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Republic of Malawi Diagnostic Trade Integration Study (DTIS) Update

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Republic of Malawi Diagnostic Trade Integration Study (DTIS) Update Report No: ACS7534 Public Disclosure Authorized Republic of Malawi Diagnostic Trade Integration Study (DTIS) Update Public Disclosure Authorized Reducing trade costs to promote competitiveness and inclusive growth March 25, 2014 Public Disclosure Authorized AFTP1 AFRICA Public Disclosure Authorized Standard Disclaimer: This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Copyright Statement: The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/ The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978-750-4470, http://www.copyright.com/. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail [email protected]. ii Table of contents Executive Summary ............................................................................................................................... 1 Proposed DTIS Update Action Matrix.................................................................................................... 8 Chapter 1. Introduction ................................................................................................................. 10 Chapter 2. Trade and Inclusive Growth ...................................................................................... 14 Macroeconomic Overview .................................................................................................................... 14 Malawi’s trade openness ....................................................................................................................... 17 Malawi Financial Sector ....................................................................................................................... 18 Business Enabling Environment ........................................................................................................... 19 Welfare, Poverty, and Inequality .......................................................................................................... 24 Lessons from the Implementation of the 2004 Action Matrix .............................................................. 25 Chapter 3. Trade Policy and Performance .................................................................................. 27 Malawi’s Export Performance .............................................................................................................. 27 Direction of Imports and Exports.......................................................................................................... 29 Characteristics of Exporters in Malawi ................................................................................................. 31 Multiple Tariff Schedules: MFN and Regional Preferences ................................................................. 33 Regional Trade Preferences .................................................................................................................. 37 Duty Preferences on Imported Inputs ................................................................................................... 40 Summary ............................................................................................................................................... 46 Chapter 4. Non-Tariff Barriers in Malawi .................................................................................. 48 Trade Policy Issues: Import and Export Licenses ................................................................................. 52 Elements of a National Quality Infrastructure ...................................................................................... 55 The National Quality Infrastructure of Malawi: Overview ................................................................... 56 Integrated Border Management ............................................................................................................ 71 Pricing and Competition in the Road Transport Sector ........................................................................ 77 Chapter 5. Trade and Regulatory Polices: Agriculture .............................................................. 83 Agriculture: Background ...................................................................................................................... 83 The Supply of Agriculture Inputs ......................................................................................................... 84 Trade management: tariffs, domestic polices and trade requirements .................................................. 90 Case Study: Trade Costs between Malawi and Zambia at the Mwami/Mchinji Border Crossing ........ 98 Opportunities for Enhanced Trade Competitiveness .......................................................................... 104 Chapter 6. Trade and Regulatory Polices: Professional Services ............................................ 108 Malawi’s main services trade developments and challenges .............................................................. 109 Professional services are essential for Malawi’s growth .................................................................... 115 Explaining the underdevelopment of professional services in Malawi............................................... 122 Recommendations for policy action ................................................................................................... 130 Conclusion .......................................................................................................................................... 133 Appendix 1 – Next steps for implementation .................................................................................. 135 Appendix 2 – DTIS 2003 Action Matrix Scorecard ........................................................................ 139 iii List of Figures Figure 1: Trends in the Economic Indicators ........................................................................................ 15 Figure 2 Trends in Sector Distribution of GDP .................................................................................... 16 Figure 3 Merchandise Trade as per cent of GDP, 2000-2011 ............................................................... 18 Figure 4 Trade and current-account balance, 2000-2011 ...................................................................... 18 Figure 5 Doing Business Rankings for Malawi (2007, 2010, 2013) .................................................... 20 Figure 6 Trading Across Border Ranks for Malawi and Comparator Countries .................................. 21 Figure 7 Cost to Export (US$/Container) ............................................................................................. 22 Figure 8 Number of Documents to Export ............................................................................................ 22 Figure 9 Time to Export (Days) ............................................................................................................ 23 Figure 10 Cost to Import (US$/Container) ........................................................................................... 23 Figure 11 Export Concentration: Malawi and Comparators ................................................................. 28 Figure 12 Element of a National Quality Infrastructure ....................................................................... 56 Figure 13 Standards Development in MBS .......................................................................................... 59 Figure 14 Percentage of Rejected Spring Balances by MBS 2007-2012 .............................................. 66 Figure 15 Functional Allocation of Malawi’s Agriculture Budget (% of total) .................................... 85 Figure 16 Nitrogen Based Fertilizer Prices in 2010 (USD per ton of nutrients) ................................... 86 Figure 17 Malawi’s adjusted trade openness in services .................................................................... 109 Figure 18 Structure of goods and services trade (%), Malawi and comparators 2011........................ 110 Figure 19 Value of goods and services trade, Malawi and comparators 2011 .................................... 110 Figure 20 Growth rates of services trade, Malawi and comparators ................................................... 110 Figure 21 Composition of services trade (%), Malawi and comparators 2011 ................................... 111 Figure 22 FDI in Malawi
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