A small, beautiful country with abounding challenges and opportunities, which are being driven by renewable energy.
Malawi, a small, landlocked country in southeast Africa, is known as ‘the warm heart of Africa’, because its people are so friendly and peaceful. Its topography of highlands is split by the Great Rift Valley and enormous Lake Nyasa, known as Lake Malawi, the southern end of which is in Lake Malawi National Park.
The country has several game reserves that have prolific wild life, including elephants, hippos, lions, leopards, buffaloes, and rhinos, jackals and hyenas, and African wildcats.
Lake Malawi, accounts for more than one-fifth of the country’s total area, and is reputed to be one of the most impressive and beautiful lakes in the Southern Hemisphere, with its sandy beaches and palm trees, backed by towering mountains covered in rainforest. It is recognised as one of the best freshwater diving and snorkelling spots in Africa.
It is bordered by Tanzania to the north, Lake Malawi to the east, Mozambique to the east and south, and Zambia to the west. Most of the country’s population, of just under 20 million, reside in rural locations. Its large urban centres include the capital Lilongwe and Blantyre, which is the seat of the country’s judiciary.
When asked what is so memorable about Malawi, Shabir Latif, managing partner at Sacranie Gow and Company, Blantyre says, “When you arrive after a 10-day break, say to Europe, and you come back, you arrive at the airport, and it warms your heart because it is such a welcoming place.
“The work that you do here is leisurely work. For example, I never start work before 8:30am, and I will come home for lunch between 12:30pm and 1:30pm. Everything’s closed up at lunchtime and people actually go home or to restaurants for lunch. They don’t carry on working and have lunch at their desk. The offices are closed. Nobody will attend to you during the lunch hour. After lunch people like us lawyers carry on working after five, perhaps until seven or eight. But generally, offices officially close at five o’clock.”
Opportunities and challenges
Like many African countries, Malawi is going through difficult times with its electricity supply. “There is a general reliance on diesel generators and we also use solar energy in the office, because for an overwhelming majority of the time there’s no electricity supply available. We probably get power for two hours a day and have to rely on alternative energy the rest of the time,” says Latif.
But on the plus side, power supply issues are creating opportunities in Malawi and across the rest of Africa. “Our practice at the moment is being driven, literally, by renewable energy projects. So we are looking towards renewable energy as the biggest industry that is going to drive our practice and the country’s economy.
“There are in fact, a significant number of renewable projects that are being commissioned, and we are involved in the majority of these, in one way or another. So I can see for the next year, this is going to be driving the industry and certainly our practice in terms of value. Renewable energy is going to be the biggest driver of investment and the economy in Malawi,” says Latif.
Another area for potential investment is in the mining industry, he says. “I believe they’ve found the biggest deposits of gold in Malawi, even bigger than that of Sierra Leone.” However, it will take a long time to get the sector off the ground, issue licences, and so on, he says.
Foreign exchange challenges
Meanwhile, foreign exchange is a major challenge in Malawi, because there’s literally no foreign currency available at all to do anything. So, if one wants to pay for anything from outside of the country it’s going to be a problem, says Latif. “Malawi does not have foreign reserves. We’ve always had a deficit, but until about three years ago, the Reserve Bank had a minimum three month’s cover for imports, but today we’re sitting on three days.”
And why is that? “Well, for one thing we’ve had an increase in the price of imports as a result of the war between Russia and Ukraine. But at the back of that, there is abuse by the government in the use of resources, the corruption index has increased, and there have been a lot of scams within the public sector.”
He says the war is contributing to the problem and with the unflinching support the government of Malawi is giving to Ukraine, the West is not putting its foot down and saying, “Sought out your corruption index,” like they would have done in the past.
“They are actually quite supportive of this government, even with all the transactions that are happening one way or another, and even with the power projects there is some corruption going on, although Europe is tightening the screws where that’s concerned.”
