The Malawi Investment and Trade Centre (Mitc) has said there are no measures at the moment to ensure that investors who are given 10 year-tax holidays remain in the country after completing that period. This was one of the incentives Mitc offered to would-be investors during the India-Africa Trade meeting in New Dehli, India last week. In this interview with our Mzuzu Bureau Supervisor JOSEPH MWALE, the Mitc chief executive officer Clement Kumbemba contends that even if they leave after that period, they will have already created jobs, and left infrastructure.
While selling Malawi to investors at the India/Africa Summit, you mentioned incentives, one of which is the 10-year tax holiday. Why that long period?
These incentives are not only to foreign companies, even for Malawians companies that are here in Malawi. There is a committee in place and Mitc is also in that committee that from time to time looks at applications and speedily processes applications.
Surely there have been misunderstandings on incentives, but let me be open also to say that one way to attract investment is to offer a carrot. It is not only in Malawi that this happens. Even in developed countries incentives play a crucial role in attracting investors.
What benefit does Malawi get with such tax holidays?
You would rather bring that company, because in one way or the other, the company will pay taxes through either input or on raw materials, Pay As You Earn [Paye] and so many other things. They also employ people.
Tax incentives are important, because particularly to companies that are just starting; you are helping a company to cushion them on the cost of production. When a company is coming in, it has to build a factory, bring machinery, it has to train people. So initial capital costs are high, and that is why it is common practice to consider incentives for companies that are just starting.
So there is nothing that would help check these companies if they want to leave after enjoying the tax holiday?
Lately we have not seen any company that got tax holidays leave Malawi. May be people refer to those firms that were in export processing zones [EPZ]. At that particular time [around the year 2000], we had textile companies in these zones. Some left because of a number of reasons including declining markets for textile but tax holidays was not one of them. So I would not say there are measures to punish those that close down, I do not think so.
We gather that the International Finance Corporation (IFC) a sister organisation of the World Bank has lowered the minimum capital requirement that business or projects in Malawi can borrow from it. It lowered from $5million to $1 million. Why were people failing to access the initial minimum requirement?
It is true that our absorption of IFC loans is at a bare minimum and IFC would want Malawi’s uptake of loans to increase. For that reason, IFC has lowered its minimum requirement on Malawi just to encourage projects from Malawi on IFC portfolio. The minimum was $5 milion, but for Malawi we have been told that even a project of $1 million can be accepted. When Malawi presented to IFC that most of the projects we receive from Malawian promoters are in the category of $500 000 and around $5 million, IFC said if that is the category which would suit Malawians, then we will lower the minimum capital requirement. We have done that purposefully so that as many Malawians as possible benefit from IFC facilities.
How would you analyse the 13th Confederation for Indian Industry (CII) Exim Bank Conclave on India/Africa Project Partnership which you attended in India last week?
Almost all our delegates were having good meetings, they were engaged in intensive meetings with various companies in India, and even on our part as government, we managed to hold meetings that we wanted with our counterparts in India. It is quite encouraging that financiers, even though they have not put pen to paper, seemed to be happy with some of the projects that we submitted.