MADAGASCAR

Democratic Republic of Madagascar
République Démocratique de Madagascar
Repoblika Demokratika n'i Madagaskar

COUNTRY OVERVIEW

LOCATION AND SIZE.

Madagascar lies in the southern Indian Ocean some 400 miles off Africa's eastern shore. With a land area of 587,039 square kilometers (226,656 square miles) Madagascar is a little less than twice the size of Arizona. It is also the world's fourth largest island, with a coastline of 4,827 kilometers (3,000 miles). Madagascar's capital is Antananarivo (population 2 million), located on its central plateau 1,468 meters (4,816 feet) above sea level. Other major cities include Fianarantsoa (population 440,000), inland in the southern part of the island; Taomasina (population 330,000), the principal port, located on the eastern seaboard; Antsiranana (population 320,000), at its northern-most tip; and Mahajanga (population 295,000), site of the country's second international airport. Madagascar's highest point is a mountain called Maromokotro (2,876 meters or 9,436 feet), located in the Tsaratanana Massif region along the island's central spine.

POPULATION.

Demographic statistics for Madagascar are scarce and often unreliable, but a mid-2000 estimate by the U.N. Population Fund places its population at around 15.9 million. Although relative to its size this figure is below the average of its sub-Saharan neighbors, growth is brisk. With an annual birthrate estimated at 42.92 per 1,000 of population—around 3 percent per annum for the years 1995 to 2000—the fragility of Madagascar's environment makes this expansion a significant concern. The average life expectancy at birth of 54.95 years is relatively high by sub-Saharan standards, but poverty and malnutrition are nevertheless endemic, sanitation is very poor, and disease (especially cholera and malaria) is an ever-present threat. Some 27 percent of Malagasy (the people of Madagascar) lived in urban areas in 1998, a population segment which was growing at the rapid rate of 5.6 percent a year as rural inhabitants quit the countryside for the cities.

Ethnically, Madagascar is an unusual mix. Its 2 largest ethnic groups are the Indonesian-descended Merina (26 percent) and Betsileo (12 percent), who are historically concentrated in the central highlands, including the capital. Other groups include the Arab-African Betsimisaraka (15 percent) and Tsimehety (7 percent) of the east and north, respectively; and the Antandroy, of more purely (Bantu) African origin, in the south (5 percent). The prevalence of a unified language, the Malay-Indonesian Malagasy, has tended to work against sharp ethnic divisions, though there is some on-going chafing against Merina political domination. Religiously, 52 percent of Madagascar's people hold indigenous beliefs, 41 percent are Christian and 7 percent Muslim.

OVERVIEW OF ECONOMY

Although possessed of a temperate climate and variety of natural resources, Madagascar remains one of the poorest countries in the world. Its economic problems are daunting, and have been compounded by many years of stagnation and decline. From 1971 to 1991 Madagascar dropped from the world's 30th poorest nation to its 10th poorest, with a fall in GDP per capita across the same period of 40 percent. Only in the late 1990s has Madagascar really begun to turn this trend around, but progress is expected to be slow, and major set-backs can still be expected.

Still predominantly agrarian, agriculture accounts for four-fifths of the workforce (mostly at subsistence level) and one-third of GDP. But population pressure combined with poor resource management has caused serious damage to Madagascar's ancient and highly delicate ecosystem, and deforestation and soil erosion are pressing concerns. By the late 1980s it was estimated that only 1 percent of the original wilderness remained.

Agriculture also suffers from droughts, locust plagues, and cyclones. A series of 3 particularly savage cyclones in early 2000 affected more than a million people and caused damage estimated by the World Bank to be near US$137 million. Growth, which had been forecast at 5.3 percent for 2000 (after a 4.7 percent rate in 1999), only reached 4.8 percent, leaving the country still crucially dependent on foreign aid and debt relief . The cyclones' devastating economic consequences, especially on cash crops such as coffee and vanilla, will be felt for years to come.

Other challenges include a limited and badly antiquated road system and rail network that are wholly unequal to the challenges of Madagascar's weather and terrain. The difficulty of transport, which in the monsoon months can leave large parts of the country inaccessible, is a major obstacle to commercial activity. But also inadequate is Madagascar's bureaucratic infrastructure . The civil service tends to be unresponsive and inefficient. And poor policing and corruption in the judiciary continue to render property and contract rights insecure. These factors are formidable disincentives for much-needed investment in the economy.

Madagascar's hope rests on energetic restructuring of its economy to reduce the national debt , stimulate the private sector , and encourage foreign development. Industries targeted as strategically central to this mission are Madagascar's fledgling manufacturing sector (especially garments and textiles) and its unique environment, with " eco-tourism " showing signs of real revenue promise.

