Malawi facing EITI ‘Compliant’ status test

…submits second report as Validator jets in this month       

…financial constraints threatening initiative’s future

By Chiku Jere

Malawi will this month go through its first-ever on-ground Extractive Industry Transparency Initiative (EITI) process assessment with an expected visit of EITI International Validator to investigate if the country is complying with the global transparency and accountability standards for natural resources governance or not.

The visit comes after Malawi’s second successful implementation of the EITI process whose report was submitted to EITI International Secretariat based in Oslo Norway on June 30, 2018 as per requirement.

The second report chronicles corporate entities to government revenue activities in three sectors of Malawi’s extractives industry namely; mining, oil and gas and forestry in the financial year starting July 1, 2015 to June 5, 2016.

Just like the first report which was produced last year, the second includes company payments as well as government receipts covering information on tax, royalties, rents, licences, contracts, and production, among other key elements around resource extraction.

The aim of the reporting is to strengthen the understanding of the level of contributions of the extractive sectors to the economic and social development of the country in order to improve transparency and accountability in all components of the extractive industry value chain.

The Validator’s visit was disclosed by Malawi EITI National Coordinator George Harawa during a day’s long media engagement workshop in Salima on September 26, 2018, where members of MWEITI Media Taskforce which comprises journalists from various media houses – electronic, print and online – were taken through the report.

Harawa said the Validator who is expected to be in the country from October 22 to 26, 2018 will meet and interview various stakeholders, including members of the media, to get first-hand information on their take regarding implementation of the EITI process and adherence to the EITI principles.

The Coordinator sounded optimistic of passing the test, saying, in MWEITI’s own self-assessment, Malawi   has done a commendable job in improving the EITI implementation process given the fact that it is only the second year of reporting.

Harawa said:

We remain optimistic that the validator will appreciate the commitment that the country has shown so far. We have made tremendous strides in as far as EITI reporting is concerned and we expect the validator to find us compliant and award this country that status.

It was our ambition to achieve country complaint status this year (2018) and with the support we have received from various stakeholders plus the political will that our leaders and authorities have shown, we still nurse this belief that Malawi deserves to be granted the ‘Complaint’ status.

The new report shows that unlike during the maiden reporting which catalogued payments and receipts of financial year 2014/15, the second process has seen improved participation in terms of companies selected to take part in the reporting process, with many adhering to the required standard of reporting using an appropriate template.

Also comparable to the first report which saw K810, 084,438 of revenue not reported due to payments and receipts discrepancies, the second report shows that only K93,773,902 remains unidentified by payments and receipts records, which shows an improvement in payments and receipts reconciliation.

This does not mean the money is stolen, that will be a total misrepresentation of facts, only that the records are yet to be traced or corroborated,

Harawa explained.

In his overall assessment, he said though Malawi is moving towards the right direction in terms of EITI  implementation, there remains room for improvement.

All we want is for MWEITI to help put the industry in order, first by helping putting a proper legal framework in place that will ensure that mining environment is conducive for both companies and the country for the benefit of all the citizens,

he said.

Harawa said next step will be to mainstream MWEITI implementation, develop a guiding policy and conduct legal impediment study to inform policy direction. However, the outcome of the validation process will be key to what happens next.

Despite registering promising progress in as far as opening up the dealings in the extractives industry is concerned, Malawi’s EITI implementation is facing a foggy future, as there is no guaranteed financial support to the initiative.

Currently the initiative solely runs with the support from GIZ’s Public Financial and Economic Management (PFEM) project which aims at helping the government in addressing weaknesses in public financial management, restore basic internal control mechanisms, increase transparency, and make efforts to regain public trust in financial governance.

GIZ with co-financing from DFID funded the initial EITI reporting process. However, the second report was entirely funded by GIZ, but it has since reduced its funding commitment, cutting out MWEITI’s Secretariat operational costs, making it almost impossible for the Secretariat to retain essential staff needed to carryout implementation activities.

