Economic Performance Business Environment and Tourism Potential to

Economic Performance, Business Environment and Tourism Potential to a Diversified Economy Andrew Mwaba Af. DB Country Manager-Malawi 1 st Malawi Tourism Conference Sunbird Capital Hotel Lilongwe, April 6 th 2017

Key Questions § What are Malawi’s economic conditions and outlook? § What are the opportunities and impediments to private sector investment? § What is the Business and Investment Climate? § What is the Investment climate for diversification and investment in tourism? § What are the Financing opportunities for tourism investment offered by Af. DB? § What is the way forward for the warm heart of Africa? 2

Economic setting ■ Malawi’s economy is highly vulnerable to external shocks which are manifested in volatility in growth and other macro economic measures. ■ Lack of diversification and limited value addition have exposed the economy to price shocks, rendering management of the economy challenging. ■ These factors above have affected economic performance over time. ■ Government is putting in place policies for promoting investment in key sectors to create a stronger foundation for sustainable growth and job creation. 3

Developments in the economy and Prospects ■ Malawi’s was afflicted by adverse weather conditions for two consecutive years 2015 and 2016. ■ GDP growth fell sharply from 5. 7 % in 2014 to 2. 9 % in 2015 ■ Growth is expected to recover to a minimum of 4 % in 2017 and accelerate to 5 % in 2018 ■ The recovery in agriculture output and incomes, and consumption are expected to stimulate the economy ■ GDP growth will also benefit from improved macroeconomic stability ■ Diversification is critical in enhancing resilience of the economy and support higher and sustainable growth 4

GDP Growth Trends/projections 5

Inflation trends § Malawi has one of the highest inflation rates in SADC § Averaged 21. 7 % in 2016 lower than 21. 9 % in 2015 § Inflation in 2017 declined to 16 % from 23. 4 % in 2016 § Imported lower inflation offset by Kwacha depreciation § Monetary reforms continued to curb inflationary pressures and stabilize the Kwacha in 2016. § Policy rate was reduced from 24% to 22 % in March buoyed by lower inflation § Effects of lower inflation good for competitiveness § Positive for tourism investments and visitors in the regional context 6

Inflation is falling 7

Recent Reform Efforts ■ A number of economic, financial reforms and land related laws have been enacted. ■ In 2016, the following were launched: ü The collateral registry system (Personal Property Security Registry) to enable businesses and individuals access loans using movable assets; ü The Malawi Business Registration System (MBRS) which facilitates the online registration of businesses, and automatically generate a Taxpayer Identification Number for the business; and ü The trade portal which is one-stop window for information relating to import into, export from and transit through Malawi. ■ Ongoing reforms must be sustained to attract private sector investment and FDI. 8

Investment and Business Climate ■ Malawi’s progress in improving the investment climate and competitiveness has been slow. ■ Reform efforts however beginning to show a turn around. ■ 2017 Ease of Doing Business (DB) ranked Malawi 133 rd out of 190 countries globally, improving from the 141 st in 2016. ■ On DB Distance to Frontier (DTF), the country improved by 3. 28 from 51. 11 (2016) to 54. 39 (2017) ■ This is above the 49. 51 average for the Sub Saharan Africa. ■ The 2015 16 Global Competiveness Index (GCI), ranked Malawi 135 out of 140 countries with a score of 3. 2 out of 7. 9

Investment and Business Climate ■ Malawi’s economic freedom score was 54. 8 out of 100, th making its econo my the 126 freest in the 2015 Index. ■ Problematic areas included access to finance, bureaucratic delays, and macro economic instability. ■ Others were property rights, control of government spending, monetary freedom, and trade freedom. ■ While foreign and domes tic investment are generally treated equally under the law, investors face bureaucratic hurdles. 10

Tourism Investment climate and potential ■ Tourism has potential to diversify the economy, drive growth and generate foreign exchange and jobs. ■ Malawi total contribution of Travel & Tourism (T&T) to GDP was 7. 2% of GDP in 2015. ■ Forecast to rise by 4. 2% per year to reach 6. 9% of GDP in 2026. ■ T&T investment represented 3. 0% of total investment in 2015. ■ There is potential to rise by 6. 9% per year over the next 10 years to 3. 2% of the total investment in 2026. 11

