, additional exports every year compared to Year 0: Year 1 $153 Year 2 $325 Year 3 $519 Year 4 $738 Year 5 $985 Total new exports/revenues in 5 years, compared with 2010 and 2011 levels $2719 Source: NES Technical Team. Note: Costs are only indicative. Indicative costs are based on estimations presented in Annex 1 of the NES. Also please note that costs are not exhaustive, but capture the majority of priority actions. Revenues are calculated from the guideline targets presented in Chapter 2. This table is meant to be purely illustrative. Also note that government costs include both recurrent expenditure (through investment in staff positions and institutional development) and capital expenditures. The majority of the government cost is recurrent. Please refer to Chapter 4 in Annex 1 for details. 9 2013 - 2018 List of Figures and Tables Figures Figure 1 Malawi’s GDP per capita 1980-2010 Page 13 Figure 2 Imports and exports of goods and services relative to GDP, 2001-2011 Page 14 Figure 3 Malawi’s main exports by value, $ million Page 15 Figure 4 Malawi’s main imports by value, $ million Page 16 Figure 5 Malawi’s main exports as a percentage of total exports Page 24 Figure 6 The SWAp and NES Implementation Mechanism Page 58 Figure 7 The Trade, Industry and PSD Sector Working Group in Detail Page 58 Tables Table 1 Indicative Targets for the Exports and Expectations for Imports Page 22 Table 2 Implicit Level of Income and Economic Proximity of Clusters Page 26 Table 3 Target Markets and Product Potential for Oil Seed Products Cluster Page 28 Table 4 Target Markets and Product Potential for Sugar Cane Products Cluster Page 29 Table 5 Target Markets and Product Potential for Manufactures Cluster Page 29 Table 6 Top Level Priorities for the 3 Prioritised Cluster Strategies Page 32 Abbreviations ACE Agriculture Commodities Exchange DTIS Diagnostic Trade Integrated Study AfDB African Development Bank EAC East African Community ASWAp Agriculture Sector Wide Approach EDF Export Development Fund ASWAp-SP Agriculture Sector Wide Approach-Support EIF Enhanced Integrated Framework Project ERP Economic Recovery Plan BESTAP Business Environment Strengthening and Technical Assistance Project ESWAP Education Sector Wide Approach CABS Common Approach to Budget Support EU European Union CFTC Competition and Fair Trading Commission FIMA Financial Inclusion in Malawi Project COMESA Community of Eastern and Southern Africa FSTAP Financial Sector Technical Assistance Project DEMAT Development of Malawian Enterprises Trust FSPU Financial Sector Policy Unit DFID United Kingdom Department for International GDP Gross Domestic Product Development GPE Global Partnership for Education DPSM Department of Public Sector Management 10 HIPC Highly Indebted Poor Countries MSME Malawi Small and Medium Enterprises IAEA International Atomic Energy Agency NCSP National Competencies and Skills Plan ICT Information Communication Technology NES Malawi National Export Strategy ILO International Labour Organisation NSO National Statistics Office IMF International Monetary Fund OPC Office of the President and Cabinet JICA Japanese International Cooperation Agency PSD Private Sector Development JSS Joint Sector Strategy PSD DG Private Sector Development Donor Group MAMN Malawi Micro-Finance Network PSIP Public Sector Investment Programme MARDEF Malawi Rural Development Fund R&D Research and Development MBS Malawi Bureau of Standards RBM Reserve Bank of Malawi MCCCI Malawi Confederation of Chambers of Com- RGD Registrar General Directorate merce and Industry SADC Southern Africa Development Community MEPD Ministry of Economic Planning and Develop- ment SEDOM Small Enterprise Development Organisation of Malawi MEDI Malawi Entrepreneur Development Institute SMEDI Small and Medium Enterprise Development MFIs Micro-Finance Institutions Institute MGDS Malawi Growth and Development Strategy SQAM Standards, Quality, Accreditation, Measure- ment MITA Malawi Industrial Training Association STED Skills for Trade and Economic Diversification MITC Malawi Investment and Trade Centre SWAp Sector Wide Approach MIWD Ministry of Irrigation and Water Development SWG Sector Working Group MoAFS Ministry of Agriculture and Food Security TEVET Technical, Entrepreneurial and Vocational Ed- MoEST Ministry of Education, Science and Technolo- ucation and Training gy TEVETA Technical, Entrepreneurial and Vocational Ed- MoF Ministry of Finance ucation and Training Authority MoFA Ministry of Foreign Affairs TIPSD SWAp Trade, Industry and Private Sector Develop- ment Sector Wide Approach MoIT Ministry of Industry and Trade TOR Terms of Reference MoJ Ministry of Justice and Constitutional Affairs TWG Technical Working Group MoL Ministry of Labour UNDP United Nations Development Programme MoLH Ministry of Land and Housing USAID United States Agency for International Devel- MoTPW Ministry of Transport and Public Works opment MoYS Ministry of Youth and Sport WB World Bank MRA Malawi Revenue Authority WTO World Trade Organisation MSE Malawi Stock Exchange YEDF Youth Enterprise Development Fund 11 Chapter 1 – Introduction

1.1 Purpose of the NES The purpose of the Malawi National Export Strategy (NES) is to provide a clearly prioritised road map for building Malawi’s productive base to generate sufficient exports to match the upward pressure on Malawi’s imports. The NES aims to maximise the direct contribution of exports to economic and social development as outlined under the thematic area on sustainable economic growth in the Malawi Growth and Devel- opment Strategy II (MGDS II). It aims to do this through the development of the private sector in a manner that is balanced with the economic empowerment2 of the rural and urban poor, smallholder farmers, youths and women.

1.2 Status of Development, Exports and Im- ports Malawi’s development agenda is centred on nationwide poverty reduction, economic empowerment and ensuring food and healthcare security for the population. In 2006 it launched the MGDS to serve as Malawi’s over-arching development agenda, and in 2012 it launched its successor, the MGDS II. The objective of the new strategy is to ‘continue to reduce poverty through sustainable economic growth and infrastructure development’3. The Government of Malawi has also set as one of its main goals the doubling of GDP per capita by 2017. This is an ambitious target, particularly given that Malawi’s GDP per capita rose only margin- ally between 1980 and 2010, as presented in Figure 1 below. Malawi’s Gross Domestic Product (GDP) per capita stood at MK40,876 in 20104 compared to MK36,035 in 1980. GDP per capita in constant prices only rose above the 1980 level for the first time in 2008. Malawi has the tenth lowest GDP per capita in Africa, and within Southern and Eastern Africa only Zimbabwe and Burundi had a lower GDP per capita in 2010. 2 Economic empowerment relates to the application of Malawi’s human capital to the generation of value addition. This includes self-employment (Including MSMEs, smallholder farmers, farmer organisations etc) and also employment. 3 Draft Malawi Growth and Development Strategy II. 4 Human Development Index, UN (2010). Data is in purchasing power parity at 2008 USD prices. 12 Figure 1: Malawi’s GDP per capita, constant prices, Malawian Kwacha Source: IMF World Economic Outlook. Note: In 2010, MWK 40,876 equated to USD 269. In order to achieve the goals of doubling GDP per capita by 2020, it requires raising annual economic growth from the six per cent trend recorded between 2001 and 2010, to nine per cent per year from 2012 to 20205. Yet this is difficult to attain based on the current structure of the Malawian economy. Malawi is presently running a large and unsustainable trade deficit (the balance of imports over exports), which in 2010 stood at 21 per cent of GDP, a rise from seven per cent in 2001. Figure 2 shows the growth in Malawi’s structural trade deficit between 2001 and 2010. 5 The GDP growth trend is calculated based on a trend analysis of the components of GDP, including consumption, investment, government expenditure, imports and exports. It makes assumptions on consumption, government expenditure and imports, based on the current trend and factoring a market-based exchange rate, and then based on this identifies realistic growth targets for investment and exports necessary to allow GDP per capita to grow in line with the Government’s objectives. 13 2013 - 2018 Figure 2: Imports and exports of goods and services relative to GDP, USD billion, current prices Source: IMF World Economic Outlook and www.trademap.com. Note: 2011 trade data available at the time of writing is mirror data and therefore is subject to revision. The decline in imports in 2011 reflects the impact of a temporary aid shock and a foreign exchange crisis on the back of a fixed and overvalued exchange rate. The exchange rate was floated in May 2012. The growth in Malawi’s trade deficit between 2001 and 2010 came about because of more rapid growth in imports than in exports and because of the limited application of imports to build the productive base of the economy. While total exports in 2010 equalled $1.2 billion, total imports stood at $2.3 billion. The gap was largely financed by aid flows, such that the cutting of aid in 2011 resulted in the dwindling of foreign reserves and a major foreign exchange crisis that renders 2011 data unreliable for long-term planning purposes. Official Development Assistance totalled $1.0 billion in 20106, which equated to 19 per cent of GDP in 2010, and corresponds to the structural trade deficit. One of the reasons for the dependency on aid to plug the gap between exports and imports was a distorted exchange rate between 2008 and 2011. However a more important reason is a major structural weakness of the economy: the limited productive base and dependence on only one major export product: tobacco. Tobacco exports increased from $262 million in 2001 to $585 million in 2010, accounting for a largely consistent share of total Malawian exports: tobacco accounted for 53 per cent of exports in 2001 and 49 per cent in 2010. The next largest export, services, accounted for twelve per cent of exports, while uranium accounted for ten per cent. The next largest exports in 2010 were tea (seven per cent of exports) and sugar (six per cent of exports). Figure 3 below presents Malawi’s major exports by value. What the figure shows is how many of the clusters that Malawi and development partners have been supporting in recent years remain in their infancy. This reflects a lack of proper prioritisation and a piecemeal approach to cluster development. The last time Malawi properly prioritised a cluster was tobacco in the 1970s and this is why it remains the only major export sector up to now. 6 OECD Query Wizard for International Development Statistics and IMF World Economic Outlook. Data for 2011 was not available at the time of writting. 14 Figure 3: Malawi’s main exports by value, $ million Source: www.trademap.org. Total exports stood at $493 million in 2001 and $1,208 million in 2010. This narrow productive and export base has left Malawi significantly vulnerable to shocks such as commodity prices fluctuations, aid shocks and importer lobbies – who have an interest in overvaluing the exchange rate, inadvertently disincentivising exports. Major flows of aid and distortions in the exchange rate have driven imports of goods and services up from $733 million in 2001 to $2,299 million in 2010. In 2010 Malawi imported $217 million worth of fuel, $206 million worth of fertilizer and $201 million worth of machinery. These imports alone equate to more than exports of Malawi’s only major export, which is tobacco. Crucially, this import bill reflects Malawi’s poverty reduction and development goals: it is only through the importation of fertiliser that its food security goals can be sustained, and it is only through the import of pharmaceuticals that its health goals can be sustained. The value of Malawi’s major imports is presented in Figure 4 below. 15 2013 - 2018 Figure 4: Malawi’s main imports by value, $ million Source: www.trademap.org. Total imports rose from $733 million in 2001 to $2,299 million in 2010. Yet Malawi’s development agenda and its ability to meet the goals set in the MGDS II are dependent on Malawi’s ability to afford the imports necessary to allow for the MGDS II’s goals to be achieved. Otherwise Malawi risks continuing to be aid dependent for its wel- fare: economic growth between 2005 and 2010 was driven by continued aid flows7, expansionary fiscal and monetary policy made possible through the HIPC-debt relief of 2005 and bumper tobacco harvests that cannot be relied upon anymore due to international anti-smoking legislation. Malawi’s aid and foreign exchange crisis of 2010 and 2011 caused GDP growth to slow from 6.5 per cent in 2010 to 3.8 per cent in 2011, well below the government’s aspirations of GDP growth above ten per cent. Although the government has recently adopted a number of measures to address the external imbalance – including initial steps at market liberalisation, the floating of the exchange rate and strengthened budgetary spending controls – indications are of strength- ening structural imbalances and a continued macroeconomic dependence on imports and aid. For example, in the Malawi Country Economic Memorandum of 2010, the World Bank warned that ‘the undersupply and poor quality of electricity in Malawi is a binding constraint on economic growth, and energy generation is near totally dependent on the Shire River. The government needs to invest urgently in additional generating capacity’8. Therefore, there is a need for drastic changes in order to allow for the necessary amount of exports required to maintain Malawi’s development aspirations. According to the World Bank’s Malawi Country Economic Memorandum of 2010, ‘exports expressed in real kwacha show a persistent long-standing relationship with GDP implying a strong multiplier effect from export revenue’9. Malawi’s aid and foreign exchange crisis of 2011 made it clear that a nation cannot develop without a concerted, sufficient and successful effort to build the productive base of the economy. The development of the productive base of the economy is also critical at this juncture in Malawi’s development process because of its demographics. Malawi is experiencing a youth bulge following years of investment in healthcare. From 1990 to 2007, child malnutrition rates fell from over 24 per cent – at that time among the highest in sub-Saharan Africa – to about 18 per cent, and child mortality 7 Official Development Assistance accounted for nineteen per cent of GDP in 2010. Sourced from the OECD’s Query Wizard for International Development Statistics and the IMF’s World Economic Outlook. 8 ‘Malawi Country Economic Memorandum 2010’, World Bank, Page v. 9 ‘Malawi Country Economic Memorandum 2010’, World Bank, Page 6 and Figure 1.3. 16 rates were almost halved, from 221 per 1,000 children under five to 120 per 1,000. The consequential rapid growth in the youth pop- ulation that Malawi is currently experiencing could either become a burden on development if youths are not empowered through the productive economy or a boon to development if they are. For the youth bulge to be a boost to development, it requires the right type of economic growth. Although between 2008 and 2010, average annual economic growth exceeded the government’s benchmark GDP growth rate of six per cent per year, this growth was driven by aid, consumption and imports rather than by production and exports, offering little scope for the participation of youth. Box: Malawi’s Economic Challenge in a Nutshell • Exports have grown at a much slower pace than imports over the past ten years, creating an unsustainable structural trade deficit that leaves Malawi vulnerable to aid and foreign exchange shocks. • This has been driven by an unrepresentative exchange rate and insufficient expenditure of aid and debt relief monetary flows on the development of the productive economy, of which exports are a subset. • A key reason is the lack of investment in skills and economic institutions, which are necessary to allow Government to address market failures and structural weaknesses in the real economy. Such weaknesses have prevented investment of funds in the productive economy. • The key opportunities are economic reforms that address such structural weaknesses. This is tantamount to putting in place the building blocks necessary to build the productive base of the economy - meaning that these are critical comple- ments to the Economic Recovery Plan of 2012: • Promoting the diversification of export clusters in order to increase macroeconomic stability, generate sufficient foreign exchange and thus increase investment. • Supporting the development of institutions essential in facilitating investment, the development of the produc- tive base of the economy, and hence trade, within Malawi. • Increasing incentives to invest and improving Malawi’s underlying economic enabling environment – improving access to energy, finance, transport services, etc. • Investing in human capital, while linking this development to the knowledge and skills being demanded by private industry. There is therefore a critical need for an appropriate and concerted effort to provide an enabling environ- ment that will allow for the country’s productive base to emerge on a scale that can match the growth in imports and at the same time allow for the true economic empowerment of Malawians, through employment or through better returns for the self-employed such as smallholder farmers and youth entrepreneurs. This is also essential if Malawi is to move away from the export of low-value commodities toward higher value products. Yet this is not a straightforward undertaking. Providing the right enabling environment for private investment, production and value addition is not the task of one Ministry, agency or stakeholder group. Rather, the enabling environment for the emergence of the pro- ductive base is shaped collectively by the majority of stakeholders in Malawi, including those who may, at first glance, think that their line of work has no impact on this enabling environment. The productive base of the economy is not only determined by the behaviour of large businesses, farmers, the Ministry of Industry and Trade, the Malawi Bureau of Standards, the Malawi Revenue Authority and the Malawi Investment and Trade Centre. It is also shaped by the Ministry of Economic Planning and Development, the Ministry of Finance, the education sector, the police and the justice system, the energy and water sectors, the land sector, civil society, cooperatives, women’s groups, micro, small and medium businesses, informal vendors and the interventions of external players such as development partners and international non-government organisations. It is also shaped by the spectrum of interventions in government and development partner priority areas such as food security, poverty reduction, sustainable livelihood and the environment. For example while the farm input subsidy programme is a valuable mechanism that Malawi has developed to help deliver food security, it also creates an incentive for the seed sector to solely invest in maize and not in other cash crops that could serve as the basis for economic empowerment, value addition and job creation if produced on a large-enough scale. Similarly the education sector’s priorities need to incorporate technical, entrepreneurial and vocational education and training, coupled with increased support for secondary and higher education. Malawi’s low skills base has a large bearing on Malawi’s export capacity. In 2009, only 24 per cent of the entire population had completed secondary education. This has limited the ability of the public sector 17 2013 - 2018 to set a conducive environment and on the private sector to boost iv. The Financial Sector Development Strategy Malawi’s ability to trade and to reduce poverty, in turn constrain- ing the government and civil society’s attempts to establish a fa- v. The National Education Sector Plan and the Education vourable environment for private sector development. If a strong Sector Wide Approach linkage between the productive economy and education is not se- cured, it will be more difficult for Malawi to incorporate youth into vi. The Integrated Trade and Industry Policy its efforts to build its productive base, thereby limiting the scale and competitiveness of that productive base. Organisations, both vii. The Diagnostic Trade Integrated Study, which is the action private and public, require a strong skills base in order to more plan for the Enhanced Integrated Framework effectively meet their objectives or their mandate. viii. The MSME Policy and Strategy Providing the right enabling environment for Malawi’s productive ix. The Cooperatives Development Strategy base and for exports is therefore an issue that spans the breadth of the economy and the country. Since Malawi’s recent priority x. The Transport Investment Programme areas have focused on welfare (e.g. food security), rather than productivity, there is need for a paradigm shift in Malawi so that xi. The new National Energy Policy stakeholders can collectively deliver a balanced focus on both welfare and on the productive base. This shift is necessary because the structures of delivering welfare and of delivering a 1.3 Underlying Principles of productive base are very different. The former can be addressed through direct interventions, while the latter cannot. Policy coher- the Strategy ence and comprehensiveness, the degree and quality of policy The National Export Strategy is based on the following underlying implementation, communication mechanisms and the day-to-day principles: work by farmers, youth, women, micro and small businesses, large businesses and most government agencies and Ministries 1. Exports viewed as a subset of the productive determine the latter. Therefore securing this balance is essential economy: Although Malawi has numerous export op- if Malawi’s recent growth is to be sustained through exports and portunities it often struggles to respond. This is because if the growth in exports is to deliver development benefits. of the limited productive base. Therefore exports are de- pendent on this base, which includes the capacity of man- The NES provides a complete roadmap for how to build the pro- ufacturing, MSMEs, cooperatives, farmer organisations, ductive base, how to achieve competitive export growth and thus women’s groups and others. Developing the productive how to achieve sustainable long run growth and development. It base of the economy is the key to developing export ca- sets a realistic plan for how the productive base of the economy pacity. can be developed in a way that ensures export competitiveness and economic empowerment of the poor, smallholder farmers, 2. Balancing competitiveness with economic youths and women. The NES is a critical initiative that requires empowerment: If Malawi’s export capacity is to be commitment and buy-in from the highest level of all stakeholder built in a manner that allows exports to maintain the pace groups. Its success requires appropriate balancing and alignment of imports, Malawi has to build its productive base in such between welfare and the expansion of the productive base of the a way that it can compete in regional and international economy. It is a critical component of the MGDS II. Since it has markets, while at the same time empowering youths, wom- been developed as a holistic roadmap to build the productive en, MSMEs, farmers and the poor through incorporating base of the economy, it contributes to all six thematic areas of them in Malawi’s productive base. This includes job cre- the MGDS II: sustainable economic growth, social development, ation and improving returns to the self-employed, such social support and disaster risk management, infrastructure de- as smallholder farmers and micro entrepreneurs. This is velopment, improved governance and gender and capacity de- central for the successful implementation of the MGDS II. velopment. 3. Providing comprehensiveness, strategic fo- Since the provision of the right enabling environment for the pro- cus and a concerted effort: Numerous factors ductive base to emerge spans the breadth of the economy, the determine the size of Malawi’s productive base and ex- NES is built on a number of key policies and initiatives, incorporat- port capacity. They all need to be taken into account and ing their key and relevant activities as integral components of the addressed in a prioritised, targeted and realistic manner NES. It supports the prioritised implementation of actions within across stakeholders. these policies and initiatives. Such policies and initiatives include, among others: 4. Local stakeholder ownership: True local stake- holder ownership of the direction and strategic focus is i. The Private Sector Development Policy and Strategy central to the success of this strategy, because building the productive base of the economy requires home-grown ii. The Agriculture Sector Wide Approach solutions in which economic institutions support economic iii. The Greenbelt Initiative behaviour by youths, women, farmers, entrepreneurs and businesses that create and distribute economic value. The 18 implementation mechanism for the NES, presented in Chap- (which include large businesses, MSMEs, farmer or- ter 4, is centred around ensuring ongoing stakeholder buy- ganisations, smallholder farmers, youths and women’s in, which in turn is a necessary factor to ensure ongoing groups) and improving Malawi’s underlying eco- technical focus and drive despite any potential changes in nomic enabling environment – improving ac- the political scenario. cess to energy, finance, standards facilitation, transport services, etc.Investing in human capital by linking 5. Permanent solutions through markets and in- the suppliers of knowledge and skills to demanders of stitutions: Providing permanent solutions to economic knowledge and skills in private industry and the public enablers of the productive base is key because otherwise sector. The economic empowerment of youths, women, this base will struggle to grow and Malawi would continue to farmers and the poor requires a robust education, skills rely on the export of raw or semi-raw commodities. Sustain- and knowledge structure. If this is to be provided on the ability in building the productive base and export capacity scale required, it needs much more attention by stake- is achieved through market-led growth because Malawian holders and development partners. goods and services need to pass the consumer test. Also through support to economic institutions that balance the 4. Putting forward an innovative way to support the devel- creation of value addition with the fair distribution of value opment of prioritised economic institutions that are addition, hence allowing developmental benefits to the wid- essential in facilitating investment, the development of er population. the productive base of the economy, and hence trade, within Malawi. Part of this effort is about addressing the overwhelming need for Malawi to focus on its capacity

1.4 Key Elements of the NES to implement strategies, policies and programmes through stakeholder ownership, coordination and collab- The strategy is based on five key elements: oration. 1. Providing strategic focus and direction to pro- mote the diversification of export clusters in order to 1.5 The NES and Development increase macroeconomic stability, widen the tax base and increase investment. The most cutting-edge development Partner Support economics10 indicates that the types of goods and ser- vices that a country exports matter for its development. For the NES to be successful it requires that development partners: Some products have strong ‘economic spillovers’11 into • Recognise where Malawi stands on its development path other higher value products. Clusters of such products and design appropriate support mechanisms to empower are the ones that national economic strategies should local solutions to market and government failures. This prioritise. Economic spillovers are key for innovation and requires an appropriate level of expectation and patience. for widening the tax base. Supporting these spillovers stands at the core of the NES. Priority clusters are • Fully buy-in to the NES, as a Malawian vision and strategy oil seed products, sugar cane products and to build the productive base of the economy so that the manufacturing. Sub-strategies that align short-term country can afford its consumption levels and imports. imperatives to long-term goals have been developed for these clusters. Collectively these clusters have the poten- • Focus their support on developing long-term local solu- tial to complement tobacco as major export sectors. Sup- tions and therefore on the sustainable development of port plans for other key clusters such as tourism, mining, the human and institutional capacity that is required to services, tea and tobacco have also been developed. increase the competitiveness of the economy. 2. Viewing Malawi as a regional hub in the centre of the • Support areas where there is a shortage of locally-avail- fast-growing COMESA, SADC and Tripartite region. This is able resources – but in a manner that does not under- crucial in securing much-needed value addition and eco- mine the long-term development of home-grown or nomic empowerment. market-based solutions to the enablers of the productive base and export capacity. 3. Increasing investment incentives for private operators • Do not crowd-out private sector or local public sector 10 Hausmann and Klinger,’Structural Transformation and Patterns of Com- solutions to obstacles that could build the productive parative Advantage in the Product Space’, Harvard CID Working Paper No. base of the economy. 128, 2006 and Hausmann, Hwang and Rodrik, ‘What You Export Matters’, • Support the NES implementation mechanism, which is a Harvard University, 2006. local stakeholder dialogue and representation mecha- 11 Economic spillovers relate to the ease at which a sector is able to expand into new products. This ease is dictated by the cost of investment or at the nism for building the productive base. This mechanism is inverse, the degree of risk, of expanding into a new product relative to the optimal way for development partners to support the the existing cost base. For example, it is much easier for the sugar sector development of the Malawian economy. to start producing ethanol than for the tobacco sector, because a large Details on how NES actions can be translated into bankable portion of the costs of producing ethanol is already accounted for in sugar production. support projects by development partners are provided in Annex 1. 19 Chapter 2 – Broad Strategy Direction

2.1 Goal The strategic imperative of the NES is for the long-term export trend to match the long-term import trend to allow the MGDS II to build on the gains made under MGDS I. The target is to raise exports as a share of imports from 51.5 per cent in 2010 to 75.7 per cent in 2017 and 93.4 per cent in 2022.

