EXPORT PROMOTION PROGRAMME AN OVERVIEW OF OBJECTIVES, STRATEGIES by pkj12584

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									                             MALAWI




                 EXPORT PROMOTION PROGRAMME:
               AN OVERVIEW OF OBJECTIVES, STRATEGIES,
                  CONSTRAINTS AND OPPORTUNITIES




               A PRESENTATION AT THE REGIONAL EXECUTIVE
               FORUM ON NATIONAL EXPORT STRATEGIES:
                NAIROBI, KENYA: 26-28 NOVEMBER,2001




BLANTYRE
MALAWI
OCTOBER 2001
1.0     INTRODUCTION

1. 1    CORPORATE OBJECTIVES AND INSTITUTIONAL FRAMEWORK


1.1.1   In Malawi, the Malawi Export Promotion Council (MEPC) is the designated
        institution responsible for promotion of exports.     In pursuance of its
        mandate, MEPC is supported by other institutions such as the Malawi
        Investment Promotion Agency (MIPA), Malawi Confederation of Chambers
        of Commerce and Industry (MCCCI)., Malawi Bureau of Standards (MBS) ,
        and Small Enterprise Development Organisation of Malawi (SEDOM).

1.1.2 The Malawi Export Promotion Council was established by an Act of
      Parliament in 1971 with the objective of facilitating the development of
      Malawi’s export trade. Its main functions as prescribed in the Act are:

        (i)     To promote the export of agricultural and manufactured goods
                produced in Malawi;

        (ii)    To gather, collate and make available to exporters in Malawi
                information and statistics in export marketing and export market
                trends;

        (iii)   To coordinate the operations of statutory bodies and of other persons
                directed towards the export of Malawi products;

        (iv)    To organize and operate trade fairs inside and outside Malawi and to
                organise and arrange for representation by Malawi exhibitors at trade
                fairs organised by other bodies in Malawi and elsewhere; and

        (v)     To implement Government export policy.

1.1.3 In order to effectively meet its corporate objectives, the council is organised
      on the basis of its four professional sections namely: Product and Market
      Development; Trade Information and Publicity; Finance, Procedures and
      Training; and Commercial Representation abroad, with a supportive
      administrative wing.

1.1.4 The Council’s corporate mission’s export strategy aims at:-

        (i)     Maintaining the already developed export markets while concentrating
                on improvement on quality so as to be competitive on the international
                markets.

        (ii)    Developing new products for export

        (iii)   Penetrating and developing new markets for existing and new products
      (iv)   Encouraging investment for export oriented development programmes.
      (v)    Developing a cadre of trained personnel in international marketing
             management.

      (vi)   Creating awareness of Malawi’s export products abroad and enhancing
             information flow on foreign trade opportunities to Malawi’s exporting
             and business community.


2.0   THE EXPORT DEVELOPMENT STRATEGY
      The strategy for achieving the corporate objectives and achievements are
      reflected in the Council’s five-year strategic plans. Primarily, the Council’s
      strategy in meeting the set objectives entails the creation and enhancement of
      Malawi’s export competitiveness through product and market development
      (research and development), trade information dissemination, training,
      institutional capacity building and trade representation abroad.

2.1   Product and Market Development

      The product development strategy focuses on product diversification through
      promotion of high-value products through further processing and
      manufacturing in an effort to broaden the export product base.. Efforts hinges
      on selected products with established supply and market potential. The
      strategy also entails undertaking country-wide supply surveys to establish
      supply potential and production bottlenecks and identify appropriate solutions
      such as establishment of export production villages (EPVs) to enhance product
      quantity for export, among others. Under the strategy, various feasibility
      studies have been undertaken including one on horticultural production for
      export which led to the establishment of the horticultural pilot project.
      Furthermore the Council successfully developed Paprika as an alternative
      foreign exchange earner to traditional exports as part of the Councils’ product
      diversification strategy. Presently the Council is working on a number of
      products including mushrooms for export development. In total a list of up to
      8 products is lined up for export development in the Council’s next 5 year
      strategic plan from 2002 to 2006.

