Economy of Madagascar

Vibrant Antananarivo is the political and economic capital of Madagascar

Economy of Madagascar

Rice paddies in Madagascar
Currency	1 Malagasy ariary (MGA) = 5 Iraimbilanja
Fiscal year	calendar year
Trade organisations	WTO
Statistics
GDP	USD $20.76 billion (2008 est.)
GDP growth	7% (2008 est.)
GDP per capita	USD $ 1000 (2008 est.)
GDP by sector	agriculture(26%), industry(15,9%), services(58,1%) (2008 est.)
Inflation (CPI)	9.5% (1999 est.)
Gini coefficient	47.5 List of countries by income equality
Labour force	7 million (1995)
Unemployment	5.9%
Main industries	meat processing, soap, breweries, tanneries, sugar, textiles, glassware, cement, automobile assembly plant, paper, petroleum, tourism,
External
Exports	$600 million (f.o.b., 1998 est.)
Export goods	coffee 45%, vanilla 20%, cloves, shellfish, sugar, petroleum products (1995 est.)
Main export partners	France 40%, United States 9%, Germany 8%, Japan 6%, United Kingdom 6% (1997)
Imports	$881 million (c.i.f., 1998 est.)
Import goods	intermediate manufactures 30%, capital goods 28%, petroleum 15%, consumer goods 14%, food 13% (1995 est.)
Main import partners	France 39%, Hong Kong 5%, Japan 5%, People's Republic of China, Singapore (1997)
Public finances
Government debt	International: USD $4.1 billion (1997 est.)
Revenues	$553 million
Expenses	$735 million, including capital expenditures of $NA (1998 est.)
Economic aid	recipient: $838 million (1997)
Main data source: CIA World Fact Book All values, unless otherwise stated, are in US dollars.

Agriculture

Main article: Agriculture of Madagascar

Agriculture, including fishing and forestry, is the mainstay of the Madagascar economy and the country has a great potential for growth in the sector. In 2009, agriculture accounted for 24 percent of Gross Domestic Product (GDP), while commerce and services accounted for 55 percent. Agriculture employs more than 70 percent of the labour force and provides [[livelihood]s to the vast majority of about 20 million inhabitants, contributing more than 70 percent to export earnings, mostly through the export of seafood (mainly shrimps), vanilla, coffee, cacao, litchi, pepper, cotton, tobacco, groundnut, sisal, clove and ylang-ylang. Industry features textile manufacturing and the processing of agricultural products. Growth in output in 1992-97 averaged less than the growth rate of the population. Growth has been held back by a decline in world coffee demand, and the erratic commitment of the government to economic reform. Formidable obstacles stand in the way of Madagascar's realizing its considerable growth potential; the extent of government reforms, outside financial aid, and foreign investment will be key determinants.

Madagascar is an island endowed with a tropical climate along the coasts, a moderate climate in the highlands and an arid climate in the south. The diversity of its ecology and climate makes it possible to grow temperate crops such as apples, pears, plums, grape and citrus fruits and tropical products such as mangoes and litchi, as well as a wide variety of other crops including coffee, cloves, sisal, maize, tubers and various spices.

Resources

Madagascar's sources of growth are tourism; textile and light manufacturing exports (notably through the EPZs); agricultural products and mining. Madagascar is the world's leading producer of vanilla and accounts for about half the world's export market. Tourism targets the niche eco-tourism market, capitalizing on Madagascar's unique biodiversity, unspoiled natural habitats, national parks and lemur species. Exports from the EPZs, located around Antananarivo and Antsirabe, consist the most part of garment manufacture, targeting the US market under AGOA and the European markets under the Everything But Arms (EBA) agreement. Agricultural exports consist of low-volume high-value products like vanilla, lychees and essential oils. Madagascar has the largest cinnamon market in Africa. Madagascar also is a large exporter of coffee.

Mining

A small but growing part of the economy is based on mining of ilmenite, with investments emerging in recent years, particularly near Tulear and Fort Dauphin. Mining corporation Rio Tinto Group started production at its Fort Dauphin mine in January 2009, following several years of infrastructure preparation. The mining project is highly controversial, with Friends of the Earth and other environmental organizations filing reports to detail their concerns about effects on the local environment and communities.

Several major projects are underway in the mining and oil and gas sectors that, if successful, will give a significant boost. In the mining sector, these include the development of coal at Sakoa and nickel near Tamatave. The Ambatovy nickel mine (Sherrit International 40%, Sumitomo 27.5%, Korea Resources 27.5%, SNC Lavelin 5%) is a huge operation having cost $4.76m to date and is due to start production in 2011. In oil, Madagascar Oil is developing the massive onshore heavy oil field at Tsimiroro and ultra heavy oil field at Bemolanga.

Tulear

Investment climate

Former President Marc Ravalomanana of Madagascar

The government of former President Marc Ravalomanana was aggressively seeking foreign investment and had planned to tackle many of the obstacles to such investment, including combating corruption, reforming land-ownership laws, encouraging study of American and European business techniques, and active pursuit of foreign investors. President Ravalomanana rose to prominence through his agro-foods TIKO company, and is known for attempting to apply many of the lessons learned in the world of business to running the government. Prior to Ravalomanana's resignation, concerns had arisen about the conflict of interest between his policies and the activities of his firms. Most notable among them the preferential treatment for rice imports initiated by the government in late 2004 when responding to a production shortfall in the country.

Madagascar’s appeal to investors stems from its competitive, trainable work force. More than 200 investors, particularly garment manufacturers, were organized under the country’s export processing zone (EPZ) system since it was established in 1989. The absence of quota limits on textile imports to the European market under the Lome Convention helped stimulate this growth.