2.2 Outcomes If fully implemented the NES will provide Malawi with the capacity to develop a productive base of sufficient scale that exports, as a subset of the productive base, can match the level of imports, as determined by Malawi’s consumption and welfare expectations. Once implemented, the NES will have: • Increased the rate of growth of exports in value terms from nine per cent per year be- tween 2001 and 2011 to thirteen per cent per year from 2013 to 2017; thereby allowing the NES goal to be achieved. It will have done this by: • Ensuring the diversification of exports into higher value addition products and clus- ters. • Supporting existing clusters. • Empowered Malawians by stimulating the growth and development of MSMEs, farmer organisations, cooperatives, youths and women groups while increasing the contribution of exports to foreign exchange generation and job creation. • Facilitated access to both domestic and international markets, including Malawi’s capacity to meet the standards requirements of importing countries, trade negotiation capacity and addressed non-tariff barriers. 20

2.3 Objectives of the NES The objectives of the NES are to: • Develop three priority clusters in which Malawi can compete and that have strong eco- nomic spillovers, thus allowing for the diversification of exports. These clusters are oil seed products, sugar cane products and manufacturing. The aim is for these clusters to account for 13 per cent, 15 per cent and 18 per cent of imports by 2027, as presented in Table 1 below. • Support existing export clusters – tobacco, mining, tea, tourism, services – such that their contribution to exports and to matching Malawi’s import bill can be maximised, as presented in Table 1 below. • Improve the enabling environment for the productive base such that investment growth may increase from 14 per cent between 2001 and 2011 to 23 per cent per year between 2012 and 202212. This investment will span both: • Productive sectors, including domestic and foreign direct investment into the pro- duction of competitive goods and services for export. • Enabling sectors, or those necessary to address supply-side constraints, such as energy, finance and transport. • Develop supportive economic institutions necessary to allow the enabling environment to improve, and hence drive investment. • Improve skills, competencies and knowledge to empower Malawians and support the pro- ductive base of the economy. 12 This is based on an average GDP growth rate of twelve per cent per year, an assumed rate of growth of consump- tion and government expenditure of eight per cent per year, and of a decline in import growth from fourteen per cent between 2001 and 2010 to seven per cent between 2011 and 2017. This decline in the rate of import growth is based on a market exchange rate of the Malawi Kwacha and is based on the decline in import growth between 2010 and 2011 due to the foreign exchange crisis of 2011. 21 2013 - 2018 table 1 - indicative targets for the exports and expectations for imports Value, US$ million As a share of imports Compound Annual Growth Rate 2001 2010 2011* 2017 2022 2027 2001 2010 2011* 2017 2022 2027 2001- 2011- 2017- 2022- 2011** 2017** 2022 2027 Total Imports $733 $2,299 $1,126* $3,248 $4,352 $7,679 100% 100% 100% 100% 100% 100% 13.5% 9.0% 6.0% 12.0% Total Exports $475 $1,184 $1,192 $2,460 $4,067 $6,824 64.8% 51.5% 106%* 75.7% 93.4% 88.9% 9.3% 12.8% 10.6% 10.9% Exports of major clusters: Tobacco 262 585 556 699 699 771 35.7% 25.5% 49.3% 21.5% 16.1% 10.0% 7.8% 3.0% 0.0% 2.0% Mining 0 114 123 246 369 493 0.0% 5.0% 10.9% 7.6% 8.5% 6.4% n/a 12.2% 8.4% 5.9% Tea 35 81 81 135 206 314 4.7% 3.5% 7.2% 4.1% 4.7% 4.1% 8.8% 8.8% 8.8% 8.8% Services (exc. Travel) 9 61 71 169 348 716 1.2% 2.6% 6.3% 5.2% 8.0% 9.3% 23.3% 15.5% 15.5% 15.5% Oil Seed Products 10 41 71 227 599 995 1.4% 1.8% 6.3% 7.0% 13.8% 13.0% 21.4% 21.4% 21.4% 10.7% Sugar Cane Products 64 69 71 453 768 1136 8.7% 3.0% 6.3% 13.9% 17.6% 14.8% 1.1% 36.1% 11.1% 8.1% Tourism (Travel) 25 70 70 147 272 503 3.5% 3.1% 6.2% 4.5% 6.2% 6.5% 10.7% 13.1% 13.1% 13.1% Manufactures, of 17 77 26 197 502 1376 2.3% 3.4% 2.3% 6.1% 11.5% 17.9% 4.8% 39.8%*** 20.5% 22.3% which Beverages 0.2 2 0.1 11 28 64 0.0% 0.1% 0.0% 0.3% 0.6% 0.8% -3.9% 22.8% 20.8% 17.8% Agro-Processing 6 39 12 100 295 874 0.8% 1.7% 1.1% 3.1% 6.8% 11.4% 8.2% 13.2% 24.2% 24.2% Plastics & Packaging 2 22 4 39 74 169 0.3% 1.0% 0.3% 1.2% 1.7% 2.2% 6.9% 9.9% 13.9% 17.9% Assembly 9 14 10 48 104 269 1.2% 0.6% 0.9% 1.5% 2.4% 3.5% 1.4% 12.9% 16.9% 20.9% Other 53 85 122 186 304 520 7.3% 3.7% 10.8% 5.7% 7.0% 6.8% 8.6% 7.3% 10.3% 11.3% Sources: Data from www.trademap.org and guideline targets from NES Technical Team. Note*: Malawian imports halved in 2011 from 2010 because of the foreign exchange crisis and a large decline in Official Development Assistance. This distorts the benchmark figures for 2011. In addition, trade data for 2011 is mirror data and therefore may not be complete. For example trade with Mozambique and Zimbabwe is not available. Exports for the manufacturing cluster in particular will appear lower than they actually were. Note**: Compound annual growth rates for imports are from 2001 to 2010. Note***: Total Manufacturing compound annual growth rate is using 2011 as a benchmark, but sub-clusters use the peak year for the sub-cluster, which ranges from 2008 to 2011. The expectation for the increase in exports as a share of imports will be aided by a slowdown in the growth rate of imports from 13.5 per cent between 2001 and 2011 to 9.0 per cent between 2011 and 2017 and 6.0 per cent between 2017 and 2022 on the back of a market exchange rate. With a corresponding reaction to import growth thereafter, and with continued aid flows, the share of exports relative to imports is expected to decline to 88.9 per cent in 2027, though at that stage the long-term trend of export growth would match the long-term trend of imports. 22 Chapter 3 – The Strategy and its Priority Areas The NES has identified priority actions to allow Malawi to develop its productive base and export capacity as set out in the objectives set out in Chapter 2. The government and private sector shall jointly transform Malawi into an exporting economy by focusing on the following four priority areas, which are linked to the objectives in Section 2.3. 1. Priority Area 1 – Export Clusters: this priority area is divided into two parts: a. Three prioritised export-oriented clusters for diversification: Through coordination and a concerted effort, develop priority clusters that have the potential to complement tobacco and drive exports through value addition in a man- ner that exports can maintain the upward pressure of imports. These clusters are: i. Oil Seed Products – cooking oil, soaps, lubricants, paints, varnishes, meals and flours, bio-fuel, animal feed, fertilizer, snacks and confectionery derived from sunflower, groundnuts, soya and cotton. ii. Sugar Cane Products – sugar, high value branded sugar, sugar con- fectionery (such as syrups, sweets, caramel etc), sweetener, ethanol, spirits, cane juice, fertilizer, animal feed, electricity, carbon dioxide, cosmetics. iii. Manufactures – beverages, agro-processing (including dairy and maize, wheat, horticulture and pulse value addition), plastics and packaging, as- sembly. b. Supporting exports of existing clusters: The NES includes support plans to stakeholder efforts in other major existing clusters: tobacco, mining, tea, tourism and services. 2. Priority Area 2 – Conducive Environment: Develop an environment that is condu- cive to economic competitiveness and economic empowerment of youth, women, farmers and MSMEs, by prioritising key actions in seven priority issues. 3. Priority Area 3 – Support Economic Institutions: Invest in supportive economic institutions and organisations through ongoing dialogue and improved communication and through high-level attention to develop agencies that are central to the development of Malawi’s productive base and export competitiveness. 23 2013 - 2018 4. Priority Area 4 – Competencies, Skills and to Malawi to identify priority sectors (see Annex 9). It demon- Knowledge: Invest significantly in competencies, skills strates that for Malawi’s exports to keep up with the pace of im- and knowledge because these are the foundation of Ma- ports and to economically empower the poor, it cannot continue lawi’s productive base and its export capacity, while also to export raw or semi-raw commodities, such as tobacco leaf or being critical if economic empowerment, as envisioned in tea. Malawi has to move into value addition. the MGDS II, is to be achieved. Contrary to common perception, securing value addition on the

3.1 Priority Area 1a – Three Priori- scale that Malawi needs, is not an easy task. It requires a range of factors across the economy – and hence across many government tised Export-Oriented Clusters for Ministries, departments and agencies – to work in a concerted, Diversification focused manner to allow for market-led productive capacity to emerge by private operators including smallholder farmers, youth The importance of prioritisation to allow exports to entrepreneurs, women’s groups, MSMEs and large businesses. In trend to imports turn this requires a genuine prioritisation of clusters and a com- prehensive, concerted effort by all stakeholders to develop those The underlying reason why Malawi faced a foreign exchange crisis prioritised clusters. The last time that such a concerted effort in 2011 was its ongoing structural trade deficit. In turn, a key took place was in the 1970s when the tobacco sector was de- cause of this was the lack of proper prioritisation of any export veloped. In 2010 tobacco accounted for 49 per cent of exports, cluster since the prioritisation and development of the tobacco while many other clusters remain in their infancy, as demonstrated cluster in the 1970s. Proper prioritisation is therefore essential, in Figure 4 below. It is therefore fundamental for stake- so that the government and stakeholders can effectively address holders to properly grasp what is required to allow market failures. the priority clusters to develop on the scale that Malawi’s development agenda requires. The Cluster Prioritisation Method has been developed and applied Figure 5: Malawi’s main exports as a percentage of total exports Source: www.trademap.org. 24 While not all of these clusters have the potential to drive export The underlying message with respect to priority clusters is: growth on the scale that Malawi’s import bill requires, there are a number that do, though they remain in their infancy and make 1. It is important for adequate prioritisation and comprehen- a close to negligible contribution to financing Malawi’s import bill. sive coordination across stakeholders on a few clusters. This is because none of these clusters received the same con- certed effort to develop them as tobacco did in the 1970s. The 2. Clusters should consist of products that are not only com- lack of stakeholder wide prioritisation in supporting key clusters petitive but that inherently result in spillovers to higher has spread resources too thinly across a wide range of clusters value products. (some of which do not have the necessary competitive advantage Therefore this strategy prioritises clusters which: to merit prioritisation in this strategy), without sufficiently address- ing the underlying structural factors that are necessary to unlock a. Malawi can be competitive in. their potential. Clusters that can drive export growth and allow eco- b. Can allow for enough value addition to allow the cluster nomic empowerment to account for roughly twenty per cent of imports in the medium to long-term. Cutting edge economic research13 on the relationship between eco- nomic growth and exports in developing countries shows that the c. Allow for economic spillovers through reducing the cost type of exports that a country invests in, plays a central role in to businesses and private operators of investing in new, determining the extent to which the economy can grow, and hence higher value products. the extent to which an economy can develop through the economic empowerment of MSMEs, youth, women and the poor. d. Have strong and growing demand. This approach to economic development, which Justin Lin, the for- These clusters, as identified through the Cluster Prioritization mer Chief Economist of the World Bank, calls New Structural Eco- Method (explained in detail in Annex 9) are: nomics, balances competitive private sector led growth with ade- quate sequencing, the development of economic institutions and a. Oil Seed Products, prioritising products based on sunflow- smart industrial policy. Securing the right balance is essential to kick er, groundnuts, soya and cotton. start the economy and set the foundation for the capital accumu- lation crucial for value addition, job creation, widening the tax base b. Sugar Cane Products. and the growth of MSMEs, particularly in economies such as Mala- wi’s that have traditionally been dependent on the export of raw or c. Manufactures through four sub-clusters: beverages, semi-raw commodities. agro-processing, plastics and packaging and assembly. In Table 2 below the number of economic linkages and their as- 13 Hausmann and Klinger,’Structural Transformation and Patterns of Com- sociated income levels are displayed for oil seed products, sugar parative Advantage in the Product Space’, Harvard CID Working Paper cane products and manufactures, as well as for a sample of key No. 128, 2006 and Hausmann, Hwang and Rodrik, ‘What You Export current Malawian exports such as tea and tobacco. Matters’, Harvard University, 2006 25 2013 - 2018 Table 2 - implicit level of income and economic proximity of clusters Clusters and Products Levels of Income (measured as GDP per capita) associ- Level of economic proximity with other products ated to cluster Manufacturers Articles of plastic $18529 104 Beverages $12028 62 Dairy products $18061 73 Glass & glassware $13075 137 Maize products $11680 80 Packaging, paper, prints $16736 92 Wheat products $15230 116 Coffee $2571 19 Oil seed products Groundnuts & products $2919 76 Sunflower and others $12193 74 Soyabean & products $10493 45 Cotton & products $7860 65 Pulses products $3546 36 Rice $6909 32 Sugarcane products $11039 61 Tea $2347 16 Tobacco $2581 59 Uranium, limestone, minerals $11756 78 Wood products $8692 65 Source: NES Technical Team and Imani Development: Application of Hausmann and Rodrik model to Malawi. Note: The methodology to calculate the associated level of income and economic proximity is presented in Annex 9 to the National Export Strategy. The approach to developing the clusters so that they may meet 6. A stable and prudent macroeconomic environment the guideline target set in Chapter 2 is a comprehensive one. It is a cumulative and sequential process: fostering the enablers 7. Access to information necessary to develop the clusters in a way that is market-led and sustainable. Comprehensiveness is ensured through securing 8. Fair competition affordable access to the ten key enablers for private operators in the cluster, and that sustainable, long-term solutions are de- 9. Access to supportive economic institutions livered, centred around the right balance of private sector and public sector roles. These ten enablers are: 10. Access to skills and competencies (including access to technology and R&D) 1. Access to markets (this includes standards, accreditation, product quality, transport, trade facilitation, trade policy, The legal and regulatory framework is captured throughout each investment and export promotion and others) of the ten enablers, slotting in to the relevant area. For example the legal and regulatory framework for the financial sector is part 2. Access to inputs of the access to finance enabler. 3. Access to finance (this includes access to technology and The strategy balances export competitiveness with economic R&D) and secure tenure of property empowerment of youths, women, the poor, farmers and micro, small and medium enterprises. It recognises that all stakeholders 4. Access to business development services have a role to play in ensuring the success of the cluster and assisting those stakeholders to secure the capacity needed to 5. An efficient way of contributing to Government revenues play that role. It ensures the alignment and support of and of meeting regulatory obligations all key stakeholders such that they prioritise these clusters 26 in their work plans and programmes. Such stakeholders include confectionery, ethanol, fertilizer, animal feed, ba- the private sector, Ministries, Government support agencies, gasse products, rums and ales and electricity farmer organisations, smallholder farmers, enabler sectors (such as energy, finance and transport), civil society and development • Manufactures: Increased Beverages, Agro-Pro- partners. The strategy also allows for the identification of the cessing (dairy, maize products, wheat products), optimal balance of public sector and private sec- Plastics & Packaging, Assembly tor roles in providing the ten enablers: this will need to emerge through a permanent stakeholder representation and dialogue Market Strategy structure which will be a Technical Working Group (TWG) for each of the three priority clusters under the TIPSD SWAp. This structure The market strategy is generally to target regional exports, par- is the basis to govern the clusters and will be the basis for a future ticularly in SADC, COMESA, EAC and the upcoming Tripartite as cluster-specific institutional structure – as in the tobacco clus- opposed to focusing excessively on extra-African markets, and ter – if required by stakeholders through the TWG. The strategy benefiting from Malawi’s geographical access to fast-growing also seeks to manage expectations of stakeholders so that neighbouring economies. These are key markets for value addi- sustainable market-led cluster development is not undermined by tion products in the oil seed product and manufactures clusters. excessive expectations of short-term gains. For certain products such as Toor Dhal or oil seed commodities, markets further afield are also important. In the sugar cane prod- Product Strategy ucts cluster, the principal export is sugar and the key markets for this product are both the EU and regional markets. However The product strategy seeks to balance short-term exports with higher value products in this cluster will target regional and neigh- a medium to long-term strategy to allow value addition exports. bouring economies. For all of these priority clusters, the domestic Export growth to be led by: market is as important as the regional market. i. Short-term In Tables 3 to 5, we present the target markets for the target products. Table 3 refers to the oil seed products cluster, Table 4 • Oil Seed Products: Groundnuts, Cotton, Soya, Sun- to the sugar cane products cluster and Table 5 to the manufactur- flower ing cluster. The tables provide a listing of the products included in each cluster indicating the potential for export of each product. • Sugar Cane Products: speciality, white, brown sug- They provide the scale of exports in 2011, target markets and ar and value addition through improved branding options for new markets for each product in the priority clusters. and packaging • Manufactures: Beverages, Agro-Processing (Snacks, Biscuits, Rice, Toor Dhal), Plastics & Packaging ii. Medium-term • Oil Seed Products: Soaps, Cooking Oils, Lubri- cants, Paints, Cosmetics, meals of oil seeds (such as peanut butters, soya meals) • Sugar Cane Products: increased sugars plus sug- ar confectionery (syrups, sweets etc), ethanol, fertilizer, animal feed, bagasse products (brickets, building boards, fuel) rums and ales • Manufactures: increased beverages (including beer, spirits and juices), agro-processing (dairy, increased wheat and maize products), increased plastics and packaging iii. Long-term • Oil Seed Products: increased Soaps, Cooking Oils, Lubricants, Paints, Cosmetics etc • Sugar Cane Products: significant increase in sugar 27 2013 - 2018 table 3 - target markets and product potential for oil seed products cluster Products Long Run Short Run Current $10 thousand < Market Market Expan- Short Run Potential for Medium - Long Run Potential Potential Markets > $1 Current Markets < Expan- sion Opportu- New Target Markets Potential for New (10 years) (0-5 years) million $1 million sion nities due to Target Markets (high, (high, me- due to Market share medium, dium, some, growth in gains some, little) Market little) High Value Products Groundnut Oil High Medium none none - - African market too small, China, EU, Lebanon domestic consumption only Soya Oil High Some none Zimbabwe Zimbabwe Zimbabwe South Africa, Zambia, Tanzania, Mozambique including Tete Cotton Oil High Medium none Zambia - - South Africa, Zimbabwe - Sunflower Oil High Some none none - - South Africa, Zimbabwe, Kenya, Sudan, Egypt Tanzania Margerine & Medium Little none none - - S. Africa, Zimbabwe, Mozam- Sudan, Egypt, Ethiopia Peanut Butter bique inc Tete, Uganda, DRC, Zambia, Tanzania Lubricants and Medium Some none Zimbabwe - Zimbabwe - South Africa, Zambia, waxes Kenya, Mozambique, Tanzania Soaps High Medium Zambia Zimbabwe Zimbabwe Zimbabwe, Zambia South Africa, Mozambique inc EU, US Tete, Tanzania, Rwanda Paints and dyes High Little none Mozambique, South - South, Africa, S. Africa, Kenya, Tanzania, Africa Mozambique Zimbabwe, Mozambique, Zambia, Uganda Soya Flour and Medium Little none none - - African market too small, Global market not worth meals domestic consumption only investment due to domi- nance of Argentina etc Bio-fuel High Medium none none - - Domestic Bordering countries, Tete Essential Oils Medium Little none South Africa - South Africa Tanzania, Zimbabwe More information required Fairtrade Ground- High Medium none none - - EU, US? EU, US nuts Cosmetics High Little none Tanzania, S.Africa, Mozam- S. Africa, Mozam- Zimbabwe More information Mozambique, Zambia bique bique, Tanzania, required Zambia Low Value Products Groundnuts Medium High Tanzania, Kenya, Zimbabwe Tanzania, Kenya, Zimbabwe Ethiopia, Rwanda, Mozambique United States, China, S. Africa, Zambia Zambia inc Tete Japan, Thailand Sunflower seed Medium High none South Africa, South Africa, - Egypt, Turkey, China Zimbabwe Zimbabwe Soya Bean Medium Medium Zimbabwe, Kenya, Tanzania, Zimbabwe, Kenya, Zimbabwe Burundi, South Africa, Mozam- Possibly Egypt Zambia Botswana, Zimbabwe Botswana bique inc Tete Cotton seed Medium High none South Africa, Zambia Soya Bean oil Medium Some none Zimbabwe, South cake Africa Groundnut oil High Medium none none - - cake Cotton seed oil High Medium none South Africa, Kenya cake Sunflower oil cake High Medium none none - - 28 table 4 - Target Products and Markets Products Short Run Long Run Current main mar- $100,000 < Other Options for new markets Potential (0-5 Potential (10 kets > $1 million current markets < $1 years) (high, years) (high, million medium, some, medium, some, little) little) Sugar: Speciality, brown, white High High Spain, Belgium, United Rwanda, Uganda, All European markets are accessible under Kingdom, Kenya, Roma- Tanzania, Portugal, Neth- EBA, most African markets are also realistic nia, USA, Sweden, Italy, erlands, Greece, Canada (mostly Great Lakes countries; DRC, Sudan, Finland Kenya etc) - the only true constraint is production. High value sugar through brand- Medium High - - All European markets are accessible under ing (fair trade, LDC) & packaging EBA Lactose, glucose, syrup, caramel Low Medium - - South Africa, Kenya Bagasse/fibre (fuel, electricity) Low Domestic - - South Africa Vinasse/filtercake (fertilizer) Domestic Domestic - - Animal feed Low Medium - - South Africa, Uganda, Zimbabwe, Mozam- bique Ethanol Medium High Uganda Tanzania, Zambia Rum, stout, ale and spirits Medium Medium Mozambique Tanzania South Africa, Uganda, Sudan, Kenya, Mozambique Sugar Confectionary (Syrup, Medium High Zambia, South Africa, Zimbabwe, Tanzania, Sudan, Mozambique, Caramel, Sweets, Chewing Gum, Kenya Uganda, DRC, Rwanda Marshmallows, Sweeteners, Jams etc) Cane Juice Medium Medium - Zambia Zimbabwe, Tanzania, South Africa Carbon dioxide Domestic (in Domestic Tazania, Uganda, Zambia, South Africa demand by Carlsberg) Cosmetics (skin treatment) Low Medium - Tanzania, South Africa, Zimbabwe Mozambique, Zambia table 5 - target markets and product potential for manufacturing cluster Products Potential in Potential in $10,000 < Current markets < Current markets Target/Potential Markets (including Long-Term Short-Term $1,000,000 > $1,000,000 current markets with growth potential) 1. Beverages Beer Very High Very High none none Zambia, Mozambique, Zimbabwe, Tanzania, DRC, Sudan, Uganda Gin, Rum, Vodka Some High Tanzania, South Africa, Zimbabwe Mozambique Zambia, Mozambique, Zimbabwe, Tanzania, DRC, Sudan, Uganda Squashes/Juice High High Zambia - Zambia, Mozambique, Zimbabwe, Tanzania, DRC, Sudan, Uganda Water Some Some none none Tete Soft drinks None None none none Restricted by Coca-cola etc Fruit Pulp Medium High none none UK, Kenya, UAE, South Africa, Scandinavia 2. Agro-Processing Dairy (short-life milk) High High Zambia, Mozambique Zimbabwe Zambia, Mozambique inc Tete, Zimbabwe Dairy (Long-life UHT milk, High High Zambia, Mozambique, Zimbabwe, Kenya, powdered, skimmed), yoghurt, Rwanda, Botswana, DRC, Tanzania cream, cheese, curd, butter etc) Maize Products (Snacks, Corn Medium High Zimbabwe, Mozambique, South SADC, Comesa (Rwanda, Sudan, Zimbabwe, Syrup, Groats, Corn flour, corn Africa, Zambia Mozambique, Tanzania etc) meal, canned corn, cornflakes, cereals, starch, bread etc) Wheat Products (biscuits, Medium Medium Zimbabwe, Zambia Zimbabwe, Zambia, Mozambique, Sudan, DRC, cereals, pasta, bread, gluten, Tanzania, Uganda starch, malt extract, bran) 29 2013 - 2018 table 5 - target markets and product potential for manufacturing cluster Products Potential in Potential in $10,000 < Current markets < Current markets Target/Potential Markets (including Long-Term Short-Term $1,000,000 > $1,000,000 current markets with growth potential) Rice Some Medium Zimbabwe, Zambia, Mozambique, Zambia, Tanzania, Mozambique, Zimbabwe, UK, Kenya, South Africa South Africa Legumes Products (eg Toor Medium Some Malaysia, Singapore UK India, South East Asia, UK, little to S. Africa Dhal) Cassava Products Uncertain Uncertain 3. Plastics and Packaging Standard plastics products: High (Arkay High Zambia, South Africa Zambia, Zimbabwe Botswana, Mozambique, buckets, cups, crates, bottles, potential for Tanzania, DRC tubs, PET etc 50-60% of production exported) PVC Pipes High High Mozambique, Zambia Zambia, Mozambique (inc Tete) Packaging Labels Medium Medium none none Zambia Flexible Packaging Difficult to None compete with Far East Liquid Packaging (conical Medium Medium Zimbabwe, Mozambique (do not have convert- cartons) ing plants, Zambia does) PET Pre-forms and closures High High Zimbabwe, Zambia, Mozambique Mainly domestic, but possible Zambia, Zimba- bwe, Mozambique Bottle Tops Some Some Zambia, Zimbabwe, Mozambique none Mainly domestic, but possible Zimbabwe, Mozambique HDP Bottles for juices Domestic Domestic Domestic Plastic Bags None None Zimbabwe, Zambia, Mozambique Cartons, Paper Sacks Some Some Zambia, Mozambique, Swaziland Domestic eg tobacco cartons, but may be un- competitive once in customs union as favoured by rebates. Moz, Zim, Tanzania and Zambia Glass Packaging Some Some Zambia none Zambia 4. Assembly Pre-fabrication Medium High Zambia, DRC Tractors Some Medium Mozambique, Tanzania, South Africa, Zambia, DRC, Mozambique, Tanzania, Zambia Zimbabwe Technology and R&D means that they are assigned high priority levels in Priority Area 2 of the strategy which deals with the conducive environment for The Government of Malawi recognises that for these clusters to the productive base of the economy (refer to Section 3.3 below, be developed as per the guideline targets set in Chapter 2, Ma- particularly access to finance for MSMEs). lawi has to increase its access to technology and to findings of the latest international research and development (R&D). This is In addition, these factors are also given specific focus in the prior- important for products within the clusters to be able to compete ity cluster strategies: Annex 2 (for oil seed products), Annex 3 (for in the target markets. sugar cane products) and Annex 4 (for manufacturing) provide a detailed road map for how the levels of technology and R&D are The strategy to secure the required level of technology and R&D to be sufficiently increased through targeting these six enablers is through allowing capital accumulation in private operators. It specifically to these clusters. Crucially, for the country’s technolo- is ultimately only through private operators’ (including MSMEs) gy and capital base to be built, private operators need to be con- willingness to invest in a machine or an improved process that fident that these enablers will not be tampered with or changed by Malawi’s access to technology and R&D will improve. government in the future. Investment in capital and technology is Therefore the best way to achieve this is through providing pri- driven by expectations of the future enabling environment. vate operators with affordable access to finance, to information, to inputs, to business development services, to skills and to mar- The Malawi Industrial Research and Technology Development kets. These factors need to be provided in a permanent manner Centre will play a support role by providing industrial extension and therefore the financial sustainability of these factors is essen- services to MSMEs in the 3 priority clusters that struggle to tial, as is the need to balance the provision of such enablers by access finance by supporting them to access the latest practices the private and public sectors. The importance of these factors and technology through providing expert advice, improving their access to international research outcomes, improving their knowl- 30 edge on what technologies are available and then helping them Import substitution access financing for such technologies from the financial sector, the Export Development Fund, the Malawian Innovation Challenge The Government of Malawi is keen to develop clusters that inte- Fund and other available matching grant schemes. This service grate domestic supply of inputs that can be competitively grown should be provided in collaboration with the Small and Medium or produced locally. This is important to help manage Malawi’s Enterprise Development Institute and with the Malawi Bureau of import bill. By developing the three prioritised clusters in a holistic Standards and will focus on the priority clusters. manner that is centred around a stakeholder-wide representa- tive and dialogue platform (the cluster specific Technical Working Quality assurance, product quality, accreditation Groups under the Trade Industry and PSD SWAp), this will allow for and standards domestic suppliers, such as smallholder farmers of oil seeds and of inputs into the beverages and agro-processing sub-clusters, to The Government of Malawi also recognises that for these clus- be aware of processor demands, while also allowing policy mak- ters to be developed as per the guideline targets set in Chapter ers and resource holders to ensure mechanisms through which 2, Malawi has to ensure that the standards of its products are domestic suppliers can supply processors in these clusters. Such competitive in the importing countries and meet the demands of mechanisms are presented in detail in Annexes 2, 3 and 4. They customers. This is therefore one of the top cross-cutting priorities mirror the cross-cutting actions presented in section 3.3 below covered in Priority Area 2 of the NES (refer to section 3.3 below). that aim to address the current disconnect between smallholder Since private operators are most aware of the demands of im- farmers and processors. porting countries, the private sector takes the lead role in meeting standards, while the public sector’s role is to facilitate the private Essential factors necessary to allow the clusters to sector to play their lead role. This is essential because there is meet their potential and guideline targets a high risk that the public sector views itself as an enforcer of quality rather than a facilitator, with the risk of them placing an The most essential factor necessary to allow the clusters to meet excessive cost on MSMEs to export than is actually required by their potential is the cluster-wide stakeholder representation and target markets. dialogue mechanism. This is vital to ensure that stakeholders al- locate sufficient management, human and financial resources to The strategy to ensure the appropriate product quality for the develop the prioritised clusters to full potential. Another essential three prioritised clusters is three-fold: factor for the prioritised cluster strategies is that they are priori- tised under the MGDS II and in Malawi’s: 1. Increase market exposure by private operators. The more closely linked Malawian processors are to con- • Trade policy sumers, the more they will be able to assess consumer preferences and respond accordingly. Annexes 2, 3 and • Industrial policy 4 include a road map for how to improve market ac- cess, while providing the financing and skills required to • Economic land use policy match consumer preferences. • Access to finance support mechanisms 2. Ensure that the search for product quality is market-led • Competency and skills development plan and consumer determined. If public sector led, it risks becoming an excessive cost that deters exports of • Commercial agriculture policy (Anchor Farm Model) in- value added products. Since importing companies or cluding warehouse receipts and irrigation policy governments set product standards, domestic export regulation and conformity assessment procedures be- • Taxation policy come an unnecessary burden and cost for Malawian exporters and potential exporters. • Competition policy Improve the capacity of the Malawi Bureau of Standards and • Investment policy the Ministry of Agriculture and Food Security (for Sanitary and Phytosanitary Standards (SPS)) to facilitate and train private op- • MSME and cooperatives policy erators to meet target market standard requirements. The MBS • Employment policy and MoAFS will set as an explicit priority in its statute the facili- tation of private operators (farmer organisations, cooperatives, • Transport policy women’s groups, MSMEs and businesses) to meet the standards for the NES products and target markets. The international • Energy policy. accreditation of the MBS is essential. The infrastructure and human capacity of the MBS, led by the SQAM project, is to be The prioritised actions for each of the three cluster strategies developed with this explicit goal in mind. Details are provided in are presented in Annexes 2, 3 and 4. The prioritised actions are Annexes 2, 3 and 4, and in Annex 5 Section 3.6 divided into phases. Phases relate to which factors should be pri- 31 2013 - 2018 oritised first, and hence commence first. They do not imply tions in earlier phases are facing slow implementation and are not that a phase has to be completed before another essential for the commencement of actions in a later phase. The phase starts. Actions in later phases do not necessarily need top-level priorities are summarised in Table 6 below: to wait until a previous phase is complete, particularly if key ac- Table 6 - top level priorities for the 3 priorities cluster strategies Phases Oil Seed Products Sugar Cane Products Manufacturing Phase 1: Immediate Actions Cluster stakeholder representation and Establish an appropriate stakeholder Establish an appropriate stakeholder coordination mechanism: Oil Seed Products representation and coordination mechanism: and policy maker representation and Technical Working Group. Sugar Cane Products Technical Working driving body: Manufacturing Technical Group; and develop a regulatory framework Working Group; basis for Industrial for sugar cane production. Policy including Special Economic Zones and Industrial Park Development. Phase 2: Main critical actions Access to Land Programme including oper- Develop and Implement an access to Land Access to Reliable Energy and Access to ationalisation of the land reform package; Programme; Establish Sugar Cane Commis- Local Inputs and Land for Commercial Banning of Export Bans; and explicit Oil Seed sion to facilitate development of the cluster; Farming linked to Manufacturing; Prioritisation in key government agencies. and secure Explicit Sugar Cane Prioritisation Set cluster as explicit priority for key by Government agencies. agencies. Phase 3: Kick-start enablers National Oil Seed Extension Programme Investor Facilitation Programme prioritising Investor Facilitation Programme including support by NGOs through an milling capacity, linked to Access to Land including Export Processing Zones/ extension coordination mechanism. Programme and Sugar Cane Extension Industrial Parks and Access to Land for Programme. Include pro-active targeting of Commercial Farming; and operationali- international sugar processors, including sation of MITC. Associated British Food (owners of Illovo) for $300m Malawi expansion, which ensures proper smallholder inclusion. Investor Facilitation Programme including Access to Irrigation and Cultivation Infra- Plan for meeting standards and accredi- operationalisation of MITC. structure Programme. tation in targeted markets. Plan for meeting standards and accreditation National Sugar Cane Extension Programme. Transport Support Plan: Transport in targeted markets, including aflatoxin Sector Implementation Plan focus on mitigation measures in groundnuts. link to growth centres: Tete, Lusaka, Harare and Mbeya; and prioritisation of dairy and wheat cultivation area rural feeder roads. Expedite operationalisation of Memorandum Access to Energy Plan (including pricing Warehouse receipts and commodity of Understanding on Harmonisation of Seed strategy for processors to supply electricity exchanges. Regulations in SADC and Comesa. grid). Warehouse receipts and commodity Plan for meeting standards and accreditation Banks to offer favourable lending exchanges. in targeted markets, eg Vitamin A. windows with long-term credit for Manu- factures TWG registered members. Government farmer confidence mechanism Banks to offer favourable lending windows Micro-finance and banks to target for short-term kick-start to agricultural for Sugar Cane Products TWG registered smallholders supply the cluster, to production (eg as with cotton 2011, but members. offer long-term savings and lending smaller scale). plans, and to be intricately involved in Extension Services & Sub-Committee, prioritisation for smallholders. Banks to offer favourable lending windows for Micro-finance agencies to prioritise small- Export Development Fund guarantees Oil Seed Products TWG registered members. holder sugar cane and offer saving schemes for investors in manufactures cluster to sugar cane small holder farmers on large complemented by Challenge Funds/ scale. Matching Grant Funds. Micro-finance agencies to prioritise oil seeds Export Development Fund guarantees for Tax efficiency and support. and offer saving schemes to oil seed farmers investors in sugar cane processors support- on large scale. ed by Innovation Challenge Funds/Matching Grant Programmes. Export Development Fund guarantees for Transport Plan, including fair compeitition investors in oil seed processors, supported in domestic market, Transport Sector Imple- by Malawi Innovation Challenge Fund. mentation Plan prioritisation of sugar cane cultivation area rural feeder roads and linking to target African markets (Lake Tangyanika, Lusaka, Tete, Harare) and ports (Nacala). Inclusion of packaging companies in Oil Seed Inclusion of packaging companies in Oil Seed Products TWG. Products TWG. Phase 4 See Annex 2 See Annex 3 See Annex 4 Phase 5 See Annex 2 See Annex 3 See Annex 4 Source: NES Steering Committee 32 Therefore the three prioritised cluster strategies will be explicitly • Ministry of Transport and Public Works prioritised for facilitation by critical public sector support agen- cies in their strategic plans, budgets and work programmes. Such • Ministry of Environment, Natural Resources and Energy agencies include: • Malawi Investment and Trade Centre • Ministry of Economic Planning and Development • Small and Medium Enterprise Development Institute • Ministry of Finance • Malawi Bureau of Standards • Ministry of Industry and Trade • Reserve Bank of Malawi • Ministry of Justice and Constitutional Affairs • Malawi Revenue Authority • Ministry of Agriculture and Food Security including: • Technical, Entrepreneurial and Vocational Education and • Agriculture Sector Wide Approach Training Authority • Department of Agricultural Extension • Malawi Industrial Research and Technical Development Centre • Department of Agricultural Research • Universities • Department of Crops • Department of Immigration • Ministry of Irrigation and Water Development The prioritised actions necessary to develop the three prioritised • Department of Irrigation clusters are presented in detail in the following annexes to this document: • Greenbelt Initiative • Annex 2 – A Strategy to Develop the Oil Seed Products • Ministry of Education, Science and Technology including Cluster the Education Sector Wide Approach • Annex 3 – A Strategy to Develop the Sugar Cane Products • Ministry of Lands and Housing Cluster • Ministry of Labour • Annex 4 – A Strategy to Develop the Manufactures Cluster 33 2013 - 2018

3.2 Priority Area 1b – Existing Clus- allow for human development. At this stage in its development path, Malawi does not have such strong institutional structures. ters This is a key reason why mining is not among the three priori- ty clusters. From a development perspective such exports offer In this Priority Area we detail the support plans for five exist- little human development and few economic spillovers and such ing export clusters. These clusters are important for Malawi, but spillovers can only be generated if a strong manufacturing base for varying reasons require less attention by policy makers and can be developed. The NES is therefore prioritising the develop- resource holders than the three priority clusters. These are to- ment of manufacturing so that in the long-term it can have the bacco, mining, tea, tourism and services. In this section the key capacity to add value to extractive resources within the Malawi. strategy for these clusters is presented. These are expanded in This, however, has a 15-20 year horizon and requires significant

Annex 8 of this document. investment in the manufacturing base (Annex 4), the conducive environment (Annex 5), the institutional structure (Annex 6) and Tobacco skills, competencies and knowledge (Annex 7). The tobacco cluster is undergoing restructuring to help Malawi From a revenue generation perspective, mining and the extractive diversify into new types of tobacco and to increase domestic val- industries require relatively little government investment as these ue addition. The Tobacco Control Commission, together with other industries tend to be private sector led. Malawi generated $123 stakeholders in the cluster, are developing a Five Year Strategic million worth of mining exports in 2011 with relatively little gov- Plan for the cluster to allow it to restructure. The key features of ernment effort relative to the degree of effort needed to develop this strategic plan are presented in Annex 8. the three priority cluster strategies. Mining and natural resources Nonetheless it is important for the NES to lend support to the De- Mining accounted for ten per cent of exports in 2010 and is likely partment of Mining to help develop the sector. The key need is to to be an important contributor to Malawi’s export basket. develop a robust regulatory and legal framework, as called for in the new National Minerals Policy that allows revenue maximisation It is important to recognise that relying on natural resources has from extractive industries, but only in a way that: not historically had beneficial results as a development strategy. Economies that have benefited from extractive industries, such as 1. Does not have a negative social and community impact. Australia and Canada have done so because they have invested in 2. Allows for the redistribution of revenues to the central a strong institutional structure that ensures that revenues earned government budget and to local communities in an eco- from such industries are invested in other productive sectors that 34 nomically efficient manner. thority is operational and before there is an effective stakeholder dialogue platform that allows private operators to interact with 3. Accounts for the environmental cost appropriately. relevant government agencies, Malawi’s aspirations for the clus- ter will struggle to materialise. For the cluster to meet its potential 4. Minimises opportunities for rent-seeking activity. it needs dedicated staff and institutional capacity to drive a long- 5. Creates the opportunity for mining service industries to term plan to develop the cluster. The absence of this over the past grow and emerge in Malawi. ten years is a key reason why the cluster is not a top priority in this National Export Strategy. The NES lends support to the operationalisation of the new Na- tional Minerals Policy, led by the development of a legal and reg- The Tourism Strategic Plan 2008-2013 has not been effective- ulatory framework for the sector. In addition, the government is ly implemented. The key objective of the cluster should be the keen to set a target of one new mine every five years in order to development of a marketable, branded product that can target build on the income generated from the Kayelekera uranium mine key markets, which will require institutional capacity development. that opened in 2009. According to the Mineral Sector Review of Otherwise Malawi will continue to fail to meet its tourism potential. 2009, such a new mine could include Kanyika for niobium/urani- The first step of the tourism support strategy under the NES is to um, Chimimbe Hill for nickel, Kangankunde Hill for monazite and establish a stakeholder wide dialogue and implementation mech- Salima/Chipoka for heavy minerals. anism whose focus is solely to implement the Tourism Strategic Plan 2008-2013 and the recommendations of the World Bank Key actions in the policy are presented in Annex 8 of the NES. review of the travel and tourism sector of 2010. Tourism This stakeholder dialogue and implementation mechanism re- quires adequate representation of stakeholders and an effective Tourism is an important cluster in Malawi and one that does have secretariat. It needs a dedicated lead development part- significant potential. While this is recognised by the NES, it also ner to support it. Then it needs to adopt the Tourism Strategic recognises that in the short to medium term it will struggle to Plan and World Bank recommendations as its sole focus. This will deliver the export growth that Malawi needs in order for exports enable the establishment of an effective institutional structure fo- to match the level of growth of imports. However the cluster has cused on the development of the cluster (for example through major long-term potential, although this sits squarely with whether improving tourist facilities, among others), led by the es- the government will make an appropriate investment in the insti- tablishment and operationalisation of the Malawi tutional structure of the cluster. Before the Malawi Tourism Au- Tourism Authority that the strategic plan calls for. Until this 35 2013 - 2018 Authority is established with management and staff dedicated to Services the development of the cluster, the tourism cluster will continue to develop in a piecemeal manner, failing to meet its potential and Most non-tourism services are primarily dealt with as enabler sec- the tourism goals set in the National Dialogue on the Economy tors and are therefore mostly dealt with in Section 3.3: Priority in Mangochi on 29 June 2012 will not be achieved. These goals Area 2: Conducive Environment for the Productive Environment. are to: This is because the majority of priority services under the SADC services negotiations – which are transport, energy, finance, • Restock game reserves and national parks. communication, construction and tourism – are major enablers for the productive economy. In addition to the prioritisation plans • Attract more direct, cost effective international flights for these services presented in Section 3.3 below and in Annex into Malawi thereby promoting competition. 