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September 21, 2017

Has Malawi become a dumping ground for Chinese products?

By Richard Chirombo. Malawi established diplomatic ties with the People’s Republic of China in 2007, a development that has facilitated trade between the two countries. However, there are suggestions that the People’s Republic of China is turning Malawi into a dumping ground.

Note: This feature was published in two parts in Malawi's The Sunday Times on 10 and 17 September. On 18 September Times Group recognised Richard Chirombo as 'Most Outstanding Editorial Staff Member'.

Chinese influence — Shops owned by Chinese citizens in Limbe, Blantyre’s commercial hub (Picture by Richard Chirombo).

Part  I

The Embassy of the People’s Republic of China is located along the road to Kamuzu Palace, residence of Malawi’s state president in the capital city of Lilongwe, for a good reason: the story of Malawi’s infrastructural and economic development has, since 2007, been littered with grand projects that have Chinese fingerprints all over them.

In Lilongwe alone, China has made its presence felt through structures such as presidential villas, the Bingu International Conference Centre, the New Parliament Building, a five star hotel and Bingu National Stadium.

At national level, the Asian country is making itself felt through trade. Records obtained from the Chinese Embassy in Malawi indicate that the two countries started showing potential four years into their relationship as, by the first half of 2012, the trade volume between the two countries had jumped to $300 million (K103 billion) from $42.82 million (K14.7 billion) in 2007.

But things were not always positive for, when Malawi embraced the People’s Republic of China in 2007, some trade unionists and political analysts felt dining with the Peoples Republic of China was akin to courting a strange devil; better the devil you know, in this case Taiwan.

The fear was that the repercussions would be far-reaching, and the citizenry, who did not directly participate in the events leading to the change, would not escape its impact on their lives.

For example, as early as 2008, when the relationship between the two countries was not in full flower, a report indicated that Malawi was bound to lose anyway.

A study released barely five months after Malawi and China formalised their relationship, entitled a ‘Study on Chinese Investment in Africa: The Case of Malawi’, indicates that Malawi is yet to fully reap the fruits of its relationship with China.

The report, which was prepared by Malawi Congress of Trade Unions researcher Paliani Chinguwo— who submitted it to the African Labour Network— indicates that Malawi stands to benefit only in the short term while China may reap the long-term fruits.

“Nevertheless, in the long run, trade with mainland China pose [sic] to inhibit the growth of the infant industries thereby negatively affecting the levels of employment, production and exports if Malawi continues to import at an increasing rate commodities from mainland China particularly the consumer goods which can locally be produced using locally available resources such as furniture, beddings, paper, soap, diary [sic] products, honey, wood etc.,” it says.

Apart from the report, local artists such as Nameless have also stirred the waters against China through a song released in the early 2000s with lyrics that go:

Chiri chonse chalowa China/ [China has corrupted standards]
Dziko lalowa China [Everything in Malawi is fake]
Palibe cha orijino-o [Everything is counterfeit].

What Nameless means is that there is nothing good associated with China, as exemplified by the temporary nature of goods and services. Chinese goods are not durable, the persona in the song charges.

No wonder that People’s Republic of China first ambassador to Malawi, Lin Songtian, once expressed concern over the lyrics, saying they shrouded China in misconceptions.

“Those lyrics do not reflect a real picture of China,” Lin is on record to have said.

Sentiments such as Nameless’ feed into public misconceptions, casting China in a negative light; indeed, making China synonymous with everything negative.

Such was the case when China and Malawi started the journey of their diplomatic relations in December 2007.

On March 25, 2008, Malawi signed a bilateral agreement with China, entitled ‘Agreement on Trade, Investment and Technical Cooperation Between The Government of the Republic of Malawi and The Government of the People’s Republic of China’, “for the purpose of enhancing the friendship between the parties and the peoples of China and Malawi, of developing trade, investment and technical cooperation between the two countries on the basis of equity and mutual benefit”.

