The problem in context

Malawi is a land-locked country occupying the southern part of the Rift Valley in east Africa. It is bordered by Zambia to the west, Mozambique to the south and east and Tanzania to the north. In 2001, the estimated population in Malawi was 11 million (World Bank 2003). This relatively small sub-Saharan African country is one of the poorest in the world, with GDP per capita of US$163 in 2001 and over half of the poor population living in the rural area.

Malawi is an open economy, but trade openness has not fostered economic growth, as is indicated by the declining figures for economic growth (from 6% in 1990 to –1% in 2001). Merchandise trade has declined significantly over time, with exports decreasing from US$442 million in 1999 to US$310 million in 2001, and imports from US$698 million to US$550 million in the same period (World Bank 2003).Tobacco, tea, sugar and coffee account for 90% of merchandise exports, with tobacco as the main export. There have been some efforts to diversify to non-traditional products such as fruit and vegetables and spices. On the import side, the main imports are vehicles and parts, petroleum fuels, machinery, boilers and parts, electrical machinery, fertilizer, wheat flour, pharmaceuticals, iron and steel.

Agriculture contributes a little more than a third (34%) to Malawi's GDP, while the manufacturing and service sectors account for 18% and 48% respectively (World Bank 2003). Most of the activities in the service sector are non-tradable.