Madagascar Economy
Basic Economic Facts
GDP: US$4.0 billion (World Bank figure 2002)
GDP per head: US$356
Annual Growth: 6.0% (2004 estimate)
Inflation: 4.9% (estimate for first half of 2004)
Major Industries: Mining, Fishing, Paper, Tourism, Food/Tobacco, Chemicals, Petrol Refining, Cement, Metal Work
Main Imports: Machinery & Transport Equipment, Mineral Fuels, Foodstuffs, Consumer Goods
Main Exports: Coffee, Shellfish, Vanilla, Fish, Re-Exports from Freezone, Cloves, Pepper, Cotton, Chromite, Graphite, Sapphires.
Major Trading Partners: France, US, Germany, UK, Mauritius, China
Exchange rate: 1=FMG 15,259 (average for 2004)
Following the arrival in power of Ratsiraka in 1975, the Malagasy economy, which had been on a similar level to those of Thailand or Botswana, deteriorated steadily. According to the World Bank, over the last three decades Madagascar has recorded the fifth-lowest rate of GDP growth in the world (0.5% per annum). In recent years, it has improved owing to a programme combining resumed donor structural adjustment support, debt rescheduling, liberalisation, privatisation and the establishment of the Zone Franche, concentrating mainly on garment manufacture. In the period 1999-2001, despite wide-spread corruption, GDP rose from 4% to almost 6% pa. However, during the political crisis of 2002, many companies stopped operating and a large majority of the 160,000 Zone Franche employees lost their jobs.
Fiscal revenue is low (about 12% of GDP). This constraint on public finances makes the government budget dependent on donor flows. While new export industries have grown up particularly prawn farming and value added in the Zone Franche – some traditional agricultural exports are experiencing problems from world prices (coffee) or ageing plantations. Imports have also been rising under liberalisation, putting pressure on the balance of payments: foreign exchange has been liberalised, import licences removed and some State monopolies ended. The new government pledged to address these issues in order to win back the confidence of international investors, and to regenerate the economy. To this end, a Decree issued in August 2003 cancelled all tariffs on agricultural, industrial, IT and electrical household appliances for the next 2 years in an effort to boost growth. Legislation is also being passed to allow non-Malagasy investors to buy land. The Government is committed to reducing poverty and fighting corruption, as well as to the principles embodied in the New Partnership for African Development (NePAD)
Agriculture dominates the Malagasy economy, accounting for 33% of GDP and employing 86% of the workforce. Although traditional crops of coffee, vanilla, cloves and pepper continue to make up a large part of agricultural exports, fish and particularly prawns have moved up the list. The industrial sector represents only 13% of GDP, focused on textile manufacturing, wood, cement, paper and soap products, and the processing of agricultural produce. Madagascar is rich in mineral resources, with sapphires, emeralds and ilmenite, and may have potentially interesting reserves of oil and natural gas. But virtually all mining activity is in private hands with little benefit reaching the people. The Government is formalising the sector. Tourism will play an increasing role, and hotel accommodation is improving.
But generally weak infrastructure, particularly roads and transport, a lack of transparency in the legal system, and ambivalence over land tenure for foreigners could act as a brake on development unless the Government succeeds in changing mentality and in implementing its ambitious developmental plans including a massive programme of road building and repairs. Ravalomananas government is addressing these issues, and is making slow but steady progress in the key sectors of manufacturing, tourism and agriculture. The recent increase in oil prices has badly affected the Malagasy economy, heavily dependent as it is on imported oil. The knock-on effect has been a huge rise in the cost of living together with a dramatic fall in the value of the Malagasy Franc.
