Malawi: Trade Policy Making

1. Fostering Equity and Accountability in the Trading System (FEATS) Angela Mulenga, Centre Coordinator, CUTS Africa Resource Centre, Lusaka 6 April 2009 Malawi: Trade Policy Making

2. Structure of Presentation • Economic background • Explanation of Malawi trade policy • Trade policy process • Key government institutions • Consultative mechanisms • Stakeholder views • MOIT, other government institutions, private sector, CSOs • Inclusive Trade Policy Making (ITPM) index

3. Brief Economic Outlook • Landlocked, sparsely populated, 2006, 82% of total population lived in rural areas • GDP per capita increased slightly in nominal terms since 1995 • Real GDP growth rate stood at -0.4% during the same period. • Recent years have seen more robust real GDP growth rates, estimated at 7.9% (2006), 6.8% (2007) and 5.1% (2008). • 54% of the population under the national poverty line in 2004 • In 2004-2005, 73.9% of population living below $1.25 US dollars per day and 94% below $2.00 US dollars per day • Agriculture provides bulk of the employment opportunities, although its prominence is decreasing • In 2003, 73.6% of those employed in Malawi were employed in informal sector

4. Trade Profile • Nearly even balance of payments in 1999 • Substantial deficit has developed • In 2007 imports were valued at 41% of GDP, almost double exports, valued at 23% of total GDP • Recent Developments • Improved macroeconomic stability: positive impact on current account deficit which has stabilized since 2007 • Progress in diversifying exports away from the traditional products (rice, coffee, pulses) • Still struggling to compete in international markets in apparel • Imports : industrial inputs (petroleum, fertilizer, consumer goods and transportation equipment) and significant amount of food • Trade Shares in regional agreements • 2007, 21.1% and 35.7% of total exports to COMESA and SADC member countries respectively • 2007, 10.2% and 53.9% of total imports from COMESA and SADC member countries respectively

5. Trading Partners • Malawi`s major trading partners are its neighbours: South Africa, Tanzania, Zambia and Zimbabwe. • Indicates the importance of a trade policy that maximizes potential for regional trade.

6. Trade Relationships – Agreements and Partners • Policy prioritizes multilateral integration and participation in trade systems • Malawi has not signed an EPA with the EU • Benefits from AGOA, EBA, Cotonou, WTO, Special access as per WTO Hong Kong Ministerial Declaration, GSPs, SADC FTA, COMESA FTA and bilateral agreements

7. History of Trade Policy Making • After independence, policy is based on Policy Framework Papers, no official trade policy • Government ownership, influence and control characterized the economy. • Centered on import substitution and other interventionist measures • Efforts to reconcile balance of payment deficits and inflation • 1980, Malawi implemented Structural Adjustment Policies (SAPs) • 1990s onward, liberal reforms, including trade liberalization • World Bank TTRI data shows increasing openness of Malawi trade regime • TTRI rating for MFN applied tariffs decreased over 2005-2007 to 2008 from 25.4 to 20.5 • Overall TTRI rating declined over 2005-2007 to 2008 from 22.4 to 13.4 • Malawi participation in IF processes • IF participation began in 2001, has helped to include trade policy into overall development strategies of the country • DTIS was approved in 2004 and findings have been incorporated into National Growth Strategy of 2003, PRSP, and MGDS • Zambia currently preparing a 5 yr. Implementaion plan for the EIF

8. Current Vision and Goals of Trade Policy • Government’s vision is “transforming Malawi from a predominantly importing and consuming country to a predominantly producing and exporting country” • Works to: • diversify exports • enable a more stable, conducive environment for trade • open Malawi to exports, imports and foreign direct investment • improve standards of living • create employment • strengthen balance of payments • Although Malawi strives to maintain an open economy, barriers to exports and imports still exist and affect trade (tariffs, international standards applied, privatization is occurring although state owned firms still exist) Anti-dumping, countervailing and safeguard measures are being established, environmental, health, safety and security standards

9. Trade Policy Making Process • “Demand-driven” process • Policies set up by means of legislation, Hierarchy: Constitution, followed by Acts of Parliament and "subsidiary instruments" (e.g. government regulations, orders, and guidelines) • Presidential Directives • Changes emanate from the Ministry of Industry, Trade and Private Sector Development • inter-agency meetings , NWGTP • The recommendations from inter-agency meetings are submitted to the Minister of Industry and Trade through the Director of Trade and Principal Secretary • Cabinet Papers are thencreated • Cabinet Approves: incorporatesinto policy or pushesinto the lawmakingprocess • Attorney-General's Office drafts the related bill with input from relevant minister • Adopted by the Cabinet • Bill is published in the Government Gazette, generally for at least 21 days. • Introduced in the Parliament • If passed, with Presidential assent becomes law

