Population 22.408 million
GDP 10.054 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
0.4 |
1.8 |
1.9 |
2.6 |
|
Inflation (yearly average) (%)
|
9.3 |
10 |
6.5 |
7 |
|
Budget balance (% GDP)
|
-0.4 |
-4.8 |
-3.7 |
-4.1 |
|
Current account balance (% GDP)
|
-9.7 |
-6.9 |
-7.9 |
-8,0 |
|
Public debt (% GDP)
|
64.4 |
59.1 |
58.7 |
57.2 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Considerable agricultural potential
- Near self-sufficiency in rice, the staple food
- Important mineral (nickel, cobalt) and hydraulic resources
- Tourism potential
WEAKNESSES
- Poverty affecting 2/3 of the population, mostly rural
- Deforestation, erosion and trafficking in rare species
- Sensitivity to climatic vagaries
- Dependence on foreign aid
- Limited export diversity
- Inadequate road, water and electrical networks
Risk assessment
Growth sustained by the development of mining production
Growth, respectable in 2012, is expected to continue in 2013 thanks, especially to mineral production. Exploitation of a new nickel and cobalt mine began in October 2012, allowing the first shipment of a cargo of refined nickel a month later. Subject to renewal of the production licence granted for 6 months to the Ambatovy company, nickel could become Madagascar’s most important export, local refinement increasing the value of the mineral. The tourism sector is expected to grow slowly considering the gloomy EU growth prospects. The success of the steps taken by the Madagascan authorities to obtain the removal of Air Madagascar from the EU’s blacklist, on which the airline company had been placed because of its failure to observe certain safety standards, would support this recovery. But economic performances in 2013 will depend above all on the development of the national political situation. If the elections are held as planned in the spring, in conditions satisfying the international community, aid, frozen since the start of the political crisis in March 2009, could begin to flow again allowing funding of the planned public investments. Moreover, foreign companies would be encouraged to realise their investment decisions, particularly in the oil sector (commencement of exploitation of the Tsimiroro oil field).
Inflation will be maintained by the high prices of foodstuffs and oil but is not expected to rocket given the expected recovery of the agricultural sector after the cyclone which struck the country in February.
Fiscal and current account balance remain in deficit but are not worsening
Public finances affected by fall-off in the flow of aid are benefiting, on the other hand, from the growth of tax revenues linked to increased mining activity. The spending control policy followed since 2010 has enabled the deficit to be reduced. But with the approach of the May 2013 elections, it will be difficult to maintain this austerity.
The current account deficit remains high. Sales abroad of textile firms, situated essentially in the free trade zones, have been hit both by the suspension by the United States of the benefits of the African Growth Opportunity Act (AGOA - an agreement facilitating the access of certain African countries to the American market) and the economic slowdown in Europe. Rising imports, in particular of energy, and the repatriation of the dividends of foreign mining companies also contribute to the maintenance of a current account deficit. This deficit is expected to stabilise in 2013 despite the increase in imports, thanks to the slight increase in tourism revenues and the increase in mineral exports. China, emerging as Madagascar’s first partner in terms of aid, trade and foreign direct investment will continue to invest in the mining, textile, telecommunications and financial services sectors.
Uncertain political situation
The mediation of the Southern African Development Community (SADC) led to the adoption in September 2011 of a road map providing for the holding of elections. A new national unity transitional government was formed and the first presidential elections fixed for May 2013. Attempts at rapprochement between Andry Rajoelina, the present president of the transitional government and Marc Ravalomanana, the former president in exile in South Africa have failed. The former president has declared that he will not take part in elections but he would like to come back in his country. Thus, the holding of elections, in the conditions provided for in the roadmap, remains uncertain. The political situation is very fragile and there is a risk of heightened tensions as the May deadline approaches.
A business environment which tends to deteriorate in an uncertain political context
The political impasse in which the country finds itself and the consequences of this situation on the Madagascan economy discourages investments. However, though creating a business is simple, access to electricity and credit complicate the activities of companies. Madagascar ranks 146th (out of 210) on the World Bank’s Governance index in terms of the quality of regulation and 162nd for rule of law.
