BLANTYRE (Reuters) –When Malawi, one of the poorest countries in the world, signed an agreement under which Brazilian mining company Vale would rehabilitate and build a railway through the country, the deal was seen as a major economic opportunity for Malawi. But a story written by local journalist and Thomson Reuters Foundation programme participant Rex Chikoko revealed that the terms of the agreement may give Malawi little cause for celebration.
In December 2011, the Malawi government signed a concession agreement involving Mozambique and Vale. Vale was to rehabilitate and build 136 kilometres of railway cutting across Malawi as part of a 912-kilometre railway project, funded primarily by Vale, to transport an estimated 18 million tonnes of coal annually from Vale’s Moatize mine in Tete, Mozambique, some 900 kilometres inland, through Malawi to the new deepwater port of Nacala on the Mozambique coast.
With the opening of the railway on the horizon, Rex’s story, published in The Nation in July 2015, highlighted a number of tax exemptions the Malawi government granted Vale. According to Rex’s article, an analysis of the agreement revealed that “Malawi gave away corporate tax calculated at 30 percent and value added tax (VAT) at 16.5 percent”, gave a number of other tax exemptions, and “technically accepted to forego potential foreign exchange earnings”.
The analysis concluded that “Malawi is expected to be getting 920 million kwacha (about $2 million) annually out of the 460 billion kwacha ($1.1 billion) VLL railway line investment ,after giving the company tax exemptions from almost all the taxes that could have accrued”.
A taxation consultant interviewed by Rex said he believed that Malawi got a “raw deal”, and that the government “gave out a bit too much”, citing the government’s lack of negotiating skills as the reason for the extent of the exemptions. A former government employee interviewed by Rex agreed, saying he thought the negotiators “failed to push a hard bargain”.
In defence of the concessions, Ministry of Finance spokesman Nations Msowoya said that “negotiations were done in the spirit of sharing risks”, and that “the project has rejuvenated the ailing rail sub-sector in Malawi and continues to attract more investors in businesses related to railway”.
Rex, a participant in the Foundation’s Wealth of Nations programme, funded by Norad, said the workshops he participated in, plus access to one of the programme’s expert mentors, went a long way towards turning his investigation into a publishable story.
“Wealth of Nations helped me to shape up the story and interpret the documents I had. In Malawi stories about agreements are rarely pursued because of the complexity of the subject. With the training and mentoring I received from Wealth of Nations we tackled the story and eventually published it. Wealth of Nations went out of their way to help me unpack the agreement and to make sense out of it”.
According to the follow-up story Rex wrote, published in The Nation in September 2015, progress towards the start of commercial operations by the railway has come to a halt, with the Malawi government and Vale accusing each other of delaying the opening.
Rex, assessing the impact his story may have had on the government-Vale agreement, said that “measuring the impact is difficult in Malawi, especially when people like to discuss simple political issues more than complicated issues. However, since the story was published the government has put more spanners in the works, demanding answers to questions about the project. The government has withheld the operating licence until some areas which the government deemed not right were corrected”.