11. Governmental Trade Policy Making Institutions • Ministry of Industry and Trade: manages and implements trade policy with support from technical institutions • activities include: trade development, research, policy, advocacy and finance, negotiations of multilateral, bilateral and regional trade agreements, development of a conducive trading environment, andincreasing participation of Malawians in trading activities. • Other Government Bodies: • Consulted during trade policy diagnostic planning and implementation • Invited to stakeholder consultation meetings • Can initiate comments and viewpoints • Key Actors: Reserve Bank, the Ministries of Finance and Economic Planning, and Trade, National Economic Council, Ministry of Agriculture and Food Security, Malawi Revenue Authority, Reserve Bank of Malawi, Malawi Bureau of Standards, Malawi Investment Promotion Agency, and Malawi Export Promotion Council (MEPC). • Inter-Ministerial Conferences: • ministries provide input • comment on relevant issues related to trade policy • discussions on specific issues can be initiated as well

12. Stakeholder Involvement • Civil Society Organisations (CSOs): • Started operating in Malawi from 1994 • Economic and social issues took off around 2000. • Vibrant CSO scene with many active organizations, although not too many are working on trade issues • MEJN and CISANET have projects in rural areas, yet rural reach of CSOs must be strengthened given that most are based in urban areas • No formal representatives of informal sector in CSOs, yet CSO efforts to improve trade policy impact various disadvantaged groups in the policy process, including the informal sector • Private Sector: • a number of private sector and business umbrella organizations • Umbrella Organizations and sector-specific private sector organizations participate in the trade policy making process • individuals employed in the informal sector are not formally represented by private business sector umbrella organizations, yet are indirectly included through efforts of these organizations to advance the interests of the sector as a whole • Both are most active in NWGTP and NAG

13. Consultation Mechanisms • NWGTP - National Working Group on Trade Policy • advises the Government on all legislative and policy issues relating to trade • monitors implementation of trade arrangements and ensures conformity with rules. • consultation and cooperation among private sector, public sector , academia, civil society and donors • chaired by a private-sector representative and co-chaired by MOIT • privately funded • NAG- The National Action Group • works to deepen engagement between private and public sectors • Includes: key economic ministers, key public sector institutions, CEOs of leading investors and private sector representatives, heads of development partners and CSO partners • sectoralworking groups • initiates ad hoc groups and dialogues • works with government and donor processes to better integrate private sector groups with International Organizations • capacity-building activities

14. Consultation Mechanisms (cont’d) • MNDTFP– Malawi National Development and Trade Policy Forum • coordinates with the Malawian negotiators for the EPA with the EU. • NEC – National Economic Council • Publicly funded • Reports to the President • Operationally linked with the Ministry of Finance and Economic Planning • Advises the government and public on economic and development policies • Aids in establishing national development goals and plans • Monitors implementation • Participatory approval • Process: Technical Working Groups, comprising Council staff and technical officers from line ministries, provide an interface between stakeholders to formulate and review policies

15. President National Economic Council (linked with MoFEP and Other Ministries) Policy Direction Cabinet NWGTP IMC Policy Formulation MOIT NAG MWGTPF Policy Implementation Other Line Ministries MoA MEPC MIPA

16. Trade Policy Making Map

17. Stakeholder Views – MOIT • MOIT endeavors to consult as broadly as possible and uses the IMCs and the NWGTP for this purpose • According to some CSOs, lack of people participation in previous policies has resulted in policy failures • alliance of technocrats and donors determined national policies and invited CSOs for endorsement • Recently, some interest in removing these tendencies • External influences align the government away from CSOs and more toward multilateral institutions • Challenges: • Quickly evolving international trade scene requires timely and adequate adjustments in the trade policy • Changes in government often lead to changes in policies mid way through implementation • Limited human, technical and financial capacity to deal with a vast number of issues and actors. • Two key suggestions: • Strengthen consultative fora (NWGTP and PPD) to ensure interests of stakeholders considered • Institutional capacities of stakeholders should be enhanced

