COUNTRY REPORT

Mozambique

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1st quarter 2000

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ISSN 1351-8089

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Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK Contents

3 Summary

Mozambique

5 Political structure 6 Economic structure 7 Quarterly indicators 8 Outlook for 2000-01 10 The political scene 16 Economic policy 16 The domestic economy 16 Economic trends 17 Manufacturing 18 Agriculture 19 Infrastructure 21 Financial services 22 Foreign trade and payments

Malawi

23 Political structure 24 Economic structure 25 Quarterly indicators 26 Outlook for 2000-01 29 The political scene 30 Economic policy 32 The domestic economy 32 Economic trends 35 Agriculture 36 Infrastructure 36 Financial services 37 Foreign trade and payments

39 Trade data

List of tables

8 Mozambique: forecast summary 11 Mozambique: legislative election results, Dec 3rd-5th 1999 12 Mozambique: distribution of parliamentary seats 15 Mozambique: highlights of the 1997 census

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26 Malawi: forecast summary 33 Malawi: agricultural GDP 33 Malawi: consumer prices 35 Malawi: Corruption Perceptions Index, 1999 36 Malawi: tobacco auctions, 1999 37 Malawi: external debt 39 Mozambique: foreign trade 40 Malawi: foreign trade

List of figures

10 Mozambique: gross domestic product 17 Mozambique: cumulative inflation 18 Mozambique: cashew nut processing and production 28 Malawi: gross domestic product 28 Malawi: kwacha real exchange rates 33 Malawi: inflation 35 Malawi: tobacco auction sales and auction prices 37 Malawi: structure of debt stock

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December 17th 1999 Summary

1st quarter 2000

Mozambique

Outlook for 2000-01 The victory of the ruling Frelimo in the national elections will ensure continuity with economic and social policy and the results will strengthen the position of the president, Joaquim Alberto Chissano. The composition of the new cabinet will be consistent with the moderate and technocratic character of the previous government. The political division of the country will continue, with Renamo maintaining strongholds in the centre and north. The election result will restore economic confidence but demands for economic nationalism and local business empowerment are expected to grow. Strong economic growth will continue, with real GDP forecast to increase by 7.5% in 2000 and 8% in 2001, supported by high levels of foreign direct investment and broad- based growth across a range of sectors. The current-account deficit will narrow to $836m in 2000 and to $674m in 2001 owing to a rise in aluminium exports, a drop in capital imports and an improved invisibles balance.

The political scene Frelimo was re-elected in the polls held on December 3rd-5th 1999. The voting confirmed that Renamo is still popular in central and northern areas of the country and Frelimo in the south, although both have made inroads in each other’s respective strongholds. The elections were pronounced free and fair by international observers. A tough election campaign was mounted and Frelimo spared no effort in ensuring its victory. Renamo’s election campaign was hindered by serious organisational and logistical weaknesses, including a lack of money. The election platforms of both parties reflected consensus on economic and social policy. A human rights report has highlighted continuing paralysis in the administration of justice.

Economic policy The government is assuming greater control over policy formation in its relationship with the World Bank and other foreign partners. Poverty reduction is assuming a greater focus in policymaking.

The domestic economy • Price stability is continuing and inflation was 0.3% in the nine months to September 1999. The exchange rate has held steady.

• An investor has pulled out of the Maputo Iron and Steel Project but an agreement has been signed for the Beira iron project.

• A compromise has been found in new measures to assist the cashew sector. Controversy has risen with the IMF over policy for the sugar sector.

• Agreement has been reached for the private management of Maputo port. Limited liberalisation of the telecoms sector has been announced.

• The stockmarket has been launched, with trading in central bank Treasury bills.

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Foreign trade and Mozambique may receive further debt relief through the HIPC debt relief payments programme if agreement is reached on measures proposed at the G7 summit in Cologne.

Malawi

Outlook for 2000-01 Controversy will surround the plans by the ruling United Democratic Front (UDF) to enable to serve a third presidential term. A UDF party conference in 2000 could highlight rivalries within the party. The legal challenge to the presidential election results will continue. A constitutional review is likely to take place, with the focus on Mr Muluzi’s hopes for a third term as president and clauses outlining electoral rules. The rate of economic growth will slow, reflecting mixed prospects for the agriculture sector. Inflation will fall to 24% in 2000 and to 17% in 2001 and the kwacha will depreciate to an average of MK63.8:$1 in 2001. The current-account deficit will widen to $390m in 2001 owing to rising international fuel prices and a fall in the value of tea exports.

The political scene The UDF has announced plans to enable Mr Muluzi to stand for a third pres- idential term. The Supreme Court has ordered the Electoral Commission (EC) to release all voting records from the 1999 elections for inspection. Prepara- tions are under way for the local government elections, scheduled for April 2000. The EC has suspended two members for being too partisan towards the opposition. Following a one-day strike, MPs have awarded themselves a salary increase of more than 50%.

Economic policy The IMF has completed its mid-term review of Malawi’s third ESAF arrange- ment. Admarc is being prepared for privatisation, and will commercialise its activities from January 2000. Progress has been made with the privatisation of Malawi’s railways and preparations are under way for the sale of other state monopolies.

The domestic economy • The government has estimated real GDP growth of 4.7% in 1999. Inflation fell to 32.3% in October, its lowest level for over 12 months, amid tight monetary policy and increases in commercial bank interest rates. Petroleum prices have increased and fuel importation will be liberalised in 2000.

• Tobacco production in 1999 was at similar levels to 1998, but average prices were 4.5% higher.

• Malawi’s second cellular telephone network began operations in October. • The financial sector will benefit from the opening of Malawi’s sixth commercial bank in October.

Foreign trade and payments Debt relief under HIPC will not be available until 2001 at the earliest.

Editor: Tim Ruffer All queries: Tel: (44.20) 7830 1007 Fax: (44.20) 7830 1023 Next report: Our next Country Report will be published in April

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Mozambique

Political structure

Official name República de Moçambique

Form of state Unitary republic

Legal system Based on Portuguese/Roman law and the 1990 constitution

National legislature 250-member Assembléia da República (parliament) elected by direct, universal, adult suffrage every five years

National elections December 3rd-5th 1999 (legislative and presidential); next national elections due by December 2004 (legislative and presidential)

Head of state President, chosen by direct universal suffrage; currently Joaquim Alberto Chissano

National government The president and his appointed prime minister and Council of Ministers

Main political parties Frente de Libertação de Moçambique (Frelimo) is the main and ruling party; the main opposition group is the former rebel Resistência Nacional de Moçambique (Renamo)

Prime minister Pascoal Mocumbi

Ministers in the presidency Defence & security affairs Almerinho Manhenje Economic & social affairs Eneias Comiche Parliamentary affairs Francisco Madeira

Key ministers Agriculture & fisheries Carlos Agostinho de Rosário Culture, youth & sports Matheus Katupha Education Arnaldo Nhavoto Finance Tomás Salomão Foreign affairs Leonardo Simão Health Aurélio Zilhão Industry, commerce & tourism Oldemiro Balói Interior Almerinho Manhenje Justice José Ibraimo Abudo Labour Guilherme Mavila Mineral resources & energy John William Kachamila National defence Aguiar Mazula Public works & housing Roberto Costley White Social welfare Filipe Manjate State administration Alfredo Gamito Transport & communications Paulo Muxanga

Central bank governor Adriano Maleiane

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Economic structure

Latest available figures

Economic indicators 1995 1996 1997 1998a 1999b GDP at market prices (MT bn) 24,743 32,310 40,126 43,557 50,244 Real GDP growthc (%) 4.3 7.1 11.1 9.9 10.0 Consumer price inflation (end-period; %) 54.1 16.6 5.8 –1.3 4.0 Populationd (m) 15.0 15.7 16.1 16.5 16.8 Exports fob ($ m) 174 226 234 255 300 Imports cif ($ m) 729 802 855 965 1,550 Current-account balancee ($ m) –680 –665 –711 –778 –1,047 Total external debt ($ m) 5,751 5,842 7,300 7,150 4,848 External debt-service ratio, paid (%) 27.5 28.1 24.9 33.5 15.0 Cashew nut productionf (‘000 tonnes) 33 67 35 49 51 Raw cotton productionf (‘000 tonnes) 53 51 74 80 91 Prawn production (‘000 tonnes) 7.5 7.8 8.6 n/a n/a Exchange rate (av; MT:$) 9,024 11,294 11,544 11,853g 12,446

December 17th 1999 MT13,242:$1

Origins of gross domestic product 1997 % of total Components of gross domestic product 1997 % of total Agriculture 26.3 Private consumption 55.2 Industry & fisheries 17.9 Government consumption 14.2 Construction 11.3 Gross domestic investment 53.3 Transport & communications 11.4 Exports of goods & services 24.9 Commerce & others 33.3 Imports of goods & services –47.6 GDP at factor cost 100.0 GDP at market prices 100.0

Principal exports 1997 $ m Principal imports 1997 $ m Prawns 90.2 Machinery & equipment 139.0 Cashew nuts & coconuts 29.3 Vehicles, transport equipment & spare parts 113.8 Cotton 22.2 Fuel 92.3 Timber 13.8 Textiles 43.4 Copra 4.6 Metal products 38.9

Main destinations of exports 1996h % of total Main origins of imports 1996h % of total Spain 17.1 South Africa 54.6 South Africa 15.8 Zimbabwe 6.6 Portugal 11.7 Saudi Arabia 5.4 US 10.4 Portugal 3.8 a Official estimates. b EIU estimates. c Based on recalculation of national accounts data by National Statistics Institute. d Extrapolated from the 1997 census. e Excluding transfers. f Marketed production. g Actual. h Based on partners’ trade returns, subject to wide margin of error.

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Quarterly indicators

1997 1998 1999 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr Financial indicators Exchange rate MT:$ (av) 11,585 11,638 11,669 11,923 12,269 12,398 12,499 12,764 MT:$ (end-period) 11,543 11,625 11,813 12,074 12,366 12,438 12,546 12,933 M1 (end-period; MT bn) 4,901.7 4,747.8 5,043.7 5,408.5 5,613.0 5,678.1 5,867.5 6,111.1 % change, year on year 25.1 8.9 18.7 18.5 14.5 19.6 16.3 13.0 Prices Consumer pricesa (1995=100) 152.7 159.1 n/a n/a n/a n/a n/a n/a % change, year on year 5.5 2.2 n/a n/a n/a n/a n/a n/a Sectoral trends Production Teab ( a n n u a l t o t a l s ; ‘ 0 0 0 t o n n e s ) 1 . 5 ( 1 . 5 ) ( 1 . 6 ) Maize (annual totals; ‘000 tonnes) 1,042 ( 1,124 ) ( 1,124 ) Foreign trade & reserves Exports fobc (qtrly totals; $ m) 76 43 68 82 89 43 n/a n/a Imports cifc (qtrly totals; $ m) 329 274 369 347 378 277 n/a n/a Reserves excl gold (end-period; $ m) 517.4 532.2 521.8 523.7 608.5 642.7 655.7 667.7 a Maputo. b Estimate, including production for subsistence. c DOTS estimates. Figures are subject to revision.

