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Madagascar

Sections
Growth in Madagascars GDP was weak in 2012 (1.9% versus 1.6% in 2011), but projections point to
growth of 3% in 2013 and 4% in 2014, provided the elections scheduled in 2013 put an end to instability.
The four-year-old political crisis has led to a deterioration in the business climate and greater loss of control
in governance, and worsened the living conditions of the population despite some progress in education
and in the fight against HIV/AIDS.
Madagascar is rich in natural resources both signicant and diverse, and although their contribution to the
national budget is still low, it could grow quickly, especially with the development of major projects for the
mining of ilmenite, nickel and cobalt.

Overview
Madagascars economic growth, which was negative (4.1%) in 2009 and weak (0.5%) in 2010, progressed to
1.6% in 2011, still low compared to the average growth of sub-Saharan African countries, estimated at 5.3% by
the International Monetary Fund (IMF) in its October 2012 Regional Economic Outlook. The economy grew by
1.9% in 2012, driven mainly by the mining industries, transport (helped by a revival of tourism) and exports
from customs-free zones.1 The authorities applied a restrictive scal policy to cope with the reduction of
external aid, a consequence of the political crisis that has shaken the country since 2009. They followed a
prudent monetary policy and managed to contain the budget decit at 3.1% of GDP (as against 1.7% in 2011).
Similarly, they managed to limit the increase of prices to an annual average of 6.4%, down from 9.8% in 2011.
The current-account decit widened to 8.3% of GDP from 6.9% of GDP in 2011. This was the result of greater
deterioration in the trade balance and in the services balance, which could not be oset by improvements in the
balance of current transfers and of the balance of nancial transactions and in capital. Finally, if the elections
intended to put an end to the crisis are organised in 2013 as planned, growth could accelerate in 2013 and 2014
to 3% and 4%, respectively. It would benet from the expansion of the mining industries, the gradual
resumption of external financing favourable to construction, and the buoyancy of trade and tourism.
The duration of the crisis has helped impoverish the population and to worsen the countrys social indicators. In
2010, approximately 77% of Madagascans lived below the poverty line. This share is estimated to have
increased in 2011 and 2012 even though recent data to conrm this are lacking. The protracted political tension
has undermined the achievement of the Millennium Development Goals (MDGs) despite some progress in the
areas of education and the ght against HIV/AIDS. GDP per capita amounted in 2012 to MGA 927 545
(Madagascar ariarys) or USD 449, down 4.2% from 2011, while the population is growing at an annual rate of
2.8%. The quality of governance and the business climate also deteriorated, and reform initiatives were limited.
Madagascar, which has very signicant and diverse natural-resource deposits, has failed to take advantage of
this wealth of assets to make major structural changes to the economy. The main reasons for this failure were
recurrent political crises since the 1970s, the weak competitiveness of local processing industries and suppliers,
insucient transport infrastructure and the low quality of public services. The contribution of natural resources
to the national budget is still low but should grow rapidly with the implementation of large mining projects.

Figure 1: Real GDP growth 2013 (South)


10%

Real GDP Growth (%)

7.5%

5%

2.5%

0%

-2.5%

-5%

2004

2005

2006
Real GDP growth (%)

2007

2008

2009

2010

Southern Africa - Real GDP growth (%)

2011

2012

2013

2014

Africa - Real GDP growth (%)

Figures for 2012 are estimates; for 2013 and later are projections.

Table 1: Macroeconomic indicators 2013


2011

2012

2013

2014

Real GDP growth

1.6

1.9

Real GDP per capita growth

0.5

0.8

1.9

2.9

CPI inflation

9.8

6.4

10.4

8.9

Budget balance % GDP

-1.7

-3.1

-3

-2.2

Current account % GDP

-6.9

-8.3

-7.6

-5.7

Figures for 2012 are estimates; for 2013 and later are projections.

Recent Developments & Prospects


Table 2: GDP by Sector 2013 (percentage of GDP)
2007
Agriculture, forestry & fishing

Agriculture, hunting, forestry, fishing

26.4

Construction

Electricity, gas and water

1.1

Electricity, water and sanitation

Extractions

Finance, insurance and social solidarity

Finance, real estate and business services

16.7

General government services

Gross domestic product at basic prices / factor cost

100

Manufacturing

15.3

Mining

0.1

Other services

0.2

Public Administration & Personal Services

Public Administration, Education, Health & Social Work, Community, Social & Personal Services

6.3

Public administration, education, health & social work, community, social & personal services

Social services

Transport, storage and communication

18.4

Transportation, communication & information

Wholesale and retail trade, hotels and restaurants

11.4

Wholesale, retail trade and real estate ownership

Figures for 2012 are estimates; for 2013 and later are projections.