      Under market development, the overall strategy aims at export market
      diversification, consolidation and expansion through market surveys. In its
      efforts to identify export opportunities for Malawi products and diversify the
      market base, the Council has undertaken a number of market surveys mostly
      with donor assistance.          Such surveys have been undertaken in
      COMESA/SADC region (Zimbabwe, Zambia, Botswana, Mauritius, Kenya,
      Burundi, Tanzania, Mozambique, South Africa, Zambia, Zanzibar, and Zaire),
      the EU (UK, West Germany, France and the Netherlands), the USA and
      Canada, Sweden, Finland, Japan, Cameroon, Gabon, and the Middle East. In
      most cases the surveys revealed that there were good market opportunities for
      a wide range of Malawi products. The surveys have usually been followed up
      by trade fair participation and contact promotion programmes. Consequently,
      the Council has over the years been organising Malawi’s participation in


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      Trade Fairs. The strategy has included participation in general as well as
      specialised fairs both within the sub-region and in Europe. This promotional
      strategy has also included organisation of buyer/seller meetings and Trade
      Missions in various countries including Zambia, Zimbabwe, Tanzania, South
      Africa, Mozambique, Mauritius, Botswana, Sweden, Netherlands, West
      Germany, UK, Kenya, Burundi, the United States of America, Switzerland
      and France.

      In view of the rapid changes in the market place, there is need to undertake
      follow-up surveys in the target markets so as to avail exporters with latest
      market information. In addition, an Enterprise programme could be launched
      to target assistance to selected companies with established production capacity
      and export potential. The assistance would involve exploration of export
      markets; advising the companies on product adaptation and eventually taking
      them on marketing/trade missions.


2.2   Trade Information Services

      The strategy in trade information involves the collation and dissemination of
      trade information to the business community both in Malawi and abroad
      through publications, inquiry-reply service, and a documentation centre. The
      Council has consequently continued to provide advisory services to the
      business community on trade related issues. It has been disseminating market
      information through the quarterly “Export News”. The Council has also
      continued to produce the “Malawi Products Handbook” bi-annually which
      provides information on Malawi’s economy and exporters profiles by
      company and products.

      In addition, the COMESA trade information data base incorporating trade
      statistics, COMESA enterprises and trade control measures has been
      computerised. This has enabled improved dissemination of trade information
      particularly from the COMESA region. Despite this, the network is not
      adequate to meet the ever increasing trade information needs of the private
      sector.

      Malawi Export Promotion council also operates a trade documentation unit
      which acts as a reference library for the business community. The library
      contains books, periodicals and published statistics in various aspects of
      international trade.

      The Council is presently in the process of setting up a business information
      center to offer trade information services including internet services to the
      business community. This project is being jointly funded by Commonwealth
      Secretariat (COMSEC) and the Malawi Government. There is however need
      for more computer hardware and software to enhance its long-term
      effectiveness.




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2.3   Finance and Procedures

      This programme is intended to assist in the creation of a climate conducive to
      export business through identification of constraints and solutions thereof.

      The Council has initiated consultations with both the Government and the
      business community with regard to creating an enabling environment for
      exporters. These consultations culminated in the enactment of the Export
      Incentives Act. While the Act has been attacked for being inadequate and for
      offering mainly tax exemptions which cannot be used for quoting
      competitively, it is still considered a step in the right direction. Added to this
      has been the establishment of Export processing Zones (EPZs).

2.4   Manpower Development

      The Council has been organising export training events locally and facilitated
      Malawians participating in such events abroad. Essentially the manpower
      development strategy involves the training of both potential and existing
      exporters and MEPC staff in various fields of export management in order to
      initiate and enhance understanding of the export business. However the
      private sector feels the training should be more focused by targeting exporters
      with the ability to adapt training skills to realities of third world economies
      upon return.

2.5   Commercial Representation Abroad

      The strategy for commercial representation involves placement of trade
      attaches in main export markets to enhance market penetration and
      development. The Council considers this activity to be of strategic importance
      as it is the conventional way of gathering, evaluating and interpreting market
      intelligence for the formulation of appropriate marketing programmes. Initial
      efforts have rested with the establishment of Trade Attaché offices in
      Zimbabwe (Harare) and South Africa (Johannesburg). Efforts are currently
      underway to establish trade and investment attaché offices in UK (London)
      and USA (Washington) and hopefully funds permitting, the programme will
      extend to European Union (Brussels) and Asia (Taiwan). Exporters have
      expressed the need to place well qualified and experienced professionals in the
      missions.

2 EXPORT PERFORMANCE AND DIRECTION OF
  TRADE TO-DATE
3.1    Malawi’s domestic exports have on average been increasing in nominal terms
      over the years, mainly due to the depreciation of the Malawi Kwacha in the
      first half of the last decade and subsequent years . In real terms average export
      prices declined as a result of depressed market conditions and low volumes on
      most export products. In the successive years to 1994, the agricultural sector



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      production slacked due to persistent drought that the country experienced.
      Thereafter, Malawi’s export performance improved mainly due to favourable
      weather conditions that resulted in increased agricultural output. The
      liberalised economic policies also contributed to the increased output in the
      agricultural sector.

