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Doing Business in Africa: Madagascar

Doing Business in Africa: Madagascar

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Table 1 presents a summary of these rankings as well as Madagascar’s overall ease-of-doing business rating. Madagascar is clearly not an easy place to do business as it ranks near the bottom in most of the categories the World Bank measures. It does best, however, in the area of investor protection, tax, and cross-border trade.

Table 1:

World Bank Ease of Doing Business

Assessment and Rankings: Madagascar

Table 1 Madagascar Ease of Business

 

Prospects

For the investor, Madagascar today presents one with that classic tradeoff between risk and reward. On the one hand, the country clearly has the capability to grow at a much higher rate than it is currently.  As one can see from the chart below, the years of the Ravalomanana administration saw steady, sustained growth premised on sound macroeconomic stewardship of the economy, close government coordination with external funders such as the IMF, and a real openness to foreign investment in nearly every area of the country’s economy. Indeed, there is no reason that should not, in theory, continue.

Figure 3:

Madagascar Economic Growth,

Percent Increase, 2003 – 2013

Madagascar GDP Growth

The problem, of course, is the political fallout such growth has had and the view by many in Madagascar that it has been unevenly distributed and biased towards foreigners and the rich. The violent protests against Ravalomanana, for instance, were instigated after it was learned that a South Korean conglomerate allegedly bribed the president in order to receive long-term agricultural leases to large swathes of the country’s most fertile and productive land. Given that Madagascar remains a desperately poor, mostly agricultural country such a deal was obviously politically explosive.

Madagascar has yet to come to terms with that explosion and while the country has a new president – Hery Rajaonarimampianina – that took office in January of this year, he, too, is not without controversy. The opposition claims the 2013 elections that propelled the new president into power was rigged and Rajaonarimampianina’s close association with the camp that drove President Ravalomanana from power in 2009 means many on this divided island view him with mistrust and suspicion. Certainly, if economic growth does not return soon, the prospects for political stability going forward are most likely quite dim.

That being said, the prospects for a resumption of economic growth are not unwarranted. The country continues to have huge agricultural potential and the country’s diverse climatological conditions allow it to grow a variety of crops. Though coffee is the most obviously valuable of these products, potential exists for a wide variety of exports to global markets if, that is, the country’s backwards agricultural sector can be modernized and infrastructure improved.

What’s more, two additional sources of growth are also on the horizon – ecotourism and oil and gas. In terms of the first, Madagascar’s tropical, island geography has made it a biodiversity hotspot. Combine that with the fact that much of the country’s animal and plant life is found nowhere else on Earth and you have the makings of a potential tourism nirvana that could draw in well-heeled travelers from around the world.

Offshore, the prospect for riches are even greater as Madagascar is potentially well-positioned to play a role in the ongoing oil and gas exploration boom currently taking place  in Eastern Africa. Waters just off of nearby Mozambique and Tanzania, for instance, were recently discovered to hold tremendous amounts of natural gas with prospectors predicting that oil, too, will soon be discovered in commercially-valuable amounts.

International oil firms have, in turn, stepped up exploration in the waters off Madagascar and, onshore, the country is suspected to have huge deposits – perhaps 10 billion barrels worth – of heavy oil not unlike that found at in the Athabasca oil sands deposits in Alberta, Canada.

So, as always, politics remains the deciding factor when looking at long-term prospects in Africa. If you believe that ultimately Madagascar will overcome its current political impasse and return to the path of economic reform and liberalization, then Madagascar’s prospects are rather bright. If you don’t, and see political instability continuing into the future, then the risks may outweigh the rewards.