28 Nov 2018

Statement by Honorable Goodall Gondwe Minister of Finance Economic Planning and Development At the launch of Malawi Agricultural and Industrial Investment Corporation Plc (MAIIC) at BICC in Lilongwe 28th November 2018

Salutations

Your Excellency Professor Arthur Peter Mutharika, President of the Republic of Malawi

Your Excellency Professor Gertrude Mutharika, First Lady of the Republic of Malawi

All protocol observed

Distinguished invited guests, ladies and gentlemen

Your Excellency, ladies and gentlemen, I feel greatly privileged and honored this morning to stand before you at this very auspicious occasion for our nation when we witness the birth of another game changer in the history of our economy.  My task this morning it to humbly request you, Your Excellency, to deliver the key note address to our guests and to formally launch the Malawi Agricultural and Investment Corporation Plc (MAIIC). But before I do that, please permit me, Your Excellency, to say some very few remarks.

Firstly, I join the speakers who have spoken before me in welcoming you, Your Excellency, and all our invited guests to the launch of Malawi Agricultural and Industrial Investment Corporation Plc (MAIIC). I thank you all most sincerely for accepting to come to bear witness to the establishment of an entity that will help spearhead private sector development.

Your Excellency, distinguished ladies and gentlemen

Secondly, please allow me to recall the genesis of the formation of this entity. Your Excellency, the plan to establish a national development finance institution (DFI) has been under consideration for some years now. A feasibility study commissioned by the Government Malawi (GoM) in 2013 with assistance from the World Bank under the Financial Sector Technical Assistance Project (FSTAP) showed that there was a great need for the establishment of a development financial institution in this country. It was confirmed that there were significant financing gaps particularly for infrastructure and small and medium enterprises.  Another feasibility study was commissioned in July 2018 to update the 2013 feasibility study findings. The results of the recent study have confirmed the 2013 feasibility study findings that there is about K2.8 trillion (or USD4 billion) of unmet demand for finance in the private sector. In parallel to this effort, the government in 2017, with funding from the Africa Development Bank AfDB), commissioned a feasibility study for the establishment of an agricultural cooperative bank. This report was released to government in October 2018. This study found that the creation of a separate agricultural cooperative bank was not suitable for Malawi due to the weak development status of the co-operative sector among other reasons. However, the same report recommended that an agriculture development financial institution would be more suitable although the demand for finance was assessed to be slightly lower. Now to avoid creating two separate entities to champion development finance, we requested our partners CDH Investment Bank to see if the two projects could be combined into one entity. This is why the Malawi Agricultural and Industrial Investment Corporation Plc or MAIIC is a result of amalgamation of the two projects that government wanted to embark on. The business plan of MAIIC has combined the finance needs of the entire private sector be it commerce, industry and agriculture to name a few.

In May 2018, following your approval, Your Excellency, the government signed a memorandum of understanding (MOU) with CDH Investment Bank to establish and operationalize a development finance institution in Malawi. At this juncture, please allow me to applaud Mr Franklin Kennedy, Board Chairman of CDH Investment Bank for the tremendous work his team has done to this very day when we witness the launch of the project. I recall the number of consultative meetings with the project steering committee as well as with the management of CDH Investment Bank who have worked tirelessly to make to this day come true.

The MoU between the government and CDH Investment Bank on this project set out a number of commitments for both CDH and the government. Among others, on its part, the government set out:

  • To render the entity and investment into the entity as well as income as capital gains derived from investments from the entity exempt from all taxes with effect from the time the entity is registered.
  • To provide requisite support to the entity including directing government commercial projects to work with the entity.
  • To provide capital-raising support to the entity through its various cooperating partners and international development financial institutions, including project development funding.
  • To invest initial seed capital into the entity as its equity capital to implement the Project including to finance the development of commercially-viable projects whether public or private to take them to investment stage to attract investors.

I am pleased to confirm that the government, with your approval, Your Excellency, has fulfilled most of its commitments under the MoU. To cite a few, I am pleased to inform the meeting here and the nation that government has injected seed capital into the entity amounting to K22 billion (or USD25) million. In addition, a tax agreement in line with the powers conferred on my office as Minister of Finance Economic Planning and Development has been drafted for signing in the next few days. The tax agreement grants the entity a tax holiday for a period of 15 years. We will include in the tax agreement an exemption from income tax all income of whatever form derived by investors in the entity. This is to give the entity more investor appeal to attract risk capital in its infancy stages. We will also include in the tax agreement exemptions in respect of customs duties and Value Added Tax on goods and services imported by and for the exclusive use of the entity. This is a deliberate economic development policy of government to enable MAIIC to take on more development finance challenges head-on in its catalytic role for private sector development. If this entity is successful which we believe will be the case, government stands to gain more in taxes through an expanded private sector that will also generate new jobs and wealth for the nation.

Your Excellency, Malawi Agricultural and Industrial Investment Corporation Plc (MAIIC) has been specifically established in line with your vision which favours a robust and vibrant private sector as the key driver of the economy. This is one of the many initiatives that your government has instituted in a bid to make Malawi an export-oriented economy. The establishment of MAIIC will fill the financing gaps that have hitherto hindered private sector. We have a better instrument to industrialise the economy. This entity, Your Excellency, will depend on the full support of government so that its efforts are not undermined in any way.

Your Excellency, ladies and gentlemen,

Please let me briefly touch on the institutional and operational framework of the entity based on framework that has been put in place. MAIIC has been registered as a public liability company, which at law, is permitted to raise capital from the public. We went this route as a show of commitment by government to let this company be run and governed by the private sector in line with international best practice. From the advice we have received from the various consultants who worked with us on this project, the company will not be a bank but will rather be a self-regulating entity relying on the strong professionalism of its board of directors and management to run it sustainably. We believe running it as a registered bank will undermine the initial capital resources that we have injected in the entity in view of the high compliance costs arising from banking laws and regulations. MAIIC will therefore not take deposits. Rather, it will fund its operations with equity, debt, credit and guarantee lines to name a few instruments. Initially, all funding will be privately sourced before the entity lists on the Malawi Stock Exchange which would be in the medium term. Operationally, the company will not compete with banks but rather collaborate with them. In other words, it will design products and services and then invite banks and other financial institutions to co-finance businesses, projects and SMEs after reducing the risks that the banks normally perceive. In the agriculture sector, the company will provide loanable funds on wholesale basis only through agriculture co-operatives or established commercial farmers to reach smallholder farmers. From now onwards, MAIIC will collaborate with all important stakeholders including the Ministry of Agriculture Irrigation and Water Development, the Ministry of Industry Trade and Tourism, farmer organisations and unions to strengthen the agriculture cooperative sector, the SME sector, the youth, women to make them better able to receive financing. Let me join those that have spoken before me to express the hope that MAIIC will receive the support of all local and international investors as well as our development partners when it embarks on raising more capital for the private sector. We expect all local banks and financial institutions to collaborate with MAIIC within the bounds set by the Reserve Bank of Malawi as their regulator.

Your Excellency, distinguished invited guests, ladies and gentlemen, with those very few remarks, it is my singular honor and privilege to invite His Excellency Professor Arthur Peter Mutharika, President of the Republic of Malawi to address us and to officially launch the Malawi Agricultural and Industrial Investment Corporation Plc (MAIIC), an entity that has been created with the support of the government to spearhead private sector development.

Your Excellency, Sir.

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Goodall E Gondwe

Minister of Finance Economic Planning and Development

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