Article 1 of the agreement obliges both parties to “do their utmost, in conformity with the laws and regulations in force in their respective countries, and to encourage stakeholders of their respective countries to cooperate in respect of trade, investment and technology”.

Article 11 of the agreement provides for preferential treatments, saying “In order to promote the economic development of Malawi, China shall grant preferential tariff treatment to certain products originating from Malawi and exported to China as specified in Annex 1 of the Note of Special Preferential Tariff Treatment”.

On its part, Malawi offers an array of incentives for prospective foreign investors, not just China, among them: 100 percent investment allowance on qualifying expenditure for new building and machinery; allowance up to 40 percent for used buildings and machinery; 50 percent allowance for qualifying training costs; allowance for manufacturing companies to deduct all operating expenses incurred up to 25 months prior to the start of operations.

Others are an additional 15 percent allowance for investment in designated areas of the country; duty-free importation of buses with a seating capacity of 45 persons (including driver) and above, duty-free direct importation of building materials for factories and warehouses; duty-free direct importation of goods used in the tourism industry, which include building materials, catering and related equipment, and water sport equipment; free repatriation of dividends, profits and royalties.

There are also incentives for establishing operations in an Export Processing Zone (EPZ), which include: zero corporate tax rate; no withholding tax on dividends; no duty on capital equipment and raw materials; no excise taxes on purchases of raw materials and packaging materials made in Malawi, among others.

“Manufacturing is the sector that attracts most of the investments from mainland China which are all from private sources. This is attributed to the development of simple labour-saving technologies readily available in China (including the rural areas) which is easily transferable to Malawi set up. Further to this, investors are specifically attracted to the manufacturing sector by the additional incentives which are not offered to the investors in the other sectors.

“Among others, below are the additional incentives for the manufacturing sector in bond: no duties on imports of capital equipment used in the manufacture of exports; no surtaxes; no excise tax or duty 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 and export tax allowance of 12 percent of export revenues for non-traditional exports.

In line with the MoU, Chinese traders have established themselves in the wholesale and retail sectors in Malawi while it has become commonplace for Malawian businesspeople to travel to China to buy wedding dresses, tiaras, shows, suits, and accessories such as cameras, hard drives, laptops, electric accessories, among others.
In Limbe, Blantyre’s commercial hub, China da Restaurant imposes itself on the surroundings, offering food and accommodation haven to farmers who come to sell their produce at the Limbe Tobacco Auction Flours, located just fifty metres from China da Restaurant.

In Lilongwe, Golden Peacock Shopping Centre is a typical example of how Chinese investors are taking a foothold on business. Not only that; they are giving back to the Malawian community.

For example, on May 31, 2017, Golden Peacock Shopping Centre donated K1.5 million to SOS Children’s Village in Lilongwe as part of commemorating World Children’s Day. Golden Peacock Shopping Centre Manager, Yan Jie, said the gesture was made to ensure that children grow up happily.

“As the country is celebrating children, we wanted to share our love and to show that we are fond of Malawian children, hence the donation,” Yan said.

Now, no one can take interest in children, who are widely acknowledged as the future, without committing to be part of the future itself.

It could be these developments that have sparked fears that Malawi could become a dumping ground for Chinese goods.

For example, president of the main opposition Malawi Congress Party-cum-leader of the Opposition in Parliament, Lazarus Chakwera, said on August 2 this year that the Malawi market was flooded with sub-standard products.

Chakwera, who said this in a statement titled ‘The Decline of The Manufacturing Sector’, was just echoing what other opposition leaders— notably George Mnesa of the Malawi Forum for Unity and Development, People’s Progressive Movement president Mark Katsonga Phiri, New Labour Party president Sam Mpasu, United Transformation Party president Newton Kambala and United Independence Party’s Edwin Banda— have said on substandard imports.

“Ban imports of sub-standard products,” said Chakwera, observing that Malawian consumers were buying products and services that would not pass the test in other countries.

Chakwera actually suggested that Malawi should limit its imports from other countries, China inclusive.

