Doing Business in Malawi: Ufulu Gardens

MALAWI, October 1, 2007 --In 1996, the Gondwes were facing a huge spread of land in Area 43 of Malawi’s capital Lilongwe. It belonged to them but consisted solely of bush. In their heads, a vision: houses to rent for passing businessmen and their families. In her hand, a drawing of homes neatly aligned around a cul-de-sac, the way suburbs are in the United States. In his hand: a hoe.

As Victor Gondwe was clearing the bush, many people around thought that the computer analyst just back from Seattle had lost his mind, but when he promised them a few American sardine boxes in exchange for back-breaking work, they accepted. Three years later, Ufulu Gardens was opening.

“It just started with the idea of going back to Malawi, but wanting to build something there,” said Ivy Gondwe. “One day, at the dinner table, we talked about buying land and building. A friend drew a sketch, a typical American neighborhood in the suburbs. Now I am managing the business.”

Challenges to Starting Their Dream

Back then in 1996, it was not easy for the Gondwes to start their business. They were venturing into the tourism industry armed only with a will to actualize a dream they had while in the diaspora.

“Nobody understood what we were trying to do,” said Ivy Gondwe. “Neither my husband nor I had any experience in the hotel industry. We didn’t know enough people. It was hard.”

Gondwe said they knocked on doors of many government officials with no luck. They had neither guidance nor information on government regulations on setting-up such a business.

The estimated cost of their project was US$350,000 and they had no funds beyond their savings. Getting credit was a major problem. No local bank was willing to finance them. Then, one day, they had a stroke of luck which changed their fortune.

“We were in a hotel and my husband saw a man drinking on his own at the bar. He sat down and said ‘I’ll drink a beer with you.’ They started talking. The day after, on the way to the airport, the business man stopped by the construction site and was impressed. He was working with the IFC, which was incredibly supportive in the first years and allowed us to finish this project. We opened in 1999,” she said.

The Gondwes have since paid off their International Finance Corporation loan. Despite this good record with the IFC, they still have problems getting credit. They are now expanding their cul-de-sac premises of 17 semi-detached, one to three-bedroom apartments, with a 25-room hotel, restaurant, bar and conference room. The expansion is estimated to cost US$1.6 million. The construction started several years ago, but funding is stalling: Malawian banks still have high interest rates at an average of 23 percent, which is actually low compared to 60 percent in 1996 when the Gondwes started their business. In the 2008 Doing Business Report, Malawi ranks 84/178 on ease of getting credit compared to 2007 where Malawi ranked 65 out of 175.

Foreign banks have better rates but have been reluctant to invest such a big sum in Ufulu Gardens especially since it is a family-run operation. One Nordic bank has agreed to finance the Gondwes on condition that they hire a professional hotel manager.

Another challenge was finding well-trained hotel staff. Over the years, they have invested in training employees and now have skilled staff that has contributed to the 100 percent occupancy rate that Ufulu Gardens enjoys. Ivy Gondwe added: “We built our clientele very slowly, through word-of-mouth mostly, and some advertising. Now some people tell us that if we don’t have vacancies, they will postpone their trips!”

Things are getting better

Overall, Malawi’s government is taking steps to improve the doing business environment.

Back in the late 90’s, the Gondwes had to knock on many doors to ask for duty free waivers – waivers that allowed them to import certain goods to be used by the business duty free, and that others seemingly received freely. Time and time again, according to Ivy Gondwe, she would return home empty-handed.

At that time, getting a waiver was a ministerial discretion. But in the past two years, sectors that can get waivers have been clearly spelt out, and the tourism sector is one of them. Even some imported materials for the expansion of Ufulu Gardens will qualify for waivers under the new regulations.

In addition, at the national strategic level, the Malawi Growth and Development Strategy (2006-2011) emphasizes private-sector-led growth. In the regulatory environment, legislation is being reviewed to ease doing business. For example, introducing a single business license would significantly reduce costs and encourage businesses to enter the formal sector. In the latest Doing Business Report (2008), Malawi is ranked 127 out of 178 on the ease of dealing with licenses. In 2007, Malawi ranked 110 out of 175 countries. In May 2007, Malawi’s Commercial Courts started functioning. These courts are important for enforcing contracts and settling commercial disputes.

“It is easier now to do business in Malawi, although we still cannot find investors,” said Ivy Gondwe. “People understand the vision better. I know we will find the funds. I know we will finish the expansion, but it takes time.”