Economic activity in 2012 was adversely aected by several factors. The rst was the drawn-out political crisis,
which had a negative impact on private-sector activities as well as on the volume of external nancing. The
recurrence of natural disasters (hurricanes and oods) also aected the primary sector, while uctuations in the
international market, especially in energy prices, worsened the economys performance. The government
increased its subsidies to oil companies to contain fuel prices at the pump. According to National Treasury data,
these amounted to MGA 211.83 billion, or 1% of GDP.
Consequently, real GDP growth in 2012 has been estimated at 1.9%, barely higher than that in 2011 (1.6%).
According to the 2013 budget data, the secondary sector has continued to drive growth and has grown by 3.8%,
or 0.4 of a percentage point more than in 2011. This performance was mainly due to the mining industries and
the recovery in exports from the free-trade zones. These exports, which were hard hit by Madagascars
suspension from the African Growth and Opportunity Act (AGOA), should grow by 4.8% (after a 0.7% decline in
2011) thanks to market diversification to Europe and Asia. Thanks to the revival of tourism and transport-related

branches, the tertiary sector grew by 2.7% after having declined by 0.7% in 2011. Primary-sector growth has
remained low at 0.2%, suering above all from the under-performance of the forestry sub-sector subsequent to
the suspension of issuance of licences to log precious woods, and also from recurrent cyclonic disturbances
having aected agricultural production. On the demand side, the overall investment rate is estimated to have
fallen to 13.9% of GDP in 2012 from 14.4% in 2011, reecting the completion of construction of major projects
in the private sector and the weakness of external funding to the government where public investment is
concerned. Total consumption is estimated to have amounted to 100.6% of GDP in 2012, up 1 percentage point
from 2011, a performance mostly due to the private component, notably the purchases of mining companies.
The growth outlook should be better in 2013 and 2014, projected at 3% and 4%, respectively, taking into
account the organisation of presidential and legislative elections set for July and September 2013, and of the
gradual return of foreign aid starting in 2014, once the institutional situation is stabilised. The secondary sector
will remain the main engine of growth, fuelled mainly by the mining industries with an increase in ilmenite
production at QIT Madagascar Minerals (QMM) and in that of nickel and cobalt at Ambatovy. The tertiary sector
will benet from the revival of tourism and construction thanks to greater recovery in foreign aid. A revival in
the nancing of agricultural projects by major donors should contribute to the recovery of agricultural
production.

Macroeconomic Policy
Fiscal Policy
In 2012, the country applied a restrictive scal policy to cope with the shock caused by reduced foreign aid. The
slowdown in economic activity was in particular reected by a decline in the turnover of enterprises, resulting
in lower revenues from income taxes and value added tax (VAT). Despite this, thanks to better mobilisation of
domestic scal resources, total revenue (excluding grants) have been estimated for 2012 at MGA 2.357 trillion,
a 4.5% increase from 2011. This eort helped to oset the lower revenues from international trade, which
forced the government to sacrice MGA 64.5 billion in customs revenues after it froze the prices of fuel at the
pump, which led to lower revenues from taxes and VAT on petroleum products.
Total revenues, however, accounted for only 11% of GDP, compared to 11.3% in 2011. The tax/GDP ratio thus
ended up at 10.9%, down 0.2 percentage points from 2011. External donations (consisting mainly of projectbased donations) have remained low due to the political situation and have been estimated at MGA 246.6 billion
in 2012 (1.2% of GDP), a 37% fall from 2011. Total expenditure has been estimated at MGA 3.317 trillion (about
15.3% of GDP, against 14.9% in 2011), divided into current expenditure (11.2% of GDP) and investment (4% of
GDP). In terms of performance, the budget-implementation rate (interests not included) was only 52.41% at the
end of 2012. The implementation rate was higher than 90% for current expenditures (debt, balance and
operations), but that for the investment programme was only 44.98%. Despite priority having been given to
current expenditure, the budget implementation did not allow the public service in general to be eective
because the resources were limited. The sectors identied as priorities in 2012 such as health, education,
support to agricultural production, increasing food security and the security of goods and persons, and
consolidating the energy sector received approximately 40% of the resources from the general budget.
Budget implementation for 2012 resulted in a budget decit estimated at 3% of GDP, almost double the 1.6%
target set by the budget. To nance the decit, the authorities resorted to the banking system, notably by
issuing Treasury-bill tenders and by drawing down on the on-going project-based loans. According to statistics
sourced from the national debt department, they amounted to SDR 56.3 million (special drawing rights) from
January to October 2012.
The 2013 budget has planned for a moderately restrictive scal policy to reduce the budget decit to 1.6% of
GDP while also promoting economic recovery. The scal policy is focused on stabilising the tax rate, not setting
new taxes and strengthening measures against tax fraud. With the expected stabilisation of the political
situation, total revenues should amount to 12.9% of GDP. Grants are expected to increase by 45.3% from 2012
to 2.1% of GDP as most of the projects based on external nancing are put on track again. Total expenditure is
projected to grow moderately at 8.5% (10% for current expenditure and 3.6% under the public-investment
programme), to 15.9% of GDP.