5, there is a need to conduct a proper diagnosis of the structure of key service sectors to identify whether there • Decisively resolve issues surrounding Air Malawi. is need to increase the degree of liberalisation and/or strengthen • Improve infrastructure including roads, utilities (water the regulatory framework. In each sector the objective is the pro- and power) and airports. vision of affordable services to Malawian MSMEs, youth groups, women’s groups and farmer organisations, based on the premise • Simplify the system of visa issuance for tourists. that strong, competitive domestic service sectors will lead to ex- ports in regional countries, as is the case in the Malawian insur- • Improve tourism investment climate, including the es- ance sector. tablishment of tourism industry board. In addition to being enablers, it is the Government’s objective to • Broaden the tax incentives for investment in the indus- develop these services for direct export. Central to achieving this try. objective, apart from conducting the above diagnosis, is ensuring healthy competition in the local market so that dynamic service The support plan for the tourism cluster is presented in Annex 8. providers can flourish and develop the capacity to compete in regional markets. Another key need is to develop a core negotiat- Tea ing team for trade in services to drive Malawi’s trade in services The tea cluster has limited scope for expansion through increased agenda in SADC, COMESA, the Tripartite and with the WTO. The land allocation to tea agriculture. The cluster has too few econom- key capacity need is to better understand the implications of of- ic spillovers into the wider economy to drive the degree of devel- fers in the schedule for trade in services. There is a need for a opment that Malawi requires. However tea will remain an import- dedicated core team who know regulations, gaps and strengths ant contributor to Malawi’s export basket, as per the targets set in of the sector through robust analysis and then to negotiate effec- Chapter 2. The greatest need is for an effective and comprehen- tively. Importantly the team needs to have the capacity to under- sive stakeholder dialogue platform that has the drive to develop stand the contribution that competition and trade can make to the a competitiveness strategy for the cluster, and then implement it. development of these priority services, and hence cross-cutting Without true stakeholder buy-in this will not be achieved. enablers, to the productive base of the economy. The team also needs to be able to fully internalise the MGDS II and the NES into The strategy needs to focus on productivity improvements through their negotiations. investing in nurseries, in composting and improved plucking, and through improved smallholder agriculture. It is important for the In professional services, it is important to view these services as stakeholders in the cluster to collaborate to take advantage of key to strengthening Malawi’s productive base and hence its ca- branding through Fair Trade among others14. pacity to export. By supporting the development of such services, such as legal and accountancy services for the domestic market, Stakeholders in the cluster also need to work together to attain this will naturally spillover to increased exports of such services the goal of having a viable, efficient smallholder factory in Thyolo. to the region. This requires an effective smallholder representation body. An- other key need in the cluster is for increased dialogue between For legal services it is essential to improve the competitiveness tea exporting companies and the government on capital flight and of legal fees to allow an increased number of private operators, export remittances to ensure a balanced, fair outcome. Togeth- such as farmer organisations, youth entrepreneurs, MSMEs and er with this, it is important to establish a transparent system for women’s groups to access affordable legal services. It is essential accounting for export revenues, as is the case in the tobacco to reduce unfair competition in the legal sector by not restricting cluster. Finally, an important area, as highlighted by the USAID entrants to practise as commercial lawyers for the sake of pro- Multi Criteria Decision Analysis, is the need to invest in pesticide tecting the market share of practising lawyers. This has to be controls for tea. balanced with ensuring a sufficient degree of quality of service. In accountancy it is essential to improve the quality of accountan- 14 See for example International Trade Centre (ITC), ‘Malawi: Company cy and auditing. At present the quality of accountancy in Malawi Perspectives – An ITC Series on Non-Tariff Measures’, Geneva, ITC, 2012. is low, serving as a burden on the productive economy as well Forthcoming at: http://www.intracen.org/publications. 36 as lowering the possibility for Malawi to export accountancy and requirements of importing countries and an affordable auditing services. The first step is to undertake an analysis to de- cost of required packaging. termine whether Malawi has the capacity to supply the quantities and quality of accountants needed to develop productive sectors. 2. Affordable Access to Inputs – the focal inputs are There also needs to be a review of the Public Accountants and water, energy and farm inputs. Auditors Bill, which was drafted in 2006 but is now outdated. Rec- ommendations of the review need to be fast-tracked. There is 3. Affordable Access to Finance and Secure Ten- also a need to establish the Chartered Accountants Institute of ure of Property – this includes the ability to affordably Malawi, who will serve as the custodian for the development of finance capital and property for collateral and the ability the sector, particularly focused on ensuring the correct balance to secure the returns from assets, such as land. between fair competition and quality of service. 4. Affordable Access to Business Development Services – this includes legal, accountancy, technically 3.3 Priority Area 2 – Conducive specialised, marketing and extension services, together with support and advisory for MSMEs, entrepreneurs and Environment for Productive start-ups. Economy 5. Ease of Meeting Tax and Regulatory Obliga- The strategy to develop a conducive environment for the produc- tions – private operators have to contribute to Govern- tive economy is divided into two parts: ment revenues and have to meet their regulatory obliga- tions. This includes identifying the most efficient way of 1. The top six cross-cutting priorities that are necessary to contributing to tax revenue and facilitating the ease of build Malawi’s productive base meeting regulatory obligations. This is also closely related to efforts to increase the formality of business and wid- 2. Other cross-cutting actions. ening the tax base, which is essential for tax simplification and predictability. This document presents the top eight cross-cutting priorities. Oth- ers are presented in detail in Annex 5. However a brief rationale 6. Macroeconomic Prudence and Stability – price for this priority area is provided. stability, affordable access to foreign exchange, affordable access to government debt and to aid. Why this Priority Area? 7. Access to Information – specifically on consumer For sustained economic development, the productive economy preferences, financial information, market information for has to be embedded in market forces. It is therefore important farmers, accountability and stakeholder dialogue plat- that the Government of Malawi, in collaboration with stakehold- forms. It includes the communications sector, warehouse ers, provides an environment that supports private operators15 receipts and commodity extension, as well as the use of who would like to invest in a new product or service or target a mobile phones for information dissemination and collec- new market, irrespective of which sector in falls within. Encour- tion. aging private operators to play this role is central to building the productive base. Increased market-led investment is the base on 8. Fair competition – private operators require fair which Malawi’s aspirations of value addition will be achieved. competition between players to maximise output. Many factors determine the ability and willingness of private 9. Access to Supportive Economic Institutions operators to generate value addition and develop the econo- – private operators require effective institutions that can my’s productive base. When private operators evaluate wheth- address market failures in each of the other enablers in er or not to invest in a new product, service or market they an appropriate manner and provide the necessary institu- take into account the ten factors below, which we call enablers. tional service of trade facilitation. Police coherence for the productive base of the economy is covered here. Enablers The ten enablers of the productive economy are: 1 to 8 depend on economic institutions, and therefore this enabler is given additional focus under Priority Area 3 of 1. Affordable Access to Markets – this includes the National Export Strategy. trade facilitation, easing of foreign and domestic non-tar- iff measures such as export licensing and inspections, 10. Access to Competencies and Skills – private single window, favourable trade policy, investment facil- operators, as well as public institutions, require access itation, export promotion, affordable transportation to to a pool of skills to reach the capacity required to be markets, affordable cost of meeting standard and quality competitive in external markets. Enablers 1 to 9 depend on competencies and skills, and therefore this enabler is 15 Private Operators include smallholder farmers, farmer organisations, youth entrepreneurs, women’s groups, cooperatives, MSMEs and large given additional focus under Priority Area 4 of the Nation- businesses. al Export Strategy. 37 2013 - 2018 The conducive environment is not only about the extent to which of the productive economy and of trade. Yet they have a private operators are able to deliver on their plans to provide new significant impact on the enabling environment. products or services or to tap new markets. Crucially, it is also about the extent to which such efforts by private operators allow 3. Ensure that the environment for private operators balanc- for wider development benefits. These two aspects need to be es competitiveness with economic empowerment. adequately accounted for. The Strategy for this Priority Area If this balance is not secured, then the productive base of the economy will struggle to emerge, leading to constraints to the Stakeholders are aware of numerous issues that need to be extent of private sector led development. If the conducive envi- addressed in order to build Malawi’s productive base, its export ronment is viewed as solely about competitiveness, then political competitiveness and allow for the economic empowerment of key pressure for increased regulation will mount, in turn leading to groups such as the poor, youth and women. Many of these issues policies that may disincentivise private investment, including in- have been raised in numerous stakeholder dialogue forums and vestment by youths, farmers, women and the poor. On the other research reports in recent years. Yet an adequate prioritisation hand, if the enabling environment is viewed solely in terms of exercise to decipher what needs to come first and what may follow wealth redistribution and economic empowerment of vulnerable has been missing. The purpose of this chapter is to provide this groups, without a focus on competitiveness, then the productive prioritisation16. base will become detached from consumers preferences, in turn The top six crosscutting issues that need to be prioritised through undermining the permanent development of the productive base strategic focus are: of the economy and efforts to generate value added in Malawi. 1. Deliver policy coherence, comprehensiveness When this mismatch arises, dissonance between regulators and and coordination in setting the right environment for private operators often also arises. As such it is essential to have Malawi’s productive base to be built. This includes deliv- a comprehensive and balanced approach to the providing a con- ering a fiscal and monetary policy that is conducive to the duce environment for the productive base to emerge, and hence for exports to grow. The Core Issues this Priority Area Seeks to Address 16 The basis for carrying out the prioritisation is through reviewing all ten of the enablers that ‘private operators’ require to be productive as To develop a conducive environment for the productive base of presented in Page 42 above. Private operators do not only include large the Malawian economy, key next steps are to: businesses, but crucially they include smallholder farmers, employees, youths looking for work, micro and small businesses, entrepreneurs, 1. Prioritise financial and management resources toward key community based organisations and women engaged in economic enablers. activities. Therefore private operators represent the entire spectrum of Malawi’s productive base. The ten enablers apply to all private operators, 2. Sensitise stakeholders whose day-to-day operations help irrespective of their size, markets or products. The Review of Cross-Cut- to determine the enabling environment to their role in ting Export Enablers identified key factors in each of the ten enablers that businesses require to be able to develop and export. For a detailed building Malawi’s productive base. Many regulatory agen- understanding of these issues, please refer directly to the Review which cies view themselves as regulators and not as facilitators is presented in Annex 10. 38 productive base. If Malawi continues to shape policy based on short term, reaction- ary, objectives, there is a high risk of the continuation of recent 2. Significantly improve coordination efforts to connect characteristics of the Malawi economy: smallholder farmers to processors and to markets. • A large fiscal deficit that requires around 40 per cent bud- 3. Enable smallholder farmers and micro, small and medium get support enterprises to access affordable finance. This is key to improve access to technology. • An inability to widen the tax base 4. Prioritise the delivery and implementation of a long- • An unpredictable and complicated tax regime term energy plan that will allow access to reliable and cost-effective energy. • An inability to move away from commodity exports to val- ue added exports 5. Invest in institutional capacity to facilitate MSMEs to meet the standards, accreditation and product qual- • Tax inconsistency and lack of predictability ity requirements of target export markets. It is critical for the government not to view its role as an enforcer of • An increase in problems such as transfer pricing. product quality but as a facilitator to MSMEs, using target The present incoherence is a result of institutional constraints, export markets as the benchmark, and not non-target particularly at the level of planning, coordination and implemen- markets. tation drive. Each Ministry or agency has to rely on a certain pool 6. Improve access to cost-effective transport both for of skilled labour, and often the numerous demands on these or- exporters accessing regional markets and for domestic ganisations means that such skilled labour is spent on day-to-day suppliers into the priority clusters. This is particularly key administration or fire-fighting rather than on policy coherence, for smallholder farmers supplying processors. comprehensiveness and implementation. For example, the ap- proval of the Minister of Industry and Trade is required for every In addition to these six, the development of economic in- export license, creating an administrative burden that constrains stitutions and prioritising permanent solutions to connect the the Minister’s core management time. The same constraint holds demand for and the supply of skills and knowledge are also true for management time. This requires the Government to invest fundamental. They stand at the basis of all crosscutting issues in its institutional capacity. This is a difficult task and will require and all efforts to develop the productive base of the economy a lot of time. While this point is expanded on in the next priority in a manner that creates jobs and economically empowers the area, a short to medium-term solution is to prioritise the estab- wider population. For these reasons these factors are covered in lishment of policy and strategy coherence, comprehensiveness separate priority areas: Priority Areas 3 and 4 below. and implementation structure that can ensure that priority actions are adequately resourced, both financially and through manage- The top six cross-cutting priorities are expanded on below. Ac- ment time. tions that fall within these priorities are marked in the action plan matrices in Annex 5 of the NES at priority level 6. Another key aspect of policy coherence is about securing a bet- ter understanding of how enablers of Malawi’s productive base 1. Policy coherence, comprehensiveness and co- should be provided to private operators. In some cases it is the ordination in setting the right environment for public sector that is best placed to take the lead role in providing Malawi’s productive base to be built. the enablers, with the private sector supporting. Such cases could include fair competition, energy and education. In other cases, At present, there is not enough coordination of policies and strat- the private sector is better placed to lead, with the public sector egies that determine Malawi’s productive base across different supporting. Examples include the financial sector and profession- Ministries and agencies in Government. This is a key reason for al services. difficulties in the implementation of these policies and strategies. Coherent and comprehensive policy can only be attained through One example of this is the duplication of efforts and the lack of ongoing, structured dialogue and collaboration between imple- mutual support between the Department of Cooperatives, the One menters, policy makers and the productive base of the econo- Village One Product Programme, both in the Ministry of Industry my. Fundamentally, the government and all stakeholders need a and Trade and the Department of Extension Services in the Min- mechanism for structured dialogue that is focused on addressing istry of Agriculture and Food Security. Such an outcome arises obstacles to implementing the country’s strategic vision for build- because of the dearth of a holistic and comprehensive strategy ing the productive base of the economy. The solution is to: to develop Malawi’s productive base and empower farmers in this process. Similar contrasts exist in the use of export bans and ex- a) Ensure that the Real Sector Policy Analysis Division of the port licenses which counter efforts to improve agricultural yields Ministry of Economic Planning and Development is a ded- and conflicting regulation. icated secretariat whose mandate is solely to drive the implementation of the productivity aspects of the MGDS II. 39 2013 - 2018 Its role is to ensure the coherence of policies across the explore the option of using export contracts as collateral board with respect to their impact on the productive base to lead to lower interest rates. of the economy. c) The credit guarantee scheme will be matched by the im- b) Establish a dedicated secretariat within the Ministry of plementation of the Micro-Finance Policy of Industry and Trade to drive the implementation of the 2002, and a review of the government’s role Trade, Industry and PSD Sector Wide Approach (TIPSD in the sector to move toward being an effec- SWAp), the Joint Sector Strategy and the NES. The TIPSD tive regulator rather than a service provider. SWAp is the implementation mechanism for the NES and Despite the recent growth in private micro-finance, few the NES is a key building block of the Joint Sector Strategy. smallholder farmers have access to affordable micro-fi- The TIPSD SWAp should included adequate representation nance because the sector is still inefficient and dominated of the private sector, smallholder organisations, MSMEs, by politically motivated public sector institutions. Imple- women’s groups, civil society and labour groups. mentation of the existing Micro-Finance Policy would go some way towards addressing this, particularly through These two solutions have been expanded on in detail in Chapter the creation of an enabling legal and regulatory envi- 4 below, because they are core to the implementation mechanism ronment and the implementation of economic policies of the NES. conducive to the development of microfinance. The Mi- cro-Finance Act and the Financial Cooperatives Act need to be fast-tracked in their implementation; this is critical to 2. Significantly improve coordination efforts to give farmers access to the necessary finance for access connect smallholder farmers to processors and to good variety seed, fertilizer, water and other inputs. It to markets. is also important to establish a competitive, transparent There is a large information divide between farmers and proces- supply window by government for MFIs through an Apex sors of value added agriculture-based products, leading many fund in order to support the capacity of MFIs to reach out processors to use imported inputs instead of local agricultural to rural populations efficiently. output. This is due to the lack of a coordinated approach between d) Fast-track the enactment and operationalisa- the public and private sectors. tion of the amendments to land legislation, Solution through the National Export Strategy: including the enactment of the Land Bill to allow for the establishment of customary estates. The See Annex 1 for a resource plan for these priority actions and An- political sensitivities that surround ownership of custom- nex 5 for full details, together with Annexes 2, 3 and 4 for the prior- ary land are fully understood, but it is essential to allow itized cluster strategies. for land titling of smallholder land to lower the cost of access to finance for farmers. Operationalisation of the The following interventions are all required, and will all be equally land reform package requires a Land Development prioritised and expedited: Support Programme to conduct land surveying and a) Fast-tracked, scaled investment in the in- mapping related to priority crops, land registering and a formation and storage sector, centred around significant investment in capacity building in land adminis- warehouse receipts and including warehouse investors, tration especially in Departments of Lands, Physical Plan- agricultural commodity exchanges, mobile phone agricul- ning and Surveys and the Land Registry. The Automated tural information services. Ensure the financial sector is Lands Registry system being developed under Business on board for it to develop lending packages for private Environment Strengthening