3.2   Since 1995 to 2000 exports have been increasing at an average 56.2% per
      annum in nominal terms, from MK6,785.2 million in 1995 to MK25,842.5
      million in 2000 (see table 1 attached).

3.3   The bulk of Malawi’s exports have continued to be destined for the traditional
      markets of the United States of America, Germany, South Africa, United
      Kingdom, Switzerland, Japan and the Netherlands, who together account for
      more than 60% of Malawi’s total exports (see table 2 attached)

4.0   CONSTRAINTS
      Despite the opportunities existing for Malawi products and some
      achievements made, full implementation of the strategic plan has been
      constrained by a number of factors including the following:-


4.1   Financial Constraints

      The Council’s promotional programmes have been inadequately funded. The
      Council is funded by Government subvention which is mostly not adequate.
      As a result some of the Council’s promotional activities have been funded by
      external donors notably, UNDP (through ITC, UNCTAD/GATT), EU and
      Commonwealth Secretariats’ Fund for Technical Cooperation (CFTC). With
      the assistance from these organisations, complemented by counterpart funding
      from Government, the Council has been able to undertake a number of
      activities. This financing has mostly been forthcoming for activities of the
      donors’ interests. Such funding has generally been unassured and limits long
      term strategic planning. It is for this reason that consultancies on the
      Council’s long term export development strategy and its assured source of
      funding have recommended the raising of funds through a levy on luxury
      imports, which has unfortunately not been approved by Government.

      The financial base to support export activities has been broadened due to the
      establishment of additional financial institutions. Despite this positive
      development, it is still difficult for the exporters to access the finance due to
      high interest rates and conservative lending terms which require reasonable
      collateral before credit is extended.

4.2   Low Supply Position

      While the Council has made some efforts in establishing market demand and
      contacts in a number of export markets, a major constraint to developing these
      market leads into actual business has been inadequate supply on the part of
      Malawian exporters. Main factors affecting supply positions has been:-


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      (i)    Weather Conditions

      Agricultural Exports which form the bulk of Malawi’s exports tend to be
      affected by both weather conditions and decline in prices on the international
      markets. In the first half of the 1990’s, a variety of exportable commodities
      were affected by poor weather conditions resulting in both reduction in
      volumes and deterioration in quality.


      (ii)   Fragmented Production and Low Productivity

      Production by smallholder farmers is not properly organised. For a number of
      non-traditional agricultural products, production is fragmented leading to low
      surpluses as a result of small land holdings and product uncompetitiveness
      due to long distances exporters have to travel in various parts of the country to
      obtain enough produce to meet their export orders which increase the unit cost
      of the product.

      For agro-processed exports, low output of the agricultural materials which
      serve as inputs to export production have led to capacity under utilization
      leading to low production.

4.3   Unstable Macro-Economic Environment

      The depreciation of the Kwacha against currencies of major trading partners
      makes it expensive to import raw materials including agricultural inputs
      leading to reduced production. Similarly high interest rates and inflation are a
      disincentive for exporters to borrow for pre-shipment finance as such rates are
      not conducive to long-term investment.

4.4   Expensive Transport Routes

      Being a land locked country, exporters have no choice but to use the long and
      expensive routes to the sea. While FOB prices for most Malawi’s products
      could be competitive, the high transport costs have made some of these
      products uncompetitive on the world export market.

4.5   Lack of Expertise in Export Management

      There is generally lack of expertise in export operations among Malawian
      exporters. There is significant lack of business management know-how which
      would have otherwise enabled them to do a proper market analysis before
      plunging into any business deal and react quickly to changing market
      situations. It is for this reason that training is one of the major functions of
      the Council.



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4.6   Lack of Export Financing Facilities

      There is significant lack of export financing to carter for the short – medium
      term credit needs of the small and medium scale exporters despite the
      introduction of additional financial institutions due to high interest rates and
      conservative lending terms which require availability of acceptable collateral.
      As a result such exporters have been unable to aggressively pursue export
      inquiries and orders. Sometimes financial institutions have accessed off-shore
      funds but information about such funds is not readily available to the private
      sector. Even when a loan is successfully negotiated, it usually takes long (up
      to 4 months) for the credit to be extended resulting in less impact as it may be
      given at a time when the money is no longer needed. There is also non-
      availability of credit cards which hampers the development of on-line business
      (e-commerce) in the country.

4.7   Tariff and Non – Tariff Barriers

      Malawi has sometimes found it difficult to export a number of products due to
      high tariff rates and non-tariff restrictions (Quotas, phytosanitary
      requirements, etc) in the target markets.

