Malawi Introduction Investment Climate Doing Business Key Sectors Key Takeaways

1. Malawi • Introduction • Investment Climate • Doing Business • Key Sectors • Key Takeaways

2. Introducing Malawi • Key Facts, Geographic and Demographic Highlights • Political and Economic Highlights • Resources and Infrastructure

3. Introduction Investment Climate Doing Business Key Sectors Key Takeaways Key Facts, Geographic and Demographic Highlights The Republic of Malawi, also know as "The Warm Heart of Africa“ is strategically located in the south-eastern Africa. It is largely an agricultural country, and is endowed with natural resources such as uranium, coal and limestone. MALAWI’S DEMOGRAPHY Population: 15,897,252(July 2011 est.) World Population Rank: 63 Population Growth Rate: 2.76% Population Growth Rate Rank: 17 Urban Population: 20% Rural Population: 80% 0-14 years 15-64 years 3,586,696 4,140,874 MALE 182,304 Literacy Rate: 76.1% 65 years and above 4,155,015 3,571,298 FEMALE 243,065 Literacy Rate: 49.8% Sources: African Economic Outlook 2011 (Malawi); CIA World Factbook

4. Introduction Investment Climate Doing Business Key Sectors Key Takeaways Political and Economic Highlights POLITICAL SCENARIO Malawi is a presidential representative democratic republic, whereby the President of Malawi is the Head of the State, Head of the Government and of a multi-party system. Executive power is exercised by the government although legislative power is vested in both the government and the National Assembly. The unicameral, National Assembly of Malawi is the country's legislative body consisting of 193 members. The Judiciary is independent of the executive and the legislature. The Supreme Court is the highest court and the court of appeal below it are the high court, and magistrate’s court. MALAWI’S ECONOMY Maintaining its high growth Malawi’s GDP was recorded at US$5.2 billion in 2010. The main driving force of economic growth in 2010 was the strong performance in mining and quarrying, construction, financial and insurance services and information technology sector. GDP growth rate was recorded at 6.7% in 2010 and is forecasted at 6.4% in 2011 and 6% in 2012, reflecting the stability in uranium output and the growth in the agriculture sector. Agriculture being the most important sector of the economy contributed 27.64% to the GDP in 2010, with 60% of the total exports coming from tobacco alone. The sector grew by 6.4% in 2011, on the back of good weather conditions and is expected to grow by 7.3% in 2012 on account of Green Belt Initiative(GBI). Sources: African Economic Outlook 2011 (Malawi); Unctad Stat

5. Introduction Investment Climate Doing Business Key Sectors Key Takeaways Political and Economic Highlights Mining and quarrying sector witnessed a growth of 83% in 2010 up from 9% in 2009, due to the increase in production of uranium and coal. The telecommunication sector also grew by 15.3% in 2010, due to the expansion in mobile phone industry (specially due to the entry of India’s Bharti Airtel). For past three years, the Malawian kwacha has been relatively stable at MWK168 against the US$. Inflation has been declining and has been contained within a single digit over the past four years as a result of the increase in domestic food production and agricultural input subsidies since 2006. Inflation declined from 8.4% in 2009, to 7.4% in 2010 and is expected to ease to 7.6% in 2011 on the back of decline in global oil prices and increase in crop production. Sources: African Economic Outlook 2011 (Malawi); Unctad Stat; IMF

6. Introduction Investment Climate Doing Business Key Sectors Key Takeaways Resources and Infrastructure INFRASTRUCTURE IN MALAWI Malawi is one of the few African nations to have successfully achieved its millennium development goal for water- almost a decade ahead of the target. Air Transport Though Malawi has a relatively small air transport market as compared to its peers, it is well connected to Zambia and the regional hub in South Africa. Railways Malawi has a total rail network of 797kms. The rail links present a huge opportunity for investors with several big ticket infrastructure projects available to investors such as improving performance in the Nacala corridor, extending rail network northwards to join the TAZARA network (Tanzania and Zambia railway authority). Road Malawi’s substantial road investment program has ensured that its road network is significantly better than its peers in both middle income and lower income countries. Its road sector spending as a % of its GDP is one of the highest in southern Africa. Malawi’s road fund is also distinguished by its institutional design features. Not only is its paved road density extremely high when compared to other lower income countries, but also the road quality (both paved and unpaved) is substantially better as well. For instance 90% of the country’s unpaved road network is in good or fair condition as compared to an average of less than 60% in both low income and middle income countries. Power Malawi has implemented about 60% of the best-practice institutional reforms in its power sector, putting it ahead of the average score for Sub-Saharan Africa. Information and Communication Technology (ICT) Malawi’s GSM signal coverage, which reaches 93 percent of the population, is one of the highest in Africa and even exceeds the average of 85 percent across middle-income countries in the region. As a result, Malawi has one of the lowest market-efficiency gaps in the region. Sources: AICD Report World Bank 2011