“In the past three years, we have seen a lot which is giving us no hope. Companies continue closing down and a lot of people are losing their jobs. The Malawi Government, therefore, needs to get in place a roaring national economy which is operating on all cylinders, expanding every year, creating thousands of jobs, expanding the tax base, expanding the export base and shrinking the import base,” Chakwera said.

But China continues to divide public opinion, according to Theodora C Thindwa, Staff Associate at the Centre for Security Studies at Mzuzu University in Malawi, who analysed the relationship between the two countries in a paper titled ‘China-Malawi Relations: An Analysis of Trade Patterns and Development Implications’.

The paper, which investigates how the relationship between Malawi and China has contributed to economic development in Malawi— focusing on Chinese government investments directly dealing with the Malawi Government, as opposed to investment by Chinese citizens—finds “both positive and negative trends”.

“The level of Malawian exports to China is low compared to Chinese exports to Malawi. This entails trade losses for Malawi which in turn has implications for development and also for the society that Malawi is evolving into. Results also suggest that trade gains and losses are affected by the fact that China and Malawi are at different levels of economic development.

“Time series analysis shows considerable amount of China’s investments to Malawi creating some level of employment for Malawians. Bivariate regression analysis also reveals no relationship between investment levels and employment created. This suggests the importation of Chinese labour into Malawi which leads to economic losses for the Malawian workforce. China is also found to play a positive role in other areas such as health, education, agriculture and low cost infrastructure. Overall, China has a modest impact on Malawi. China comes out as both a neo-colonialist in some areas and as a development actor in other areas,” reads the paper.

But Consumers Association of Malawi Executive Director, John Kapito, said talk about “neo-colonialist China” turning Malawi into a dumping ground does not arise “because it is up to consumers to choose the products and services they need”.

Kapito added that it is “misplaced” to ask the Government of Malawi to regulate imports, arguing that doing so would defeat the purpose of a liberalised market.

Kapito said: “In fact, it is misplaced for people to ask the government to protect them from sub-standard products from countries such as China because the government is not a police officer of consumers’ tastes. The power lies in consumers’ hands because they [consumers] are the ones who choose a service or product over another.

“So, consumers should not accuse Chinese manufacturers or, indeed, manufacturers from other countries, of selling sub-standard products to Malawians. In fact, it is not even our role [as a consumers’ body] to regulate what consumers should use or not. The ball is squarely in consumers’ hands,” Kapito said.

Kapito — It is misplaced for people to ask the government to protect them from sub-standard products from countries such as China (Photo by Richard Chirombo).

As if echoing the sentiments of Malawi’s chief consumer, business captains seem to suggest that blaming other countries for the influx of substandard products while not putting Malawi’s house in order is akin to treating symptoms. They suggest that the country should first put in place policies that uplift indigenous small-scale businesses before it starts talking of benefitting from bilateral relationships with countries such as China.

Indigenous Business Association of Malawi president, Mike Mlombwa, said Malawi’s relationship with other countries, not only China, cannot bear desired economic fruits in the absence of a National Economic Empowerment Policy (NEEP).

Malawi has no such policy, but work to that effect is in progress, thanks to efforts by the Ministry of Industry and Trade.

“As things stand (without the policy), we have been competing with international manufacturers, including those from China, in supplying goods and offering services to both the government and private sector, a development that has put us in an unfair position.

MLOMBWA — We have been competing with international manufacturers, including those from China, in supplying goods and offering services (Photo by Richard Chirombo).

“I believe that requisite policies such as the National Economic Empowerment Policy will help us benefit more from bilateral agreements with countries such as China. So far, I would not say we have benefitted a lot from our interaction with China,” Mlombwa said.

His sentiments are echoed by Economic Empowerment Action Group president, Lewis Chiwalo.

“Before we talk about how we are fairing, trade-wise, with countries such as China, we must talk about protecting local businesses. This has not been the case. First, let us protect small businesses from foreign traders who ply the same business, instead of leaving it to locals. It is policies like these [NEEP] that have spurred economic development in other countries,” Chiwalo said.