Sources: UN Food and Agriculture Organisation; IMF, International Financial Statistics; Direction of Trade Statistics, quarterly.

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Outlook for 2000-01

Mozambique: forecast summary ($ m unless otherwise indicated) 1998a 1999a 2000b 2001b Real GDP growth (%) 9.9 10.0 7.5 8.0 Consumer price inflation (end-period: %) –1.3 4.0 5.0 5.0 Merchandise exports fob 255 300 325 495 Merchandise imports cif 965 1,550 1,240 1,200 Current-account balance –778 –1,047 –836 –674 Exchange rate (av; MT:$) 11,853c 12,446 13,068 13,721

a EIU estimates. b EIU forecasts. c Actual.

Frelimo’s victory will The convincing victory of the ruling Frente de Libertação de Moçambique ensure continuity— (Frelimo) in the December national elections will guarantee continuity with the economic reforms and political stability that have underpinned the strong performance of the Mozambican economy in recent years. The conduct of the electoral campaign and the elections themselves, which were declared free and fair by international observers, has attested to the resilience of Mozambique’s democracy and a consensus that political competition be kept within the rule of law. Although it was long assumed that Joaquim Alberto Chissano, who is more popular than his party, would again triumph in the presidential election, signs of weak support and lack of enthusiasm for Frelimo had raised the prospect that it might lose its majority in the parliamentary poll. On the strength of this electoral endorsement, however, a new cabinet will be installed that is broadly in keeping with the moderate and technocratic character of the outgoing one, which took much credit for the dramatic progress of recent years. However, it is expected that some members of the outgoing government, who have either performed poorly or incurred the displeasure of party hardliners, will be replaced.

—and Mr Chissano’s The election result will strengthen the authority of Mr Chissano, who will be position will strengthen beginning his final term as president, as stipulated under the Mozambican constitution, which limits office-holders to two terms. However, now that the external threat of the election campaign has been removed, the traditional divisions within Frelimo—between a moderate and technocratic group centred on the cabinet and a more conservative-minded party closer to its traditional roots on the left—are set to return.

Economic nationalism One of the arenas for conflict within the party in the next government is likely will increase to be in the field of economic nationalism and empowerment, as Frelimo seeks to extend the party’s hegemony in the political sphere to the private sector. The existence of an economic elite is a comparatively recent phenomenon in Mozambique, which has gathered pace alongside the implementation of market reforms, and party members have been active in acquiring these new opportunities for financial gain. The growing nexus between the political and economic elite indicates that Frelimo is beginning to represent the features of other long-ruling political parties in Africa. Frelimo hardliners also blame the

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party’s vulnerability in the election on unpopular economic policies, such as the restructuring and retrenchments that have accompanied the privatisation of state companies, as well as the growing dominance of foreign investors and expatriate workers in the economy. As a result, growing nationalism in econ- omic affairs and assertiveness of national interests towards external agencies is likely to be a feature of the next government. However, these changes will be more of emphasis, and no substantial change is foreseen on core issues related to macroeconomic stability and market reform, where the government has been at pains to emphasise that it is in agreement with foreign donors.

Parliament will reflect The candidate lists presented by both the opposition Resistência Nacional de continuity— Moçambique (Renamo) and Frelimo under Mozambique’s proportional representation electoral system ensure that most prominent members of the out- going parliament will be returned. However, Renamo has granted sufficiently high places on its candidate list to guarantee seats for at least 16 leaders from the ten small parties that agreed to back it in the electoral coalition, as well as to a prominent independent, the former Frelimo central committee member Francisco Masquil. This will ensure new talent and faces in the next parliament, although it is not clear to what degree these new members will associate themselves with Renamo or seek to articulate an independent position. Several of Renamo’s more capable members of parliament, however, have been marginalised, including the party’s spokesman, Jafar Gulamo Jafar, a lawyer who was one of the party’s best performers in the previous parliament. Frelimo, which selected its list through internal party elections, has also sidelined several prominent members, including the former prime minister, Mário Machungo, the minister of defence, Aguiar Mazula, and the minister of agriculture, Carlos Agostinho do Rosário.

—and democracy will be The efficiency of the election process and the spirit of tolerance that was consolidated shown have served to underline the maturity and dynamism of democracy in Mozambique. Although Frelimo was hastened to meet what was perceived to be a real challenge and mounted a vigorous campaign, this is judged to have stayed within the boundaries of the law and democratic contest. Even when it appeared that Frelimo might lose its electoral majority, Mr Chissano indicated that he would accept such a result and negotiate a solution, which would have entailed a government of national unity with Renamo (see The political scene).

Economic reforms will be With the election out of the way and the government facing another five-year renewed— mandate, commitment to sensitive economic reforms will be renewed. These reforms will include the port restructuring, where the government will be required to announce large-scale redundancies involving the retrenchment of some 10,000 workers (see Infrastructure). Otherwise, continuity in economic policy is expected, with prudent fiscal and monetary policies being main- tained, underpinned by strong external support for the government’s efforts and the bipartisan consensus on economic and social policy reached by the country’s two main political parties.

—and the election result The installation of a new government with a firm democratic mandate will will restore confidence provide a substantial boost to economic confidence, promising the continua- tion of pro-market reforms and the competent economic management that

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characterised the record of the previous Frelimo government. Strong economic growth is expected to continue, driven by macroeconomic stability, high levels of foreign direct investment (FDI), and broad-based growth across a range of sectors, including industry, agriculture, fisheries, communications and tourism. Growth will continue to display the geographic imbalance of recent years, associated with superior infrastructure and the concentration of industrial megaprojects in the south. Nonetheless, strong agricultural growth, and the renewed emphasis on poverty reduction (see Economic policy) underpinned by the extension of transport infrastructure and basic social services to rural areas will ensure continuing income gains and broad-based economic growth. Overall, the rate of real GDP growth will therefore remain high throughout the forecast period, reaching 7.5% in 2000 and 8% in 2001.

Price and exchange-rate Ongoing discipline in monetary and fiscal policy will ensure that inflation stability will be remains within the target of 5% over the forecast period. The metical:dollar maintained— exchange rate should therefore also hold relatively steady, although a gradual nominal depreciation is anticipated, with an average exchange rate of MT13,068:$1 in 2000 and MT13,721:$1 in 2001.

—and the current-account Mozambique’s traditional export sectors, based predominantly in agriculture deficit will narrow and fisheries, will not achieve the impressive rates of growth found elsewhere in 2000-01 in the economy, and the EIU projects that export earnings will total $325m in 2000. However, following the commissioning of the Mozal aluminium smelter, which is expected to begin exporting in 2001, total export earnings will rise sharply to $495m in 2001. After the large increase in the import bill in 1999, associated with capital inputs for the construction of the smelter, total import demand will subside, with the total bill falling to $1.24bn in 2000 and $1.2bn in 2001. Foreign-exchange earnings on the invisibles account will benefit from the rehabilitation of the Maputo port, although this will not produce substantial results before 2001. The current-account deficit will narrow to $836m in 2000 and to $674m in 2001, and will be financed by large inflows of FDI.

The political scene

Frelimo is re-elected— Preliminary results from the elections held on December 3rd-5th 1999 show that the ruling Frente de Libertação de Moçambique (Frelimo) won both the presidential and parliamentary polls. Despite the perception by some that Frelimo might lose its parliamentary majority, the party in fact increased it, gaining 132 parliamentary seats, while the main opposition party, Resistência Nacional de Moçambique (Renamo) won 118. In the previous parliament Frelimo had 129 seats, with a combined opposition total of 121. In the presidential vote, the Renamo candidate, Afonso Dhlakama, failed to oust Frelimo’s Joaquim Alberto Chissano, the incumbent. Mr Dhlakama won 2m votes, compared with Mr Chissano’s 2.2m (52.3% of the total). Electoral turn- out, at an estimated 80%, was high, confirming the considerable level of pol- itical interest among the population. Although recounts are taking place in

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some regions, the final results are unlikely to differ significantly and, despite accusations of irregularities by Renamo, there is unlikely to be any serious legal dispute.

Mozambique: legislative election results, Dec 3rd-5th 1999 (no. of seats won) Frelimo Renamo Total Maputo city 14 2 16 Maputo province 12 1 13 Gaza 16 0 16 Inhambane 13 4 17 Sofala 4 17 21 Manica 5 10 15 Tete 8 10 18 Zambezia 15 34 49 Cabo Delgado 15 7 22 Niassa 6 7 13 Nampula 24 26 50 Total 132 118 250 Source: Mozambique News Agency.

—and the division of the The preliminary distribution of seats generally confirms the geographic division of country is confirmed— the country that emerged following the 1994 election, although Frelimo has made some gains in the north. Renamo still maintains control over large areas of the centre and north. Local populations in these areas have evidently not forgiven or forgotten the ruling party’s excesses in the 1970s and 1980s, which included forced collecti- visation and the disenthronement of traditional authority, and also accuse the government of ethnic and regional bias towards the south of the country. Slightly better results for Renamo in the south, where its share of the vote was insignificant in 1994, indicate a desire for checks on Frelimo’s power, and weariness with the ruling party, which is blamed for the increase in corruption among senior members.

—but Renamo is not The election results confirm that the majority are still not willing to trust manage- trusted to govern ment of the country to the inexperienced Renamo, which has demonstrated little headway in addressing fundamental organisational problems, including the chaotic administration of its party structure. The party’s unsuccessful challenge will exacerbate tensions over Mr Dhlakama’s leadership, which is regarded as weak by the more technocratic elements in the party, grouped around its parliamentary leader, Raul Domingos. Renamo will also be under some pressure to hold its long- delayed party congress, which it has consistently postponed.

The election result has not The build-up to the second multiparty national elections since the civil war always been obvious dominated the political scene in Mozambique over the preceding months. In the absence of reliable polls, and with limited knowledge of voter behaviour and intentions, there had long been a high degree of uncertainty over the outcome. Despite its commanding advantages in terms of superior organisa- tion, sophisticated electioneering and full use of its ruling status, Frelimo had appeared vulnerable and was forced to meet a real challenge from Renamo.

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The distribution of In the run-up to the vote, much attention focused on the capability and parliamentary seats preparedness of the Secretariado Técnico de Administração de Eleições (STAE), is revised— the state body in charge of administering the elections under the direction of the crossparty Comissão Nacional de Eleições (CNE). Given the tight time- frame caused by the delay in setting an election date (4th quarter 1999, page 11), and Mozambique’s poor infrastructure and weak administrative resources, STAE was hard pressed to complete the complicated managerial tasks associated with running the elections. Not the least of these challenges was the task of carrying out voter registration, where STAE was under some pressure to prove, amid close opposition scrutiny, that the process had been sufficiently inclusive. A total of 7.1m people were registered for the elections when the process closed on September 17th, representing some 85% of the estimated number of eligible voters. The new voter registration figures produced a slight change in the distribution of seats since the 1994 election, with the two central provinces of Manica and Tete (Renamo strongholds, which border Zimbabwe, Malawi and Zambia) gaining two and three seats respectively, reflecting the resettlement of refugees to these provinces.