5.0   OPPORTUNITIES

      Among the many trade opportunities which Malawi can profitably exploit are
      the following:-

5.1   Accession to the Lome Convention and now the Successor Cotonou
      Agreement under which Malawi benefits from financial and technical
      assistance provided by the European Community such as stabex facility as
      well as her access to markets to the community on preferential terms.

5.2   Accession to Common Market for Eastern and Southern Africa (COMESA)
      Free Trade Area under which member countries are offering duty free status
      on reciprocal basis.

5.3   Malawi’s membership of the Southern African Development Community
      (SADC) whose mission is to become a Common Market offering a free trade
      zone by the year 2008.

5.4   Malawi’ Preferential market access to developed countries under the
      Generalised System of References (GSP) Scheme.

5.5   Malawi’s bilateral trade agreements with a number of countries including
      Botswana, Zimbabwe, and South Africa which accord her opportunities to
      export there on reduced duty, preferential treatment or non-quota basis.




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5.6    The opening up of new markets as a result of favourable political and
       economic changes in Eastern Europe.

5.7    The opening up of the United States of American market to duty and quota
       free under the African Growth and Opportunity Act (AGOA).

5.8    Market opportunities for a wide of Malawi products which have been
       identified in a number of countries through market surveys and trade missions
       conducted by the Council.

5.9    A generally favourable climate responsive to the growing of a wide variety of
       crops with high export potential including high value low volume products
       such as paprika, chillies, cut flowers etc.

5.10   Political stability, peace, law and order and the confidence which the donor
       community has in the country’s leadership which have resulted in Malawi
       receiving considerable financial and technical support from the external donor
       community.


6.0    CONCLUSION

       It will be noted that despite some achievements made, implementation of the
       strategic plan has largely been constrained by inadequate funding and inherent
       weak institutional capacity. Funding of the planned activities has significantly
       depended on Government subvention which is mostly inadequate. In an effort
       to contain expenditure within the limited resources, most planned activities
       had to be curtailed. Staffing levels and operating facilities continued to be low
       thereby affecting the level of activities undertaken at any one point in time.
       Some disincentives to export continued to exist thereby affecting the
       performance of the export sector adversely.




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  TABLE 1 : PRINCIPAL DOMESTIC EXPORT COMMODITIES, 1995-2000
                           (K million)


                           1995       1996          1997       1998          1999         2000 *1

Agricultural Crops:
  Tobacco                 4,523.0    4,797.0   5,780.3       10,306.0     12,109.1       14,428.1
  Tea                      407.3       355.0     701.1        1,247.8      1,734.6        3,170.7
  Sugar                     395.8      892.4    393.1         1,563.1      1,019.5        2,697.2
  Cotton                     56.8      186.5     190.6          154.8        235.0          466.2
  Rice                       21.5       24.8      29.2           74.0        110.1          105.6
  Coffee                    236.5     159.8      209.1          327.1        392.2          419.6
   Pulses                   125.4       94.5     105.8          134.1        284.9          171.4
  Maize                       80.5         -        -              -            -              -
Other                       745.7    1,166.7   1,643.6        1,963.2      2,558.7         3,901.2
  Total Domestic
    Exports               6,592.5    7,676.7       9,052.8   15,770.1    18,444.1         25,360.0

   Re-exports               192.7     220.5         249.5       964.5        1,351.6        482.5

   Total Exports          6,785.2    7,897.2       9,302.3    16,734.6    19,795.7       25,842.5

Equivalent US$’000 *2 443,944 515,402          561,815       540,302     449,004         434,014

  Source: National Statistical Office
  Notes: *1 : Provisional figures
         *2 : Own Estimate using an annual average of buying and selling rates.

  TABLE 2 : DIRECTION OF TRADE : 1997 – 1999

                                      VALUE MK’000
   COUNTRY                             1997     1998                  1999          Market Share
                                                                                       (1999)

     Germany                            901,414         1,654,722     3,106,697          15,69
     United States of America         1,101,216         2,102,018     2,712,569          13.70
     South Africa                     1,163,133         2,251,400     2,280,570          11.52
     United Kingdom                     702,196         1,324,385      1,812,732           9,16
     Switzerland                        816,299         1,175,081      1,294,522           6.54
     Japan                              479,763           709,710      1,168,561           5,90
     SADC /COMESA*                      323,192           405,774        864,525           4.37
     Netherlands                        879,194         1,317,306        828,242           4.18
     France                             243,561           356,534         478,411         2.42
     Zimbabwe                           579,336           355,240         477,513          2.41
     Mozambique                          50,928           147,728         397,130          2.01
     Other                            2,062,069         4,934,701       4,374,228         22.10
     TOTAL                            9,302,300        16,734,600     19,795,700            100

                   •   Excludes South
                   •   Africa, Zimbabwe and Mozambique



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