Ministry of Industry and Trade Principal Secretary, Cliff Chiunda, said, “New, inclusive patterns of wealth accumulation must come from both existing and new economic activities. Thus, we need higher levels of investment that generates a substantial amount of new wealth and economic opportunities for our people”.

Chiunda said the core component of the NEEP is to create and nurture new enterprises owned by local Malawians while, at the same time, growing existing ones.

Such a policy could come in handy now, in the wake of China’s renewed commitment to Africa. Recently, Chinese president Xi Jinping proposed the Belt and Road Initiative, which is aimed at providing alternatives of development finance and breaking the “donor cartel” in Africa.

It is billed as the most fundamental feature of China’s foreign policy that aims to interconnect countries in Asia, Europe and Africa through a long-term vision for infrastructure, political and economic cooperation.

University of Malawi economic analyst, Ben Kalua, said Malawi can benefit from such long term economic initiatives by, for example, empowering local businesses by, among other things, repaying arrears in time so that they can ably compete against international competitors.

Kalua added that, since Malawi dealt with serious economic challenges such as the liquidity crisis commercial banks were facing between 2011 and 2012, there have not been economic reforms of note.

“The government is failing to repay arrears owed to business people and, instead, it is paying in doses. This negatively impacts private sector operations and should be looked into if we have to build the capacity of the private sector to enable it stand the competition [from private sector players in countries such as China],” Kalua said.

Part II

A visit to Songwe Border in Karonga District— a border district that is mostly used for the importation of products from neighbouring Tanzania— revealed that perceptions about China being the source of sub-standard foreign goods are sometimes misplaced, as the volume of goods from China is negligible, with one of Malawi Revenue Authority officials at the border saying China was not among the top three countries that exported a lot of goods to Malawi – through the border post— in 2016.

This could be because Malawi is party to a number of agreements. For example, at a bilateral level, Malawi maintains bilateral trade arrangements with South Africa (non-reciprocal), Zimbabwe, Botswana and Mozambique whereas at regional level the country is a member of the Southern African Development Community, Common Market for Eastern and Southern Africa, apart from being party to Tripartite Free Trade Agreement negotiations.

At a multilateral level, Malawi is a member of the World Trade Organisation, and Africa Caribbean and Pacific Group of States and the European Union Cooperation Agreement, where Economic Partnership Agreements are embedded. So, sub-standard products can come from anywhere.

“In the last quarter of 2016, we collected K200 million (roughly US$272, 851.296 at the time) through taxes imposed on electrical appliances that originated in China. Of course, some people manufacture counterfeit products in the name of China so we would not know which of the goods really originated in China,” said one official at Songwe Border.

A visit to the Chinese Embassy in the second week of June, where a press attaché asked for a questionnaire, revealed that Chinese officials were not taking negative perceptions lightly, and were working on mending public perceptions.

Actually, the Chinese team there complained that my thesis, suggesting that Malawi had become a dumping ground for Chinese products, was “too negative”.

The positive news, for China, is that top public officials in Malawi consider China an established partner, roughly 10 years after formalisation of trade relations.

In May this year, the Malawi Investment and Trade Centre (MITC) announced that it had found new markets, but China was not one of them. This, according to MITC Public Relations Manager Deliby Chimbalu, is because China is regarded as an established market for Malawi.

'Recently, the Malawi Investment and Trade Centre has been attending and facilitating SME participation of international trade fairs with an aim of promoting Malawian products on the international market. And out of those fairs we have identified potential markets in India, Dubai, Botswana and Zimbabwe and we would like to share this information with the private sector,” Chimbalu said.

Jonathan Banda, an electrical engineer and carpenter in Blantyre City, said he likes buying electrical appliances from China, describing them as cost effective.

“Chinese products are cheaper than other foreign products from, say, South Africa and the United Kingdom, hence I go for them,” says Banda, who is not fully employed and depends on piecework.