Mozambique: distribution of parliamentary seats (no. of seats) Province 1994 1999 Maputo city 18 16 Maputo province 13 13 Gaza 16 16 Inhambane 18 17 Sofala 21 21 Manica 13 15 Tete 15 18 Zambezia 49 49 Cabo Delgado 22 22 Niassa 11 13 Nampula 54 50 Total 250 250 Source: Comissão Nacional de Eleições (CNE).

—and wide political Despite the complicated procedures for the registration of political parties, participation is achieved which were widely blamed for the lack of opposition participation in the municipal elections in June 1998 (3rd quarter 1998, page 8), a substantial number of parties managed to take part. Nine political parties and three coalitions registered for the parliamentary election. The only party to offer a significant challenge to Frelimo was the main opposition party, Renamo, which formed a coalition with a group of ten minor parties to form the Renamo- Electoral Union (4th quarter 1999, page 12). There were several other opposition parties which stood in the 1994 election but which have failed to make any discernible impact on the political scene since then. One party, the Greens, was disqualified by the CNE on October 21st, following a dispute between different factions over who could represent it. However, the CNE’s decision to ban the Frente Unida de Moçambique (Fumo), which had applied

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to join the Renamo-Electoral Union despite the objections of its then president, Domingos Arouca, was overruled by the Tribunal Supremo (the supreme court) on November 25th. Four presidential candidates were also rejected, owing to their failure to present notarised documentation from 10,000 registered voters as required by the electoral law. As a result, the only candidates to qualify for the presidential round of the elections represented Frelimo and Renamo.

The elections are run The administration of the elections themselves—which were the first to be smoothly— organised entirely by Mozambique, as the 1994 elections were run together with the UN—was reasonably efficiently carried out. Resources, however, were stretched to the limit, as this involved the opening of 8,324 polling stations and the deployment of 54,000 staff to remote and poorly serviced regions of the country. Electoral observers from the EU, the Commonwealth, the Southern African Development Community (SADC) and the Carter Centre of Atlanta, Georgia, endorsed the fairness of the vote. The former US president Jimmy Carter praised the organisation of the elections, although Carter Centre officials drew attention to the excessive partisanship towards the government from sections of the publicly owned media during the campaign. Heavy rains in northern parts of Mozambique resulted in delays in the opening of some polling stations, which resulted in the extension of voting to a third day. Few serious disruptions were reported and only one violent incident is believed to have occurred, although a heavy-handed police response resulted in several Renamo party officials, including its parliamentary leader, Mr Domingos, being jailed in Beira.

—and the campaign is The predominantly calm atmosphere during the elections was exemplified by marked by calm— the decision of the British head of state, Queen Elizabeth II, to make a one-day official visit on November 17th, in the middle of the campaign, during which she met both Mr Chissano and Mr Dhlakama. Only days before the vote itself on November 30th, a regional investment conference attended by international dignitaries was held in the capital, Maputo. Sporadic, if small- scale, violence did erupt on several occasions, most prominently when Frelimo militants, including members of parliament, attempted to prevent Mr Dhlakama from entering the town of Chokwé in Gaza province, regarded as the heartland of the ruling party. Frelimo party supporters were assaulted at a rally in Ile district in Zambezia province by a Renamo mob. Nonetheless, there is no evidence, nor have there been allegations, of a concerted or systematic campaign of violence.

—but avoids substantive The campaign, which was conducted in a lively and often entertaining debate— atmosphere, was largely devoid of substantive debate. Both party’s official platforms offered little to differentiate themselves, and were more notable for the level of consensus on economic and social policy. Renamo’s agenda, which it unveiled on November 22nd, backed a continuation of orthodox economic policies, and pledged to support efforts to cut red tape, lower taxes and increase spending on priority social sectors, while backing greater investment in infra- structure in rural and northern areas—which it perceives to be its natural stronghold—which have been slower to benefit from the economic upturn. Frelimo committed itself to economic stabilisation, maintaining inflation in single digits and high rates of economic growth, as well as increased social

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sector spending—policies that have characterised its record in government since 1994. Responding to the widespread perception that the government has been lax in the face of official corruption by party members, the Frelimo platform pledged to adopt long promised anti-corruption legislation. The consistent theme of the Frelimo election campaign was continuity of the rapid progress of recent years, and the party sought, without obvious difficulty, to associate itself in the public mind with managerial competence for these achievements. There were more aggressive efforts by the party to resurrect war- time imagery related to its resistance to apartheid, which included reminders of Renamo atrocities and its alliance with white minority regimes. However, this proved much less popular with the public, which has less nostalgic memories of the era of authoritarian one-party rule under Frelimo.

—and is dominated by The 45-day election campaign, which began on October 19th, was marked by Frelimo— intense electioneering, particularly on the part of Frelimo, which took nothing for granted in its pursuit of a second democratic mandate. Displaying its capacity for unity when faced with an external threat, Frelimo managed to bury its divisions. With a well-funded electoral war-chest, superior organisation and an extensive party structure that penetrates down to village level in most areas of the country, Frelimo ensured what was—organisationally at least—a one-sided contest. Mr Chissano and his cabinet travelled widely throughout the country, accompanied by extensive media coverage and a high-profile election effort. The ruling party’s advantage was further inflated by the fact that, following 19 years of one-party rule, the distinctions between party, state and government are not well understood or respected. However, there was anecdotal evidence of widespread weariness with the ruling party for its perceived arrogance and complacency in office, which ensured a vigilant and even desperate effort by Frelimo to swing the vote. This was in part a response to the experience of the 1998 municipal elections, in which less than 20% of voters turned out, despite extensive efforts by the government (3rd quarter 1998, page 9).

—with Renamo in shambles In contrast to Frelimo’s well-oiled campaign, Renamo’s own effort proved to be largely shambolic. The party began its campaign four days after the official starting date and was immediately struck by widespread—if not unexpected— organisational problems. Money was clearly a substantial problem for the party, as it had struggled in recent years to settle the debts that remained from its 1994 election campaign, despite the fact that it received $17m in grants at that time from donors through a UN trust fund to smooth its transition from a rebel movement to a political party. Renamo was alleged by Frelimo to have received $30m in support from the Angolan rebel movement, the União Nacional para a Independência Total de Angola (UNITA), although the party denied this. There is no evidence that it had any funds approaching this amount available for its campaign. Nevertheless, Renamo mounted a generally respectable effort and was even perceived to have had a respectful, if muted, reception in parts of the Frelimo heartlands in the south of the country.

A human rights report card A new Mozambican human rights organisation, Direitos Humanos e is presented Desenvolvimento (DHD), launched its first report on the state of human rights in Mozambique on October 5th. The report noted the widespread paralysis in

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the administration of justice owing to a lack of trained legal personnel, corruption in the judiciary and poor administration of the prison system, in which there are large numbers of prisoners awaiting trial. The police were singled out for abuse of power, arbitrary detention, torture and corruption. The prime minister, Pascoal Mocumbi, admitted that respect for human rights in the country was insufficient, but stated that his government has been seeking to improve this through increased investment in the justice system and greater training for the police force.

Final census results The Instituto Nacional de Estatística (INE, the national statistics institute) has are released released revised figures from Mozambique’s 1997 census which put the popula- tion at 16.1m—up from the figure of 15.7m originally released by INE. The census has also provided data on religion—an issue which has been the source of occasional controversy in Mozambique since an attempt was made by the governing Frelimo party to provide legal recognition to Islamic holidays in 1996 (3rd quarter 1996, page 7). According to the census, 52.7% of the popula- tion are Christian and 17.8% Moslem. The results show that an overwhelming 71.4% of the population live in rural areas. The census gives an average life expectancy at birth of 42.3 years—an improvement on the findings of the last census carried out in 1980, when life expectancy was only 38.7 years. The infant mortality rate is very high, at 145.7 out of every 1,000 live births.

Mozambique: highlights of the 1997 census

Population (m) 16.1 Population growth rate (%) 2.3 Rural population (% of total) 71.4 Urban population (% of total) 28.6 Births per woman (av) 5.9 Life expectancy (years) 42.3 Infant mortality (per 1,000 live births) 145.7 Economically active population (m) 5.87 Employment (% of economically active population): Agriculture, fishing & forestry 80.9 Manufacturing 3.0 Construction 2.0 Transport & communications 1.2 Commerce & finance 6.9 Administrative services 2.7 Illiteracy (%; aged 15 and above) 60.5 % who have completed primary school 18.4 % who have attended secondary school and above 2.6 Portuguese as first language (% of population) 6.5 Working knowledge of Portuguese (% of population) 39.5 Race (% of population): African 99.47 Mixed 0.45 Asian/white 0.08 Source: Instituto Nacional de Estatística.

EIU Country Report 1st quarter 2000 © The Economist Intelligence Unit Limited 2000 16 Mozambique

Economic policy

Policy is put on hold for Substantive policy issues were put on hold in the run-up to the elections as the the election government sought to avoid contentious decisions and concentrate on its re-election prospects. As a result, a state budget for 2000 will therefore not be presented before a new government is sworn in and parliament reconvenes in the first quarter of 2000. However, under the government’s medium-term expenditure framework (MTEF), funding for core programmes has already been assured. Despite the electoral campaign, indications are that the government has continued to maintain tight monetary and fiscal frameworks.

The relationship with The government is moving to assume a more direct responsibility for policy foreign partners is formulation, a process which is gradually changing its relationship with the changing World Bank and IMF, who have so far played a dominant role in guiding the country’s economic policy. The government will now have the sole respon- sibility for drafting its annual Poverty Reduction Strategy Paper (PRSP)— formerly known as the Policy Framework Paper (PFP)—which contains a frame- work for macroeconomic targets and policy reform measures (4th quarter 1999, page 15). The move by the government to take on greater responsibility for policy has been gradual. While the government’s competence in economic management has grown enormously in recent years, its tasks and responsibi- lities have also risen as the economy has become more dynamic and demands for reform more numerous and complex.

Poverty reduction assumes A stronger focus on poverty reduction in policy formation is being adopted by a greater focus the government, together with the IMF and World Bank. Elaborating on the poverty action plan released in June (4th quarter 1999, page 16), new guidelines have been released, Guia da Aleviação da pobreza absoluta, which will form the basis for the government’s poverty reduction strategy. This includes continuing increases in spending in the state budget in the health and education sectors, extension of access to water and road transport in rural areas, the maintenance of macroeconomic stability, and the creation of an enabling environment for rapid private-sector-led growth. The new guidelines also provide for the poverty reduction impact of all government policy to be considered and for progress to be tracked against a matrix of key social indicators. Increased capacity in the Ministry of Finance for poverty analysis is also to be addressed.