Technical Assistance Project investors in such systems. There is need for RBM to serve (BESTAP) to assist banks to speedily verify ownership of as regulator of a national warehouse receipts system and land titles at a low cost needs to be expedited, as does the to develop and implement a conducive regulatory frame- Land Information Management System Project which will work for the system. assist in improved provision of information for sustainable land management. b) A scaled agriculture credit guarantee scheme for processors’ investment risk to be supported. e) Run an NES Extension and Cooperatives Sup- Often this risk is deemed too high for investors because port Services Programme to drive a concerted and of uncertainty on the volumes and quality of farm output, significant investment by the public sector, supported by while on the other hand farmers are reluctant to invest in development partners, in the Department of Cooperatives production of a non-tobacco cash crop unless they are of the Ministry of Industry and Trade and the Department certain they can sell it for a good price. Support cred- of Agricultural Extension Services of Ministry of Agricul- it guarantee scheme with an innovation challenge fund. ture and Food Security, to increase Malawi’s capacity to This scheme should be tied to exports and accounted for organise farmers. This requires a significant increase in through the Export Development Fund. This fund should the government’s budgetary allocation to these depart- ments. Currently only 17 per cent of smallholder farmers 40 have access to government extension services. The first smallholder farmers to supply processors. step is to conduct an expert assessment of the way exten- sion services and cooperative support services are deliv- j) Identify a mechanism through which farm- ered, the capacity of extension and cooperative support ers are incentivised to produce key crops in services and identify what capacity is required to deliver a manner that also promotes investment in effective extension and cooperative support services in processing capacity by manufacturers. This prioritised crops under the NES (groundnuts, sunflower, could include the amending of the Farm Input Subsidy soya, cotton, sugar cane and dairy). This will serve as Programme to incentivise the private sector to distribute the basis of a human resource investment programme in seeds and fertilizer of non-maize crops in addition to extension and cooperative support services, tied to pri- maize, particularly of those prioritised in the NES. ority crops and clusters. Specific attention will be given to the benefits of good quality seed, agricultural technology, k) The promotion of commercial farming using the post-harvest management, warehouse receipts, effective Anchor Farm model for priority NES crops, with farmer organisation, land titling reforms, micro-finance adequate incentives for investors to also run outgrower and farmers’ capacity to understand loan obligations, schemes, on land that is suitable for those crops and that apart from agronomic issues. Specific attention will also is not under smallholder tenure. One million hectares of be given to women and youth, aiming at increasing their non-smallholder or unused arable land is to be allocated individual and collective capabilities. to commercial farming, linked in to the priority NES clus- ters and investment facilitation programmes that are to be f) The Department of Agricultural Extension Services will developed for these clusters. Responsible Agricultural In- develop and implement an NGO extension vestment Principles are to be applied and the application service coordination programme to attract the of Corporate Social Responsibility is recommended. (See wide range of NGOs that are active in sustainable liveli- Annexes 2, 3 and 4). hoods, to contribute to farmer organisation and extension service efforts in line with NES priorities. This programme 3. Significantly improve the ability of farmers, has to be linked to the establishment of a national ware- youths, women and micro, small and medium house receipts system. It is also important to explore mo- enterprises to access affordable finance, and dalities for increased public private partnerships in this hence technology. programme. According to the MSME Survey of 201217, 34 per cent of MSMEs g) Build the capacity of the Fair Trading & Competition reported that access to finance is the greatest obstacle for the Commission, and set as a priority mandate the growth of their business. This was the most commonly reported pursuit of fair competition in the domestic factor, ahead of market access at nine per cent. Although the con- transport sector. Unfair competition in this sector is straints around access to finance are well known amongst stake- a cause of the high cost of transport from rural areas to holders, there is insufficient understanding of the burden that cities, making domestic farmers relatively less competitive limited access to finance by farmers, youths, women and MSMEs against imported agricultural produce. has on Malawi’s ability to meet its development agenda, as set out in the MGDS II. Access to finance is important not just because it h) Ensure coordination between the National allows working capital, but because it allows access to critical in- Irrigation Policy, the Greenbelt Initiative and puts, such as seed, fertilizer, water, machinery, equipment, labour, the National Export Strategy. Irrigation capacity is expert assistance, legal, bookkeeping and accountancy services limited, therefore it is essential to invest in irrigation where and technology. Unfortunately these are often viewed in isolation it will receive the highest returns. It is therefore important of each other, but they cannot be detached at policy level, be- to balance irrigation investment between private operator cause access to these inputs is ultimately dependent on accessing interests, and a concerted effort to develop clusters that financing. can complement tobacco in exports, as identified by the NES (sugar cane, oil seeds and agricultural inputs into the Having access to finance is also important from a learning per- manufacturing cluster). spective. In the case of micro-finance and village savings and loan associations, these also help develop a culture of savings, which i) Expedite the complete operationalisation of is critical for poverty reduction in Malawi. In the case of MSMEs, Memorandum of Understanding (MoU) on their relationship with lenders exposes entrepreneurs, youths and Harmonisation of Seed Regulations in SADC and women to a culture of proper financial organisation and account- of Memorandum of Understanding on Harmonisation of ability. A further key reason why the development of the financial Seed Regulations in COMESA. The lack of operationalisa- sector is essential is because access to finance is the primary tion of these MoUs is a core reason behind the lack of mechanism through which Malawian farmers, MSMEs, youths and affordable good quality seed for non-maize and non-to- women’s groups can improve their access to technology bacco crops, including those prioritised under the NES. and international R&D. Their ability to install a new machine This helps keep yields low, in turn limiting the ability of 17 Finscope Malawi MSME Survey 2012 41 2013 - 2018 or have access to high technology seed treatment or herbicides tutions by increasing the formality of the MSME sector. depends on their ability to access finance. Informality of client enterprises, and also of the markets within MSMEs operate, is a challenge as it reduces the Underdeveloped regulation is a core reason for the limited access extent to which information is available on enterprises to finance: the legal, regulatory and institutional framework for and the reliability of systematic documentation. It often the financial sector and micro-finance sector remains weak when means enterprises lack a fixed place of business. This compared to the exigencies of developing Malawi’s productive reduces banks’ willingness to lend, raising interest rates base through economic empowerment of key groups. As a result and collateral requirements. Measures to achieve greater there is limited competition and innovation. The average formality in the sector and increase client attractiveness return on equity of the Malawian banking sector was estimated at to banks should include: 43.6 percent at the end of 2008.18This level of bank profitability indicates that there is little competitive pressure on commercial i. Developing the Department of Registrar General banks to diversify their client base and develop new markets for to ease the time and cost involved in registering their financial services. Lack of competition and diversity, in turn, businesses. has reduced pressure to innovate and keeps costs high, making access to finance unaffordable for a large segment of Malawi’s ii. Ensuring secure tenure of land and other prop- productive base. erty through operationalisation of the Lands Bill, capacity building at the Department of Lands and Solution under National Export Strategy: the creation of a Moveable Collateral Registry fol- lowing the passage of a new Secured Transactions See Annex 1 for a resource plan for these priority actions and An- law. nex 5, Sections 6 and 7 for a full list of actions on MSME Access to Finance. iii. Enhancing creditor rights by improving access to commercial justice for creditors through capacity The NES calls on the prioritisation of the development of the fi- building at the commercial courts, and through re- nancial sector through: form of the insolvency regulatory framework. a) Setting the development of the financial sector as a prior- iv. Improving the amount and quality of information ity under the MGDS II, with a corresponding holistic stake- available on entrepreneurs through the enhance- holder working group to oversee the development of the ment of bookkeeping skills and financial literacy, sector. as well as the development of a Credit Reference b) Developing the capacity of the Reserve Bank of Malawi Bureau and a national identification system. The to balance its regulatory function through adequate risk- latter two systems have been initiated but are not based supervision and its role in supporting the develop- yet fully operational, and need management atten- ment of the financial sector. tion to become functional as soon as possible. c) Making a coherent effort to build the capacity of the Fi- v. Improving the ease of access to financial infor- nancial Sector Policy Unit in the Ministry of Finance, since mation by entrepreneurs, start-ups and MSMEs this Ministry currently lacks capacity to fulfil its mandate through the SME Development Institute. of coordinating formulation of financial policies and reg- g) Developing and implementing a policy for state involve- ulations effectively. ment in the financial sector to strengthen the oversight d) Encouraging greater competition between financial insti- of State-Owned Financial Intermediaries (SOFIs) and gov- tutions in lending and non-lending businesses in order ernment programmes, to reduce market distortions cre- to encourage innovation in lending markets and greater ated by government involvement, and address fragmenta- targeting of the SME market. tion of ownership responsibilities among various bodies. The independence and technical capacity of boards of e) Incentivising the growth of the non-bank financial sector directors of SOFIs should also be increased, and clear and the longer-term sources of finance, particularly the policy mandates defined for them. These measures would development of the bond market and the development of include the following reforms being fast-tracked: the stock exchange. This would include investing in regu- latory capacity to ensure the Malawi Stock Exchange has i. The completion of the merger of SEDOM, DEMAT an inherent incentive to attract businesses to raise finance and MEDI into the Small and Medium Enterprise through the stock exchange. Development Institute and the operationalisation of the institution. f) Fast-tracking and prioritising programmes to increase the attractiveness of MSMEs as clients for financial insti- ii. The merger of Malawi Rural Development Fund with the Youth Enterprise Development Fund to 18 FSTAP Project Appraisal Document, February 2011 form the Malawi Rural and Youth Enterprise Devel- 42 opment Fund. It is essential to ensure proper gov- The new National Energy Policy must be complemented with an ernance and to maximise the effectiveness of the Implementation and Resourcing Plan to ensure that the Office of fund. There is a need to consider the privatisation the President and Cabinet, the Ministry of Economic Planning and of the fund, with effective regulation to ensure its Development and the Ministry of Finance, together with develop- objectives are met in an efficient manner. ment partners, are able to plan in advance for capital expendi- ture required in the sector. Advance planning based on holistic h) Supporting financial sector reforms with a Financial Sector forecasts of demand and supply does not currently take place. Deepening Trust Fund. The Implementation and Resourcing Plan needs to prioritise in- vestment in institutional capacity to implement the new National 4. Ensure that private operators may access reli- Energy policy. There is a lack of specialised skills in power man- able and cost-effective energy through long- agement and maintenance. More capacity must be built in Escom term energy planning. (if the current market structure is to be maintained) and in the Not having a reliable source of electricity in Malawi has a huge Department of Energy Affairs on power issues, advance and ho- negative externality effect, as many value added products require listic planning, feasibility studies and other areas. constant and reliable access to electricity. 5. Invest in institutional capacity to facilitate MS- Solution under National Export Strategy MEs to meet the standards, accreditation and product quality requirements of target export See Annex 1 for a resource plan for these priority actions and An- markets. nex 5, Section 5.5 for a full list of actions on energy. There is a risky perception in Malawi that Malawian businesses The development and implementation of a new National Energy should provide the highest level of product quality, that this should Policy, supported by development partners, is to be expedited. be enforced by a regulator (the Malawi Bureau of Standards), The new National Energy Policy should: and only then can the business endeavour to export the prod- uct. Yet this risks undermining Malawi’s export capacity by plac- • Be based on the IAEA Demand and Supply studies and ing an excessive and unnecessary cost on businesses to export needs to serve as a holistic plan to allow for enough en- because such an approach is not market-led. Malawi’s objective ergy access relative to the demand of the economy. The is not product quality but exports. While China and Japan today link to the priority clusters of the NES is fundamental. export high quality products, they did not do so when penetrating new markets. They competed on price not on quality, gradually • Include the purchase of power through the SADC Power capturing market share, which in turn made it feasible to improve Pool, via an interconnector with the Mozambican energy their product quality. It is often forgotten in Malawi that the higher grid to allow the priority clusters in Malawi to access the product quality, the higher the cost and cost is the greatest reliable energy. This requires reviewing existing restric- deterrent of export capacity. tions for the importation of electricity into Malawi. The NES is keen to promote a market-led approach in which busi- • Account for competition issues through an analysis of nesses first identify target markets and then the Malawi Bureau the impact on long-term energy access from the current of Standards facilitates businesses (including MSMEs) to meet the market structure. standards required by those target markets, through certification • Account for current investment projects and feasibility and its international accreditation. At the same time, MBS should studies such as those at Kapichira and Lower Fufu. reduce imposing its own mandatory export standards and inspec- These projects will still leave Malawi with a large short- tion procedures on exporters. fall in energy supply. The latter approach is essential so that the government and • Include a framework for private sector investment and stakeholders do not view the Malawi Bureau of Standards as a generation, generation by the sugar cane cluster, the regulator, but rather as a facilitator of exporters, using target use of alternative sources of energy and appropriate export markets as the benchmark, and not non-target markets. pricing so that the economic cost of energy supply is Otherwise Malawi runs the risk of only certifying products that worked into consumption decisions. meet European Union standards when the standards required by target markets in SADC and COMESA might be significantly lower. • Be synchronised with water demand for energy, domes- This mistake can have a detrimental impact on Malawi’s capacity tic use and Malawi’s irrigation plans. to export. Long-term planning is fundamental and this has to be the core of Solution under the National Export Strategy the new National Energy Policy, complemented by addressing the See Annex 1 for a resource plan for these priority actions. Also re- shortfall in domestic supply with electricity from Mozambique or fer to Section 3.4 of this document, which identifies MBS as a criti- other neighbouring countries. cal organization to be developed (as a facilitator not as a regulator) and Annex 5, Section 3.6 for a list of actions concerning standards, 43 2013 - 2018 product quality and accreditation. The Industry, Trade and Private Sector Development Sector Wide Approach (SWAp) Issues Paper of 201119 identified transport • The MBS and the Ministry of Agriculture and Food costs to be high due to the poor quality of rail connections to Security are to base efforts to develop their capacity markets in Malawi, in the region and to seaports, while road con- to facilitate standards and sanitary and phytosanitary nections to ports in Mozambique are also weak. As a landlocked standards (SPS) on products in the three priori- country, distances for exporting outside the region are costly. tised cluster strategies (oil seed products, sugar Transport costs to markets such as the United Kingdom can be as cane products, manufacturing). Since the flow of infor- high as 50 per cent of the value of the product20, while the cost mation between businesses and the MBS is limited, and of transport of input materials is typically between 25 and 40 per because the reliance on such information would make it cent of the total amount, which many additional sectors spend on difficult for the MBS to conduct advance planning on its supplies. certification and accreditation capacity, the NES lends support to this process by indicating to the MBS which The top priority for the Ministry of Transport & Public Infrastruc- are the export clusters and products and which are the ture is to supply a multi-modal transport system to reduce the target markets. The three prioritized cluster strategies dependence on road transport, particularly for bulk transporta- contain standard and accreditation plans specific for tion. A key part of this is rail transport, while marine transport their cluster. These are to be prioritised by the MBS and is also important, as outlined in the Transport Sector Investment the relevant departments of the Ministry of Agriculture Programme and the National Transport Policy of 2004. and Food Security. Unfair competition practices also significantly raise the cost of • The human and infrastructure capacity of the transportation, particularly for smallholder farmers and rural en- MBS and the relevant departments of the Ministry of trepreneurs. This acts as a major obstacle to Malawi’s efforts to Agriculture and Food Security needs to be developed so build its productive base through the export of high value prod- that they can provide an effective facilitatory and train- ucts and the empowerment of youths, women, MSMEs, farmers ing service, particularly to MSMEs who would otherwise and the poor. find the cost of meeting international standards and re- spective conformity assessment procedures prohibitive. Solution under the National Export Strategy The expedited implementation of the MBS’ Infrastruc- See Annex 1 for a resource plan for priority actions and Annex 5 ture Project (which is supported by the EU SQAM proj- Section 3.7 for a full list of actions on transport. ect) is essential. The implementation of projects around the USAID funded Multi-Decision Criteria Analysis is also There are four actions that need to be prioritised under the strat- important. However providing facilitation services to ex- egy: porters is not just about having the requisite testing equipment or laboratory. It is also about human capital i. Support the emergence of a market structure for road and the location where certification may take place. If transport that ensures relatively fair competition, there is only one tester for a certain product and that through the application of Competition Policy. Investing person goes on leave, products may remain uncerti- in infrastructure by itself will not necessarily lead to low- fied for weeks. This also requires a change in mindset er transport costs, particularly for agricultural input into from being a regulator to being a facilitator. Of course, processing facilities. the standards of target markets have to be met and therefore it is essential for the SQAM to ensure the right ii. Tie the implementation of the Transport Sector Invest- balance between ensuring standards of appropriate ment Programme to the priority clusters under markets and facilitating exporters. the NES (sugar cane products, oil seed products and manufacturing). This needs to be at two levels: • There is a need for constant dialogue on stan- dard facilitation between private operators • Accessing target markets: rail and road ac- (including cooperatives, farmer organisations, youth cess to key markets, particularly the growth entrepreneurs, women’s groups and MSMEs) and the centres in the region (Tete, Lusaka, Harare, MBS and other certification agencies. This will Mbeya, Lake Tanganyika to access the Great be carried out through the Access to Markets Technical Lakes region) and ports in the region (Naca- Working Group discussed in Chapter 4. la, Beira, Dar es-Salaam). 