“The only downside with cheap products is that durability is a problem but, so long as the products serve me fine, I have no problem. I have not received a complaint from a client and, so, maybe, if there are problems, they solve them on their own,” Banda said.

Lilongwe-based consumer, Emmanuel Kapwepwe Mtambalika, who works in the construction industry, said he mostly buys tyres from China, which he fits to his family vehicle.

“I know the tyres I buy are mostly second-hand and, as such, I have no qualms about quality. In fact, there is no marked difference between second hand tyres imported from China and other countries,” Mtambalika said.

However, Mzuzu-based Mathews Njikho said he has problems with Chinese products.

“Organisers of my wedding, which took place on August 2, 2016, bought my suit from China. It was good, but did not last long. It started fading four months later, meaning that, even if one buys an original thing directly from China, it still does not last. In Malawi Kwacha terms, the suit was bought at K120, 000, which is a lot of money for something that lasts less than a year. I handed the suit over to my younger brother,” Njikho said.

Ministry of Trade and Industry spokesperson, Wiskes Nkombezi, said Malawi does not single out countries when it comes to trade issues, hence he could not respond to questions that single out a country.

Malawi Bureau of Standards (MBS) Director General, Davlin Chokazinga, said the bureau’s main interest is the issue of standards. As such, it ensures that products from either Malawi or outside conform to standards so that they do not pose harm to consumers.

A review of products that have been recalled by MBS in 2017, mainly on grounds of not conforming to standards, reveals that they have mostly been from Malawi and other countries, not China.

For example, on July 18 this year, MBS recalled a lot of spirit alcohol beverages, but there were no products from China on the list.

In all these cases, the spirit alcoholic beverages were recalled because “they are not compliant with the packaging specification under Malawi Standard 210, a mandatory standard in Malawi”, which meant that continued distribution of the products depended on producers “obtaining pre-production approval from the Malawi Bureau of Standards”.

But MBS has not just cracked the whip on local producers, as the statutory corporation also banned the importation, distribution, sell and use of some cooking oils manufactured outside Malawi in what it described as a fulfilment of its mandate.

Chokazinga indicates that the “mandate was given as a means of: advancing the national economy; benefitting the health, safety and welfare of the public; assisting and protecting consumers; facilitating domestic and international trade; and furthering international cooperation in the field of standardisation”.

MBS indicates that the products were banned due to shortfalls on packaging and labelling.

“Results of [an] analysis of the above named brands indicated critical failure on packaging and labelling as the products were labelled in a language that is not easily recognisable by the people of Malawi. Further to the foregoing, the samples also failed on the following parameters, which would render the product not fit for consumption or intended use: Free fatty acids (range: 0.3-0.8 percent, m/m versus 0.15 max) and Peroxide Values (range: 19.0- 24.0 milli-equivalent active oxygen/Kg – 2.0 max.).

In short, while products from Malawi and other countries have been found wanting in some cases, this has not been the case with Chinese products.

Meanwhile, Malawi has been putting its house in order in terms of environmental management, especially in these days of climate change. Since attaining independence from Britain in 1964, Malawi has not put in place mechanisms that would ensure enforcement of a Polluter Pays Principle (PPP), which means taxpayers foot bills related to environmental degradation, instead of the polluters, i.e. the manufacturers.

But Environment and Climate Change Management Department Public Relations Officer, Sangwani Phiri, said the days of taxpayers bearing the burden will soon be over, as the government is putting in place modalities for PPP.

“The Polluter Pays Principle is a new phenomenon to Malawi and is basically an acceptable common practice where those who produce emissions and effluent excessively are made to pay in tandem with the amount of damage their by-products have done to the environment. This is a very vital principle which helps in instilling a strong sense of responsibility among manufacturers, producers etc., [to ensure] that only an acceptable amount of waste, by product or toxic or poisonous product, is released into the environment to avoid causing damage to the environment.

“This principle, which is basically [about tackling] any form of unreleased pollution into the environment, also helps [in] making the possible polluters stick to the standing orders of making the environment safe and cautions them to be mindful of their pollution levels before releasing them [their wastes] into the environment. This pollution could be in the form of sound, heavy machinery, toxic and poisonous substances, scrap materials, reckless disposal of both liquid and solid into the environment,” Phiri said.