He says the problem is that America and Europe are no longer the driving force. “Russia is dictating the terms, by controlling the supply of power, and other goods and it is affecting all of us. For example, if Malawi can’t get fertiliser, which used to come in from Ukraine in the past, or Russia, then clearly we’re going to be affected.”
So Malawi needs to find alternative supplies or pay a premium for it. If the government of Malawi cannot supply fertiliser to its rural community farmers under what they call the annual input programme, through which it pays a subsidy, then there is going to be starvation in the country.
“We’re paying the premium for fertiliser, and we are paying premiums for the logistics of transporting goods from China or elsewhere, and the cost of freight has gone up by at least 150%. And the increased cost of importing goods has in turn increased the cost of living,” says Latif.
Devaluation is officially about 25% in Malawi. But in reality, it is probably more like 100%, because Malawi is a dollar-driven economy. And on the black market, the dollar is worth 40% more. So, this obviously impacts the outlook for the economy and investment, says Latif.
“We can see a recession setting in for the economy next year in Malawi. We had a devaluation of 25% about three months ago, that knocked our economy, and we expect another of 20% looming, probably by the end of December or the end of January, but certainly before the end of February,” says Latif.
He says he doesn’t believe the World Bank is going to release further funds until the currency is devalued further. “They think that by devaluing our currency we will step up our exports, but they don’t realise that our economy is dependent on imports. So, devaluation is killing our economy.”
Malawi’s biggest export earner is tobacco, which is a seasonal crop. So come end of February, beginning of March export proceeds are flowing and they dry up in August. So between February and August, the balance of earnings is usually in surplus. “But come the end of August or September, we start running out and go into a new deficit.” So, October, November, December, and January are a dry spell for export earnings and a lack of currency, says Latif.
Meanwhile, the import bill for fuel is about $1 million a day, so Malawi needs $6 million a day to pay for all its imports. So in order to survive Malawi is going to have to borrow from Peter to pay Paul.
There are queues of two kilometres to fuel cars in Malawi because the people have heard that a particular fuel station will receive a fuel delivery at some stage the next day. And when it comes to travelling by air, it’s cheaper to go to London from Johannesburg, than to come to Malawi. Until recently, Ethiopian Airlines had a monopoly in the country, but South African Airways is starting to offer flights. “So hopefully, that’ll give us a bit of a breather,” says Latif.
On the legislation side, about six months ago, the new Land Act came into being by which non-nationals cannot buy property. So, buying property on a freehold basis is not an option for foreigners.
It’s possible to get what is known as immediate term lease, and perhaps a slightly longer lease, but not for more than 49 years, unless they apply to the Malawi Investment and Trade Centre and justify why they should get a longer lease, and then it’s going to be a long process.
Another piece of legislation, which was unanimously passed by Parliament and came into force in July affects those owning property, that is undeveloped. If they don’t develop it within two years the minister is entitled to seize it and it becomes public land, unless they apply for and are granted further time to develop it. And no compensation is payable. “So this legislation, is obviously, going to be challenged, because on the face of it, it appears unconstitutional. But we are yet to see how it is challenged by various clients.”
Another law, or legislative reform, is that Malawi is transforming the company registration process into an electronic system, which is a good move, although it has run into technical hiccups, that are being sorted out, says Latif. Unfortunately, the process is slow and it has not achieved the objective of making the process easier because of inherent defects in the system, which they’re trying to resolve.
Another legislative development is that Malawi is now a party to the 1958 New York convention on arbitration, which it signed off on in March. However, the implementation of it still needs to be localised, so that it can become law, which will hopefully happen by the end of the year, or early next year, says Latif.
“So that’s a good development. This will mean that if you have an arbitration, anywhere in the world, under the convention, then it can be registered in Malawi as with a domestic award. At the moment, if you get an arbitration awarded by the Arbitration Foundation of Southern Africa (AFSA)then it cannot be registered and enforced in Malawi.”