Foreign direct investment (FDI) in Malawi

FDI in Figures

FDI flows to Malawi have been fluctuating in the recent past, peaking at USD 959 million in 2018 and averaging USD 50 million between 2019-21. According to UNCTAD's 2022 World Investment Report, FDI inflows stood at USD 50 million in 2021, while the total stock of foreign investment reached USD 1.59 billion, around 13.1% of the country’s GDP: the ratio has been decreasing in the last five years and it is relatively low compared to other African countries.
The agricultural sector attracts the most FDI - primarily from South Africa, Germany and the United States – followed by energy and mining. In recent years, there has been an increased interest in renewable energy projects, particularly in the solar and hydropower sectors. The exploration of rare earth elements near Lake Malawi could also attract new investments in the mining sector: for example, the Kaniyka niobium project – worth USD 250 million - will be the first niobium-mining project in Africa (Coface). There is also hope that an oil field would be discovered in the region. Other sectors that offer investment opportunities include agro-processing, manufacturing and tourism.

Malawi is eager to receive foreign investments and foreign investors are generally granted the same treatment as nationals, as the Malawian constitution protects investment irrespective of nationality. However, while not discriminatory to foreigners, investments in the country involve multiple, and sometimes time-consuming, administrative procedures, which may include obtaining a business license, a tax registration number, and a land permit. There is no government policy to screen foreign direct investment; however, FDIs need to be registered with the Malawi Investment Trade Centre and the minimum investment threshold to be eligible for a Business Residence Permit is USD 50,000. Furthermore, foreign investment is permitted in all sectors of the economy except those that may pose a danger to health, the environment, or national security. The government is also trying to attract investments through bilateral cooperation, as shown by events like the Malawi-China Investment Forum and the Malawi-Japan Investment Forum. On the other hand, Malawi's landlocked geographical location and the inadequate condition of its infrastructure are barriers to foreign direct investment. The business climate also suffers due to a lack of skilled workforce, an underdeveloped financial sector, high transportation costs, unreliable supply of water and electricity, inefficient public institutions and difficulties in accessing credit. Malawi has taken steps to attract foreign investment, including the establishment of the Malawi Investment and Trade Centre (MITC) to promote and facilitate investment in the country. The government has also implemented policies to improve the business environment, such as reducing the time and cost of starting a business and streamlining procedures for obtaining permits and licenses. Malawi ranks 110th out of 180 economies on the 2022 Corruption Perception Index and 133rd out of 176 on the 2023 Index of Economic Freedom.

What to consider if you invest in Malawi

Strong Points

The strong points of the Malawian economy include:
• natural resources (uranium, tea, coffee, tobacco)
no restrictions on remittance of foreign investment funds (including capital, profits, loan repayments and lease repayments)
• rapidly expanding services sector
• resumption of support by financial donors
• preferencial access to several markets: the country is member of the SADC (Southern African Development Community) and the COMESA (Common Market for Eastern and Southern Africa)

Weak Points

The main challenges for foreign investors include:
• an economy dominated by agriculture, vulnerable to weather conditions
• high inflation rates
• Infrastructure shortcomings (water, energy, IT)
• Scarcity of skilled and semi-skilled labor
• Low foreign exchange reserves
• corruption remains a major obstacle to carry out investment in Malawi.
• Increase in extreme poverty
• Diplomatic tensions with Tanzania and Mozambique

Government Measures to Motivate or Restrict FDI

The Government of Malawi offers a wide array of fiscal and non-fiscal incentives which apply equally to domestic and foreign investors and to several sectors including manufacturing, agriculture and mining.
Malawi recently passed a number of laws aimed at improving the investment environment, including:
• Amendment to the Taxation Act 2017, which increases the tax-free bracket for salaried employees (up to USD 41/month) and introduces an additional income tax bracket for high income earners (over USD 4,100/month).
• Amendment to the Value Added Tax Act 2017 which revises penalties and interest for various offenses under the Act and gives tax exemption for certain essential commodities including milk, eggs, and honey.
• Amendment to the Customs and Excise Act 2017 which imposes an excise duty on airtime, television subscriptions, gaming and betting (including lotteries).