Phiri said PPP would help Malawi prevent damage to human health and the environment.

“We have many examples of Malawian factories which produce potentially poisonous and noxious substances as by-products from their activities. These are some of those who should be held responsible for the possible damage they cause to the environment in order for it to be sustainably viable for human and other living things’ survival.

“Part of a sense on PPP is to provide guidance on sustainable development in Malawi. At world level, the principle has also helped in underpinning those [who contribute to] massive greenhouses to be mindful of their activities which have been known to be playing a part in causing effects of climate change. Polluter Pays Principle is not much different from Carbon Credits in many ways in that countries much into polluting the environment such as USA, Russia, UK [United Kingdom], Germany, France, India, Brazil, China, Japan etc are given a token to cushion effects of climate change and Malawi is part of those [affected] Third World countries because their contribution to the destruction of the ozone layer, let alone promoting effects of climate change, are marginally very, very negligible but [they] keep on suffering from effects of climate change. As to Malawi’s position, we, as a country, are yet to start implementing the Polluter Pays Principle. The Polluter Pays Principle goes into tandem with the volume of corresponding waste emitted, and charges what is called carbon price which is yet to be implemented. The bigger the volume of the waste discharged or emitted into the environment, the bigger the carbon price,” Phiri said.

Phiri said, in the absence of PPP, Malawi is losing millions.

“In the absence of the PPP, Malawi Government is losing an unquantified amount of money [which] is lost each year through disposal of, or treatment of, waste materials. A good example is the disposal and restriction on some refrigerators which emit a certain noxious gas which is detrimental to both human beings and the atmosphere, notably the ozone layer,” Phiri said.

On his part, Chinese Ambassador to Malawi, Shi-Ting Wang, said he can only see positives when it comes to China-Africa relations.

“Since the establishment of diplomatic relations between China and Malawi in December 2007, our bilateral relations have enjoyed sound and rapid growth. We support each other in international and regional affairs, and enjoy win-win cooperation economically, which has brought tangible benefits to our two peoples. Besides, Malawi has a splendid culture with a long history. There is huge potential for cultural exchanges between China and Malawi.

“Actually, you can find concrete examples of China-Malawi cooperation across the country, most of which are landmark projects such as Karonga-Chitipa Road, Malawi University of Science and Technology, the Parliament building, Bingu International Conference Centre, Bingu National Stadium, just to mention a few. There are two agricultural demonstration centres aided by China in Salima and Lilongwe [districts], respectively. China also helped to build schools in Malawi, and has sent five medical teams of more than 90 doctors to this country since the establishment of diplomatic ties,” Wang said.

He added that Africa, as a whole, has also benefitted.

WANG — Actually, you can find concrete examples of China-Malawi cooperation across the country (Photo by Richard Chirombo).

Shi-Ting said, in 2016, the China-Africa trade volume reached almost $150 billion, with China occupying the position of the biggest trade partner of Africa for eight consecutive years.

According to Shi-Ting, China has built more than 5, 600 km of railway, 4, 500 km of roads, nine ports, 34 power plants, 14 airports, 68 hospitals and over 200 schools in Africa.

“Both China and Africa belong to the developing world. In the past decades, China’s Africa policy has been consistent. During Chinese President H.E. Xi Jinping’s visit to Africa in 2013, he put forward the principles of “sincerity, practical results, affinity and good faith” as the guideline of China-Africa relations. President Xi also emphasised that China should uphold the values of friendship, justice and shared interests when dealing with African countries,” Shi-Ting said.

He, therefore, hinted that China cannot turn Malawi into a dumping ground of sub-standard goods, since that would be in contravention of the principle of “shared interests when dealing with African countries”.

Whatever opinion one holds on China, the key to keeping relations warm lies in seeing the burden of scepticism laid down forever by creating win-win economic situations.

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