Table 3: Public Finances 2013 (percentage of GDP)


2009

2010

2011

2012

2013

2014

Total revenue and grants

12.8

14.3

13.2

12.2

12.9

14.1

Tax revenue

10.7

10.9

11.1

10.9

10.7

10.2

Oil revenue

Grants

1.7

1.9

1.9

1.2

2.1

3.6

Total expenditure and net lending (a)

15.3

15.1

14.9

15.3

15.9

16.3

Current expenditure

10.5

10.1

10.7

11.2

11.9

12.3

Excluding interest

9.7

9.3

10

10.2

10.6

10.6

Wages and salaries

4.8

5.2

5.3

5.6

5.8

Interest

0.8

0.8

0.7

1.3

1.7

Primary balance

-1.8

-0.1

-1

-2.1

-1.7

-0.5

Overall balance

-2.5

-0.9

-1.7

-3.1

-3

-2.2

Figures for 2012 are estimates; for 2013 and later are projections.

Monetary Policy
Madagascar is not part of any monetary union. The Central Bank of Madagascar (CBM) conducts a prudent
monetary policy so as to maintain the internal and external stability of the currency. There was a nominal
depreciation of the national currency, the ariary, of 4.8% against the euro and 5.6% against the US dollar in
2012. Interventions by the CBM in the money market (renancing or liquidity-absorbing operations) did help,
however, to protect the ariary against the uctuations of the main currencies, which are ultimately expected to
have had little impact on foreign trade and are mostly determined by domestic production capacities and the
nature and quality of external demand.
Price increases were contained at 6.4% on average for 2012, down from 9.8% in 2011. Increases in food prices
were moderate (+3.5%) thanks to good supply from the domestic market. The highest price rise was for energy
(+8.9%) and was connected to price uctuations in the international market. Expansion of the monetary
aggregates was accelerated in 2012. According to data from the 2013 budget, the money supply increased by
MGA 48 billion in the rst nine months of 2012 following a 43.1% increase in net claims on the government and
a 9% increase in credits to the economy despite the deteriorated economic environment, which led banks to
greater caution in their operations. On the other hand, net external assets decreased to MGA 295.5 billion over
the same period due to a greater rise in imports, which reduced foreign-exchange reserves to the equivalent of
3.5 months of imports, compared with 3.9 months in 2011. The CBM maintained its lending rate at 9.5%,
unchanged since August 2009, which has allowed money-market rates to remain stable since 2011.
For 2013 and 2014, the Madagascan authorities intend to conduct a prudent monetary policy in order to
maintain price stability. The CBM plans to increase withdrawal of excess liquidity through the indirect
instruments of monetary policy.

Economic Cooperation, Regional Integration & Trade


Madagascar belongs to several sub-regional organisations: the Common Market for Eastern and Southern Africa
(COMESA), the Southern African Development Community (SADC) and the Indian Ocean Commission (IOC). The
country has been suspended from regional and continental organisations as a consequence of the countrys
unconstitutional change of government in March 2009. Intra-regional trade remains poorly developed. In 2010
and 2011, exports from Madagascar to the SADC and COMESA averaged 5% and 4%, respectively, while
imports from the same two regional blocs were 12% and 8% on average, respectively. Madagascar signed an
interim Economic Partnership Agreement with the European Union (EU) in August 2009, which came into eect

in January 2013. The agreement covers market access, sheries and ocial development aid. It is too early to
judge its impact on trade and customs revenues.
The countrys foreign trade in 2012 saw a higher decit in the current-account balance, which came out at 8.3%
of GDP, compared to 6.9% in 2011. This was a result of greater deterioration in the trade balance and in the
services balance, which could not be oset by the improved balances in current transfers and in nancial and
capital transactions. The volume of exports of goods in 2012 increased by 3% and amounted to 12.4% of GDP.
In addition to exports from the free-trade zone, which were resumed and amounted in terms of value to about
40% of total exports, the main exported products were cloves (12.42%), petroleum products (6.84%) and sugar
(2.26%). The increase in exports of cloves was connected to the rise in both its price and in global demand. The
volume of imports of goods increased by 2.8% and amounted to 23.8% of GDP. The main imported products
were petroleum products (23%), raw materials (18%), imports from free-trade zones (15.7%), consumer goods
(12.6%) and food products (9.8%). These percentages refer to the total value of imports (on a cost, insurance
and freight [cif] basis). The net ow of direct investment was SDR 507.7 million despite the ending of the
construction phase in the mining sector. Foreign direct investment (FDI) came mainly from Canada, Japan, South
Korea, the United Kingdom, Mauritius and France. The mining sector remained the major FDI recipient in 2012,
followed by financial activities, oil distribution, construction and manufacturing activities.
According to provisional data from the CBM, the evolution of the competitiveness index, measured by the yearon-year real eective exchange rate (REER), indicated that the country lost in competitiveness in 2011 and in
the rst eight months of 2012. The REER at end-August 2012 showed a 4.6% appreciation from the end of
December 2011 and a year-on-year 1.7% appreciation from August 2011. This loss of competitiveness was the
result of domestic inflation, which was higher than that of Madagascar's partner countries but had relatively little
impact on international and financial trade.
The outlook for 2013 shows an improvement in the trade decit resulting from a greater increase in exports
(driven by mining products) than in imports. The same is projected for the balance of transfers, which will
benet both from the increase in ocial transfers following the gradual resumption of aid and private transfers.
The current account is projected to improve, with a decit that could be reduced to 7.6% of GDP, compared to
8.3% in 2012.