7. Investment Climate of Malawi • Investment Scenario • Indian Investments in Malawi • Key Government Initiatives • Agreements and Associations

8. Introduction Investment Climate Doing Business Key Sectors Key Takeaways Investment Scenario OVERVIEW The liberalized economy of Malawi, with ample incentives for exports and a good international connectivity has attracted a consistent flow of foreign investment over the last few years. The trend in FDI showed improvement after the sharp decline witnessed in 2008 as a result of the global economic crisis. In 2010, the country received a total of US$140 million in FDI, which constituted 9.6% of the national gross fixed capital formation(GFCF). MODES OF ENTRY Foreign investments in Malawi have primarily been received through the Greenfield projects route. The country has witnessed almost negligible cross border Mergers and Acquisitions (M&A) Sales. In 2010, 3 greenfield projects worth US$298 million were announced. . Sources: UNCTAD World Investment Report 2011; Board of Investment

9. Introduction Investment Climate Doing Business Key Sectors Key Takeaways Indian Investments in Malawi • MALAWI: INVESTMENT PORTFOLIO • The major Greenfield projects in Malawi include: • US$233.7 million metals extraction project announced by the Australian Globe Metals and Mining group in 2009 • US$220 million metals extraction project announced by the Australian Paladin Energy group in 2009 • US$200 million construction project announced by the French Lafarge group in 2009 • US$150 million ICT project announced by the Mongolian G-Mobile Holdings in 2010 • US$47.8 million healthcare project announced by the UAEs Thumbay group, in 2010 • US$31.4 million food and tobacco project announced by the British Lonrho group in 2009 • US$9.2 million financial services project announced by Ecobank of Togo • US$9.2 million financial services project announced by the Malaysian ICB Financial Holdings in 2008 • INDIAN INVESTMENTS • There are about 7000 people of Indian origin and 1500 Indian nationals currently residing in Malawi. The Indian community, 75% of which is Muslims, is primarily engaged in trade. • On the investment side, private investment of Indian origin is primarily concentrated in the community, social and personal services sector. Hi Tos Linear Agency Pvt Ltd is the biggest Indian player, with an investment of US$1.11 million. It has entered into a joint venture(JV) called Chrimba Container Terminal Ltd. • Weismann Ltd, another Indian company in the electricity sector , has also entered into a JV and invested US$0.18 million. Sources: Reserve Bank of India; Ministry of External Affairs, India; UNCTAD LDC Profile

10. Introduction Investment Climate Doing Business Key Sectors Key Takeaways Government Initiatives FDI Policy • Private investment in Malawi is regulated by the Investment and Export Promotion Bill 2012 • The Act states that investors, both domestic and foreign are allowed to invest in any sector of the economy, with no restriction on ownership • Further it puts no restrictions on the size of investment, the source of funds or whether products are destined for export or for the domestic market • The Act also established of Malawi Investment and Trade Centre (MITC) which acts as a One-Stop Shop Investment and Trade Centre for all investors and exporters Tax benefits Repatriation of Capital • The Malawi Government through Taxation Act, VAT Act, and Customs and Excise Act offers the following fiscal incentives: • 100% Investment allowance on New and Unused Industrial Buildings ,Plant and Machinery • No Minimum Tax Based on Turnover • 25 % Export Allowance on revenue for non-traditional exports • No Taxes on Gains from sell of Shares that are held for more than 1 year. • 40% Investment Allowances for used Buildings, Plant and Machinery • Transport tax allowance of 25% on international transport costs, excluding traditional exports • Allowance for manufacturing companies to deduct all operating expenses incurred up to 25 months prior to the start of operations • Exemption of Duty, Excise and VAT on raw materials used in manufacturing • Exemption of Duty, Excise and VAT on Industrial Machinery and Equipments • Carry forward of loss, up to seven years, enabling companies to take advantage of allowances • Additional allowance of 15% for investment in designated areas of the country • Exemption of duty on importation of buses with a seating capacity of 45 persons and above • Exemption of duty on direct importation of goods used in the tourism industry There are no restrictions on remittance of foreign investment funds (including capital, profits, loan repayments and lease repayments) as long as the capital and loans that were obtained from foreign sources and registered with the Reserve Bank of Malawi (RBM). Source: Malawi Investment Promotion Agency