18. Stakeholder Views– Other Relevant Government Bodies Example - Ministry of Agriculture • Challenges: • Pressure on limited technical, time and monetary resources • Little opportunity to build up a relationship of trust and a lack of sense of ownership exists (consultants used) • Donor driven technical assistances tends to concentrate on donor priorities • Inadequate coordination between government institutions • Lack of timely feedback on comments by the MOIT and COMESA/SADC secretariats. • Suggestions: • Ministry of Economic Planning and Development (MoEPD) should take the lead role • Technical assistance should be designed to transfer skills and knowledge and not to under-capacitate • Strengthen government coordination via an independent coordinating government institution • Build capacity: increase human resources, utilize available human resources and adequate financial resources

19. Stakeholder Views – Private Sector • The private sector has been more active on policies related to international agreements and less on regional and domestic trade issues • Suggestions: • Addressing their own capacity constraints • Providing less tight timelines • Improving opportunities for participation for less powerful private sector organizations, for example, Malawi Union for the Informal Sector, Indigenous Business Association, etc.

20. Stakeholder Views - CSOs • Good progress in terms of CSOs and government partnership • Government observes that some CSOs do not attend consultations despite being invited • Challenges: • Generally more interest in multilateral trade issues • Lack of adequate information on trade issues (especially domestic) • Lack of analytical skills and competencies (technical nature of trade policy) • Lack of resources for sustained engagement on trade policy issues • Ideological differences between the private sector and CSOs • Interests of citizens that are more focused on micro level rather than larger issues

21. Stakeholder Views - CSOs • Recommendations: • Collection and use of evidence by CSOs for meaningful participation • Undertaking and presenting analysis of trade policy from poverty reduction perspectives • More CSO space in actual policy formulation • Enacting legislation for CSO access to trade information • Dissemination of trade policy information to citizens • Strengthening CSO networking on trade • Prioritize citizen participation and action on trade policies • Strengthening of trade weather stations and other community based networks • Develop capacity of MOIT for more and better consultations with all stakeholders.

22. Additional Feedback • The NWGTP is only for discussions and is not a decision-making forum • Several stakeholders are not currently represented in the process • The present process is producer-oriented and there is need for balancing producer and consumer interests • The role of parliament and parliamentarians should be strengthened • Relevant government agencies can improve the dissemination of information by simplifying the presentation and improving access • participation of CSOs and other relevant government ministries in the trade policy making process should be strengthened to include not only participation in discussions, but also in decision-making processes

23. Good Trade Policy? • No one-size-fits-all policy • Economists generally agree that open trade policy is good for development • features of good policy include: • Coherence with national development policy • Supportive of and be supported by other government policies • Balance the interests of all key stakeholders • Conform with the commitments of the country under the WTO and other regional and bilateral agreements • Accompanied by an appropriate implementation plan

24. Process is Important • Determines whether the key features of good policy are attained which in turn determines the contents of policy. • May not result in best policy • but context and country specific • But widest possible buy-in and support from all key stakeholders • Support and ownership ensure policy’s relevance and proper implementation. • Outlining the key elements of the process also leads to the identification of the relevant stakeholders. • Important assumption: key stakeholders are an active part of the process with opportunities for equal participation and proportionate influence.

25. Analytical Tool – Linking Stakeholders with Essential Features of a Good Trade Policy through Trade Policy Making Process

26. Constructing ITPM • all the key stakeholders have been identified • they have equal opportunity to participate in the process • none of them is allowed to disproportionately influence the process nor the outcome in favor of its own interests. • Seven action variables, applied in two different groups • Variables 1-4 require action of primary government ministry in trade policy • Variables 5-7 require action of all other stakeholders • Three distinct indices are calculated for other relevant government agencies, private sector, and CSO categories of stakeholders respectively • maximum value of 1 (when the appropriate action has been taken by the concerned actor) • intermediate value of .5 (when some action has been taken by the actor concerned but such is not sufficient). • minimum value of zero (when the action has not been taken at all by the concerned actor) • Overall ITPM rating out of 13, index includes 4 distinct parts

27. Purpose: Malawi ITPM • Increase awareness of political economy aspects of trade policy making in Malawi • Assess the inclusiveness of the trade policy making process in terms of capacities, actions, and participation of key stakeholder groups • Illustrate where further efforts must be made to improve stakeholder capacity and participation in trade policy process • Facilitate the development of a more inclusive trade policy making process to create local buy-in of that policy within Malawi • Only such buy-in can ensure successful implementation of trade policy and the subsequent realization of larger development goals of the country

28. Malawi ITPM Index: Parts I and II

29. Malawi IPTM: Parts III and IV