Table 4: Current Account 2013 (percentage of GDP)


2004

2009

2010

2011

2012

2013

2014

Trade balance

-10

-19.5

-12.3

-9.5

-11.4

-10.5

-8.8

Exports of goods (f.o.b.)

22.8

12.3

12.3

14.8

12.4

12.8

12.9

Imports of goods (f.o.b.)

32.9

31.8

24.6

24.3

23.8

23.3

21.6

Services

-4.8

-4.2

-1.6

-1.6

-1

-0.7

-0.3

Factor income

-1.8

-1.1

-1

-1.7

-0.7

-0.7

-0.5

Current transfers

7.5

3.6

5.6

5.9

4.8

4.3

3.8

Current account balance

-9.1

-21.1

-9.4

-6.9

-8.3

-7.6

-5.7

Figures for 2012 are estimates; for 2013 and later are projections.

Debt Policy
The latest joint World Bank/IMF sustainability analysis of the Madagascan debt dates back to June 2008 because
the political crisis has prevented the possibility of conducting more recent ones. Nonetheless, total outstanding
public debt has remained relatively low because of limited opportunities for loans from traditional donors.
According to data from Madagascars national debt department, total outstanding public debt was estimated at
the end of 2012 at MGA 6.41 trillion (SDR 1.90 trillion), or 29.5% of GDP. Public debt was 77.5% of the total
debt stock. It was made up of 77% of debt to international organisations, 18% of bilateral debt and 5% of debt
to private creditors. The stock of domestic debt (23% of the total outstanding) was constituted of 77% of
Treasury-bill tenders and 23% of negotiable debt securities. The government has accumulated some external

arrears, notably to Libya (MGA 49 billion) and Russia (MGA 60 billion), due to political instability for Libya and to
waiting for the nalisation of agreements for Russia. With progressive recovery of funding from a number of
partners (including the African Development Bank [AfDB] and the World Bank), in particular in the form of loans,
outstanding debt is projected to increase but remain under control.

Figure 2: Stock of total external debt and debt service 2013


175%

150%

Percentage

125%

100%

75%

50%

25%

0%

2004

2005

2006

2007

2008
Debt/GDP

Figures for 2012 are estimates; for 2013 and later are projections.

2009

2010

Debt s ervice/Exports

2011

2012

2013

2014

Economic & Political Governance


Private Sector
The business climate has continued to deteriorate due to political uncertainties: the country lost four positions in
the annual ranking of the World Bank report Doing Business 2013, dropping from 138th out of 183 countries in
2012 to 142nd out of 185 in 2013. All the indicators have worsened except for the starting a business category,
in which the country was ranked two places higher. Otherwise, there was no change in the categories of getting
credit and resolving insolvency.
The sharpest decline was in the area of dealing with construction permits. The major obstacles to improving the
business climate include irregular access to electricity due to frequent load shedding, and diculties in
protecting investors, enforcing contracts and registering property. Land-tenure bureaux have been set up across
the country to facilitate delivery of land deeds in particular, but some were closed in 2012 by the supervising
ministry to resolve governance issues they were facing. To overcome most of these obstacles, an economic
recovery plan is being developed on the initiative of the Madagascan private sector.

Financial Sector
The Madagascan nancial sector is poorly developed and is limited in its nationwide coverage. In 2012, it
comprised 11 banks, six nancial institutions and 31 micronance institutions (MFIs). The rate of access to
banking services remains low at about 5% of the population. In September 2012, 21% of households were using
MFIs, a 1.5 percentage point increase from the end of 2011. The nancial markets include the money market
(interbank and open-market trading) and Treasury-bill tendering. Financial regulations have not been reformed
in any way in recent years. In addition, the political and economic crisis has aected the quality of bank
portfolios. According to CBM statistics, 14.4% of total debts were doubtful receivables at the end of July 2012.
All this reects the diculties banks are facing in honouring their commitments. There is some liquidity in the
nancial system, with 50.2% of banking assets held in cash in July 2012, up from 48.2% in July 2011. Long-term
nancing is dicult to obtain, in particular by small- and medium-sized enterprises (SMEs), and long-term
borrowing costs remain quite high (a situation not particular to Madagascar, related to the fact that banking
resources are largely made up of short-term deposits, dicult to use for the long term), averaging between
10% and 11% in 2011 and 2012. In the coming years, the CBM intends to increase its evaluation of MFIs. The
country has a comprehensive national finance strategy for 2013-17.

Public Sector Management, Institutions & Reform


The process of privatising enterprises remained suspended in 2012 because the political crisis was not conducive
to implementing major structural reforms. If the 2013 elections are internationally recognised, the country
might be able to nalise a new programme with the IMF, which would put the reform agenda at the centre of
economic policy. The state still owns shares in several enterprises operating in sectors such as energy,
telecommunications, agro-industry and air transport. Preliminary talks between the public and private sector
were also launched in June 2012 at the prime ministers initiative. They focused on corruption, taxation and
untimely tax audits, insecurity and lack of visibility.
Despite their limited resources, the authorities continued to implement reforms in public nances that had been
started before the crisis. They deal with the programme budget, public procurement and top-down expenditure
management, and include measures to strengthen the tax authorities. With the gradual resumption of funding to
the governance sector, the ministry of nance developed an internal action plan for 2013-15 to improve the
management of nances. According to the ministry, the plan does not include deep reforms; its goal is to
consolidate the reforms achieved before the crisis, and the process is on-going.