11. Introduction Investment Climate Doing Business Key Sectors Key Takeaways Government Initiatives Export Processing Zones (EPZ) Expropriation and Compensation Manufacturing under bond Incentives • Legislation for the establishment of EPZs came into force in 1995. All companies engaged exclusively in manufacture for export can apply for EPZ status. As of December 2010, 16 were operating under the EPZ scheme. The incentives under this scheme include: • Exemption of corporate tax • Exemption of withholding tax on dividends • Exemption of duty on capital equipment and raw materials • Exemption of excise tax on the purchases of raw materials and packaging materials made in Malawi • Exemption of value added tax • Malawi's constitution prohibits deprivation of an individual's property without due compensation. There are effective laws that protect both local and foreign investment • The likelihood of direct expropriations has been further reduced since the repeal of the forfeiture act in 1992 • Manufacturing Under Bond (MUB) scheme offers incentives to those companies that export some, but not all, of their products. These incentives include: • Export allowance of 25% on revenue for non-traditional exports • Transport tax allowance of 25% on international transport costs, excluding traditional exports • Exemption of duties on imports of capital equipment used in the manufacture of exports • Exemption of surtaxes • Exemption of excise tax on the purchase of raw materials and packaging materials • Timely refund of all duties (duty drawback) on imports of raw materials and packaging materials used in the production of exports Source: Malawi Investment Promotion Agency

12. Introduction Investment Climate Doing Business Key Sectors Key Takeaways Agreements and Associations Bilateral Investment Treaties (BIT) • Malawi has signed 6 BITs as of December 2010. • These include treaties with Taiwan, Malaysia, Egypt, Italy, Netherlands and Zimbabwe • The Government has concluded 9 DTTs as of December 2010. • These include DTTs with Sweden, UK, Denmark, France, Norway, Switzerland, Netherlands, South Africa and Norway Double Taxation Treaties (DTT) • Malawi is a member of/ signatory to the following: • Multilateral Investment Guarantee Agency (MIGA), which provides guarantee against non commercial risks • International Center for the Settlement of Investment Disputes (ICSID) International Investment Guarantees and Agreements Regional Trade Associations and Blocs • Malawi is a member of/ signatory to the following: • South African Development Community (SADC) • Common Market for Eastern and Southern Africa (COMESA) • African Growth Opportunity Act (AGOA) India Malawi Relations • Important bilateral treaties and agreements are: • Memorandum of Understanding (MoU) on cooperation in the field of Agriculture and Allied sector (2010) • Agreement on Protocol for Consultations (2010) • Agreement on Cooperation in the development of small scale enterprises in Malawi (2010) • MoU on Human Resources and Development (2010) • Agreement for Mineral Resources Development (2010) • India extended a US$50-million Line of Credit (LoC) to Malawi in 2009–10 for its developmental projects. In February 2008, India extended an LoC of US$30 million for irrigation, grain storage, tobacco threshing and one-village, one-product projects. Sources: UNCTAD WIR 2011; Ministry of External Affairs, India

13. Doing Business In Malawi • Investment Options • Investment Laws and Regulations • Investment Funding Options • Taxation

14. Introduction Investment Climate Doing Business Key Sectors Key Takeaways Overview Comparison of Malawi with regional economies on ease of doing business ranking Malawi ranks 145th on the 2012 World Bank’s index of 'Ease of Doing Business‘. Key reforms undertaken by the country during last one year include implementation of new rules providing clear procedural requirements and time frames for winding up a company, and adoption of a new law under which it would create a private credit bureau in the country. Average doing business rank 1-46 93-138 47-92 139-183 Ease of doing business rank of Malawi Sources: Doing Business, World Bank