The domestic economy

Economic trends

Price stability is Mozambique’s inflation remains low and cumulative inflation (the change in maintained and the prices since the beginning of the calendar year) reached 0.3% in September, well exchange rate holds steady within the government’s 1999 inflation target of 5.5%. Although the govern- ment is likely to undershoot this target, the difference will not be great, as inflationary pressures historically build towards the end of the year, and the

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December figure is likely to be in the range of 4%. Price stability has been main- tained by ongoing tight monetary policy and the impact of high levels of agri- cultural production, which has maintained downward pressure on food prices. Evidence is also emerging that efficiency gains and price competition in the local economy are increasing, which are holding prices down. The cost of goods and services in Mozambique remains substantially above those in the region, partly owing to weak competition, which has been slow to erode the risk premiums associated with the conditions of the civil war. However, the entry of more businesses, and the increasing flow of goods from South Africa and else- where in the region, is gradually putting greater pressure on the price structure.

Despite the uncertainty associated with the elections, the exchange rate has avoided instability and maintained a gentle depreciation against the dollar, as targeted by the Mozambican authorities. In 1999 the real effective exchange rate will have depreciated by less than the target of 5%—which was adopted in early 1999 in response to concerns that the exchange rate had become overvalued (1st quarter 1999, page 12).

A private-sector conference Mozambique held its fifth annual private-sector conference in late October, an clears the air event which is a showcase for dialogue between the government and the local and international private sector operating in Mozambique. The government again reaffirmed its commitment to establishing a conducive environment for development of the private sector, and underlined its planned reforms to strengthen the legal system and reduce red tape. Local businessmen expressed frustration with the slow pace of these reforms, which have been long promised. However, the government did announce that it has hired foreign consultants to revise the country’s archaic commercial code—which dates from a 19th century Portuguese colonial law—which is to be updated to meet the needs of a modern commercial economy.

Mozambique scores poorly Mozambique has scored poorly in an index of bribery and corruption in Africa on corruption (see Malawi: Economic trends). The issue has been identified as a substantial problem in Mozambique, and the government is officially committed to taking measures to address this by simplifying bureaucratic procedures and raising civil service salaries in order to reduce opportunities and incentives for corrupt practices. The attorney-general, Antonio Namburete, publicly stated on November 23rd that corruption in the state and judicial apparatus had reached serious levels. Mr Namburete noted that increasing economic activity had resulted in more sophisticated financial fraud in the country and that his office still lacked sufficiently qualified staff to deal with the issue of corruption.

Manufacturing

Investors pull out of an An industrial megaproject planned for Maputo, the $2.5bn Maputo Iron and iron and steel project— Steel Project (MISP), suffered a setback when the parastatal Industrial Development Corporation (IDC) of South Africa announced on October 25th that it is to pull out of the project, in which it was to take a 25% equity stake together with the US-based Enron Corporation. The IDC stated that it was withdrawing from the project because it is overexposed to the steel industry,

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which accounts for 60% of its portfolio of investments. However, it underlined that it still believes the project to be viable. Enron announced that it would continue to pursue the scheme and that it is in discussions with other potential equity partners. The IDC’s announcement comes at an awkward time for Enron, as the company had only in April 1999 secured agreement with the Mozambican authorities regarding the long-running dispute over access to energy supplies for the project from the Pande gasfield, which is 700 km north of Maputo (3rd quarter 1999, page 17). Enron still plans to complete the project’s planning phase and begin construction in 2001.

—while another is Johannesburg Consolidated Investments (JCI) of South Africa signed an moving ahead agreement in late October with the Mozambican government to proceed with a similar project in the central port city of Beira. The $800m project, which is also backed by the Mitsubishi Corporation of Japan, involves the construction of a direct reduced iron (DRI) foundry, a 100-sq-km industrial zone and dedicated deepwater port 28 km north of Beira. Construction is to begin in 2000 and will take three and a half years to complete. There are plans to provide energy for the iron plant from nearby gas reserves to be developed by the Arco/Sasol consortium, although exploration is still being undertaken to confirm that there are adequate reserves for the plant. Sasol has stated that if it finds sufficient reserves, it will also consider constructing a gas-to-liquids fuel plant in Beira to supply the local and regional market.

Agriculture

A compromise is found for New measures have been announced to assist the troubled cashew processing the cashew controversy–– industry in Mozambique, which has suffered since the export of raw nuts was partly liberalised in 1996. Under a bill passed by the Assembléia da República (parliament) on September 30th, the existing 14% surtax on raw nuts will be raised to 18-22%, with the exact level to be decided each year, based on local conditions. Proceeds from the surtax are to be put towards the planting of cashew trees and additional incentives for the processing industry. The final bill passed by the assembly is a significant climbdown from the original private members bill sponsored by backbench members of the Frente de Libertação de Moçambique (Frelimo), which had proposed a ban on the export of raw nuts (3rd quarter 1999, page 18). Three parliamentary commissions advised against the export ban, stating that the existing policy was providing incentives to small farmers and producing positive results, much to the relief of the government, which had hoped to avert a conflict with both the World Bank and its own more traditional party backbenchers. The liberalisation of cashew nut exports, as recommended by the World Bank, has been a consistent source of controversy for the government. Intense lobbying has been made against liberalisation by urban and industrial interests, although this has largely ignored the interests of the more than 1m peasant households in Mozambique with access to income from cashews. The World Bank and other donors have privately indicated that they will accept the measures in the bill, largely because of their wish to respect the result of the democratic process.

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—but problems arise over Just as the cashew issue had begun to recede, a new controversy arose in the sugar policy sugar industry. The IMF has called for a reduction in the sugar tariff, adopted in 1998, which is designed to encourage investment in the domestic sugar industry. The measure established a minimum import price for sugar of $385/tonne and requires importers to pay the difference for any imports below this price. With international sugar prices expected to average around $150/tonne in 2000, the IMF has suggested that the tariff be reduced to 20% above the border price by 2002. This has been vigorously opposed by private companies and the local media. Foreign companies have reportedly committed $250m in investment for rehabilitation of Mozambique’s four sugar refineries. As these commitments—which are expected to create 25,000 jobs in predominantly rural areas—have been made under the assumption of the existing sugar levy, it is understandable why the government has argued for its continuation. In raising the issue, however, the IMF has brought forward the debate on how long the existing levy should remain in place. Private companies have asked that this be kept for at least ten years in order to pay off their investments, although it is likely that a compromise formula will eventually be reached to bring this down more quickly.

A new refinery restarts Sugar production restarted at the Maragra sugar refinery in September. The production refinery, which is owned by Illovo Sugar of South Africa, with minority stakes held by the Mozambican state and private investors (see Financial services), has absorbed $31m of a planned $50m in investment. The company began processing cane for the first time in 1999, which is supplied both by a subsidiary company and local contract farmers, most of whom are from South Africa.

Infrastructure

Agreement on the The much delayed process of privatising the management of the Maputo port management of Maputo was brought closer to conclusion on November 17th with the signing of an port is finally reached— agreement between the state ports and railways company, Caminhos de Ferro de Moçambique (CFM), and the Maputo Port Development Consortium led by the British company, Mersey Docks, after 18 months of negotiations. The consortium, which plans to take over operations in July 2000, has a 15-year concession to manage the port and is committed to spending $50m to rehabilitate Maputo and the nearby port of Matola, most of which will be spent in the first three years. The company plans to increase throughput by 400% during its concession, primarily targeting transit traffic from South Africa, which is the port’s historical market. Other partners in the consortium include the Swedish company Skanska, the Portuguese terminals operator Liscont-Operadores de Contentores, and the local company Gestores de Moçambique, which is owned by the Frelimo parliamentary leader, Armando Guebuza, and other party members. One of the first priorities for the company will be the dredging of the 9-km approach channel to the harbour to a depth of 9.4 metres. This will enable the harbour to handle ships of 60,000 tonnes instead of the current maximum of 40,000 tonnes. CFM, for its part, will receive income from leasing fees for the port, a share of profits in the joint- venture company in which it has an equity stake, as well as increased tax

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revenue. The port will revert to state ownership at the end of the contract. CFM has not yet concluded a deal for the private management of the rail link from Maputo to South Africa, Zimbabwe and Swaziland, which is critical to the success of the port’s operations. Talks with the South African rail operator, Spoornet, broke down in March (4th quarter 1999, page 21) over what the Mozambican side considered to be insufficient terms.

—but not without The port privatisation has proved to be a tortuous process. Following an controversy— international tender to select preferred bidders, and 18 months of negotiations with the Mersey Docks consortium, talks broke down in June (4th quarter 1999, page 20). Disagreement had concerned primarily the value of the local assets, which CFM, under its nationalistic managing director, Rui Fonseca, was accused of inflating. Holding out for more money for creaky state assets of dubious value, however, is a risky game, as the experience of neighbouring Zambia in the sale of its state copper mines has shown. With this clearly in mind, pressure for an agreement was quickly applied by the South African government, which is keen to ensure that adequate port facilities are in place in Maputo to guarantee the viability of investments in the Maputo Corridor Project (MCP). Negotiations with Mersey Docks were resurrected, leading to the deal announced in November, on what are believed to be terms similar to those earlier rejected by the Mozambican side. The CFM management was still evidently unhappy with the deal and the final signing ceremony was not attended by senior officials. However, transport analysts point out that the value of payments for managing CFM’s infrastructure are of far less benefit than the investments to be made by private parties.

––and the World Bank is to The World Bank has approved a $100m credit to CFM to support the com- support restructuring pany’s transitional process. The bulk of the loan will be directed to redundancy payments and reintegration programmes for 10,000 employees who are to lose their jobs. The balance will be used to rehabilitate several smaller northern ports at Angoche, Macuse, Mocímboa da Praia and Pebane, which will be developed for coastal traffic. The World Bank has forecast that total railway and port traffic at the three main ports of Maputo, Beira and Nacala will increase from 4.1m tonnes in 1998 to 7m-10m tonnes by 2002. This will increase gross revenue from $80m to $150m.

The domestic air market The government has adopted the slow route to liberalisation of the domestic will eventually be air market and, under a decree passed in 1997 and reaffirmed in the Policy opened up— Framework Paper (PFP) 1999-2000, the state airline, Linhas Aéreas de Moçambique (LAM), is to maintain a monopoly on main domestic trunk routes until 2003. However, a local company, Transporte e Trabalho Aéreos (TTA), has taken the government to court to force open the domestic market, where it has applied to run competing services. The management of TTA alleges that the government’s decision to grant a monopoly to LAM violates the agreement under which it bought the company when it was privatised in 1997. This, it says, was on the understanding that it would be able to operate domestic air services. TTA further claims that the government’s decision violates the Southern African Development Community (SADC) transportation protocol calling for open skies in the region, which Mozambique ratified in

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June 1998. Attacks against the government’s transport policy have been led by Jacinto Veloso, the main local investor in TTA and a former minister of finance, who remains close to the ruling party.