Since the mid-1980s, Madagascar has run sizeable balance-of-payment deficits. The current account deficit as a percentage of GDP averaged in excess of 6% during much of the 1990s and registered nearly 4 percent in 1999. Madagascar’s debt ratio, which had reached 46 percent in 1996, was estimated at 15.4% in 2000. Within an overall framework of poverty reduction, the HIPC Initiative was expected to enable the country to reduce its debt service ratio to 5.5% in 2003, and remain at around 5% throughout the projection period 2000-19.

Port Toamasina

From more than 60% in 1994, the inflation rate dropped to 6.4% in 1998, before rising again to 14.4% in 1999 and 8.7% in 2000.

During a period of solid growth from 1997 to 2001, poverty levels remained stubbornly high, especially in rural areas. A six-month political crisis triggered by a dispute over the outcome of the presidential elections held in December 2001 virtually halted economic activity in much of the country in the first half of 2002. Real GDP dropped 12.7 percent in 2002, inflows of foreign investment dropped sharply, and the crisis tarnished Madagascar's budding reputation as an AGOA standout and a promising place to invest. After the crisis, the economy rebounded with GDP growth of over 10% in 2003. Currency depreciation and rising inflation in 2004 hampered economic performance, but growth for the year reached 5.3%, with inflation reaching around 25% at the end of the year. In 2005 inflation was brought under control by tight monetary policy of raising the Taux Directeur (central bank rate) to 16% and tightening reserve requirements for banks. Thus growth was expected to reach around 6.5% in 2005.

Following the 2002 political crisis, the government attempted to set a new course and build confidence, in coordination with international financial institutions and donors. Madagascar developed a recovery plan in collaboration with the private sector and donors and presented it at a "Friends of Madagascar" conference organized by the World Bank in Paris in July 2002. Donor countries demonstrated their confidence in the new government by pledging $1 billion in assistance over five years. The Malagasy Government identified road infrastructure as its principle priority and underlined its commitment to public-private partnership by establishing a joint public-private sector steering committee.

The Madagascar-U.S. Business Council was formed as a collaboration between the United States Agency for International Development (USAID) and Malagasian artisan producers in Madagascar in 2002. The U.S.-Madagascar Business Council was formed in the United States in May 2003, and the two organisations continue to explore ways to work for the benefit of both groups.

Food Security, Vulnerability and Risk Management

Main article: Food Security in Madagascar

Despite a wealth of abundant and diverse natural resources, Madagascar is one of the world’s poorest countries. Madagascar holds great potential for agricultural development, mainly due to the large variety of soil types and climatic diversity. Nevertheless, natural hazards (cyclones, drought, locust invasions) combined with old-fashioned farming practices limit production.

The standard of living of the Malagasy population has been declining dramatically over the past 25 years. The country has gone from being a net exporter of agricultural products in the 1960s to a net importer since 1971. Inappropriate traditional agricultural methods cause soil to erode and soil quality to decline, and the basis of survival for Madagascar’s people is under serious threat.

Poverty reduction

Local market vendors.

In 2000, Madagascar embarked on the preparation of a Poverty Reduction Strategy Paper (PRSP) under the Heavily Indebted Poor Countries (HIPC) Initiative. The boards of the IMF and of the World Bank concurred in December 2000 that the country was eligible under the HIPC Initiative, and Madagascar reached the decision point for debt relief. On March 1, 2001, the IMF Board granted the country $103 million for 2001-03 under the Poverty Reduction and Growth Facility (PRGR). Resources were intended for improving access to health, education, rural roads, water, and direct support to communities. In addition, on March 7, 2001, the Paris Club approved a debt cancellation of $161 million. On February 28, 2001, the African Development Bank (ADB) approved under the HIPC a debt cancellation of $71.46 million and granted in June 2001 an additional credit of $20 million to fight against AIDS and poverty.

Partly as a result of these credits but also as a result of previous reforms, average GDP growth exceeded the population growth rate of 2.8% in 1997 (3.5%), 1998 (3.9%), 1999 (4.7%) and 2000 (4.8%).

In October 2004, the boards of the IMF and the World Bank determined that Madagascar had reached the completion point under the enhanced HIPC Initiative.

Facts and figures

Household income or consumption by percentage share:
lowest 10%: 2.3%
highest 10%: 34.9% (1993)

Industrial production growth rate: 5% (1999 est.)

Electricity - production: 750 GWh (1998)

Electricity - production by source:
fossil fuel: 33.33%
hydro: 66.67%
nuclear: 0%
other: 0% (1998)

Electricity - consumption: 698 GWh (1998)

Electricity - exports: 0 kWh (1998)

Electricity - imports: 0 kWh (1998)

Exchange rates: Malagasy francs (MGF) per US$1 – 6,302.9 (October 1999), 5,877.81 (1999), 5,441.4 (1998), 5,090.9 (1997), 4,061.3 (1996), 4,265.6 (1995)

See also

• Illegal logging in Madagascar
• Economy of Africa
• Tourism in Madagascar

Bibliography

• FAO Statistic Yearbook 2010 – Resources. Text Online: http://www.fao.org/economic/ess/ess-publications/ess-yearbook/en/
• The World Bank. Madagascar at a glance, 2/25/11. Text Online: http://devdata.worldbank.org/AAG/mdg_aag.pdf

External links

• Economy of Madagascar at Curlie
• MBendi Madagascar overview
• Madagascar latest trade data on ITC Trade Map
• Why is Madagascar so poor?
• Business in Madagascar