IV.  Political Environment

Nature of Bilateral Relationship with the United States

Malawi has sound diplomatic, commercial, and social ties with the
U.S.  U.S. officials enjoy access to and congenial relations with
the GOM, as well as with opposition parties, business and
commercial organizations, and representatives of other sectors of
Malawian society.  Approximately 15 U.S. businesses are present
in Malawi through subsidiary or agency relationships.  Peace
Corps volunteers and American missionaries are situated
throughout the country.  The U.S. is a leading international
donor to Malawi.

Political Issues Affecting Business Climate

Expatriate Expertise - Most larger local companies, including
foreign companies with Malawian subsidiaries, have some high
level expatriate managers.  In order to lawfully reside and work
in Malawi, these managers must be granted a "Temporary Employment
Permit" (TEP) by the GOM.  The present GOM has given strong
indications that it will not continue to grant TEPs if qualified
Malawians are available to take the positions.  Local companies
are concerned.  They claim that different cultural expectations
are brought to bear on Malawian employees, making it more
difficult for them to meet corporate expectations.

Rumors of the reversal of the Liberalized Foreign Exchange Regime
-  The February 1994 decision by the former GOM to allow the
Malawi Kwacha (MK) to float against other currencies has resulted
in an effective 65 percent devaluation of the currency and local
price increases.  As the tobacco auctions draw to a close in
September, the inflow of foreign currency into the country will
decrease, and the general expectation is that the currency will
devalue further.  Simultaneously, the currency flotation has had
the effect of stimulating local manufacturers to identify new
export markets and making hard currency available to those
willing and able to pay the price.  Due to the latter benefits,
the local business community generally favors the floating MK.
Malawi's commercial sector is presently concerned about rumors
that the new GOM may reverse the liberalized exchange system and
reinstitute a managed exchange rate.  Once the position of the
GOM becomes clear - we expect the floating MK to be retained -
business fears should subside.

Corruption - Malawi used to enjoy the reputation of an African
country relatively devoid of corruption.  This has changed, and
Malawi's business community now sees corruption - particularly
corruption associated with government services - as a threat to
legitimate competition and a critical drain on government
coffers.  When the GOM recently outlined its economic priorities,
the prevalent business comment was that the speeches were
noteworthy for their lack of emphasis on the corruption problem.

Possible Labor Unrest - The floating of the MK has effectively
decreased the buying power of Malawi's salaried employees.  The
nation's workers - both government and private sector - are
widely expected to demand pay increases before the end of 1994.
Pay increases in the amounts likely to be demanded would be in
excess of available corporate and GOM funds without reductions in
employee numbers.  Increasing pay scales without sufficient funds
would seriously threaten Malawi's structural adjustment program
with the International Monetary Fund (IMF).  Letting employees go
in order to reduce thaggregate pay roll is culturally
unacceptable in Malawi where the average salary earner helps to
support nine unsalaried Malawians.  Labor unrest is feared.

Synopsis of Political System

For approximately 30 years, Malawi was governed by an autocratic
ruler who possessed absolute control over a one party state.
This changed in May 1994, when Malawians voted the leader of the
United Democratic Front party (UDF), Mr. Bakili Muluzi, into
power as President.

Malawians are still actively defining the mechanisms of
governance under their new multiparty democracy.  The national
Constitution will be the subject of revision and amendment
throughout 1994.

The role and seat of Parliament also remain to be determined.
The national elections, contested by eight parties, returned
representatives of three parties - UDF, MCP, and the Alliance for
Democracy (AFORD) - to parliament.  UDF holds the largest number
of parliamentary seats, but no party controls the necessary
majority to adopt legislation unilaterally.

Malawi's executive branch is headed by a President and Vice
President.  There is a cabinet appointed by the President.
Presently, the cabinet consists of the President, the Vice
President, all government ministers, and one deputy minister.
There are 22 government ministries, of which three remain without
designated heads.  The Office of the President and Cabinet (OPC)
is the working office of the executive.

Malawi has a functioning and independent judiciary.  In the past,
"traditional" and "modern" courts exercised distinct
jurisdictional prerogatives.  Recently, however, the GOM has
limited the jurisdiction of the traditional courts to civil,
customary, and minor criminal cases, and has plans to vest the
high court of the modern court system with the ultimate right of
review over traditional court decisions.
The modern court system is based on the substantive and
procedural law of the British Commonwealth.