Natural Resource Management & Environment


Geologists have categorised Madagascar amongst the so-called megadiversity countries as it harbours about
2% of global biodiversity. Its subsoil is rich and its favourable tax legislation is attracting more and more large
mining companies. Their massive investments are, however, raising signicant environmental challenges,
especially given the public authorities weak capacities to ensure that they actually comply with environmental
standards. In addition, the countrys natural resources are being threatened by the eects of climate change,
deforestation and the degradation of natural areas. Madagascar is located in the southwest Indian Ocean basin,
one of the major world areas where cyclones are formed, and is also prone to oods and drought. The country
has had an environmental charter since 1990, a national adaptation programme of action on climate change
adopted in 2006 and a national policy for climate change. It was also equipped in 2010 with a national clean
development mechanism strategy, one of the three Kyoto Protocol flexibility mechanisms.

The country is well-endowed with legislation to prevent the exploitation and illicit export of rosewood. The
legislation includes the 2011-001 Order on punishment of oences related to precious woods and the 2010-141
Order prohibiting their logging, exploitation and export, but the governments political will and actual capacity
to enforce these texts are still problematic. There are countless cases of illegal exports of rosewood, particularly
to China, as regularly reported in the local press.
Given its potential in natural resources, including mining, Madagascar applied to join the Extractive Industries
Transparency Initiative (EITI) and was admitted as candidate country in February 2008, but it was then
suspended in October 2011 pending the normalisation of its political situation. Budget receipts generated by the
exploitation of natural resources are still low. According to the 2010 EITI reconciliation report made public in
2012, earnings from the mining sector paid to the national budget were estimated at around MGA 291 billion, or
about 13% of total receipts that year and 1.5% of GDP. The contribution of the mining sector to the national
budget is, however, expected to grow in the coming years when Ambatovy project gets fully under way.

Political Context
In 2012, the country continued to suer from the eects of the political crisis caused by Andry Rajoelinas
overthrow of Marc Ravalomanana, and the populations living conditions deteriorated. There were several
strikes in the country aecting virtually every sector of the public administration and even the nancial sector.
The strikers were demanding a wage increase or better safety and working conditions. Despite the dicult
economic situation, the government tried to meet some of these demands partially, especially those of teachers.
Political eorts were concentrated in 2012 on implementing the post-crisis roadmap signed on 17 September
2011 with SADC mediation. This included setting up all the prescribed transition institutions in government and
parliament and the independent electoral commission, CENI-T ( Commission lectorale nationale indpendante
pour la transition).
Originally scheduled to take place before December 2012, the presidential and parliamentary elections were
rst postponed to May and then July 2013 due to technical and nancial constraints. The CENI-T and the United
Nations (UN) nally set the rst round of the presidential election on 24 July 2013 and the second round of the
presidential election coupled with the parliamentary elections on 25 September 2013. Local elections will be
held on 23 October 2013. According the CENI-T, 82.38% of potential voters had been identied by February
2012. The electoral budget, rst estimated at USD 71 million, was reduced to USD 60 million as a result of the
depreciation of the local currency and of savings in the purchase of equipment. Funding continues but even if all
donor promises and the governments commitment materialise, there will still be USD 3 million left to find.
The roadmap also emphasises that condence and national-reconciliation measures need to be carried out,
including an amnesty law and a law on the Madagascan reconciliation council. Several factors suggest that 2013
could be the year when the political crisis ends. First of all, the two protagonists, former president Marc
Ravalomanana and the current transition president Andry Rajoelina, have announced that they will not run for
president. This decision, which was one of the recommendations of the SADC summit of heads of state and
government of 7 and 8 December 2012 in Dar es Salaam (Tanzania), should generate a political climate
conducive to the holding of the elections. In the second place, the population is exasperated by how long the
crisis has lasted. All the political and social actors want it to end as soon as possible. The international
community, especially the SADC, is putting much pressure on the countrys political actors to make that
happen. Moreover, the UN is involved alongside the CENI-T to ensure that elections are credible and
transparent.

