Fostering Equity and Accountability in the Trading System (FEATS)

Angela Mulenga, Centre Coordinator,CUTS Africa Resource Centre, Lusaka

6 April 2009

Economic background

Explanation of Malawi trade policy◦ Trade policy process◦ Key government institutions◦ Consultative mechanisms

Stakeholder views ◦ MOIT, other government institutions, private sector, CSOs

Inclusive Trade Policy Making (ITPM) index

◦ Landlocked, sparsely populated, 2006, 82% of total population lived in rural areas

◦ GDP per capita increased slightly in nominal terms since 1995

◦ Real GDP growth rate stood at -0.4% during the same period.

◦ Recent years have seen more robust real GDP growth rates, estimated at 7.9% (2006), 6.8% (2007) and 5.1% (2008).

◦ 54% of the population under the national poverty line in 2004

◦ In 2004-2005, 73.9% of population living below $1.25 US dollars per day and 94% below $2.00 US dollars per day

◦ Agriculture provides bulk of the employment opportunities, although its prominence is decreasing In 2003, 73.6% of those employed in Malawi were employed in

informal sector

Nearly even balance of payments in 1999◦ Substantial deficit has developed

In 2007 imports were valued at 41% of GDP, almost double exports, valued at 23% of total GDP

Recent Developments ◦ Improved macroeconomic stability: positive impact on current

account deficit which has stabilized since 2007 ◦ Progress in diversifying exports away from the traditional

products (rice, coffee, pulses)◦ Still struggling to compete in international markets in apparel◦ Imports : industrial inputs (petroleum, fertilizer, consumer

goods and transportation equipment) and significant amount of food

Trade Shares in regional agreements◦ 2007, 21.1% and 35.7% of total exports to COMESA and SADC member countries respectively◦ 2007, 10.2% and 53.9% of total imports from COMESA and SADC member countries respectively

Import Source

% Share in

Total Imports

Export destination % Share in

Total ExportsSouth Africa 34.9 South Africa 12.4India 8.2 Germany 12Zambia 7.8 Egypt 9.4Tanzania 5.9 Zimbabwe 8.3United States

5.9 United States 7.5

• Malawi`s major trading partners are its neighbours: South Africa, Tanzania, Zambia and Zimbabwe.

• Indicates the importance of a trade policy that maximizes potential for regional trade.

• Policy prioritizes multilateral integration and participation in trade systems

• Malawi has not signed an EPA with the EU

• Benefits from AGOA, EBA, Cotonou, WTO, Special access as per WTO Hong Kong Ministerial Declaration, GSPs, SADC FTA, COMESA FTA and bilateral agreements

After independence, policy is based on Policy Framework Papers, no official trade policy ◦ Government ownership, influence and control characterized the economy. ◦ Centered on import substitution and other interventionist measures ◦ Efforts to reconcile balance of payment deficits and inflation

1980, Malawi implemented Structural Adjustment Policies (SAPs)

1990s onward, liberal reforms, including trade liberalization World Bank TTRI data shows increasing openness of Malawi

trade regime ◦ TTRI rating for MFN applied tariffs decreased over 2005-2007 to 2008

from 25.4 to 20.5◦ Overall TTRI rating declined over 2005-2007 to 2008 from 22.4 to 13.4

Malawi participation in IF processes◦ IF participation began in 2001, has helped to include trade policy into

overall development strategies of the country◦ DTIS was approved in 2004 and findings have been incorporated into

National Growth Strategy of 2003, PRSP, and MGDS◦ Zambia currently preparing a 5 yr. Implementaion plan for the EIF

Government’s vision is “transforming Malawi from a predominantly importing and consuming country to a predominantly producing and exporting country”

Works to: ◦ diversify exports ◦ enable a more stable, conducive environment for trade ◦ open Malawi to exports, imports and foreign direct investment◦ improve standards of living◦ create employment ◦ strengthen balance of payments

• Although Malawi strives to maintain an open economy, barriers to exports and imports still exist and affect trade (tariffs, international standards applied, privatization is occurring although state owned firms still exist) Anti-dumping, countervailing and safeguard measures are being established, environmental, health, safety and security standards