Tourism Investment climate and potential ■ Malawi voted among the top ten must see destination in 2014 by Lonely Planet. ■ The country has untapped opportunities as highlighted in the Malawi Investment and Trade (MITC) Projects Compendium. ■ Tourism faces a number of challenges including coherent strategic focus, limited investment and undeveloped tourism products. ■ Country also faces infrastructure constraints to facilities and services. 12

Tourist arrivals - Malawi vs. Top 5 Top Five African Countries for International Tourist Arrivals (millions) COUNTRY 2010 2011 2012* 2013 2014 2015 Morocco 9. 29 9. 34 9. 38 10. 05 10. 28 10. 18 Egypt 14. 05 9. 50 11. 20 9. 17 9. 63 9. 14 S. Africa 8. 07 8. 34 9. 19 9. 54 9. 55 8. 9 Tunisia 7. 83 4. 79 5. 95 6. 27 7. 16 5. 36 Zimbabwe 2. 24 2. 42 1. 79 1. 83 1. 88 2. 06 Malawi 0. 776 0. 767 0. 770 0. 795 0. 819 0. 805 13

Af. DB Actions for Tourism Financing ■ Af. DB through private sector lending window provides support to the private companies through direct and indirect financing. ■ Af. DB also finances tourism and travel related infrastructure through the public sector window ■ Three priority sectors for lending are infrastructure, financial intermediation, and industry and services. ■ Industries and services- the tourism sector has been earmarked as a priority sector for Af. DB direct and indirect lending operations. 14

Af. DB Financial Instruments and Products ■ Af. DB funds projects in the tourism sector through its private sector loan products and equity financing. ■ Products include corporate loans, project finance and lines of credit to commercial banks, and development finance institutions (DFIs). ■ Direct equity in financial institutions and private equity funds (PE Funds) that provide financing to investments in the tourism sector. ■ Af. DB has broadened its financial instruments and products that are designed to catalyze additional private finance. ■ These include risk management products and guarantees. 15

Examples of directly financed projects ■ Af. DB funded business hotels with international chains such as Hotel Intercontinental Lusaka, Sheraton Kampala and Kempisiki Accra. ■ Provided corporate loans to Ethiopian Airlines and Air Cote d’Ivoire for acquisition of state of the art airplanes. ■ In travel related infrastructure, funded the expansion of Jomo Kenyatta International Airport in Nairobi. ■ The Bank Group funded the Kamuzu International Airport in Lilongwe in 1977 among others through public sector. 16

Indirectly financed investments ■ Through Lines of Credit to DFIs and Private Equity Funds. ■ Exampled of such projects include: ü Botswana - Travellers Rest House via Af. DB line of credit to National Development Bank of Botswana; ü Namibia – Shipreck Lodge, Marigold Investments Two Hotel, Mango Guest House, African Pride Hospitality Hotel, At the Waves Property Lodge and Windhoek Palm Lodge via line of credit to Development Bank of Namibia; ü Tanzania – Lake Manyara Luxurious Tourist Lodge through line of credit to Mauritius Commercial Bank; and ü Zambia - David Livingstone Safari Lodge and Spa via line credit to Development Bank of Southern Africa (DBSA) 17

Conclusions and Way forward ■ Malawi has undertaken significant economic and financial reforms, and measures to enhance competitiveness. ■ Some gains have been recorded in stabilizing the economy with lower inflation and interest rates. ■ Much unfinished business in unleash the potential of Tourism for diversification and job creation. ■ Government to provide incentives to attract both foreign and domestic investment through direct financing and PPPs. ■ Country should invest in infrastructure and focus on its niche water, mountains resorts and its people. ■ Identify and zone sites along the shores of Lake Malawi offering potential for sustainable tourism investment. ■ Af. DB has diverse instruments for financing the sector which can be tapped by Malawi Investors. 18

THANK YOU Contacts: a. mwaba@afdb. org Web: www. afdb. org 19