15. Introduction Investment Climate Doing Business Key Sectors Key Takeaways Overview DOING BUSINESS IN MALAWI Investment options 1 An investor can conduct business in Malawi using any of the following forms public/private limited company, partnership, sole trader and branch of foreign company. Foreign investors are required to register their amount of capital inflow with the Reserve Bank of Malawi through a commercial bank. Investment laws and regulations The Investment and Export Promotion Act 2012 regulates both investments and trade in Malawi. The country offers several investment and trade incentives under various legislations including the Export Processing Zone (EPZ) Act, the Customs and Excise Act, and the Income Act. 2 Investment funding options Important sources of finance in Malawi include commercial banks, stock exchange, microfinance institutions, leasing companies and discount houses. Informal financial arrangements also play a important role in the economy 3 Taxation 4 Malawi’s tax regime is quite favorable towards foreign investors. Key taxes applicable in the country include personal income tax, corporate tax, withholding tax, value added tax and payroll tax. Sources: EY Analysis

16. Introduction Investment Climate Doing Business Key Sectors Key Takeaways Investment Options Public/private limited company, partnership, sole trader and branch of foreign company are principal business entities used by investors to conduct commercial activities in Malawi. Foreign investors, after completing the registration process, are required to register their capital inflow with the Reserve Bank of Malawi (the country’s Central Bank) to obtain Business Residence Permit in the country. through a commercial bank in Malawi. An investor must invest at least US$50,000 Business incorporation procedures Submit an application at the Malawi Investment and Trade Centre (MITC), accompanied by a complete business proposal. A non-refundable fees of US$200 or Malawi Kwacha equivalent shall apply for applying new investment license MITC processes the application and sends it to Investment Approval Committee for appraisal and approval Committee, if satisfied, issues an investment license. Upon approval, the investor shall be required to pay US$800 or Malawi Kwacha equivalent for obtaining an Investment Certificate Open a bank account with a Malawi commercial bank. The account can be transacted after the completion of registration process Companies are required to register with the Registrar of Companies Companies are also required to register with the Malawi Revenue Authority (MRA) for the payment of taxes Sources: Malawi Investment Promotion Agency; EY Analysis

17. Introduction Investment Climate Doing Business Key Sectors Key Takeaways Investment Laws and Regulations stage of investment. The Government of Malawi encourages foreign direct investments by offering several The Investment and Export Promotion Act of 2012 governs investments in Malawi. The government promotes foreign investments in most sectors of the economy without limitations on ownership, investment size and source of funds. Further, the law does not restrict competition and discriminate against foreign investors at any investment incentives. General incentives for investors 100% investment allowance on qualifying expenditure for new building and machinery Allowance up to 40% for used buildings and machinery Allowance for manufacturing companies to deduct all operating expenses incurred up to 25 months prior to the start of operations Free repatriation of dividends, profits and royalties Malawi has promulgated the Export Processing Zones Regime through Export Processing Zones Act of 1995. The regime attracts export-orientated industries, by offering them favorable investment and other incentives. Key incentives under the Export Processing Zones Act 100% exemption of corporate income tax No duty on capital equipment, machinery and raw materials No withholding tax on dividends 0% value added tax Sources: Malawi Investment Promotion Agency; EY Analysis

18. Introduction Investment Climate Doing Business Key Sectors Key Takeaways Investment Funding Options the economy due to low penetration of financial services, especially in the rural regions. The financial sector of Malawi comprises the central bank, commercial banks, microfinance institutions, discount houses and other financial institutions. Informal financial arrangements play an important in Key sources of finance Banks • Around 11 commercial banks operate in Malawi, with the three largest banks accounting for over 60% of the sector’s deposits and assets. Some of the important banks in the country include: • National Bank of Malawi Limited • Standard Bank of Malawi Limited • First Merchant Bank of Malawi Limited • Nedbank Drivers` Stock Market • Established in 1994, the Malawi Stock Exchange (MSE) started equity trading in late 1996. As of March 2011, the MSE listed shares for one foreign and 14 national companies Others • Other financial institutions offering financing facilities include leasing companies (such as Leasing and Financing Company Limited) and discount houses (such as First Discount House Limited, Continental Discount House Limited) Microfinance Institutions • Micro-finance in Malawi is still in its early stage of development. The country has several microfinance institutions (MFIs) including: • Malawi Rural Finance Company • Small Enterprise Development Organization of Malawi (SEDOM) • Credit Cooperatives (MUSCCO) Sources: IHS Global Insight; EY Analysis

