Economy of Madagascar

. 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.

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, litchies and essential oils. Madagascar is the largest cinnamon market in Africa.

Mining

expects to begin operations near Fort Dauphin in 2008, 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. [ [http://www.foe.co.uk/resource/press_releases/rio_tintos_madagascar_mini_22102007.html Rio Tinto's Madagascar mining project] ]

Several major projects are underway in the mining and oil and gas sectors that, if successful, will give a significant boost to the Malagasy economy. In the mining sector, these include the development of coal at Sakoa and nickel near Tamatave. In oil, Madagascar Oil is developing the massive onshore heavy oil field at Tsimiroro and ultra heavy oil field at Bemolanga.

Investment climate

company, and is known for attempting to apply many of the lessons learned in the world of business to running the government. Some recent concerns have 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.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. ["Made in Madagascar: Exporting Handicrafts to the U.S. Market: a Project with the UN Public-Private Alliance for Rural Development; Final Report" [http://www.un.org/esa/coordination/Alliance/documents/website/Handicrafts%20Table%20of%20Contents,%20Introduction.doc] , A Project with the UN Public-Private Alliance for Rural Development.] 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.

Poverty reduction

.

Partly as a result of these credits but also as a result of previous reforms, average GDP gowth 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

GDP:purchasing power parity - $11.5 billion (1999 est.)

GDP - real growth rate:4.5% (1999 est.)

GDP - per capita:purchasing power parity - $780 (1999 est.)

GDP - composition by sector:
"agriculture:"34%
"industry:"12%
"services:"54% (1997 est.)

Population below poverty line:NA%

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

Inflation rate (consumer prices):9.5% (1999 est.)

Labor force:7 million (1995)

Unemployment rate:5.9%

Budget:
"revenues:"$553 million
"expenditures:"$735 million, including capital expenditures of $NA (1998 est.)

Industries:
meat processing, soap, breweries, tanneries, sugar, textiles, glassware, cement, automobile assembly plant, paper, petroleum, tourism

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)

Agriculture - products:
coffee, vanilla, sugarcane, cloves, cocoa, rice, cassava (tapioca), beans, bananas, peanuts; livestock products

Exports:$600 million (f.o.b., 1998 est.)

Exports - commodities:
coffee 45%, vanilla 20%, cloves, shellfish, sugar, petroleum products (1995 est.)

Exports - partners:
France 40%, United States 9%, Germany 8%, Japan 6%, United Kingdom 6% (1997)

Imports:$881 million (c.i.f., 1998 est.)

Imports - commodities:intermediate manufactures 30%, capital goods 28%, petroleum 15%, consumer goods 14%, food 13% (1995 est.)

Imports - partners:
France 39%, Hong Kong 5%, Japan 5%, People's Republic of China, Singapore (1997)

Debt - external:$4.1 billion (1997 est.)

Economic aid - recipient:$838 million (1997)

Currency:1 Malagasy franc (MGF) = 100 centimes

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)

Fiscal year:calendar year

References

ee also

* "Mine Your Own Business", a documentary film which details the Fort Dauphin mining project
* Economy of Africa

External links

*dmoz|Regional/Africa/Madagascar/Business_and_Economy/Economic_Development
* [http://www.mbendi.co.za/land/af/md/p0005.htm MBendi Madagascar overview]
* [http://www.wildmadagascar.org/overview/FAQs/why_is_Madagascar_poor.html Why is Madagascar so poor?]