“Demand-driven” process Policies set up by means of legislation, Hierarchy: Constitution, followed by Acts

of Parliament and "subsidiary instruments" (e.g. government regulations, orders, and guidelines)

Presidential Directives Changes emanate from the Ministry of Industry, Trade and Private Sector

Development inter-agency meetings , NWGTP The recommendations from inter-agency meetings are submitted to the

Minister of Industry and Trade through the Director of Trade and Principal Secretary

Cabinet Papers are then created Cabinet Approves: incorporates into policy or pushes into the law making

process Attorney-General's Office drafts the related bill with input from relevant

minister Adopted by the Cabinet Bill is published in the Government Gazette, generally for at least 21 days. Introduced in the Parliament If passed, with Presidential assent becomes law

INTER-AGENCY MEETINGS make recommendations

-Ministry of Trade and Industry -Stakeholders

QUARTERLY MEETINGS make recommendations

-chaired by private sector -co-chaired by Ministry of Trade

and Industry -civil society -academia -media -government sectoral ministries -cooperating partners -trade unions

MINISTRY OF INDUSTRY AND TRADE reviews

CABINET APPROVES -President -Sectoral Ministers -Vice President

LAWS Drafted by Ministry of Industry and Trade and Ministry of Justice and Constitutional Affairs

POLICIES Approved and Instituted

PRESIDENT signs

MINISTRY OF INDUSTRY AND TRADE implements and reviews policies and

laws.

CABINET PAPERS Processed and drafted from

recommendations.

NATIONAL ASSEMBLY votes

TRADE POLICY MAKING PROCESS IN MALAWI

Ministry of Industry and Trade : manages and implements trade policy with support from technical institutions ◦ activities include: trade development, research, policy, advocacy and finance,

negotiations of multilateral, bilateral and regional trade agreements, development of a conducive trading environment, and increasing participation of Malawians in trading activities.

Other Government Bodies: ◦ Consulted during trade policy diagnostic planning and implementation◦ Invited to stakeholder consultation meetings◦ Can initiate comments and viewpoints◦ Key Actors: Reserve Bank, the Ministries of Finance and Economic Planning, and

Trade, National Economic Council, Ministry of Agriculture and Food Security, Malawi Revenue Authority, Reserve Bank of Malawi, Malawi Bureau of Standards, Malawi Investment Promotion Agency, and Malawi Export Promotion Council (MEPC).

Inter-Ministerial Conferences: ministries provide input comment on relevant issues related to trade policy discussions on specific issues can be initiated as well

Civil Society Organisations (CSOs) : Started operating in Malawi from 1994 Economic and social issues took off around 2000. Vibrant CSO scene with many active organizations, although not

too many are working on trade issues MEJN and CISANET have projects in rural areas, yet rural reach of

CSOs must be strengthened given that most are based in urban areas

No formal representatives of informal sector in CSOs, yet CSO efforts to improve trade policy impact various disadvantaged groups in the policy process, including the informal sector

Private Sector: a number of private sector and business umbrella organizations Umbrella Organizations and sector-specific private sector

organizations participate in the trade policy making process individuals employed in the informal sector are not formally

represented by private business sector umbrella organizations, yet are indirectly included through efforts of these organizations to advance the interests of the sector as a whole

Both are most active in NWGTP and NAG

NWGTP - National Working Group on Trade Policy◦ advises the Government on all legislative and policy issues relating to trade◦ monitors implementation of trade arrangements and ensures conformity with

rules. ◦ consultation and cooperation among private sector, public sector , academia, civil

society and donors◦ chaired by a private-sector representative and co-chaired by MOIT◦ privately funded

NAG - The National Action Group ◦ works to deepen engagement between private and public sectors ◦ Includes: key economic ministers, key public sector institutions, CEOs of leading

investors and private sector representatives, heads of development partners and CSO partners

◦ sectoral working groups ◦ initiates ad hoc groups and dialogues ◦ works with government and donor processes to better integrate private sector

groups with International Organizations ◦ capacity-building activities

MNDTFP – Malawi National Development and Trade Policy Forum ◦ coordinates with the Malawian negotiators for the EPA with the

EU.