Social Context & Human Development


Building Human Resources
Madagascars Human Development Index (HDI) puts the country in the low human development category.
With an HDI score of 0.483, the country ranked 151 st out of 187 countries in 2012. Despite some progress in
the areas of education and of the ght against HIV/AIDS, the authorities are facing signicant challenges if they
are to achieve the Millennium Development Goals (MDGs), the deadline for which is 2015. A national survey on
the MDGs is under way and will make more recent data available to measure progress.
The country made signicant eorts between 2002 and 2008 in extending primary education for all, but they
were stopped by the political crisis, making it dicult to achieve this MDG. According to the latest available
data, the net enrolment rate was 73.4% in 2010 and the primary-school completion rate was 63% between
2010 and 2011. The political crisis has severely aected access to primary education, with a decline in sta and
increased dropout rates, which amounted to 55.5% in 2010 for primary education. The number of children not
enrolled in school increased by 500 000.
The political crisis has also had a particularly strong impact on the health sector. On average, 100 public basichealth centres out of the existing 2 000 remained closed. The reasons for this were budget restrictions in 2012
there was about 25% less public funding than in 2011 , insucient human resources and insecurity in some
parts of the country. According to the latest available data from the AfDB, the infant mortality and under-ve
mortality rates have remained high, although lower than the average in Africa. In 2011, they stood at 41.6 per
thousand live births and 58.5 per thousand live births, respectively, compared to the average rates in Africa of
76 per thousand live births and 119.5 per thousand live births, respectively. According to the 2009 population
and health survey, the maternal mortality rate was 498 deaths per one hundred thousand live births, whereas it
was 530.7 deaths per one hundred thousand live births in Africa. The MDG target is 127 deaths per one hundred
thousand live births. HIV/AIDS prevalence was estimated at less than 1%, but the ght against the pandemic is
slowed by a lack of sufficient resources.

Poverty Reduction, Social Protection & Labour


The most recent diagnosis of poverty was conducted in 2010 through the periodic household survey, EPM
(Enqute priodique auprs des mnages), which also helped to identify the most vulnerable groups. The
survey indicated that nearly 76% of Madagascans (82.2% in rural areas) were considered poor in 2010, whereas
the proportion was only 68% in 2005. The persistence of the crisis has worsened poverty since then, though
there are no recent statistics on this subject. According to the 2010 EPM, the situation of the labour market was
characterised by a relatively low unemployment rate (3.8%), but also by a high underemployment rate (67.2%)
due to job inadequacy and/or duration.
The authorities have established the priority areas to which resources are to go under the 2012 budget. These
include, among others, the development of access to health and education services, support for agricultural
production, reinforcing food security, strengthening the security of goods and persons, and consolidating the
energy sector. These areas, which aect the poorest strata of the population, received approximately 40% of
the resources from the general budget.
Moreover, various social-welfare programmes were put in place by the countrys public institutions and its
technical and nancial partners (the World Bank, the EU and the International Labour Organization [ILO]). The
idea is to oset the harmful eects of the crisis on the most disadvantaged populations by supplying some
income and by facilitating their access to basic social services. The World Bank, for example, approved in
December 2012 a project for USD 65 million in emergency support to basic public services in the realm of
education, health and nutrition. The EU awarded a EUR 1.34 million grant to nance the programme to support
the improvement of the living conditions and well being of communities at risk in the peripheral areas of the
national parks. These programmes remain very limited, however, aecting only the social security nets. The
governments budget constraints have made it less eective in implementing programmes. Allocations to
protection and welfare were reduced by 59% in 2012.

Gender Equality
Madagascar has made signicant eorts to reduce gender disparities in education. According to the latest data
available from the UN Development Programme (UNDP) national report on the monitoring of MDGs (Rapport
national de suivi des OMD 2010, not ocially launched in Madagascar until February 2012), the proportions of
girls in total enrolment in primary and secondary schools in 2010 were 49.2% and 48.9%, respectively, against a
50% target by 2015. In higher education, it was 47.2%. On the other hand, the proportion of women in the
non-agricultural sector and in politics is low. According to the 2010 EPM, the proportion of female employees in

the non-agricultural sector was only 46.9%, and only 38.4% of managerial or technical positions in the public
and private sectors were occupied by women. According to the UNDP in its 2010 monitoring report, the reasons
lie in the patriarchal nature of Madagascan society, in discriminatory and stereotypical gender practices, and in
the persistence of poverty, which affects women more than men.
Women are underrepresented in the transition institutions and in decentralised government administrations.
They make up only 26% of the government, 18% of the supreme national transition council, and 12% of the
transition congress. Only 4.5% of mayors are women, and in the countrys 22 regions, not one of the regional
chiefs is a woman. To correct this, the government adopted on 6 November 2012 a bill (No. 03-2012/PL) on
gender equality in elected oces and in senior public-service jobs. The upcoming elections will be an
opportunity to test its implementation. The political crisis did not, however, bring about a signicant decline in
the status of women despite the resurgence of violence against the vulnerable, women and children in
particular. A national platform was put in place to combat violence against women and to conduct several
awareness campaigns on the ground during 2012.