—and the partial Limited measures to liberalise the telecommunications market were announced liberalisation of TDM by the Ministry of Transport and Communications in mid-September. The is announced state-owned company, Telecomunicações de Moçambique (TDM), which is seeking to sell a 30% stake to a strategic equity partner, will retain a monopoly on fixed link communications until 2004 (3rd quarter 1999, pages 18-19). However, cellular phone services are to be gradually opened to competition. Cellular phone services are currently being provided only in southern Mozambique by the local company M-Cell, which is a joint venture between TDM and the German company Deutsche Telekom. M-Cell will retain this monopoly for an unspecified—but shorter—period, although new entrants are encouraged in all other parts of the country. The deputy minister of transport and communications, António Fernandes, explained that liberalisation was being adopted because the state lacked the capacity to fund needed investments, and expressed the hope that this would result in lower prices and improved services. Shortly afterwards, TDM announced a new venture with the French company Alcatel to install a cellular phone network, covering central and northern Mozambique and costing $19.5m. It is planned that the project will be implemented by the end of 2000 and will cover the cities of Beira, Tete, Songo, Chimoio, Manica, Nampula and Ilha de Moçambique.

Financial services

The stockmarket Mozambique’s stockmarket, the Bolsa de Valores de Moçambique (BVM), is launched officially opened on October 14th, when trading began in Treasury bills which had been issued by the Banco de Moçambique (the central bank) in May (3rd quarter 1999, page 15). Trading in equities is set to begin in early 2000— more than one year behind schedule. The first company to be listed on the stock exchange will be the local brewer, Cervejas de Moçambique (CDM), owned by South African Breweries. The government’s 40% holding in CDM, including 20% held on behalf of workers, is to form the exchange’s first share offer, which is being underwritten by a consortium of local banks, including Banco Internacional de Moçambique (BIM) and Banco Commercial de Moçambique (BCM). Two other privatised companies, Maragra Açúcar, owned by Illovo Sugar of South Africa, and Cimentos de Moçambique, which is owned by Cimpor of Portugal, are expected to list share issues on the BVM soon. As all of these companies are owned by large foreign corporations, their decision to list on the Maputo exchange is driven less by the need to gain access to investor funds as the desire to rid themselves of the government’s remaining shareholdings. The BVM states that it is holding consultations with 12 other companies regarding listings on the exchange, including several of the local banks. Although there is a large pool of companies who are potential listings candidates, few currently have adequate accounting standards and manage- ment to bring confidence to the newly established market. Nonetheless, the stockmarket in Mozambique has considerable potential, given healthy

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economic growth and the emergence of new companies, including several of the industrial megaprojects, which may list a portion of their equity on the local market.

Foreign trade and payments

Further debt relief may Mozambique may be eligible for further debt relief through the heavily be agreed indebted poor countries (HIPC) initiative under the enhanced terms proposed by the G7 summit in Cologne in June. Once general agreement is reached on extending HIPC debt relief further, additional assistance is planned to be offered to Mozambique. Mozambique reached the HIPC completion point in June and received $1.7bn in debt relief in net present value (NPV), reducing total debt from $2.7bn to $1bn. As a result, Mozambique’s external debt-service obligations will fall from an average of $169m to $73m in the next five years. Agreement to the enhanced terms as proposed in Cologne would reduce this amount further to $55m.

Canada is to support The Canadian International Development Agency (CIDA) has approved a demining C$10m ($6.8m) project to support land mine removal in Mozambique, together with the Comissão Nacional de Desminagem (CND). The CIDA project will undertake the first comprehensive survey of mined areas in Mozambique—building on a rapid assessment conducted by the British non- governmental organisation (NGO) Halo Trust in 1992-93, shortly after the end of the civil war—and create a national database, including a geographical mapping information system.

EIU Country Report 1st quarter 2000 © The Economist Intelligence Unit Limited 2000 Malawi 23

Malawi

Political structure

Official name Republic of Malawi

Form of state Unitary republic

Legal system Based on English common law and the interim constitution, promulgated in May 1995

National legislature National Assembly of 193 seats, elected by direct universal suffrage for a five-year term

National elections June 15th 1999 (presidential and legislative); next elections due by June 2004 (presidential and legislative)

Head of state President, elected by direct universal suffrage for a term of five years; Bakili Muluzi was re-elected for a second term in June 1999 (legal challenges pending)

National government Cabinet, chaired by the president; a new cabinet was named on June 27th 1999

Political parties United Democratic Front (UDF), the largest single party in the National Assembly; Malawi Congress Party (MCP), the main opposition party; Alliance for Democracy (Aford), Malawi’s third party. Smaller parties not represented in the National Assembly include: the Malawi Democratic Party (MDP); Malawi National Democratic Party (MNDP); Mass Movement for the Young Generation (MM); National Unity Party (NUP); National Patriotic Front (NPF); United Front for Multiparty Democracy (UFMD)

President & minister of defence Bakili Muluzi Vice-president

Key ministers Agriculture & irrigation Aleke Banda Commerce & industry Kaliyoma Phimisa Education, sports & culture Ken Lipenga Finance Cassim Chilumpha Foreign affairs Brown Mpinganjira Health & population Lilian Patel Home affairs & internal security Patrick Mbewe Information Clement Stambuli Justice & attorney-general Peter Fachi Labour & vocational training Leonard Mangulama Land, housing & physical planning Thengo Maloya Natural resources & environment Harry Thompson Presidential affairs Rodwell Munyenyembe Tourism & wildlife George Mtafu Transport & public works Peter Chupa Water development Yusuf Mwawa Women, youth & community services Mary Banda

Central bank governor Matthews Chikaonda

EIU Country Report 1st quarter 2000 © The Economist Intelligence Unit Limited 2000 24 Malawi

Economic structure

Latest available figures

Economic indicators 1995 1996 1997 1998 1999a GDP at market prices (MK m) 17,541 31,176 35,935 44,457 66,605 Real GDP growth (%) 13.5 14.5 5.2 3.3 4.7b Consumer price inflation (av; %) 83.4 37.6 9.2 29.7 45.3 Populationc (m) 9.79 10.14 10.44 10.81 11.19 Exports fob ($ m) 461 506 585 498a 510 Imports fob ($ m) 631b 618b 597b 490a 512 Current-account balance ($ m) –410b –151b –65b –281a –270 Reserves excl gold ($ m) 110 226 162 270 290 Total external debt ($ m) 2,242 2,312 2,206 2,221a 2,318 External debt-service ratio, paid (%) 26.2 16.2 12.4 24.5a 21.6 Tobacco productiond (‘000 tonnes) 130 141 158 133 134 Exchange rate (av; MK:$) 15.284 15.309 16.444 31.073 44.169

December 17th 1999 MK46.41:$1

Origins of gross domestic product 1998b % of total Components of gross domestic product 1998 % of total Agriculture 37.4 Government consumption 18.9 Small-scale 31.1 Private consumption 61.8 Transport & distribution 28.6 Gross fixed capital formation 11.5 Manufacturing 12.7 Change in stocks 2.3 Government 9.5 Net exports of goods & services 5.5 Utilities & construction 3.1 GDP at market prices 100.0 GDP at current factor cost (incl others) 100.0

Principal exports fob 1998a $ m Principal imports cif 1998b $ m Tobacco 178 Industrial 151 Tea 49 Petroleum 60 Sugar 24 Transport equipment 43 Coffee 12 Foodstuffs 40 Cotton 5

Main destinations of exports 1998e % of total Main origins of imports 1998e % of total South Africa 14.8 South Africa 36.1 US 8.8 Zimbabwe 18.2 Germany 8.5 Zambia 8.1 Netherlands 7.3 Japan 4.0 a EIU estimates. b Official estimate. c UN estimates; excludes Mozambican refugees; preliminary results from 1998 census point to a lower population of 9.8m in 1998, but revisions are expected. d Production marketed at the auction floors. e Based on partners’ trade returns; subject to a wide margin of error.

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Quarterly indicators

1997 1998 1999 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr Output trends General index (1984=100) 138.3 136.5 128.6 120.9 109.4 117.1 n/a n/a Financial indicators Exchange rate: MK:$ (av) 18.311 22.752 25.701 32.463 43.376 43.734 43.632 43.510 MK:$ (end-period) 21.228 25.168 26.449 40.927 43.884 44.082 43.203 43.612 M1 (end-period; MK m) 3,200.6 3,429.2 4,739.5 4,995.6 4,999.2 4,998.6 6,874.2 6,880.9 % change, year on year 16.7 38.2 43.5 26.6 56.2 45.8 45.0 37.7 Prices Consumer prices (1995=100): 152.2 177.5 184.1 188.6 229.2 277.1 281.3 269.4 % change year on year 13.9 18.9 20.1 29.3 50.6 56.1 52.8 42.8 Sectoral trends Production: Electricity (monthly av; m kwh) 80.4 76.6 87.7 91.7 83.8 n/a n/a n/a Tea (annual totals; ‘000 tonnes) 43.9 ( 46.1 ) ( 46.1 ) Building plans approved, Blantyre (MK m) 41.2 21.7 22.1 31.4 34.9 77.4 n/a n/a Foreign trade & reserves Exports fob (qtrly totals; MK m) 2,548.2 2,569.8 2,452.3 5,278.5 6,130.5 3,024.3 n/a n/a of which: tobacco (qtrly totals; MK m) 1,800.3 914.6 1,334.1 3,748.8 2,530.0 1,206.0 n/a n/a Imports cif (qtrly totals; MK m) 3,528.1 3,360.9 4,402.2 5,220.8 6,808.1 6,199.9 n/a n/a Reserves excl gold (end-period; $ m) 162.2 154.3 191.4 189.6 226.7 236.1 273.5 277.4

Note. Annual figures of most of the series above will be found in the Country Profile.

Sources: National Statistical Office, Monthly Statistical Bulletin; IMF, International Financial Statistics.

EIU Country Report 1st quarter 2000 © The Economist Intelligence Unit Limited 2000 26 Malawi

Outlook for 2000-01

Malawi: forecast summary ($ m unless otherwise indicated) 1998a 1999b 2000c 2001c Real GDP growth (%) 3.3 4.7d 4.3 3.9 Consumer price inflation (av; %) 29.7 45.3 24.0 17.0 Merchandise exports fob 498b 510 484 495 of which: tobacco 178 187 185 182 Merchandise imports fob 490b 512 553 590 Current-account balance –281b –270 –366 –390 Exchange rate (av; MK:$) 31.1 44.2 52.8 63.8

a Actual. b EIU estimates. c EIU forecasts. d Official estimate.