NEC – National Economic Council ◦ Publicly funded ◦ Reports to the President◦ Operationally linked with the Ministry of Finance and Economic

Planning◦ Advises the government and public on economic and

development policies◦ Aids in establishing national development goals and plans◦ Monitors implementation◦ Participatory approval ◦ Process: Technical Working Groups, comprising Council staff and

technical officers from line ministries, provide an interface between stakeholders to formulate and review policies

President National Economic Council (linked with MoFEP and Other Ministries)Cabinet

MOITIMC

NAG

NWGTP

MWGTPF

Other Line MinistriesMIPAMEPCMoA

Policy Direction

Policy Formulation

Policy Implementation

MOIT endeavors to consult as broadly as possible and uses the IMCs and the NWGTP for this purpose

According to some CSOs, lack of people participation in previous policies has resulted in policy failures◦ alliance of technocrats and donors determined national policies and invited CSOs

for endorsement ◦ Recently, some interest in removing these tendencies

External influences align the government away from CSOs and more toward multilateral institutions

Challenges:◦ Quickly evolving international trade scene requires timely and adequate

adjustments in the trade policy◦ Changes in government often lead to changes in policies mid way through

implementation◦ Limited human, technical and financial capacity to deal with a vast number of

issues and actors.

Two key suggestions:◦ Strengthen consultative fora (NWGTP and PPD) to ensure interests of stakeholders

considered◦ Institutional capacities of stakeholders should be enhanced

Example - Ministry of Agriculture Challenges:

◦ Pressure on limited technical, time and monetary resources◦ Little opportunity to build up a relationship of trust and a lack of sense of

ownership exists (consultants used)◦ Donor driven technical assistances tends to concentrate on donor

priorities◦ Inadequate coordination between government institutions◦ Lack of timely feedback on comments by the MOIT and COMESA/SADC

secretariats. Suggestions:

◦ Ministry of Economic Planning and Development (MoEPD) should take the lead role

◦ Technical assistance should be designed to transfer skills and knowledge and not to under-capacitate

◦ Strengthen government coordination via an independent coordinating government institution

◦ Build capacity: increase human resources, utilize available human resources and adequate financial resources

The private sector has been more active on policies related to international agreements and less on regional and domestic trade issues◦ Suggestions:

Addressing their own capacity constraints Providing less tight timelines Improving opportunities for participation for less

powerful private sector organizations, for example, Malawi Union for the Informal Sector, Indigenous Business Association, etc.

Good progress in terms of CSOs and government partnership

Government observes that some CSOs do not attend consultations despite being invited

Challenges: ◦ Generally more interest in multilateral trade issues ◦ Lack of adequate information on trade issues (especially

domestic)◦ Lack of analytical skills and competencies (technical

nature of trade policy)◦ Lack of resources for sustained engagement on trade

policy issues◦ Ideological differences between the private sector and

CSOs◦ Interests of citizens that are more focused on micro level

rather than larger issues

Recommendations:◦ Collection and use of evidence by CSOs for meaningful

participation◦ Undertaking and presenting analysis of trade policy

from poverty reduction perspectives◦ More CSO space in actual policy formulation ◦ Enacting legislation for CSO access to trade information◦ Dissemination of trade policy information to citizens◦ Strengthening CSO networking on trade◦ Prioritize citizen participation and action on trade

policies◦ Strengthening of trade weather stations and other

community based networks◦ Develop capacity of MOIT for more and better

consultations with all stakeholders.

The NWGTP is only for discussions and is not a decision-making forum

Several stakeholders are not currently represented in the process

The present process is producer-oriented and there is need for balancing producer and consumer interests

The role of parliament and parliamentarians should be strengthened

Relevant government agencies can improve the dissemination of information by simplifying the presentation and improving access

participation of CSOs and other relevant government ministries in the trade policy making process should be strengthened to include not only participation in discussions, but also in decision-making processes

No one-size-fits-all policy Economists generally agree that open trade policy is

good for development features of good policy include:

Coherence with national development policy Supportive of and be supported by other government

policies Balance the interests of all key stakeholders Conform with the commitments of the country under the

WTO and other regional and bilateral agreements Accompanied by an appropriate implementation plan

Determines whether the key features of good policy are attained which in turn determines the contents of policy.