In fact, all administrative support has been cut off without prior warning or even a grace period for Malawi government to plan to absorb the costs, as the Secretariat is yet to be included on the annual budget since the functional review is yet to be done.

Imagine only one officer, the accountant, is remaining. The rest have gone since the office has no money for administration, and the employees had to go for several months without getting salaries. This is why they left,

said a source who did not want his name mentioned for other important reasons, but expressed worry that losing trained personnel who were well-conversant with EITI issues was an unfortunate development and it is affecting the momentum of the reforms.

The source also said even funding for activities takes very long to be released, resulting in some timelines being missed.

Efforts to seek a comment from GIZ-PFEM Team leader on the matter proved futile as a questionnaire sent through [email protected], an email obtained from Getrude Kachule GIZ Communication Officer who has reportedly just resigned, was yet to be responded to.

Meanwhile, Mining & Trade Review has also observed waning of political will that was initially shown by Malawi leader, President Peter Mutharika, when he publicly declared interest to join the initiative in his maiden State of the Nation Address and eventually appointing Minister of Finance and Economic Development Goodall Gondwe as the ‘Champion’ for EITI.

Apparently, Malawi Government seems not ready to take responsibility of funding the initiative through budgetary subvention, despite hosting MWEITI Secretariat in the Ministry of Finance premises at Capital Hill.

When asked, Harawa acknowledged financial constraints MWEITI is facing but remained hopeful of Malawi’s continued implementation of the initiative.

As government, we are still trying to look for other funding options to supplement GIZ’s. And let me stress here, pulling out of this very important initiative is not an option,

he said.

The national coordinator also emphasized further that the fact that MWEITI is facing some financial limitations should not water down, even a bit, or discredit the great and immeasurable financial and technical support that the initiative has received and continue to do so, from GIZ and other development partners.

As government as well as MWEITI, we will remain indebted to this remarkable support from these development partners,

said Harawa.

On his part, Kossam Munthali, Board Chairperson of Natural Resources Justice Network (NRJN), a grouping of civil society organisations that advocate for good governance for extractives sector and also representative of civil society in the MWEITI Multi-Stakeholder Group that oversees EITI implementation, expressed concern over the issue of insufficient funding, describing it as an unfortunate development.

Nonetheless, Munthali expressed appreciation for the support that GIZ and other development partners have offered and continue to offer, but said pulling out now will be retrogressive considering the encouraging progress that has been made this far in improving transparency in the extractives sector, citing that all contracts are now accessible on MWEITI website.

He proposed the need for a clearly and jointly developed exit plan to be agreed upon between Malawi government and German government in case the donor contemplates pulling out its funding.

EITI is based on the international principles first announced at the World Summit for Sustainable Development in Johannesburg in 2002 (‘Earth Summit 2002’), and officially agreed and launched in London in 2003.

The principles state that the wealth from a country’s natural resources should benefit all its citizens and that this requires high standards of transparency and accountability.

Through EITI, resource-rich countries are compelled to prudently manage their natural resources for inclusive benefit of its citizenry through economic growth, sustainable development and reduction of poverty.

A subsequent new EITI Standard (the “EITI Standard”) whose principles are based on the affirmation that public understanding of government revenues and expenditure over time, could help public debate and inform choice of appropriate and realistic option for sustainable economic growth and reduction of poverty in resource-rich countries, was later published on February 23, 2016.

The EITI Standard sets out the requirements which countries need to meet in order to be recognised, first as an EITI ‘Candidate’ and ultimately as an EITI ‘Compliant’ country after meeting all requirements.

Malawi was admitted as EITI ‘Candidate’ in October 2015 and through MSG, is expected to annually produce EITI report for assessment to attain ‘Compliant’ status.

There are currently 51 implementing countries, of which 16 made meaningful to satisfactory progress and 25 countries are yet to be assessed against the 2016 standard. Malawi falls in the latter category.

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This piece was initially published in Malawi’s Mining & Trade Review Issue Number 66 (October 2018).

The full edition is available for download here. This monthly publication is edited by Marcel Chimwala.