6. Ensure that private operators, including small- 19 Ministry of Industry and Trade, (2011), Issues Paper for the Sector holder farmers, have access to affordable trans- Working Group on Trade, Industry and Private Sector Development port services for access markets and accessing 20 Imani Development, (2010), Draft annex on Enabling Environment in inputs. Malawi 44 • Integrating the domestic supply chain: rural value and jobs, thus allowing for the productive base to emerge feeder road improvements should be priori- and Malawi to be able to export sufficiently relative to its imports. tised based on agricultural production centres As argued in Priority Area 2 of the Strategy (Chapter 4), Malawi’s for sugar cane and for oil seeds (sunflower, ability to export is not only dependant on the ability of private groundnuts, soya, cotton) through a close link operators to access markets, or on the extent to which there is with land and extension plans at the Ministry an efficient and consistent tax system. Rather, Malawi’s produc- of Agriculture and Food Security under the tive base is dependent on a range of different factors, which are NES cluster strategies. grouped into the ten enablers presented in Chapter 4. iii. Strengthen the implementation capacity for multi-modal For such enablers to be provided in a manner that allows for the linkages with regional markets and ports, particularly productive base to emerge, favourable economic institutions are rail, through the use of public-private partner- key. Institutions refer to both domestically-based organisations ships and through developing the skills and also to economy-wide arrangements and structures that bases for railway development and main- shape economic behaviour. For the productive base to emerge, tenance. Prioritise the development of capacity for what is essential is for such arrangements and structures to in- policy implementers and contractors linked to railway centivise favourable economic behaviour by private operators. In development through support for the policy team of the turn this requires sufficient capacity in organisations. Ministry of Transport and Public Works and the National Contractors Industry Council, as set out in the Transport The provision of such institutions is dependent on all stakehold- Sector Investment Programme. The ongoing EU study ers in Malawi, including the private sector and development part- on rail infrastructure needs to be linked to the NES ners. However fundamentally it is the public sector that is critical priority clusters and target markets and its outcomes in providing favourable institutions. In certain cases, such as in financed, particularly through facilitating venture capital the provision of fair competition, reliable and affordable energy or under the Public-Private Partnership Act. agricultural extension services, the public sector has a lead role to play in providing such institutions. In others, such as in affordable iv. Establish and operationalise a proper reg- access to finance, transport services and professional services, ulator for Central and East African Railways the public sector is fundamental in allowing for the private sector (CEAR), and any other future railway oper- to operate in a manner that is conducive to the productive base ators, to ensure proper funding and staff. The capacity of the economy. to enforce the contract is fundamental. The regulator needs to be answerable to Parliament. There is also For Malawi’s productive base to emerge, and for its export capac- need to ensure that contracts with concessions are ity to grow, it is essential to invest in the capacity of public sector enforceable and enforced by the regulator. There are organisations. Since Malawi’s ability to export is dependent on currently no penalties for lack of compliance by CEAR to all ten enablers of the productive base, delivering a conducive manage the Malawi railway. environment is not dependent on just one Ministry or a handful of agencies. The environment for the productive base is dependent Part 2: Other actionsIn addition to these top crosscutting priori- on the collective behaviour of Ministries, agencies and enabler ties, there are a number of other actions that are important for sectors. Their behaviour will determine the cost to farmers, youth, Malawi to undertake in order for its productive base to emerge. women, MSMEs and large businesses of investing in a productive These actions are presented in Annex 5 to this document. This activity, and hence the degree of economic empowerment. annex, together with Annexes 6 and 7 provide a complete matrix of prioritised crosscutting actions under the NES. This includes Further, if Malawi is going to achieve the guideline targets of the communication (refer to Annex 5, section 4.2) trade facilitation NES, and hence its development agenda, policy makers and devel- (refer to Annex 5, sections 3.2 to 3.4) and the repatriation of ex- opment partners need to better understand how sustainable val- port earnings (refer to Annex 5, section 9.2) among other areas. ue addition is generated by an economy. Malawi has been unable to export because of structural weakness in the economy that has created an unfavourable environment for private operators, 3.4 Priority Area 3 – Support- whether farmers, manufacturers, MSMEs or large businesses. It ive Economic Institutions for a is essential for Malawi to move into value addition and away from commodity exports in order to achieve the pro poor development Productive Economy required by the MGDS II. Given the inability to regulate for value addition – for example, export bans will not achieve higher value Why this Priority Area? addition and the transformation of the economy as it disincen- The collective objective of stakeholders is to provide a conducive tivises investment by processors and farmers – it is important environment for private operators that have the capacity to create to ensure appropriate investment in public sector agencies whose behaviour can either facilitate or disincentivise trade and 45 2013 - 2018 value addition. The degree of government ownership, not the • Only seventeen per cent of smallholder farmers have size of a development partner programme, defines appropriate access to extension services from the Department of investment in public sector capacity: ownership is the degree to Agricultural Extension Services. There are on average which the government makes a genuine, concerted effort to build 1,500 farmers per public sector extension worker in the ability of agencies to shape a conducive environment for trade Malawi. and private sector development to take place, in a manner that creates higher value addition and therefore creates jobs and im- • The Ministry of Industry & Trade has to be more ef- proves salaries. This requires commitment at the management fective in making the case for trade, industry and pri- level as well as through the public finances, with development vate sector development with central government, as partners assisting where there are gaps. it currently receives a limited budget and therefore has minimal capacity to play its role of coordination. There As part of the process to develop the National Export Strategy, a are examples of duplication of effort with the Ministry review of institutional capacity was carried out from the perspec- itself. Trade, Industry and Private Sector Development tive of requirements in key organisations to allow for Malawi’s are crosscutting in nature, yet the Ministry has limit- productive base to be built. This review is presented in Annex 11 ed capacity to secure the buy-in of the range of public to this document. agencies that shape the business environment. As a re- sult it takes a piecemeal approach to building Malawi’s The Core Issue this Priority Area Seeks to Address productive base. Ministry efforts are dependent on de- velopment partner programmes, rather than on a con- The range of Ministries, agencies and enabler sectors that de- certed drive to develop clusters and the business en- termine the enablers of the productive base often struggle to vironment. Likewise trade, industry and private sector play their role to a sufficient degree. This arises for one of two policy are not concerted into one crosscutting strategy. reasons. Either: • The total budget for the Malawi Investment and Trade • Ministries, agencies and enabler sectors have priorities Centre is only approximately MK 160 million (US$ 0.6 and statutes that are not aligned to providing an en- million). abling environment that ensures both economic com- petitiveness and economic empowerment. This lack of • Malawi Bureau of Standards is not internationally ac- alignment arises because such Ministries, agencies or credited and still views itself as more of a regulator of enabler sectors are not viewed as relevant to Malawi’s product quality, rather than a facilitator to MSMEs and productive base and export capacity, even though they farmer organisations to meet standards in target mar- are. As a result there often emerges a contrast between kets. the regulatory or law enforcement function of Ministries and agencies, and their role in allowing for the produc- • Limited capacity in the Ministry of Lands and Housing tive base to develop and for economic empowerment and Ministry of Justice and Constitutional Affairs to make to occur. the case for and drive the speedy enactment of the land reform package, including the amendments to the new • Or where there is alignment of objectives to Malawi’s Land Bill. Further there is limited capacity in terms of productive base, Ministries, agencies and sectors are technical staff and specialised equipment for delivering not given enough management and financial support to land administration services and for supporting prop- allow them to effectively play their role. erty development in housing in the departments of Lands, Physical Planning, Surveys and Housing in the These are often the fundamental reasons why a number of or- Ministry of Lands and Housing. There is also a need for ganisations may not prove conducive to Malawi’s productive base, improved coordination between the Ministry of Lands or if conducive, may lack the capacity necessary to be effective and Housing and Ministry of Industry and Trade on land when measured against the degree to which Malawi’s productive related matters during the initial stages of investment base and export capacity has to keep pace with import growth decisions. and consumption. • The lack of an operational and conducive regulatory Critical institutional weaknesses are: framework for the development of private sector mi- • The Department of Cooperatives only has nine technical cro-finance. This demonstrates the Reserve Bank of staff: their mandate is to facilitate the organisation of Malawi’s current limited capacity to regulate and leg- smallholder groups, such as farmers, into cooperatives islate for the sector. Regulation of micro-finance is very across the country. different to that of the banking sector. • MEDI, whose mandate is to support the development • The Department of Irrigation only has 40 per cent of its of entrepreneurs across all of Malawi, has only eight technical staff establishment filled, meaning that is has technical staff. It is a similar case for SEDOM and DEMAT. very little presence in many districts. Its annual budget is only $9 million. 46 • The Competition and Fair Trade Commission has a neg- Private Sector Development Sector Wide Approach. This ligible budget and only employs three technical staff, yet is fundamental for Ministries in particular, such as the lack of fair competition in the local transport sector (as Ministry of Finance, Ministry of Economic Planning and identified in the Review of Competition in the Transport Development, Ministry of Industry and Trade, the Minis- Sector) and the financial sector (as identified in the Fi- try of Agriculture and Food Security and the Ministry of nancial Sector Development Strategy), handicap Mala- Education, Science and Technology. wi’s ability to build its productive base. • Prioritising the development of key agen- • TEVET, which is critical in addressing Malawi’s skills gap, cies that are central to the development of Malawi’s only receives 1 per cent of the education budget, while productive base and its export capacity, and tying the the private sector claims it sees little returns on the 1 development of capacity to the NES priority clusters. per cent TEVET levy it pays on its payroll every year. Dialogue and coordination As discussed in Chapter 4 of the • The Ministry of Finance currently has limited ability to NES, the implementation mechanism of the NES is built around a fulfil its mandate of coordinating formulation of finan- well-structured, focused Sector Working Group with a number of cial policies and regulations effectively. It also has lim- Technical Working Groups that ensures effective and comprehen- ited capacity to ensure the predictable, consistent and sive membership, effective leadership and an effective dedicated supportive tax policy that is so essential for attracting secretariat to ensure follow-up and progress. investment and building Malawi’s productive base. This has resulted in a zero-deficit budget that is leading to Ensuring the adequate participation of four types of stakehold- over-taxation of Malawi’s businesses. ers is the best tool Malawi has to build its favourable economic institutions, and hence its productive base through the economic • Export licenses for agricultural exports are adminis- empowerment of the poor: tered by MoAFS and MoIT and delays are unpredictable. First, MoAFS scrutinizes every application on a case by • Stakeholders in touch with consumers and markets (pri- case basis. Given that the process is not transparent, vate operators and not private operator associations) exporters are therefore incapable of anticipating de- lays. Second, MoIT then needs to issue the export li- • Stakeholders responsible for policy cense. The Minister needs to give his approval for every license, entailing major delays. • Stakeholders with access to resources • On the private sector side, the Sub-Committee meetings • Stakeholders representing youth, women, farmers and suggested that the MCCCI lacks sufficient capacity to the poor effectively communicate outcomes achieved in trade ne- gotiations, or likewise to ensure adequate participation Only a structured, focused dialogue among these stakeholders and buy-in of the private sector in trade policy formula- can achieve a better understanding of the role of various private tion and negotiation. and public sector organisations. This will allow for the allocation The purpose of this Priority Area is to: of sufficient management and financial resources to key organi- sations that are central to enabling Malawi’s productive base and • Prioritise investment in key public sector organisations export capacity to be built. to sustainably develop the capacity of such organisa- tions to more effectively play their role in developing Method of Support for Prioritised Organisations and Priori- Malawi’s productive base and export capacity. tisation of OrganisationsThere are a number of priority public sector agencies needing effective support from central govern- • Support a paradigm shift as to how stakeholders and ment if Malawi’s productive base and export capacity are to be central government perceive the role of organisations built. in determining the enablers for Malawi’s productive base and its export capacity. What is essential for this strategy is that the government and the private sector give adequate priority to developing agencies The Strategy for this Priority Area whose behaviour shapes the environment under which Malawi’s productive base has to operate and grow. Crucially, investment in Institutional development can only happen if stakeholders desire agencies does not mean reliance on a donor-funded programme it. The strategy to foster favourable economic institutions and to for capacity building. Rather it means ensuring that such agen- build the capacity of key public and private sector organisations cies permanently acquire the ability to ensure that their actions is two-fold through: effectively support the development of Malawi’s productive base, and hence trade, rather than disincentivise the emergence of • Dialogue and coordination: the NES implemen- that productive base. This requires a concerted effort to develop tation mechanism – which is the Trade, Industry and 47 2013 - 2018 agencies, with adequate support by central government to include • Malawi Investment and Trade Centre: to be an staff development plans, clear career paths, performance-based effective investment and export promoter and facilitator remuneration and rewards and effective management whose pri- by addressing the information gap and ensuring invest- mary interest is the long-term development of the capacity of the ment projects actually happen. agency, such that it may fulfil both its regulatory mandate and also its mandate to facilitate trade. In those agencies where there is • Small and Medium Enterprise Development scope for conflict between the regulatory and facilitory role, the Institute: to be an effective facilitator of micro, small, agency’s statute or Act should explicitly balance the two. medium enterprises (inc youth, women and farmer organ- isations) on the scale that Malawi requires. There are four tiers of prioritisation: critical organisations, first tier, second tier and third tier. These are presented below. These • Malawi Bureau of Standards: to be an effective tiers are aimed at providing strategic focus on which institutions facilitator of MSMEs’ ability to meet the standards re- need to be prioritised for their capacity development. Critically, quired by target export markets (this includes the ability such efforts need to contain all of the following five ingredients to provide international accreditation for target markets in otherwise institutional development efforts will struggle to attain the three prioritised clusters); and not to place excessive the desired impact. These are: costs on MSMEs by enforcing excessive standards not re- quired by target markets. 1. Genuine prioritisation by central Government. If genuine prioritisation is assigned by development partners and not First Tier Priority Organisations and Departments are: central Government, capacity development efforts are un- likely to reap the desired aims. • Ministry of Industry and Trade 2. Appropriate support by development partners based on • Department of Agricultural Extension Services the reality of existing institutional capacity and not based • Technical, Entrepreneurial and Vocational Education and on the expectations of development partners. Support Training Authority mechanisms such as shadowing and mentoring are strong- ly recommended, together with the terms of references of • Ministry of Labour technical assistants being focused on capacity development of local staff rather than solely on technical outcomes. Refer • Ministry of Economic Planning and Development, Real to Annex 1, Section 3.2 for a more detail discussion of ideal Sector Policy Analysis development partner support in this Priority Area. • Departments of Planning in various Ministries, such as 3. Investing for long-term, permanent gains and the Ministry of Industry and Trade, Ministry of Education, not through short-sighted, ineffective capacity-building Science and Technology and Ministry of Agriculture and mechanisms. Food Security 4. Real understanding of where an institution is com- • Ministry of Lands and Housing, Departments of Land, ing from, where it lies on its development path and where Physical Planning, Surveys, Housing and Policy and Plan- it needs to move towards to mandate it in supporting the ning emergence of the productive base of the economy, and hence Malawi’s export capacity. • Ministry of Finance, Financial Sector Policy Unit 5. Tie institutional development to the NES pri- • Micro-finance Department, Reserve Bank of Malawi ority clusters so that the limited human and financial resources available are focused on supporting clusters that • Warehouse Receipts Department, Reserve Bank of Malawi have the potential to drive export growth. Such a direction, • Department of Cooperatives focus and targeted approach is also essential to increase the odds of permanent capacity development. • Department of Irrigation The measurable and visible outcome of this focus area is Second Tier Priority Organisations and Departments are: the existence of effective management, a clear vision and pro- gramme to deliver that programme, backed by effective central • Export Development Fund government support. This will need to be judged by stakeholders, particularly the private sector, through the Trade, Industry and • Department of Energy PSD Sector Working Group and its Technical Working Groups. • Ministry of Justice and Constitutional Affairs The top tier includes critical organisations that need to be fully • Secondary, TEVET and Higher Education Departments, operational in an expedited manner. These are: Ministry of Education, Science and Technology 48 • Competition and Fair Trade Commission tion and ensure its implementation. Its operationalisation has to be expedited by central government. Central gov- • Malawi Industrial Research and Technical Development ernment has to genuinely recognise that MITC is core to Centre Malawi’s development agenda, and treat it as such. MITC actions are presented in Annex 5, Actions 3.1.1 to 3.1.4 • National Statistics Office and sections 3 of Annexes 2, 3 and 4 (the priority cluster strategies). Third Tier Priority Organisations and Departments are: • Small and Medium Enterprise Development • Reserve Bank of Malawi Institute: SMEDI’s operationalisation should be expe- • Greenbelt Initiative dited. Government needs to give it priority so that it can secure effective management and set for itself a vision • Directorate of Registrar General that is embedded in the NES and in Malawi’s efforts to develop its productive base. Central government has to • Malawi Revenue Authority acknowledge that SMEDI is central to the implementation of the MGDS II and to the economic empowerment of • Department of Immigration farmer organisations, youths, women and MSMEs. SMEDI should focus on providing business advisory and support • Public Private Partnership Commission services such as bookkeeping, business planning, bank • Commercial Court loan access, market and standard information access, etc. It should be supported by other schemes such as Priority Actions for Critical OrganisationsIn this section we the Ministry of Youth and Sport’s Start and Improve Your highlight priority actions for critical and priority organisations. Business programme, which also needs investment and Please refer to Annex 11 for a review of where these organisa- support by central government. These should be the ba- tions stand relative to the role they need to play for the productive sis for it to support policy making for MSMEs through the base of the economy to emerge. Ministry of Industry and Trade. The establishment of an MSME technical committee as part of the Trade, Indus- • Ministry of Industry and Trade: increase budget try and PSD SWAp (the implementation mechanism of the allocation to increase capacity of key departments, in- NES) to drive the implementation of the MSME Policy and cluding Department of Planning to improve coordination Strategy is fundamental. SMEDI actions are presented in capacity, capacity to man SWAp secretariat and capacity Annex 5: Section 7.2 and sections 7 of Annexes 2, 3 and 4. of various departments to allow active participation in SWAp. Improve capacity to holistically and comprehensive- • Malawi Bureau of Standards: MBS needs to re-ori- ly understand what is required to develop the productive ent itself from being a domestically focused enforcer of base of the economy and how to sustainably generate consumer standards to being an export-oriented facilita- value addition. Actions are listed in Annex 6, section 2.2. tor of MSME, farmer organisation, cooperative and large business efforts to meet importing country standard re- The Ministry has to improve its facilitation of trade licens- quirements21 and improve their ability to penetrate mar- es and its capacity for trade facilitation dialogue. It should kets. This requires increased resourcing by central gov- orient its trade negotiation capacity to ensure it is in line ernment to allow it to implement its strategic plan and with efforts to improve market penetration, given the re- its plans for development. In addition it needs to become cent successes in market access. It should drive the ex- internationally accredited through the fast-tracked port-oriented facilitation of export licensing procedures in implementation of its Infrastructure Project, supported by coordination with Ministry of Agriculture and Food Securi- the EU’s SQAM project. NES priority clusters – oil seed ty. Actions are listed in Annex 7, sections 3.2, 3.4 and 3.5. products, sugar cane products and manufacturing - need to be prioritised for facilitation with infrastructure and hu- • Malawi Investment and Trade Centre: Expedite man capacity built around them. The key is for MBS to be process to give MITC required legal and powers and or- more of a service provider and facilitator, rather than a ganisational capacity to effectively promote investments regulator. MBS actions are presented in Annex 5: Section and exports. Tie capacity development to NES priority 3.6 and sections 3 of Annexes 2, 3 and 4. clusters, products and target markets. Develop and im- plement an effective strategic plan centered on building • Department of Agricultural Extension Ser- service delivery capacity. MITC needs strong crosscutting vices: Requests for additional funding by this depart- powers, preferably through OPC participation, across ment should be provided so that it can increase its out- many Ministries and agencies in order to provide effective reach to smallholder farmers. Currently the farmer to services. It requires strong management that is able to 21 At the same time, MBS should reduce imposing own mandatory export set an organisational vision and strategy for the organisa- standards and inspection procedures on exporters. 