Wrangling for political Although it has not been long since the elections were held in June 1999, politi- leadership will intensify— cians are already looking ahead to the 2004 elections. The campaign director for the ruling United Democratic Front (UDF), Dumbo Lemani, announced in early October that it is the party’s intention for the president, Bakili Muluzi, to run for a third five-year term in the 2004 election. This runs contrary to the constitu- tion, which limits a president to a maximum of two five-year terms. Mr Lemani declared that the UDF will endeavour to amend the constitution to enable Mr Muluzi to retain his presidency. The UDF’s plans will create heated debate and controversy, as the party does not have the required two-thirds majority in parliament for a constitutional amendment, and both major opposition parties will undoubtedly oppose such attempts. It may also spark opposition from within the UDF, as there are several contenders lining up to succeed Mr Muluzi, including the UDF secretary-general, Sam Mpasu, the minister of foreign affairs, Brown Mpinganjira, the minister of finance, Cassim Chilumpha, and the vice- president, Justin Malewezi. Some of these potential contenders have already amassed fortunes that could be put to use in furthering their political ambitions.

—and a UDF party Many in the UDF are pressing for a party conference to be held in early 2000, conference may be held which would be the first such convention since 1994. Far from showing a united, in 2000 integrated party, it may highlight the rivalries among the contenders. Opposition is likely to be voiced to Mr Muluzi’s aspirations of a third term, which could explain why he has not publicly committed himself to holding the conference.

The legal challenge to the The challenge to Mr Muluzi’s presidential election victory will continue to be a UDF victory will continue— major judicial issue. Following the ruling by the Supreme Court that the opposition alliance has the right to investigate all voting records, the opposition will press ahead with its case. At least one of the opposition parties claims to have appointed a British attorney, Clive Stanbrook, to represent it in the case, although this has not been confirmed. If true, this will ensure that a serious case is presented to the courts, but it is not clear how the opposition will be able to meet Mr Stanbrook’s substantial legal fees. Although the case is extremely unlikely to lead to the 1999 elections being reheld, it could culminate in calls by the judiciary for constitutional reform (4th quarter 1999, page 26).

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—-with pressure for a This, combined with pressure from within the UDF (see above), is intensifying constitutional review calls for reform of the constitution—which was drawn up in hurried circum- increasing stances weeks before Malawi’s first democratic elections, and still retains its “interim” status—from a variety of camps, including those in the government, the opposition and the judiciary. Although their criticisms of the constitution differ considerably, the combined pressure will inevitably lead to a formal review.

Land will become a The commission of inquiry on land policy reform (see Economic policy), heated issue— which has already received presidential assent, will be a source of intense political debate in 2000. The report calls for significant changes in land ownership and distribution, and will therefore be extremely sensitive, given the high density and rapid growth of Malawi’s population, combined with an increasing incidence of land degradation. The debate, which particularly concentrates on the densely populated southern region, will cause difficulties for the UDF, as this is its political stronghold and is also the area where large tea and sugar estates are concentrated, many of which are owned by leading politicians from both the UDF and the main opposition party, the Malawi Congress Party (MCP).

—and Admarc’s The full commercialisation of the Agricultural Development and Marketing commercialisation will Corporation (Admarc) will remain a contentious issue with the Bretton Woods move slowly— institutions, and the transition of the body into a fully commercialised, profit- making institution will be slow. The government will try to resist calls to bring an end to across-the-board maize pricing subsidies, and will use the newly formed National Food Reserve Agency (NFRA) as an organ to institute its “price band” (see Agriculture). The World Bank will push for a rapid privatisation of the parastatal, but indecisiveness and political resistance will ensure that the issue will continue to be a major topic of discussion for some time to come.

—with agricultural The widespread distribution of starter packs and the positive start to the rainy performance mixed season in November are reasons to be optimistic that 2000 will see good harvests. As it did in 1999, Malawi is likely to produce a food surplus in 2000. However, tobacco production will continue to decline because of low international prices and the increasing costs of inputs. The quality of the crop will also deteriorate, because of declining use of inputs and because buyers did not make a significant distinction between high- and low-grade burley tobacco at auctions in 1999.

Economic growth will slow Assuming normal climatic conditions, real GDP growth will slow slightly from an estimated 4.7% in 1999 to 4.3% in 2000 and 3.9% in 2001. The rapid growth in the agriculture sector experienced in 1999 cannot be sustained, and other sectors of the economy are unlikely to contribute much to offset this. The forecast depreciation of the kwacha will offer some competitive benefits to the manufacturing sector. However, despite some growth in output, the sector will continue to struggle under regional competition, which will heighten as trade barriers continue to be dismantled.

Inflation will continue With sluggish economic activity, and continued tight monetary policy from to fall— the Reserve Bank of Malawi (RBM, the central bank), inflation will continue to decline. However, pressure on prices will remain, with international oil prices

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expected to rise further, and the exchange rate depreciating throughout the forecast period. We project a slowdown in the rate of inflation from an average of 45.3% in 1999 to 24% in 2000 and to 17% in 2001.

—but the kwacha will start It is unlikely that the kwacha will be able to maintain its current value to slide— throughout the first half of 2000. Although continued stability of the nominal exchange rate since August 1998 has been welcomed by many, it is becoming increasingly apparent that it is unrealistic. The RBM insists that it has adequate foreign reserves to cover imports for 4.5 months and will attempt to prop up the kwacha for some time. However, other indicators show that a devaluation is necessary. The relatively high value of the kwacha is discouraging Malawi’s small manufacturers, because imports are often cheaper than goods produced locally. For example, it is cheaper to import poultry and poultry products from Zimbabwe and South Africa than to produce them locally. Although continuing donor support will help to maintain the RBM’s foreign-exchange reserves for some time, another year of low tobacco export earnings and high inflation will inevitably lead to some slippage in the exchange rate. We therefore expect the exchange rate to depreciate to an average of MK52.8:$1 in 2000 and to MK63.8:$1 in 2001.

—and the current-account The long-term outlook for tobacco is not promising and there is no ready deficit will widen replacement in terms of export earnings potential. Paprika, horticulture and cut flowers have been suggested as alternatives, but the expertise and infrastructural support necessary for significantly large production to take place successfully is not present. Earnings from tobacco will remain almost static, and a forecast fall in international tea prices will offset gains from the slight recovery in the manufacturing sector, with export earnings expected to total $484m in 2000 and $495m in 2001. Rising international fuel prices will contribute to an increase in the import bill and the services account deficit. The invisibles balance will remain relatively stable, with a rise in services debits being offset by increasing current transfers; the current-account deficit will widen from an estimated $270m in 1999 to $366m in 2000 and to $390m in 2001.

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The political scene

The Supreme Court orders The legal challenge by the opposition parties to the election victory of the the release of election United Democratic Front (UDF) received a boost in November when the records Supreme Court ordered the Electoral Commission (EC) to release all its voting records for inspection. The presidential candidate of the opposition alliance, Gwanda Chakuamba, and two other candidates are jointly contesting Bakili Muluzi’s victory in 12 of Malawi’s 27 districts (4th quarter 1999, page 29). They charge that Mr Muluzi connived with the EC to deny the right to vote to thousands of eligible voters in opposition strongholds. After the opposition parties demanded to see the voting records, the EC and the UDF appealed against a High Court order to release the documents, saying that it was costly and unnecessary. However, the Supreme Court ruled that the opposition has a constitutional right to inspect the records. Amid great tension, the opposition alliance began the inspection of ballot papers used in the presidential election in early December. Although the court case continues to drag on, it is extremely unlikely that the election results will be overturned, although a judicial call for a review of the constitution, whose interpretation is being questioned in the case, is becoming increasingly likely (see Outlook for 2000-01).

The Electoral Commission The EC has suspended two of its nine members, allegedly for being too partisan suspends two members— towards the opposition. The suspensions were roundly criticised by the opposi- tion, which accused the EC of being too partisan towards the UDF. The US-based International Foundation for Electoral Systems (IFES) issued a report in late September in which it criticised the EC for not being neutral in administering the parliamentary and presidential elections. The foundation said that the com- mission must take urgent action to restore public confidence in its objectivity.

—and prepares for the local The government has appealed to international donors for MK500m ($10.9m) government elections to help fund the long-delayed local council elections, which are scheduled for April 2000 (4th quarter 1999, page 31). The government has already set aside MK500m from its own funds for the poll. The minister of local government, Uladi Mussa, met donors, including the UN Development Programme (UNDP) and the US Agency for International Development (USAID), on November 22nd to explain Malawi’s funding needs. Amid the controversy surrounding the EC’s operations (see above), and because of the embarrassment caused by the confusion and irregularities that arose during the national elections held in June, the EC is working to improve its administration and reputation. Particular attention will be paid towards ensuring that there are adequate registration materials, so that no one is turned away. The Ministry of Local Government has proposed that the constitution be revised to remove political parties’ involvement in the local polls in order to limit regionalism and partisanship. Although the details of this proposal are unclear, Malawi’s political parties have, not surprisingly, reacted negatively to the recom- mendation and it is highly unlikely that the requests will be taken seriously.

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MPs strike over low pay On November 30th members of parliament (MPs) went on strike to demand and award themselves salary increases, which they had first called for in July, after approving salary rises a rise for judges and civil servants. They complained that by the end of November the government had still not reacted to their demands. After the minister of finance, Cassim Chilumpha, declared that he required time to consult with Treasury officials about the proposal, there was a unanimous vote to halt the day’s proceedings. MPs returned to the National Assembly on the following day, and voted to award themselves a rise in salaries and allowances of over 50%.

Mr Muluzi remarries amid Mr Muluzi married for the second time in an Islamic ceremony at Sanjika controversy Palace in Blantyre on October 9th. Six African leaders attended the wedding, but opposition politicians condemned it as a costly extravagance, and many refused to attend. The independent press reported that the Treasury had released MK14.7m ($334,000) to meet part of the cost of the wedding. Dumbo Lemani, the chairman of the wedding organising committee, refused to confirm the report, but said that Mr Muluzi had contributed MK5m from personal sources. Mr Muluzi, who had separated from his first wife, Anne, in early 1999, married his long-time girlfriend, Patricia Shanil Fukula.

The government forms a On October 29th the government announced that it would pursue a new strategy to combat AIDS— policy of addressing the HIV/AIDS pandemic in the country with openness, in order to educate the population and slow the spread of the disease. This is a reversal of the policy of the previous regime under Hastings Kamuzu Banda, which consistently denied that Malawi had an AIDS problem—it was not until 1995 that the government accepted the presence of the virus in the country. It is now widely accepted that Malawi is one of the worst affected countries in Africa. A recent study by the government and the World Bank estimated that 25% of the urban workforce will die of AIDS in the next ten years. The govern- ment’s National AIDS Control Programme is planning an extensive public education campaign in 2000-04 at an estimated cost of $30m, in which international donors have already shown interest.