Thematic analysis: Structural transformation and natural resources


The past 20 years in Madagascar have witnessed recurrent political crises that made it impossible to implement
major economic structural changes. A few sectors (or branches) can, however, be seen as having driven the
economy: construction, mining, textiles, information and communication technology (ICT), and tourism. The
engines of future growth will be food products, mining, renewable energies, textiles, construction and tourism.
A report published by the IMF in October 2012, Regional Economic Outlook: Sub-Saharan Africa, indicates that
the GDP shares of agriculture, mining and manufacturing have remained practically unchanged for 20 years.
They were 28.6%, 0.5% and 10.6%, respectively, in 1990: and in 2010 28.4%, 0.6% and 11.1%. The
construction sector grew the most, from a 1.3% to a 4.7% share of GDP between 1990 and 2010, but it only
generated 1.2% of the jobs created in 2010. The GDP share of the tertiary sector, which remains the main
driver of growth, fell from 57.8% in 1990 to 53.9% in 2010, or a 3.9% fall.
Agriculture is distinguished by low productivity. It remains the largest provider of jobs having generated 80% of
both male and female jobs, a share that has remained constant for several years according to the 2010 EPM.
The mining sector has recently emerged as a growth engine. In the 1990s, its exploitation was mostly informal
and small scale and was dominated by small mines with little added value. The mining landscape altered in the
late 2000s as a result of mining reforms and the arrival of big mining investors in two large projects, QMM and
Ambatovy. Growth of the mining industries, which was 9% in 2008, rose to 25.6% in 2012 and is projected at
42.4% in 2013 in the 2013 budget. The sector does not, however, generate many jobs. The largest mining
project, Ambatovy, provided only 18 000 jobs during its construction phase and will have 6 000 for operations.
The development of free-trade zones since 1989 was intended to strengthen the Madagascan industrial fabric,
but the manufacturing sector has not evolved signicantly since then. It only provided 3.4% of jobs in 2010, the
year Madagascar was suspended from AGOA, which it had entered in 2000, because of the political crisis.
Several enterprises and companies had to shut down, causing a loss of nearly 20 000 jobs. The textile industry
has suered from this situation. After a 24.6% fall in 2010, its growth is nonetheless gradually picking up: it rose
from -0.8% in 2011 to 1.9% in 2012 and could reach 2.6% in 2013 thanks to a diversication of its market
outlets. It is, therefore, still of major importance, even though it accounted for only 1.1% of jobs in 2010.
In the tertiary sector, trade is the largest provider of jobs. In 2010 it accounted for almost 7% of jobs, of which
9% were for women and 5% for men. ICT and tourism have been dynamic sectors, with ICT showing sustained
growth at more than 3% per year these past ten years, including in the crisis years, thanks to the liberalisation
of the sector and to signicant investments in infrastructure including the installation of optical bre in the
dierent regions. The turnover of mobile telephony grew 13-fold between 2005 and 2009, providing several
direct and indirect jobs (call centres, computer programming, etc.) according to the ILO in its December 2011
report, Madagascar : valuation des impacts de la double crise sur lemploi. The tourism sector has also grown,
especially in the 2000s, but its expansion has been hampered by the political crisis. The number of tourists fell
from 375 010 in 2008 to 162 687 in 2009, then rose a little to 196 052 in 2010. Similarly, the occupancy rate of
hotels dropped from 64% in 2008 to 39% in 2009 then rose back to 46% in 2010. Tourism, nevertheless,
generated more than 31 000 direct jobs in 2011, compared to fewer than 20 000 in 2004, or a 57% increase.
Tourism revenues have nearly tripled, rising from SDR 104 million in 2004 to SDR 303 million in 2008.
Madagascar has very signicant and diversied natural resources. Their contribution to the national budget is
still low but should grow rapidly with the recent implementation of major mining projects.
Traditionally, exports of mineral resources were mainly of chromium and graphite, but their share in total
exports dropped from 4% in 1990 to 1.2% in 2011. The main reason for this is the coming on stream of gigantic
industrial mines such as QMM and Ambatovy, which has transformed the Madagascan mining landscape. The
production and export of titanium and zirconium by QMM since 2010 has increased the share in exports of hard
commodities, which in 2011 was 8%. In terms of volume, ilmenite exports are expected rapidly to reach
750 000 tonnes per year, or 10% of world production, and zirsill exports to reach 60 000 tonnes per year. This
volume was also expected to increase after Ambatovy began to export nickel and cobalt in November 2012.
Ambatovy intends to move quickly to produce 5 600 tonnes per year of cobalt, or 10% of world production, and
60 000 tonnes per year of nickel, or nearly 5% of world production. This project is one of the largest customers
for suppliers of goods and services in Madagascar. At the end of 2010, it had signed contracts with local suppliers
for more than USD 1.2 billion. After training to improve the quality of their products, more than 500 micro-,
small-, and medium-sized enterprises received orders from Ambatovy. More than 2 000 local businesses are
entered into a database used by Ambatovy and its sub-contractors.
In 2011 petroleum-product exports were estimated at 61.5 tonnes and accounted for about 6.6% of exports in
terms of value. According to the French treasury directorate general, a dozen companies of various nationalities
are engaged in oil-exploration operations in Madagascar.

