Foreign direct investment (FDI) in Malawi

FDI in Figures

FDI flows to Malawi have been fluctuating in the recent past. According to UNCTAD's 2021 World Investment Report, FDI inflows decreased from USD 822 million in 2019 to USD 98 million in 2020, as a result of the global economic crisis triggered by the Covid-19 pandemic. The FDI stock reached USD 1.6 billion in 2020. UNCTAD’ Investment Trends Monitor reported that although global FDI flows rebounded strongly in 2021, FDI flows to African countries (excluding South Africa) rose only moderately. The agricultural sector attracts the most FDI - primarily from South Africa, Germany and the United States - while the temporary collapse of raw material prices impacted the production of uranium. However, the exploration of rare earth elements near Lake Malawi could attract new investments in the mining sector. For example, the Kaniyka niobium project will be the first niobium-mining project in Africa (Coface). There is also hope that an oil field would be discovered in the region. Apart from agriculture and minerals, Malawi also offers investment opportunities in agro-processing, manufacturing and tourism. The main investing countries are Australia, China, India, the Republic of Korea, South Africa, the UAE and the UK.

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 foreign investors, 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. 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, high transportation costs, unreliable supply of water and electricity, inefficient public institutions and difficulties in accessing credit. In the World Bank's 2020 Doing Business Report Malawi has been ranked 109th worldwide, for the ease of doing business. This represents a slight improvement from 2019 edition when the country was ranked 111th.

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).