—and UN agencies launch Two UN agencies launched a $517,000 campaign on November 3rd to help the an anti-drugs programme government combat drug-trafficking. The drive will be directed by the UN Development Programme and the UN Office for Drug Control and Crime Prevention. The project will train 40 customs and police officers to detect and apprehend drug-traffickers. The UNDP claims that Malawi is one of the world’s largest marijuana producers. Most of Malawi’s high-quality marijuana is exported to South Africa. Malawi’s main cannabis-growing areas are the central lakeshore district of Nkhotakota and the northern district of Mzimba. In 1998 Malawi’s courts heard 1,131 cases of cannabis smuggling.

Economic policy

The IMF approves a $10.6m On October 25th the IMF announced that it had completed its mid-term review credit tranche— of Malawi’s third enhanced structural adjustment facility (ESAF), and that Malawi was now able to receive a tranche of $10.6m. The deputy managing

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director of the IMF, Shigemitsu Sugisaki, said that, although targets for inflation and GDP growth had not been met, the Fund welcomed the corrective measures that had been taken by the government. He encouraged the authorities to accelerate the pace of structural reforms, in particular the commercialisation of the Agricultural Development and Marketing Corporation (Admarc), reform of the civil service and the privatisation programme. Despite some slippages in the reform programme, overall indications are that economic management is improving in the country, with the Reserve Bank of Malawi (RBM, the central bank) maintaining tight monetary policy, while avoiding pressure from the Treasury to increase the stock of government credit in the economy.

—following a donor review The minister of finance, Cassim Chilumpha, met Malawi’s international donors on September 10th to review the country’s economic policies. He said that the government faces an “awesome job” in improving Malawi’s economic situation, with the country plagued by low investment, low growth and poor development indicators. Mr Chilumpha urged donors to look at the conditions that they demand for loans and to consider assistance in the relief of Malawi’s debt burden (see Foreign trade and payments). The meeting reviewed the financial support that donors have supplied to Malawi, worth $100m this year, which covers 40% of the government budget.

Land reform hits A report by the presidential commission of inquiry on land policy reform, the agenda which has taken three years to compile, has recently been published. The report is in response to the 1994 election promises by the United Democratic Front (UDF) to reform land ownership. It advocates the abolition of freehold land, to be substituted with 99-year leases in urban and rural areas, the return of control of customary land to traditional chiefs away from the minister of lands and taxes on underutilised estate land. The report is particularly con- cerned with the southern areas, where rural peasants’ charges that land was “stolen” from them by the previous regime under Hastings Kamuzu Banda led to violent riots in the Mulanje tea-producing area in 1995.

Admarc prepares for Admarc has announced that it will commercialise its operations and work commercialisation of its without government subventions from January 2000. Admarc, which is operations— Malawi’s major agricultural marketer, was established as a parastatal in 1971, with the objective of trading in smallholder agricultural commodities. A new body, the National Food Reserve Agency (NFRA) has recently been formed to take over from Admarc in managing national food security, although it will take some time to become fully operational. Admarc will retain involvement in the interim period. NFRA will eventually manage Malawi’s maize buffer stock and the “price band”, which uses maize stocks to stabilise consumer and producer prices. Admarc will continue to operate as a commercial parastatal for two to three years while the government and stakeholders discuss the possibility of privatisation.

—while privatisation of the The privatisation of Malawi Railways moved forwards with the announcement railways makes progress in September that management of the railways will be taken over by a partner- ship of Caminhos de Ferro de Moçambique (CFM, Mozambican Railways) and a US-based company, the Railroad Development Corporation (RDC), which has

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railway operations in a number of developing countries. The handover of the management of the railways took place in December. RDC is to operate the system’s 800 km of track under a 20-year concession agreement. The company is to be renamed Central East African Railways Company, and as a result of this development the Nacala corridor will have a single operator on both sides of the Malawi-Mozambique border, which will improve services and reduce costs. The change in management of the railway is part of the effort to prepare it for sale to private hands. Passenger services will continue to be subsidised by the government for a minimum of five years, although the long-term plan is for the services to become profitable and be run on commercial lines.

Privatisation begins with Progress continues to be made with the privatisation of other parastatals in the MPTC, Air Malawi and country. In October the UK-based company Robert Fleming was awarded the Escom contract to oversee the sale of shares in the state-owned Malawi Posts and Telecommunications Corporation (MPTC). Another task-force was formed in mid-September to oversee the privatisation of Air Malawi, which may take place in 2000, but will be hindered by the presence of large government- guaranteed debts that the company has accumulated in recent years. The task- force charged with the privatisation of the Electricity Supply Commission of Malawi (Escom) submitted its first report to the cabinet in early September. The report proposes that Escom be split into four separate companies for generation, transmission, distribution and rural electrification.

The domestic economy

Economic trends

New economic data are In December the National Statistical Office (NSO) released the government’s released— preliminary national accounts estimates for 1999, which put real GDP growth at 4.7%. This is higher than the 4.2% estimated earlier. The report observed that there has been a shift in economic activity away from the large-scale sector to the small and medium-scale sector, particularly in manufacturing, distribution and transport, and that the manufacturing sector had registered growth, albeit slight, for the first time in several years in 1999, at 2%. The shift away from the dominance in the economy of the large-scale sector appears to be a reaction to liberalisation efforts by the government. The transport and distribution sector, which is now mainly informal in nature, has been the most dynamic sector in recent years, and now contributes 29% of GDP.

—which show continued The results show that agriculture remains the mainstay of the economy, reliance on agriculture contributing 37% of GDP. Agricultural value added rose by 11.5% in 1999, with the smallholder sector growing by 14.9% and large-scale sector declining by 0.9%. Apart from drought years, smallholder agriculture has achieved impressive growth rates since the liberalisation of the sector began in the early 1990s. The freedom to grow a variety of crops other than maize and the gradual liberalisation of producer prices have enhanced incentives for Malawi’s small- holders, resulting in substantial increases in output. However, distribution of the

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gains has been unequal, with the poorest segments of society unable to capitalise from these opportunities, because of the unaffordability of many inputs and limited access to credit. In 1999 tea production is estimated to have increased by 2.3m kgs, to a total of 42.6m kgs, and maize production rose by more than 20%, thanks to favourable climatic conditions and the increase in fertiliser uptake.

Malawi: agricultural GDP (real % change, year on year) 1995 1996 1997 1998 1999 Small-scale sector 43.6 41.1 0.7 7.7 14.9 Large-scale sector 30.3 9.6 11.2 –12.3 –0.9 Source: National Statistical Office.

The central bank holds its However, there appears to be some confusion over the estimates, with the ground— governor of the Reserve Bank of Malawi (RBM, the central bank), Matthews Chikaonda, announcing on December 1st that real GDP growth of 3.8% was expected in 1999. In the statement Mr Chikaonda said that improved relations with international donors had led to an increase in aid flows and paved the way for enhanced growth. Mr Chikaonda also stated that the government had kept to its agreements with the IMF. However, this is owing only to the decision by the RBM to refuse a loan application from the government, and therefore constrain the budget deficit to 4.5% of GDP. This is a demonstration of the fact that the Reserve Bank is one of the few central banks in southern Africa that has autonomy from the government.

Malawi: consumer prices (% change year on year unless otherwise indicated) 1997 1998 1999 Jan 6.9 18.2 55.5 Feb 7.1 18.5 56.1 Mar 7.4 20.0 56.6 Apr 7.2 20.2 53.3 May 6.9 20.3 52.8 Jun 6.4 19.9 52.4 Jul 6.4 19.6 50.2 Aug 9.6 25.7 42.8 Sep 11.2 43.1 42.7 Oct 12.7 47.2 32.3 Nov 13.8 51.2 32.6a Dec 15.2 53.0 29.1a Annual average 9.2 29.8 45.3a

a EIU estimates.

Source: National Statistical Office.

—and inflation is falling Year-on-year inflation dropped from 50.2% in July to 42.7% in September, and again to 32.3% in October. The dramatic fall in the rate was owing pre- dominantly to a combination of two factors. The continuing tight monetary

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policy of the RBM is keeping prices low and, from September, the year-on-year rate was based on prices set following the August 1998 devaluation of the kwacha, which sparked widespread price increases (4th quarter 1998, page 32). The RBM has forecast that Malawi’s annual inflation rate will drop further to 21% in December. Although inflation will continue to fall, the government’s targets will not be met, mainly because the recent fuel price rise (see below) will filter through to the entire economy, as transport costs form a significant part of the price build-up of most commodities in Malawi. The EIU is therefore projecting a year-end rate closer to 29%, giving an annual average of about 45% in 1999.

Interest rates are revised The National Bank of Malawi (NBM) raised its base lending rate in November by three percentage points, bringing the rate back to the 48% charged in September. The bank also increased its rate on savings deposits from 23% to 30%. The increases were in reaction to high Treasury-bill rates, which reached an average yield of 60% for 271-day issuances at the November 26th auction, and the shortage of liquidity in the country’s money markets, which has been caused by the RBM’s continued fight against inflation. The previous reduction in the rate was a temporary reaction to the declining rate of inflation. Other commercial banks have since followed suit.

The PCC increases fuel The Petroleum Control Commission (PCC) increased fuel prices by an average of prices— 25% on October 21st in reaction to increases in international fuel prices and exchange-rate movements, prompting concerns that it would boost inflation. The price of fuel is now reviewed on a regular basis by the government and the PCC, taking into consideration exchange-rate movements, and the cost of procurement and distribution. Full price liberalisation is unlikely to take place in the near future, with fuel pricing remaining a highly contentious political issue.

—as the petroleum sector However, the government is in the process of partly liberalising the fuel sector, undergoes liberalisation with the PCC relinquishing its control of all fuel importation from January 1st 2000. How this will work remains to be seen, but it is likely that the private companies with operations in the country will combine and import in bulk. They are unlikely to be ready by the beginning of 2000, and in reality the PCC will probably continue to import fuel several months into 2000. Under pressure from the Bretton Woods institutions for the PCC to streamline its operations under its new role as a regulatory body for the importation and distribution of fuel, it has been announced that the commission will shed 70 of its 150 employees. The commission is heavily indebted to both the govern- ment and its suppliers, with debts reported to be in excess of $12m. These obligations were accumulated when the PCC delayed price revisions for several months following the devaluation of the kwacha in August 1998.

Corruption surveys results Malawi has been ranked equally with Zimbabwe, Morocco and Brazil in a are released Corruption Perceptions Index (CPI) published by Transparency International, a Berlin-based non-governmental organisation (NGO). The CPI relates to perceptions of the degree of corruption in a country’s civil service and business community by business people, risk analysts (including the EIU) and the general public. Scores range between 10 (highly clean) and 0 (highly corrupt). Although some criticise the subjectivity and unscientific nature of the index,

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the results should be taken seriously, as there is a strong correlation between poor rankings in the corruption league table and poor economic performance, and the index influences the perceptions of foreign investors and donors.