49 2013 - 2018 extension worker stands at over 1,500:1. The target is ment. There is need for a gradual plan over five years to 500:1. In the Agri-Business Section, only 60 per cent of increase this ratio to close to 100 per cent. However it is positions are filled. The development of this department also fundamental for this investment in the capacity of the is essential, particularly the training of Agriculture Exten- department to be matched with an explicit prioritisation of sion Development Officers and Coordinators as these are the department on the NES priority clusters and crops: the ones in touch with farmers. It is essential for the de- sugar cane, sunflower, groundnuts, cotton and soya. Ac- partment to start planning to build its capacity gradually tions are presented in Annex 5, section 5.2 and in sections over the next five years to an ideal level with an explicit 5 of Annexes 2, 3 and 4. prioritisation of NES priority crops (sunflower, groundnuts, soya, cotton, sugar cane and dairy). The Human Resourc- TEVETA, the Ministry of Labour and the Min- es Department needs to develop human capacity around istry of Education, Science and Technology: this goal. Raising smallholder yields in these crops is key Prioritise resourcing of TEVETA and Ministry of Labour so to addressing the smallholder-processor disconnect. The that they can manage an effective labour market informa- department also needs to develop an NGO coordination tion system and assist in implementing the National Com- mechanism to allow NGOs to support priority crops on a petencies and Skills Plan that is to be developed under voluntary basis and improve non-government extension the NES. This plan is key to providing policy direction for coordination. See Annex 5, section 7.1 and sections 7 of these organisations. TEVETA and the Ministry of Labour Annexes 2, 3 and 4. need to focus their mandate on the priority clusters under the NES. Actions are listed in Annex 7. • Department of Cooperatives: The Department of Cooperatives requires serious attention: the target estab- • Ministry of Finance and Ministry of Econom- lishment number of 21 employees is already inadequate, ic Planning and Development: These Ministries but it currently only has nine staff. The institutional re- need to give much more priority to efforts to develop Ma- view of 2011 demonstrated that it needs more staff and lawi’s productive base. The NES prioritised actions (both a greater presence in the districts. Central government cross-cutting actions and priority cluster actions) have to has to recognise that it plays a key role in addressing the be genuinely emphasised and supported in the MGDS II, disconnect between smallholder farmers and processors. the Public Sector Investment Programme and the Budget. It does not have the budget to visit cooperatives around The development of institutions listed in this chapter has the country to support them. The departments main re- to be prioritised and their importance to the MGDS II has sponsibilities under the Cooperatives Act are: to be genuinely recognised. In addition, it is important to prioritise the capacity of the Real Sector Policy Analysis • Legal: registration, policy formulation, inspection section and the Financial Sector Policy Unit so that they and enquiries, auditing for cooperatives that can- can fully meet their mandate. This would ensure coordina- not afford it. tion of the real sectors together with the Trade, Industry and PSD SWAp and the ASWAp, in the case of the former, • Development: research (although not much of this and in ensuring the development of the financial sector in is done due to resource constraints). Education a manner that MSMEs can access affordable financing, in on co-operatives’ rights and obligations, linkages the case of the latter. to markets, training leaders and staff (for example on a simplified accounting system the department • Reserve Bank of Malawi: Expedite capacity devel- has developed). opment in 3 areas: risk-based bank supervision, super- vision of a national warehouse receipts system and the Adequate capacity is fundamental for the department micro-finance directorate. Actions are listed in Annex 5 to meet this mandate and to support the NES priority section 5 and in sections 5 of Annexes 2,3 and 4. Ensure clusters and crops: sunflower, groundnuts, soya, cotton that exchange control mechanisms fully facilitate the NES and sugar cane. To achieve this it is important to avoid priority clusters. donor-led structures that serve as parallel bodies to the Department of Cooperatives. This mitigates efforts to • Ministry of Lands and Housing: The operationali- build the capacity of this department. It is important that sation of the packaging of land reform legal amendments, programmes such as One Village One Product operate starting with the Lands Bill, requires the expedited devel- in a manner that builds the capacity of the Department opment of capacity in the following four departments: of Cooperatives to meet its mandate. Actions for the De- partment of Cooperatives are presented in Annex 5 section • Departments of Land 7.1, and sections 7 of Annexes 2, 3 and 4. • Physical Planning Department of Irrigation: Gradually fill the vacant technical positions in the Department of Irrigation. Cur- • Surveys rently filled positions stand at 40 per cent of the establish- 50 • Policy and Planning through economic and, for a small economy like Malawi’s, export competitiveness. • Land Registry. In turn, attaining higher value products can only be achieved There is also need for capacity development in the Hous- through skills and knowledge. As pointed out by the World Bank’s ing Department to support processes for developing and Malawi Country Economic Memorandum in 2010, there is ‘evi- operating property to meet the housing, employment and dence of high returns to…tertiary [education] from formal sec- social needs of affected communities. The capacity devel- tor employment’22. Increasing formal sector employment is vital opment in land administration and management will assist to build the tax base necessary to fund a welfare programme. to effectively manage the nationwide implementation of Limited investment in tertiary education (which includes TEVET the land reform package in a manner that prevents land and higher education), will mean that the private sector – includ- disputes. Prioritisation of the NES priority crops and en- ing micro, small and medium enterprises and farmer and wom- couraging commercial farming is fundamental. en’s groups and associations – will struggle to offer products and services capable of competing on regional and international Institutional development needs for other agencies that are not markets. This is because they will struggle to secure the skills in the top priority level are provided in the relevant sections of and knowledge set necessary to deliver high value, high transac-

Annex 5. tion products. In addition the public sector will spend its time on Private sector associations need support and sufficient capacity day-to-day administration and on the fire-fighting that comes with to operate effectively. Primarily this has to come from members higher welfare expectations by Malawi’s population, rather than in of these associations, but the degree of member pro-activeness the strategic work necessary to provide a conducive environment will also depend on the extent of government commitment to ef- for the productive base to be built and to economically empower fective dialogue and support, which in turns requires Government farmers, the poor, youths and women. investment in its own institutional capacity. The implementation Skills shortages exist in both the private and public sector and in mechanism of the NES, presented in Chapter 4, is therefore fun- both rural and urban contexts limiting productive capacity, espe- damental to support the development of effective private sector cially in higher value production chains and more complex gov- associations. ernment procedures (such as risk profiling and mid-level manage- The Malawi Confederation of Chambers of Commerce, Grain Trad- ment skills). In the case of Micro, Small and Medium Enterprises ers and Processors Association, National Association of Business (MSMEs), the skills gap is enormous. According to the Finscope Women, National Indigenous Business Association, the Cotton De- survey of MSMEs in 201223, only four per cent of surveyed MS- velopment Trust, Malawi Economic Justice Network, the Econom- MEs received skills training from training programmes, schools or ics Association of Malawi, MAKNET, Seed Processors Association, universities. Most skills are self-taught or learnt through family. Legumes Development and Trade Association, Soyama, NASFAM, This skills gap is central to MSMEs ability to access markets, in- Farmers Union of Malawi and others are critical in ensuring that formation, finance, inputs, technology and capital – and hence is government policy responds to the needs of private operators, as central to the growth of such businesses. they are the ones who export or could potentially export. TEVET currently struggles to provide skills training in the many required areas. This is due to a failure to correctly identify the 3.5 Priority Area 4 – Competen- skills requirements of the private sector. In addition too few devel- opment partners support TEVET, and competencies and technical cies, Skills & Knowledge for skills in secondary education. There is need for increased support the Productive Economy by the Education Sector Wide Approach (ESWAp) for secondary and TEVET education. Why this Priority Area? To solve this issue the Labour Market Information System requires A National Export Strategy has to be grounded in the realities increased and adequate support to better identify demand for of economic development. It is not just about trade. Without this skills. The requirements for this system, as well as for Primary, understanding, a country such as Malawi could end up only ex- Secondary, TEVETA and Higher Education need to be identified porting raw commodities, such as tobacco and tea. Raw or semi- through a National Competencies and Skills Plan that links the NES raw commodities offer too little room for innovation, for attaining and the Joint Sector Strategy to the education sector and to the higher value products and for value addition that could empow- labour market information system. This initiative should include er youths, women and the poor. These factors are fundamental a TEVET voucher scheme for private sector companies, MSMEs, given Malawi’s burgeoning youth population, which, depending formal graduates and the informal sector, including rural youths on whether sufficient jobs can be created, could either drive or and women’s groups, in order to better reflect demand. Funding burden development. Job creation means that the development mechanisms for such a scheme need to be reviewed as part of agenda has to also be grounded in the realities of economic com- petitiveness, because higher value products can only be achieved 22 World Bank Malawi Country Economic Memorandum 2010, Page 20. 23 Finscope Malawi MSME Survey 2012 51 2013 - 2018 the National Competencies and Skills Plan (NCSP). Development to evaluate the effectiveness of the current skills devel- partners and the government in both the education sector and opment and training which exists in the public sector, rel- the trade, industry and private sector development sectors can ative to its implications for the enabling environment for then support the NCSP. the productive base. This exercise will be tied to various capacity needs assessments being carried out under Pri- In the public sector, the biggest skill failure exists in creating ef- ority Area 2 of the NES (e.g. for MITC, SMEDI and others). fective middle and junior level management skills. This is reflected in the difficulties seen in aligning policies and implementing strat- • Use the outcome of these two priority actions to develop a egies. National Competencies & Skills Plan (NCSP) that sets out a plan for the Ministry of Labour, the TEVET The Core Issue this Priority Area Seeks to Address institutions, MIRTDC and the Higher Education sector to respond to the outcome of the STED by: The core issue is the existing disconnect between those who de- mand competencies, skills and knowledge, such as government • Identifying an implementable supply side response agencies and businesses, and those who supply competencies, led by the Ministry of Education, Science and skills and knowledge, such as research centres and the education Technology, the Ministry of Labour and TEVETA. sector. If the two sides can be sustainably connected, both sides will have the necessary information to ensure that youths, women, • Focusing the plan on addressing the information farmers and rural and urban poor are able to participate in Mala- gap in the labour market through an effective La- wi’s efforts to build its productive base and its exports. bour Market Information System that is tied in to the NES and SWAp implementation mechanism. This is key to allowing the education sector to view itself as not just a social sector but as a core sector for the productive econo- • Developing a scarce-skills list for critical job-creat- my. The education sector urgently needs to learn to balance these ing skills to cover areas that Malawi cannot afford two perspectives so that there may be an increased focus in the to supply locally in the short to medium term. provision of competencies, knowledge and skills required to de- velop Malawi’s productive base. The epitome of the supply and • Providing long-term direction for the basic educa- demand disconnect is the lack of a national human resource plan tion sector on key competencies for the productive that ties in the education sector to the MGDS II and to the educa- base of the economy. tion sector’s abilities to build Malawi’s productive base. • Reviewing market based approaches that may The Strategy for this Priority Area complement the Ministry of Labour’s efforts to channel information from those demanding to The strategy to develop Malawi’s competencies, skills and knowl- those supplying skills and knowledge. Such ap- edge base in a manner that allows for economic empowerment is proaches may include the use of coupons – as presented in detail in Annex 7. A resource plan for priority actions used on the Farm Input Subsidy Programme – to is presented in Annex 1. In summary it is to: give informal youth, formal TEVETA students, MS- MEs and large businesses the ability to cash their • Apply the ILO’s Skills for Trade and Economic Diversifica- coupon at the course and training institution of tion (STED) Toolkit to identify the skill set and the volumes their choice. Such a scheme would be financed of skills required to allow the productive base to emerge through the TEVET levy. and keep up with development’s demands on consump- tion and imports: • Accounting for competencies and resources re- quired for agencies and Ministries not captured by • the prioritised clusters under the NES for the pri- the ILO’s STED to produce a National Human vate sector Resource Plan that can support the implemen- tation of the productive aspects of the MGDS II. • key enabling sectors such as energy and finance • Using this as a basis for the future development of • specific attention is to be given to women, youths an Education Policy, including competency devel- and MSMEs. opment in secondary education, and Youth Policy (for youth economic empowerment and support • Conduct an analysis of public sector skills required for programmes such as Start and Improve Your supportive economic institutions. An analysis of the skills Business and the National Volunteer Scheme). required to allow key agencies to shape a conducive envi- ronment for the productive base to grow, as discussed in • Give the Ministry of Labour the capacity it requires to roll the Institutional Capacity Assessment below. This requires out and maintain an effective Labour Market Infor- a review by the Department of Public Sector Management mation System that channels effectively. This system 52 will be based on the National Competencies and Skills • Amend the Education Joint Financing Agreement Plan. The system requires appropriate investment in Ma- to increase budgetary allocations to Secondary lawi’s Labour Market Information System, particularly in Education and TEVET to their targets set in the the Ministry of Labour, so that an effective flow of infor- National Education Sector Plan. mation is available between those who demand skills and those who supply skills. The system has to be compre- • Expedite the rolling out of the Maths and Science hensive and able to identify the gap between demand and Programme in Secondary Schools. supply so as to provide feedback to the education system and to demanders of skills. It has to be tied to the NES • Provide TEVETA institutions with the capacity re- priority clusters and key enabling sectors. quired to meet its mandate through clear defini- tion of roles. • The NES also includes a number of actions extracted pri- • In 2012 review of the curriculum for secondary marily from the National Education Sector Plan to help education, include entrepreneurial, technical and the Ministry of Education, Science and Tech- skills courses tied in to key sectors in the National nology prioritise actions for the education Export Strategy. sector that are essential to help Malawi build • Expedite the review of TEVET policy and then of its productive base and allow for youth em- the TEVETA Act in order to shift the focus to en- ployment and economic empowerment. The fo- suring an effective structure for the TEVET system cus is on TEVET actions (that include formal and informal with clearly defined roles and on how the TEVET TEVET) as well as secondary education. These actions are levy is spent. listed in Annex 7 to this document. It is critical for the Edu- cation Sector Implementation Plan II (2013-2017), which • Continue the ongoing harmonisation process of is to be developed in the second half of 2012 to help the TEVET system between formal and informal implement the National Education Sector Plan, to prioritise TEVET, with a clear identification of roles. these actions set out in Annex 7 of this document. Key actions include: • Continually invest in university research capaci- ties, through ongoing support for the Universities • Link competency delivery focus in basic and sec- Working Committee. ondary education to the NCSP and National Hu- man Resource Plan. 53 Chapter 4 – Implementation Mechanism 4.1 The Mechanism The implementation mechanism for the NES will be the Trade, Industry and Private Sector Develop- ment SWAp (TIPSD SWAp). The NES Steering Committee and Sub-Committees established to devel- op the NES will transition respectively into the Sector Working Group and into the Technical Working Groups for this SWAp. This will be a permanent, institutionalised structure with an appropriately supported dedicated secretariat. The main elements of the implementation mechanism are: 1. Adoption of the NES as a key building block of the Joint Sector Strat- egy A key objective of the SWAp will be to develop a Joint Sector Strategy (JSS). The NES is to be adopted as a key building block for the Joint Sector Strategy, with ad- ditions to account for i) areas from the updated Diagnostic Trade Integrated Study (DTIS) which have not already been captured in the NES; and ii) other issues of the economy that were not captured in the NES or the updated DTIS. In this way the Joint Sector Strategy will take full account of the NES, as well as other key sec- tor policy and strategy documents. The Joint Sector Strategy will be used by the SWAp mechanism to formulate a sector Programme of Works, which will lay out a costed and prioritised investment programme for the sector with agreed timelines for the implementation of all actions, allowing harmonised support by donors 2. Stakeholder Representation and Dialogue Structure This structure will consist of: • Trade, Industry and PSD Sector Working Group (SWG) – apex body of the SWAp with high-level representation of each stakeholder group. It will review and ap- prove the Joint Sector Strategy and Programme of Works to be developed by the Technical Working Groups (TWGs), as well as recommendations regarding imple- mentation made by the TWGs. It will also ensure the TWGs are functioning correctly and that there is coordination and synchronisation between the TWGs. • Seven Technical Working Groups (TWGs) – technical stakeholder representation 54 bodies to drive crosscutting action plans and priority cluster strategies through developing and implementing the Programme of Works to implement the Joint Sector Strategy, and hence the NES. The TWGs report to the SWG. The TWGs are: • Access to Markets • Access to Finance and Secure Tenure of Property • Access to Business Development Services, Information and In- puts • Access to Skills and Labour • Oil Seed Products • Sugar Cane Products • Manufacturing • Technical Committees – focused committees of the TWGs to deal with particu- lar aspects of the TWGs that require additional technical attention. These will be established on a needs basis. Figure 6 later in this chapter presents the report- ing arrangement for existing technical committees, such as the National Working Group on Trade Policy and the Trade Logistics Working Group, as well as planned committees such as the MSME Policy and Strategy Committee. 3. Secretariat, Coordination and Resourcing for the Strategy • SWAp Secretariat – a dedicated SWAp Secretariat, including staff who work full-time on the SWAp, is to be established in the Department of Planning in the Ministry of Industry and Trade. This role is crucial to the success of the SWAp in implementing the NES because departments are very stretched with day-to-day operations. The secretariat’s role is two-fold: 1. Proactively drive the implementation and monitoring of the Joint Sector Strat- egy, and hence the NES, by: • Ensuring that there is appropriate follow up on prioritised actions and oth- 55 2013 - 2018 er actions that emerge through the SWG, TWG and Technical Committee meetings. Where implementing agen- cies or another dialogue forum have the capacity to drive these actions, the secretariat will play a supportive role, but where this capacity is constrained, the secretariat will play a pro-active role to ensure that the priority actions are progressing. • Assisting with and coordinating analytical work or research done by members of the TWGs. • Assessing whether the membership of a TWG is sufficiently well-placed to progress a particular action and if not, ensuring that the relevant organisations and representatives of sufficient seniority are adequately informed and involved in the work. • Attending other TWGs in relevant SWAps, such as in ASWAp, ESWAp and the Financial Sector Working Group as well as other relevant fora, and ensuring that where issues pertinent to the development of the productive base are not covered elsewhere, that these are adequately addressed by the TIPSD SWAp. Where issues are adequately addressed in another forum or SWAp (from the perspective of private operators), then the secre- tariat’s role would be to update the relevant TWG that this is the case and update it of progress. 