May not result in best policy but context and country specific But widest possible buy-in and support from all key

stakeholders Support and ownership ensure policy’s relevance and

proper implementation. Outlining the key elements of the process also leads to

the identification of the relevant stakeholders. Important assumption: key stakeholders are an active

part of the process with opportunities for equal participation and proportionate influence.

Features of a Good Trade Policy Key Elements of Good Trade Policy Making Process

Relevant Stakeholders

Based on national development policy Clear guidance/directions from national development policy makers

National development policy makers (e.g., Ministry for Planning and Development, President’s Office, parliament, etc)

Linked with other governmental policies Inputs and feedback from other government ministries/departments

Other relevant government ministries/departments (e.g., those dealing with agriculture, employment and labour, finance, competition and consumer protection, education and health, etc.)

Linked with international commitments (to implement the commitments as well as to guide the positions regarding future possible commitments)

Inputs and feedback from relevant ministries and negotiators

Relevant ministries (e.g., Ministry of Foreign Affairs, etc.) and negotiators (e.g., dealing with the WTO agreements and negotiations)

Balancing the interests of all key stakeholders Inputs and feedback from key non-state stakeholders

Key non-state actors (e.g., representatives of the private sector, farmers, consumers, and the civil society)

Clear implementation plan with adequate resources

Commitment of required resources Relevant government ministries (e.g., Ministry of Finance) and donors (multilateral and bilateral)

• all the key stakeholders have been identified• they have equal opportunity to participate in the process• none of them is allowed to disproportionately influence the

process nor the outcome in favor of its own interests.– Seven action variables, applied in two different groups – Variables 1-4 require action of primary government ministry

in trade policy – Variables 5-7 require action of all other stakeholders– Three distinct indices are calculated for other relevant government

agencies, private sector, and CSO categories of stakeholders respectively

– maximum value of 1 (when the appropriate action has been taken by the concerned actor)

– intermediate value of .5 (when some action has been taken by the actor concerned but such is not sufficient).

– minimum value of zero (when the action has not been taken at all by the concerned actor)

– Overall ITPM rating out of 13, index includes 4 distinct parts

Increase awareness of political economy aspects of trade policy making in Malawi

Assess the inclusiveness of the trade policy making process in terms of capacities, actions, and participation of key stakeholder groups

Illustrate where further efforts must be made to improve stakeholder capacity and participation in trade policy process

Facilitate the development of a more inclusive trade policy making process to create local buy-in of that policy within Malawi Only such buy-in can ensure successful implementation of trade

policy and the subsequent realization of larger development goals of the country

Action Variable Action by Action ValueA. Identification of all key stakeholders

MOIT Some identified = .5

B. Creating awareness about the need for trade policy

MOIT Yes = 1.0

C. Establishment and functioning of formal consultative mechanisms

MOIT Several created and functioning = 1.0

D. Regular information flow to the stakeholders including on the content of trade policy

MOIT Ad hoc and/or irregular = 0.5

Part I Score MOIT 3.0/4.0E. Regular participation in the process and feedback to the relevant authorities

Other relevant government ministries/agencies

Yes = 1.0

F. Faithful representation of and regular feedback to the represented constituencies

Other relevant government ministries/agencies

Yes = 1.0

G. Acquiring relevant knowledge and expertise

Other relevant government ministries/agencies

Some knowledge and expertise = 0.5

Part II Score Other relevant government ministries/agencies

2.5/3.0

Action Variable Action By Action Value

H. Regular participation in the process and feedback to the relevant authorities

Private sector and business umbrella organizations

Yes = 1

I. Faithful representation of and regular feedback to the represented constituencies

Private sector and business umbrella organizations

Yes = 1

J. Acquiring relevant knowledge and expertise

Private sector and business umbrella organizations

Some knowledge and expertise = 0.5

Part III Score Private sector and business umbrella organizations

2.5/3.0

K. Regular participation in the process and feedback to the relevant authorities

Civil society organizations Irregular = 0.5

L. Faithful representation of and regular feedback to the represented constituencies

Civil society organizations Occasional representation and/or irregular feedback = 0.5

M. Acquiring relevant knowledge and expertise

Civil society organizations Some knowledge and expertise = 0.5

Part IV Score Civil society organizations 1.5/3.0

ITPM Index Score All stakeholders 9.5/13.0