Malawi: Corruption Perceptions Index, 1999

No. of Country rank Country Score surveys used 1 Denmark 10.0 9 7Singapore9.112 13 United Kingdom 8.6 11 18 US 7.5 10 24 Botswana 6.1 4 29 Namibia 5.3 3 34 South Africa 5.0 12 36 Mauritius 4.9 4 45 Malawi 4.1 4 45 Zimbabwe 4.1 9 56 Mozambique 3.5 3 75 Côte d’Ivoire 2.6 4 87 Uganda 2.2 5 93 Tanzania 1.9 4 99 Cameroon 1.5 4 Source: Transparency International.

Agriculture

Starter packs are back The Malawi government, with financial assistance from the World Bank and the British government, has launched a $29m project to boost its agricultural productivity by providing peasant farmers with free seeds and fertiliser. Following the success of the starter pack scheme in 1998, the minister of agriculture, Aleke Banda, launched the new scheme on October 23rd 1999. He said that each starter pack will provide seeds and fertiliser for the cultivation of 0.1 ha and will be distributed to 2.8m rural households. Mr Banda added that the government had made changes to improve the programme from the previous year which, although generally deemed a success, was criticised because benefits to the poorest farmers were limited, as many sold their packs prior to planting in order to satisfy short-term consumption needs.

Although higher than in 1998, low prices caused all three of Malawi’s tobacco auction floors to close early on September 27th. A total of 134m kg was sold during 1999, which was roughly the same as the 133m kg sold in 1998, but far below foreign buyers’ estimated demand of 180m kg. At $1.39/kg, average prices were also higher than in 1998, by a margin of 4.5%. Total earnings at the auctions were $190m. For the past three years Malawi’s farmers have failed to produce enough tobacco to meet stated demand. However, prices have not risen as a result. Total production has not expanded to meet demand because farmers are finding it increasingly costly to purchase seed and fertiliser, and often lack access to credit. As a result of relatively low international prices and

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increasing costs of production, Malawi’s tobacco farmers are exploring alternative cash crops, and the peak in production volumes realised in 1997 is unlikely to be met in the future.

Malawi: tobacco auctions, 1999

Production Value Pricesb ‘000 tonnes % changea $ m % changea $/kg % changea Burley 111.4 –2.1 153.8 4.0 1.38 6.2 Flue cured 14.1 1.4 21.0 7.1 1.48 5.0 Others 8.9 56.1 15.6 47.7 1.75c –5.2 Total 134.4 0.7 190.4 14.1 1.39c 4.5 a Year on year. b Prices paid to producers. c Weighted average.

Source: Tobacco Control Commission.

Infrastructure

A second cellular network The poor state of Malawi’s telecoms network (4th quarter 1999, page 37) will be is launched improved by the introduction of the country’s second cellular phone network in October, with a pledge to extend services to the poorly served rural areas. Celtel Malawi is a joint venture between the British company Mobile Systems, the state-owned Malawi Posts and Telecommunications Corporation (MPTC) and the state’s main investment arm, the Malawi Development Corporation (MDC). The network will initially cover only the cities of Blantyre, Lilongwe and Zomba, but it will eventually spread across the country. The first cellular network, Telcom Networks Malawi, was launched in 1997, but only covers urban areas.

Victims of the May 1998 A government inquest ruled on September 23rd that the state-owned Malawi train crash are to be Railways must pay compensation for the train crash in May 1998 which killed compensated 18 people, injured more than 100 and destroyed much property. It was the worst train crash in Malawi since independence. The inquest ruled that Malawi Railways was responsible for permitting the train to travel without adequate brakes. In addition to the poor condition of its railways, Malawi also has a bad road safety record. According to the Malawian Road Safety Council, the country has the highest rate of traffic fatalities in southern Africa. Malawi has 300,000 registered vehicles and recorded 1,200 fatal traffic accidents in 1998, compared with South Africa, with 7m vehicles and 10,000 fatal accidents recorded.

Financial services

A new commercial bank A new bank opened in Blantyre on October 26th, bringing the number of com- opens— mercial banks operating in Malawi to six. The new Loita Bank Malawi, a subsidiary of the Loita Bank in Mauritius, is the third bank to open in Malawi since 1994. Together with the Preferential Trade Area (PTA) Bank, the bank is co-managing a $50m facility for exporters and a $100m private equity fund for the private sector in countries of the Southern African Development Community (SADC). The opening is a welcome sign of further deepening of Malawi’s financial sector.

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—and the stock exchange The Malawi Stock Exchange (MSE) is performing well, and the Malawi All- performs well Share Index reached a record high of 313.53 in the week to 24th November. Old Mutual, which dominates the MSE in terms of market capitalisation, had risen to an all-time high of MK102/share ($2.20/share) by early December. Following the listing of Old Mutual in July (4th quarter 1999, page 38), no new listings are imminent, although it is possible that the National Bank of Malawi (NBM) will be listed in the first half of 2000.

Foreign trade and payments

Malawi may benefit from The UN’s 1999 Human Development Report described Malawi’s debt burden as the HIPC initiative “unbearable”. Malawi has a total external debt stock of $2.3bn, equivalent to 127% of its GDP. For Malawi to become eligible for debt relief under the IMF and World Bank’s heavily indebted poor countries (HIPC) initiative, it must first make full use of traditional debt relief mechanisms, including the Paris Club of official creditors. However, these bilateral debt relief facilities are of little use to Malawi, more than 80% of whose debt stock is multilateral. According to the World Bank, a decision point for Malawi to be considered eligible for debt relief under the HIPC initiative will take place sometime in 2000, with a completion point of 2001. This assumes that Malawi actually requests debt relief, and that the IMF- and World Bank-sponsored reform programmes remain on track. Although the Malawi authorities are likely to accept the offer, progress towards HIPC eligibility has not been without its costs. Japan, Malawi’s second largest bilateral creditor, has reportedly withheld a promised loan for 1999/2000 worth $50m, which accounts for approximately 10% of the government’s total revenue for the fiscal year. This decision was made because of fears by the Japanese authorities that they would be put under pressure to cancel the debt almost immediately after its disbursement.

Malawi: external debt ($ m) 1980 1990 1999a Multilateral 219.3 1,087.6 1,911.1 Bilateral 223.1 217.1 285.0 IMF 79.7 115.0 89.0 Short-term 116.1 58.4 21.1 Total debt stocks 638.2 1,478.1 2,306.1

a EIU estimates.

Sources: World Bank, EIU.

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Trade data

Mozambique: foreign trade ($ m) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Exports fob 1992 1993 1994 1995 Imports cif 1995 Shrimps 64.6 68.8 62.8 73.1 Food, beverages & tobacco 138.2 Cotton, raw 10.8 11.1 18.9 19.8 Transport equipment 131.0 Wood 0.4 1.2 2.2 9.6 Machinery 122.5 Cashew nuts 17.6 8.2 3.3 9.5 Chemicals 82.1 Sugar 6.7 n/a 11.0 7.3 Mineral fuels 73.4 Copra 4.2 2.5 3.4 6.1 Metals & manufactures 47.0 Lobsters 4.9 3.2 3.6 3.7 Total incl others 727.0 Citrus 1.1 0.9 1.3 1.3 Coal 0.0 0.0 0.2 0.5 Total incl others 139.3 131.9 155.4 169.4

Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Exports foba 1995 1996 1997 1998 Imports cifa 1995 1996 1997 1998 Spain 39 41 51 52 South Africa 678 609 647 n/a South Africa 32 18 36 n/a Zimbabwe 82 96 106 121 Portugal 27 28 28 29 Portugal 54 55 55 75 US 28 25 29 25 US 54 24 50 50 Japan 31 17 20 19 UAE 37 41 46 47 Italy 8 10 8 14 Saudi Arabia 36 39 43 45 India 6 29 14 13 India 32 27 26 33 Zimbabwe 6 7 8 9 Japan 20 23 34 25 Germany 5 7 8 7 France 34 27 17 22 Hong Kong 1 4 10 6 UK 23 25 26 20 Total incl others 235 227 245 281 Total incl others 1,255 1,214 1,217 1,368 a DOTS estimates.

Sources: National sources; IMF, Direction of Trade Statistics, yearbook, quarterly.

EIU Country Report 1st quarter 2000 © The Economist Intelligence Unit Limited 2000 Malawi 39

Malawi: foreign trade (MK m) Jan-Dec Jan-Dec Jan-Sep Imports cif 1994 1995 1996 Machinery & transport equipment 1,499.6 2,057.8 2,098.1 of which: road vehicles & tractors 581.8 954.8 909.7 Chemicals 726.9 1,759.1 1,124.2 Mineral fuels 361.6 858.7 911.1 Food, beverages & tobacco 676.4 979.5 691.6 of which: cereals 497.7 778.7 495.3 Textile fibres & manufactures incl clothing 272.1 466.5 522.5 Iron & steel & manufactures 297.8 397.9 305.1 Pulp, paper & manufactures 162.8 258.2 246.0 Total incl others 4,655.5 7,869.3 6,620.6

Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Apr Domestic exports foba 1994 1995 1996 1997 1998 1999 Tobacco, unmanufactured 1,689.0 4,523.0 4,796.8 5,426.6 10,306.0 1,477.7 Tea 261.2 407.3 355.0 673.5 1,249.0 840.0 Sugar 224.0 371.4 878.7 380.2 1,178.7 206.9 Cotton, raw 15.0 56.8 186.5 220.4 155.9 28.6 Pulses 24.9 125.4 94.5 119.9 160.2 51.5 Coffee 128.2 236.5 159.8 202.8 379.3 84.7 Total incl others 2,722.3 6,572.9 7,662.8 8,259.4 15,466.7 3,643.5

Jan-Dec Jan-Dec Jan-Sep Jan-Dec Jan-Dec Jan-Sep Exports fob 1994 1995 1996 Imports cif 1994 1995 1996 Germany 446.2 899.9 580.8 South Africa 1,441.4 2,360.7 1,780.4 South Africa 381.1 666.2 532.1 UK 717.2 1,210.9 1,174.9 US 281.4 868.3 531.3 Zimbabwe 473.5 743.6 643.1 UK 355.9 458.1 259.5 France 109.3 128.8 410.3 Netherlands 224.1 601.7 248.9 Japan 302.6 386.0 346.3 Japan 237.1 332.8 215.0 China 151.8 246.0 272.4 Zimbabwe 68.7 107.8 196.4 Germany 187.2 713.4 230.1 Mozambique 65.4 151.1 178.2 US 158.9 205.6 126.7 Portugal 10.2 40.3 167.5 Zambia 115.1 93.7 109.0 Tanzania 19.4 99.0 92.6 Italy 79.4 77.1 98.7 Total incl others 2,909.8 6,766.0 4,537.2 Total incl others 4,655.5 7,647.4 6,620.6 a Estimates.

Source: National Statistical Office, Monthly Statistical Bulletin.

EIU Country Report 1st quarter 2000 © The Economist Intelligence Unit Limited 2000