Exports of food products such as vanilla, coee, cloves and pepper constituted 11% of exports in 2011, in
particular thanks to the performance of cloves (+342%). Vanilla exports fell, however. Prawns and other shery
products accounted for 11.2% of exports from the free-trade zones in 2011, and their share in total exports was
4.5% in 2011.
The contribution of natural resources to the national budget is still low in terms of its potential, but should grow,
thanks to the major mining projects. According to the 2010 EITI data reconciliation report, earnings from the
mining sector paid to the national budget were estimated at around MGA 291 billion. The vast majority were
royalties paid by Wisco (USD 100 million). Mining resources accounted for approximately 13% of total revenue
and 1.6% of GDP.
According to the transition authorities and a number of civil-society organisations (including Les amis de la
Terre-France in their November 2012 report, Madagascar : nouvel eldorado des compagnies minires et
ptrolires), the Madagascan mining code, in particular the law on large investments, favours mining companies
over the country. The authorities therefore suspended the issuance and the renewal of permits in many areas of
the sector. Moreover, they went back on certain provisions of the law on large mining investments, requesting
commitments from the Ambatovy project that were not initially provided for in the legislation. Revision of the
mining code could be included amongst the priorities of the next post-election government. Modifying the
allocation key for distributing mining revenues between the central government and local communities will
certainly be one of the elements to be considered in greater depth as part of such a review.
The country does not have a stabilisation fund in which resources can be invested in long-term assets.
A number of conditions are in place to allow Madagascar to grow enough to be able to promote structural
change, namely to reallocate the labour force from the least productive sectors to the most productive ones,
but this change has been thwarted by several factors: recurrent political crises that have generated an unstable
environment for private-sector activities; the weak competitiveness of local processing industries and suppliers
(high costs of production factors other than labour); insucient transport infrastructure; and the low quality of
public services. In addition, good, sound management of natural resources remains a major challenge to
Madagascar.
The first factor that might facilitate change was the establishment of free zones in 1989. These were intended to
generate jobs, to acquire and master new technologies, and to bring in capital. The zones were to be a stepping
stone towards the countrys true industrialisation. Eighteen years later, in 2007, the number of employees was
estimated at 120 000, or one-third of the labour force in the secondary sector. In 2008, the zones had 175
enterprises, of which 63% were in the textiles and apparel branch (further details are available in the ILOs
September 2011 study, Les zones franches Madagascar). The 2002 crisis and that of 2009, which resulted in
the suspension of AGOA agreements, led to the shut-down of several companies in the zone and the destruction
of many jobs.
The second condition that can promote structural change lies in high-incentive oil and mining legislation. The
2002 law on major mining investments provides for very competitive tax benets for large investment projects
(greater than MGA 50 billion, or about USD 22.5 million), in particular for those that process their products on
site. Corporate income taxes were thus reduced to 25% (compared to 35% for the general tax system) and to
10% when products were processed inside the country. In this case, the mining licence was set at 1%. These
benets help explain FDI inow, in particular to extractive activities, which accounted for between 60% and
80% of the entire FDI inflow over the past years.
The third element favourable to a change in the economy is the existence of a 2007-12 industrial policy
document through which the government of the time laid down its aim to launch large-scale industrialisation
with intensive use of surplus labour. It especially wished to encourage the introduction of new investment
projects in sectors considered as high priorities for their ripple eect: tourism, agribusiness, light industry for
export, mining, infrastructure and ICT.
Political normalisation will be essential for the country to be able to implement a genuine industrial policy taking
these factors into account. It should make it possible to lift identied constraints and, in addition to the sectors
already cited, give on-site processing of local products a place of choice, in particular in the agricultural sector.
Good management of natural resources remains one of Madagascars major challenges. According to a
December 2010 World Bank study, Madagascar : revue de la gouvernance et de lecacit du dveloppement,
the country is mired in a natural-resource curse with regard to its mining potential. In the forestry sector,
illegal logging and export of precious woods are almost daily realities despite the legal regulations. In the
mining sector, the tax revenues generated by mining will grow with the implementation of the two huge
mining projects. They could sharply change how revenues are distributed amongst the elites by rewarding
highly those who control political power, according to the World Bank study. They could also exacerbate

social inequalities in the mining communities. In addition, the management of mineral rights remains a
potential source of pay-outs if the desired transparency is not there.
Given the risks, implementing the EITI is an opportunity, provided that the current blockages are removed, as
the country was suspended from the EITI in 2010 because of its political instability. The actions that are taken
once institutional stability is recovered must: support the EITI and, above all, civil-society oversight of the use of
public resources; strengthen the management skills of the mining communities for transparent use of the
revenues generated by mining; and consolidate the oversight bodies for the illicit exploitation and export of
precious woods, and apply penalties to all apprehended offenders.

Notes
1. The performance of the mining industry is mainly due to a number of large mining projects. QIT Madagascar
Minerals (QMM)s ilmenite-mining project in Fort-Dauphin is in its third year of operation. In 2013, the company
should approach its annual export target, i.e. 750 000 tonnes per year of ilmenite (10% of world production)
and 60 000 tonnes per year of zirsill. QMMs investment amounts to USD 950 million. Rio Tinto owns 80% of the
shares and the government of Madagascar 20%. The Ambatovy nickel and cobalt production project exported its
rst products (99.9% pure nickel and 99.3-99.8% pure cobalt) in November 2012. Ambatovy is a consortium
comprising Sherrit International Corporation (Canada), SNC-Lavalin (Canada), Suminoto Corporation (Japan) and
Korea Resources Corporation (South Korea). Investment has been evaluated at USD 5.5 billion. An average
annual production of 60 000 tonnes of nickel, 5 600 tonnes of cobalt and 190 000 tonnes of ammonium sulphate
is expected over a period of 20 years.