2. Serve as an effective secretary to the Sector Working Group and the TWGs, and where needed the technical committees, this will involve the following tasks: • Consolidating work plans • Convening meetings of the various bodies under the framework and setting their agendas • Liaising with key stakeholders to ensure participation • Ensuring timely reporting, including from the TWGs to the SWG • Preparing quarterly TIPSD SWAp reports for dissemination to sector stakeholders • Preparing proposals for the SWG’s endorsement based on recommendations from the TWGs • Coordinating the annual sector progress review. This role is further expanded in Annex 1 to this document, where the Terms of Reference for the SWAp Secretariat is also presented. • Link to the Public Sector Investment Programme and the central government budget – The Department of Development in the Ministry of Economic Development Planning and Planning Development is the custodian of the Public Sector Investment Programme and close ties will be established and maintained with this department by the SWAp Secretariat. • Link to Malawi Growth and Development Strategy II – it is the role of the Real Sector Policy Analysis (RSPA) Section in the Department of Planning in the Ministry of Economic Planning and Development to analyse sec- toral policies in all sectors for consistency with the development aspirations of Malawi as set out in the MGDS II. The section is tasked with co-ordinating real sector policy issues with relevant line Ministries and with other public, private and civil society institutions. The SWAp Secretariat and this section must build strong links to ensure complementary synchronisation and coordination. This link will be through a day-to-day working relationship whereby the Division will not only attend TWG meetings, but also work with the SWAp secretariat in following-up with implementing agencies after the TWG meetings, and assisting with the analytical and research work required in the SWAp. • Link with other SWAps – the secretariat will ensure coordination, adequate information flow and coordination of resources with other SWAps, in particular the Agriculture SWAp, the Education SWAp and the Financial Sector Work- ing Group being established by the Ministry of Finance. • Link with Enhanced Integrated Framework (EIF) – The key principles and objectives of the EIF share much common ground with those of the SWAp. The Joint Sector Strategy will encompass the updated DTIS, while also providing a more holistic approach, and the required linkages to the productive sectors. The EIF funding mechanism 56 will act as one possible funding channel to imple- Management Committee of Principal Secretar- ment the Joint Sector Strategy. ies, through the Principal Secretary of the Min- istry of Industry and Trade. • Maintaining momentum of the NES to ensure implementation – an Action Com- • PPD Forum – the SWG will feed actions that re- mittee will operate in the first year following the quire political attention in order to be expedited launch of the NES to maintain the momentum through the PPD Forum to ensure high-level po- of the development phase of the NES, while litical attention. the NES stakeholder consultation mechanism is transitioning into the SWAp. The Action Commit- • The President’s initiatives: the government clus- tee will include the chairs of each of the TWGs ter system, the public-private sector forum, the and a few, high-level stakeholder representa- Presidential Advisory Committee on the Econo- tives who can champion priority actions. It will my and the Presidential Initiative on Food Secu- meet on an ad hoc basis: whenever necessary rity and Poverty Reduction. (on average once a quarter) to take immedi- ate action on matters of importance, to ensure 5. Financing of SWAp progress on priority NES actions, and to meet • The financing of the SWAp will be through exist- with senior officials where lobbying is required. ing channels. The channel to be used will be de- The need for a continued role for the Action cided by the Ministry of Industry and Trade and Committee will be assessed after the first year development partners. Potential existing chan- of its activities. nels are the Trade Statistics and Information 4. Link to the Highest Level of Stakeholder Systems component of the Financing Agreement Groups between the EC and Malawi and the Enhanced Integrated Framework. Additional funding may • Cabinet – the outcomes of the SWG will feed into also exist through the Agriculture SWAp Support Cabinet through the Minister of Industry and Programme. Trade. The implementation mechanism is presented diagrammatically in • Economic Management Committee – the out- Figures 6 and 7 -in following pages. comes of the SWG will feed into the Economic 57 2013 - 2018 Figure 6: The SWAp and NES Implementation Mechanism Key: In Blue are Government Structures, in Orange are other stakeholders, in Red are Stakeholder-Wide Implementation Platforms. TWG stands for Technical Working Group. Tech Comms stands for Technical Committees. Figure 7: The Sector Working Group, its Technical Working Groups and Technical Committees in detail Note: TWG stands for Technical Working Group. 58 Existing public-private dialogue mechanisms on specific thematic • Commodity Exchanges, Warehouse Receipts areas that fall within the productivity spectrum are included in this and Storage implementation mechanism as detailed in Figure 7 above. • Information and Communications Technology The areas covered by the crosscutting TWGs will include (but will (ICT) not be limited to) the following: • Stakeholder dialogue platforms • Access to Markets • Farm Inputs • Trade Policy • Energy • Trade Facilitation including Customs and Trade Licensing • Water and Irrigation. • Investment Promotion and Facilitation includ- • Access to Skills and Labour ing Export Processing Zones and Special Eco- nomic Zones • National Competence and Skills Plan linked to the productive economy • Export Promotion and Facilitation • Labour Market Information System • Standards • Technology and Research. • Transport • Taxation, including Incentives 4.2 Critical Success Factors The success of this implementation mechanism depends on: • Regulation, including Business Registration 1. Correct membership and chairs – Inclusion of the • Foreign Exchange Policy, including transfer highest-level of each stakeholder group within the mech- pricing and the repatriation of export earn- anism, including government, private sector, financial ings sector, other enabling sectors (e.g. transport, education, • Macroeconomic Policy. agriculture and energy), civil society and development partners. The correct chairmanship of the TWGs by pas- • Access to Finance and Secure Tenure of Property (with sionate and effective leaders who can maintain the focus a link to the planned Financial Sector Working Group) on the implementation of the strategy is also essential. The TWGs will be co-chaired by the public and private • Financial Sector Development sector. During the transition period from NES sub-commit- tees to SWAp sub-groups, a decision will be taken by each • MSME Access to Finance group on whether to maintain the current NES sub-com- • Micro-finance mittee chairs. Where objections are raised to maintaining the chairs, members will vote to elect new chairs in the • Secure Tenure of Property, including Access first meetings of the new TWGs. to and Secure Tenure of Land; Contract Law; Movable Property. 2. Clear reporting lines – Clear reporting lines, particu- larly in Government with Cabinet at the helm, are essential • Access to Business Development Services, Information as is a permanent link in to the MGDS II through a day-to- and Inputs (link in to ASWAp for relevant sections) day working relationship between the Ministry of Econom- ic Planning and Development and the SWAp secretariat. • Business Development Services including: 3. Adequate resourcing, coordination and a ded- • MSME Support Services icated secretariat – Such an implementation mecha- nism crucially needs adequate resources. The key feature • Cooperatives and Farmer Organisa- is having a central office within the Ministry of Industry tions and Trade where staff work exclusively on the implemen- tation of the Joint Sector Strategy, and hence on the Na- • Extension Services tional Export Strategy. A dedicated SWAp secretariat with • NGO support adequate staff, skills and capacity within the Department of Planning in the Ministry of Industry and Trade is critical • Professional Services to the NES’s success. This lies at the heart of an effective 59 2013 - 2018 stakeholder dialogue forum and driving mechanism that thereby reducing meeting attendance and quality. The can mobilise adequate resources to ensure momentum of the NES development phase will be main- the implementation of the Joint Sector Strat- tained through a transition period that allows for the new egy and the NES. The dedicated secretariat will liaise SWAp Secretariat to work alongside members of the orig- and meet regularly with other key SWAps, particularly the inal NES Technical Team to run necessary meetings, while Agriculture SWAp, Financial Sector Working Group and the working with the Department of Planning to get the SWAp Education SWAp. It will ensure adequate representation of fully institutionalised. Details of these transition and fund- other key SWAps in the Trade, Industry and PSD SWAp and ing arrangements are provided in Annex 1 to the NES. evaluate whether there is a need for ad hoc meetings be- tween representatives of the SWAps. The dedicated sec- retariat will also have a close link with the National Imple- 4.3 Rationale for this Imple- mentation Unit for the Enhanced Integrated Framework, mentation Mechanism while avoiding misalignment by ensuring that the Diagnos- tic Trade Integrated Study (DTIS) is a sub-component of In 2005 the Ministry of Industry and Trade engaged with stake- the Joint Sector Strategy. holders to develop a National Export Strategy for Malawi. The strategy was not completed at that time. The main reason for 4. Proper structure and focus of the SWAp – Moving this was outlined in the Response Paper that was drafted in Sep- toward a single, unified strategy to build the productive tember 2005 for presentation to a National Symposium on the base of the economy is fundamental to achieving the de- Strategy24: sired outcome. The Joint Sector Strategy can provide this single, unified strategy. In turn, the NES can form a major “There still remains a considerable gap between [the] ac- building block of the Joint Sector Strategy since Malawi’s knowledgement of the constraints, and the commitment of adequate resources to address those constraints… As with development objectives set out Malawi’s need to develop so many policies, actual implementation is the major cause its productive base in a way that allows sufficient exports. of policy failure.” Therefore the NES Steering Committee is well placed to transform into the Trade, Industry and PSD Sector Working This is the key reason why numerous policies and actions de- Group, with the addition of other critical members where signed to develop Malawi’s productive base, emerge as recurrent necessary, particularly those who were part of the original solutions in stakeholder discussions on how Malawi can boost its proposed SWG/TWG membership list. The sub-committees competitiveness and its exports. established under the NES stakeholder consultation mech- anism will form a strong basis for the TWGs to the Trade, Therefore a central feature of the National Export Strategy requir- Industry and PSD SWG. These would take the place of the ing high-level commitment and prioritisation is its implementation originally proposed TWGs. This would be achieved through mechanism. This is the structure through which stakeholders can certain modifications to the sub-committees’ membership ensure that the prioritised actions of the strategy are adequately and mandate to ensure consistency with the aims of the committed to by the implementing agencies and are therefore ad- originally proposed TWGs. The crosscutting nature of equately resourced, both financially and in terms of management the new TWGs means that the same pertinent issues can time and focus. The success of the National Export Strategy is be discussed as had originally been intended within the dependent on the establishment of an effective implementation TIPSD SWAp, but within a framework which avoids overlap mechanism and on maintaining a certain degree of momentum – and duplication of efforts between TWGs. Meanwhile, the otherwise stakeholders will lose interest and buy-in. three cluster TWGs are required because Malawi critically must prioritise clusters that can complement tobacco and As part of the MGDS II, the Government’s approach to improve drive export growth, relative to the growth of imports. coordination and alignment of resources is through Sector Wide Prioritisation requires coordination and commitment, and Approaches (SWAp). It is essential for the NES implementation therefore it is essential for these TWGs to report direct- mechanism to be part of this framework and hence be part of the ly to the Sector Working Group, while also feeding in to proposed Trade, Industry and Private Sector Development SWAp. the cross-cutting TWGs. Existing committees and other The implementation of the NES via the SWAp framework is es- proposed committees (herein referred to as Technical sential to: Committees) will be incorporated within the mechanism, including the National Working Group on Trade Policy and • Improve policy and programme alignment the Trade Logistics Working Group. This is presented in Figure 7 above. • Improve government resource mobilisation 5. Maintaining momentum – The momentum gained in the development of the NES needs to be maintained. 24 The Case for a National Export Strategy: Key Issues and Possible Otherwise stakeholder may lose interest and buy-in, Response, http://www.trade.gov.mw/pdf/National%20Export%20Strate- gy%20response%20paper%20(02_09_05).pdf 60 • Reduce duplication of efforts er” of the SWAp, so that each stakeholder takes responsibility for the actions they are best positioned to implement. At the same • Ensure a proper division of labour time, there is a need for: • Reduce stakeholder confusion and overload 1. A strong champion for the sector and custodian of the SWAp process, to promote the sector’s agenda with in- • Ensure sustainability ter and intra-sectoral stakeholders. • Support ongoing political governance and consistency 2. A strong tie to central government and OPC to help en- in the event of changes in the political scenario. sure inter-sectoral outreach and appropriate political Furthermore, since growth in exports through value addition is support for the SWAp. dependent on the productive base of the economy, it is appropri- These two aspects should be complementary to each other. While ate that a single, comprehensive implementation mechanism be central government and OPC’s focus on trade, industry and PSD established to address the NES and other sector strategies. For may vary depending on political leadership and objectives, the this reason, and given that the NES provides a comprehensive Ministry of Industry and Trade has a permanent, long-term focus roadmap for the development of Malawi’s productive base, the on trade, industry and private sector development objectives as Joint Sector Strategy developed under the SWAp will use the NES well as valuable technical knowledge of the sector. Thus the role as a major building block. It will present a complete road map of of champion and custodian falls naturally to Ministry of Industry the actions that are required to build Malawi’s productive base in and Trade. Creating the SWAp Secretariat as a driving mechanism a manner that is tied in to Malawi’s export capacity. This will al- within Ministry of Industry and Trade, while maintaining close links low the NES to be implemented through the SWAp implementation with OPC, the Ministry of Economic Planning and Development mechanism. This implementation mechanism incorporates the and central government, will provide the appropriate mix of con- NES stakeholder consultation mechanism, which was established sistency, technical capacity and intra-governmental coordination to develop the NES and ensures adequate stakeholder represen- and advocacy capacity. tation across the sector. In turn, the SWAp can act as a vital organ to help the Ministry of The export orientation of the SWAp is vital given the degree to Industry and Trade become much more of a facilitator of private which Malawi’s development depends on exports, as analysed operators and a driver of the productive base of the economy. In in the World Bank’s Malawi Country Economic Memorandum of the long-term Malawi requires capacity within all spheres of Gov- 201025and given the 2011 foreign exchange crisis. In addition, as ernment to ensure a constant focus and drive toward building the a forum for sector-wide participation, the SWAp also ensures that productive base of the economy in a manner than is export-led. It smallholder farmers, MSMEs, large businesses, youth and women is critical that the SWAp be used as a mechanism to develop this are able to participate and contribute, thus ensuring economic capacity. empowerment across the economy. Why the need to invest in the Trade, Industry and 4.4 Technical Working Groups PSD SWAp as the Implementation Mechanism for the NES? for the Three Prioritised Ex- The Ministry of Industry and Trade recognises that the devel- port Clusters opment of the trade, industry and PSD sector cannot happen in As the core of the three prioritised export cluster strategies, isolation from other sectors. The development of the productive the Manufacturing, Oil Seed Products and Sugar Cane Products base of the economy hinges on support from a wide range of Sub-Committees of the NES development process will continue to other sectors. These enabling sectors include the financial sec- operate as the stakeholder representation and implementation tor, energy, water, agriculture, natural resources, transport, and mechanism for the cluster strategies. This is critical to the success education, to name only a few. It is therefore essential that these of the NES’s three cluster strategies, because it is the mechanism sectors - and their underlying Ministries, agencies and stakehold- that can ensure broad stakeholder drive, commitment, coordina- ers - work together in a coordinated manner towards the common tion and alignment, while ensuring that the clusters are developed goal of driving sustainable economic growth via the development in a manner that ensures both economic competitiveness and also of trade, industry and the private sector. resource mobilisation, resource allocation and adequate manage- ment attention to implementation bottlenecks, which inevitably It is this collaborative approach across the enabling sectors which arise in any implementation process. the NES, the TIPSD SWAp and the Joint Sector Strategy are aiming to achieve. For this collaboration to be successful it is important The Manufacturing, Oil Seed Products and Sugar Cane Products that no single Ministry or institution is regarded as the sole “own- Sub-Committees that were established in the development phase 25 ‘Malawi Country Economic Memorandum 2010’, World Bank, Page 6 and will continue to operate as Technical Working Groups of the SWAp, Figure 1.3. 61 2013 - 2018 reporting directly to the Sector Working Group. This will provide it with a direct reporting line to the highest level of each stakehold- 4.5 Monitoring and Evaluation er group, including Cabinet for Government. The Monitoring and Evaluation Framework for the NES is com- posed of two parts: As Technical Working Groups (TWG), these three stakeholder representation bodies will include adequate representation of • Completing required prioritised actions under the NES. all stakeholder groups. Crucially, apart from including business- es, youth, MSMEs, women groups and farmer organisations, the • Meeting guideline targets for exports. bodies will also include organisations in key enabler sectors, such as the financial and energy sectors and also policy makers, im- Progress for these actions and guideline targets is to be moni- plementers and resource holders such as the Ministry of Finance, tored and evaluated by the SWAp Secretariat, by monitoring the the Ministry of Economic Planning and Development and devel- completion of actions as per the relevant Annexes. opment partners. For the first part, the matrices presented in Chapter 7 of Annexes 2, 3 and 4 for the prioritised cluster strategies and in Annexes 5, The Manufacturing, Oil Seed Products and Sugar Cane Products 6 and 7 for the crosscutting issues represent the Monitoring and TWGs will be co-chaired by passionate, effective leaders from the Evaluation framework for the NES. public sector and the private sector, who will be elected by the members of the TWGs. The TWGs will be supported by the SWAp Dedicated Secretariat that is being established by the Ministry of For the second part, the actual exports are to be monitored Industry and Trade. The TWGs will report through the co-chairs relative to the guideline targets presented in Chapter 2 of this and the SWAp Dedicated Secretariat to the Sector Working Group. document. The degree to which these targets are met will de- pend on the degree of implementation of the NES action plans. 62 Presentation of the Annexes to the Strategy There are eleven annexes to the National Export Strategy. Together these flesh out the details of the strategy, including providing top-level indicative costings for the Implementation Plan for the NES and the Sector Wide Approach (Annex 1) and for priority actions within the six sub-strategies (Annexes 2 to 7). Support plans for other key sectors are presented in Annex 8 and Annex 9 provides a description of the Cluster Prioritisation Method and its outcomes. Annexes 10 and 11 present the review of crosscutting export enablers and the review of institutional capacity that were carried out during the development phase of the NES to inform the strategy. The review of institutional capacity was carried out from the perspective of what is necessary for Malawi to build its productive base and hence its export capacity. Therefore, for the details of Malawi’s National Export Strategy, please refer to the relevant Annex as follows: Volume 2 • Annex 1 An Implementation Plan for the NES and the Sector Wide Approach • Annex 2 A Strategy to Develop the Oil Seed Products Cluster • Annex 3 A Strategy to Develop the Sugar Cane Products Cluster • Annex 4 A Strategy to Develop the Manufactures Cluster • Annex 5 Matrix of Prioritised Actions to Secure Conducive Environment for Productive Base and Export Volume 3 • Annex 6 Matrix of Prioritised Actions to Develop Malawi’s Productive Base Support Institutions • Annex 7 Matrix of Prioritised Actions to Develop the Competencies, Skills & Knowledge Base Required to allow Malawi’s Export Capacity to Emerge • Annex 8 Support Plans for Tobacco, Tourism, Tea, Services and Mining • Annex 9 An Explanation of the Cluster Prioritisation Method and its Outcomes • Annex 10 The Review of Cross-Cutting Export Enablers • Annex 11 The Review of Institutional Capacity from the perspective of building Malawi’s Productive Base and its Export Capacity 63 64 2013 - 2018