19. Introduction Investment Climate Doing Business Key Sectors Key Takeaways Taxation Since 2006, Malawi has implemented several reforms to improve the fiscal management of the country. Malawi has been notable for its strong commitment to business incentives, particularly for foreign investors. Key Taxes Sources: EY Analysis; IHS Global InsightExchange rate: MWK1 = US$0.00596

20. Key Sectors • Agriculture • Mining and Quarrying • Manufacturing • Tourism

21. Introduction Investment Climate Doing Business Key Sectors Key Takeaways Key Sectors The Malawian economy is characterized by a high dependence on agriculture and related activities. Agricultural products account for a majority of the export earnings. However, the recent trend of growth in mining and manufacturing activities has come on the back of government efforts to diversify the economy. Agriculture Malawi’s agricultural sector accounted for more than 27.64% of the GDP in 2010 while registering a growth rate of 1.5%. This was on account of poor rainfall that affected most parts of the country. Growth is expected to return to the long term objective of 6.4% in 2011. A source of major concern is Malawi’s dependence on rain. This is reflected in the fact that out of the 400,000 ha of land suitable for irrigation, only 62,000ha is under irrigation. With substantial investment in irrigation facilities, the land and climate is suited for horticulture. The Farm Inputs Subsidy Program (FISP) is currently in its sixth year of implementation. The program was initiated to help achieve food security while simultaneously augmenting the income of smallholders. Agricultural production primarily revolves around maize, rice, tobacco, tea and sugar cane cultivation. Exports of tobacco alone account for 60% of export earnings. Livestock farming and the dairy industry are additional areas where investment potential exists. Mining and Quarrying Malawi’s mineral resource endowment is yet to be fully exploited. With a wide variety of minerals including coal, limestone and gemstone, the mining and quarrying sector is expected to play a larger role in the Sources: EY Analysis; African Statistical Yearbook 2011; African Economic Outlook; Malawi Investment Promotion Agency (MIPA)

22. Introduction Investment Climate Doing Business Key Sectors Key Takeaways Key Sectors economy. The government expects mining to contribute 5% to the GDP by 2012. With sustained growth, this is set to come true. Other potential areas of growth include uranium, platinum group of minerals (PGMs), base metals nickel and copper, dimension stone, phosphates, heavy mineral sands, graphite, and coal. Manufacturing The manufacturing sector in Malawi can broadly be sub-categorized into agro-processing, textile and garment manufacturing and light manufacturing. Agro-processing has tremendous potential for investment, given than most of the countries cash crops like tobacco and tea are exported in raw form. Expansion in processing capacity of these products would help in value addition and greatly enhance export earnings. Moreover, Textile and garment manufacturing has the advantage of easy availability of raw materials that can be sourced domestically. Chinese and Indian firms dominate in terms of total production figures. Additionally, Malawi has in place favorable bilateral investment agreements that provide opportunities for entry into other markets including South Africa. Tourism Malawi runs along the western side of part of the Great Rift Valley of Africa is home to the third largest fresh water lake in Africa. Although relatively small in size, Malawi is a beautiful country with favorable climate and warm people. Malawi wishes to reposition itself as a leading eco-tourism destination in the medium term. Economic contribution of Travel & Tourism in 2011 Domestic: 83% Supply chain: 26.8% The total contribution of travel and tourism to GDP in 2011 was 3.7% in 2011 Foreign: 17% Investment: 4.2% Government collective: 2.3% Sources: EY Analysis; African Statistical Yearbook 2011; African Economic Outlook; Malawi Investment Promotion Agency (MIPA); Malawi Tourism Association; WTTC

23. Key Takeaways • Investment opportunities for Indian Investors • Key Contacts

24. Introduction Investment Climate Doing Business Key Sectors Key Takeaways Investment opportunities for Indian Investors Compared to other low income countries, Malawi has a relatively well developed Infrastructure with significant improvements in all spheres such as ICT, power and road transport networks. Malawi has emerged as one of the regional leaders in ICT with its institutional best practices for the ICT sector well above the average level for Sub-Saharan Africa. The country has a liberalized economy with preferential access to world markets under COMESA, SADC, LOME, AGOA. In essence, Investors will get attracted to Malawi’s cost effective work force and competitive investment incentives for export manufacturers and the tourism sector. UK UAE US TOP INVESTORS SPAIN FRANCE INDIA

25. Introduction Investment Climate Doing Business Key Sectors Key Takeaways Key Contacts .