POLITICS, GOVERNMENT, AND TAXATION

Colonized by France in the 1890s, Madagascar gained its independence on 26 June 1960 after a violent separatist struggle. Its first president, Philibert Tsirinan, was toppled in May 1972. In the 3 years of military rule that followed, Tsirinan's foreign minister, Didier Ratsiraka, emerged as the principal strongman and took the presidency officially in June 1975. Declaring the Democratic Republic of Madagascar, Ratsiraka closed all foreign military bases, nationalized the country's major industries, and opened relations with the Soviet Union and China. A drastically worsening economic situation forced Ratsiraka's Avant-garde de la révolution malagache (Arema) government in the 1980s to seek international help and institute a new monetarist reform agenda. Although re-elected in March 1989, popular agitation for political liberalization had reached the point that, by 1992, Ratsiraka was forced to accede to a new pluralist, democratic constitution (pluralist societies are characterized by a variety of opinions voiced in a democratic context). In the first elections, under the constitution adopted later that year, he was voted out of office. He returned in 1996, however, after his successor, Albert Zafy, was impeached by parliament. The next presidential election is scheduled for 2001, and remains largely up in the air. Although the president's opposition is fragmented, and his IMF (International Monetary Fund)-sanctioned policies enjoy broad support, Ratsiraka himself is not especially popular; and he is also now very old. Madagascar has yet to resolve its unstable, and sometimes violent, political situation.

Madagascar's republic's laws are based on the French civil law system and traditional Malagasy rule, and a new constitution was adopted in 1998. The president of Madagascar is the chief of state and elected by direct vote for a 5-year term. The country now has a two-chamber legislature: the National Assembly and the Senate. The National Assembly is directly elected. The president and his cabinet appoint a prime minister. The country has nearly 30 active political parties.

Although the political consensus in Madagascar has generally favored fiscal discipline, it is only in the last 4 or 5 years that economic liberalization and monetary stabilization have been consistently and rigorously applied. Current policy is committed to minimizing inflation , servicing the national debt, stimulating the private sector, and diversifying the country's export base. The effects have been encouraging, with an average growth rate since 1995 of 3.2 percent.

Other initiatives include the divestment of state enterprises, with more than 40 slated for privatization , and the devolution of certain government powers to local councils, a measure to make government more efficient and accountable. Longer-term plans include reforming the justice system to combat corruption, and re-investing in education, which has become badly neglected in the last 20 years (falling from 4.4 percent of GNP in 1980 to 1.9 percent in 1998).

With tax evasion widespread, part of the new regime of fiscal reform has also been a more aggressive approach to taxation and revenue collection. This has seen revenues increase to 10 percent of GDP in 2000, but in an economy that is largely informal, the burden has tended to fall on the fragile business sector. Vocal protests from the Malagasy business community in 1999 forced the government to soften its stance and exposed the limits of fiscal reform. To bolster industry, plans are now afoot to reduce trade-based levies , currently the source of 60 percent of government tax revenue. Some of this shortfall will be picked up by the 20 percent value-added tax .

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Underdeveloped and poorly maintained, Madagascar's inadequate infrastructure is a major obstacle to economic progress, restricting the exchange of goods and limiting development opportunities. The problem has been made even worse by an actual deterioration of the infrastructure in the 1970s and 1980s. As of 2000, only just over 11 percent of its 49,828 kilometers (30,968 miles) of roads are paved. During the rainy season, many of these are completely impassable, isolating large parts of the country. Rail is also in a perilous state, with a mere 885 kilometers (550 miles) of track, in 2 unconnected systems, and most of it in very poor repair. The introduction of private trucking licenses and the planned sale of the national railroad company should help, but the problem remains a fundamental one.

The poor condition of the land transport system has placed special emphasis on air and sea traffic. Madagascar has 15 ports, of which Tonmasina, Mahajanga, and Antsiranana are the most important. In theory, there are

211 airfields, but only 30 of these are paved. There is an international airport at Ivato, outside Antananarivo. Deregulation of the air market has seen considerable expansion, with the appearance of competitors pushing down prices and increasing volumes, especially between Europe and Asia. The first half of 2000 saw an 11 percent jump in European passenger numbers over the same period in 1999, and a 69 percent increase in Asian passengers. Deregulation plans include the eventual privatization of Air Madagascar.

Telecommunications in Madagascar are currently inadequate. The landline network has barely been extended since 1960, and the vast majority of telephones are concentrated in the capital. With foreign aid, the country has installed a new digital switching system, however. Privatization of the national telecommunications monopoly , Telma, is underway, but is unlikely to generate the investment capital necessary to expand radically the customer base. The mobile telephone market, however, is highly competitive, with 4 operators active. Thanks to the USAID-funded Leland Initiative, Internet services can now boast 10 Internet service providers (ISPs).

Madagascar has 7 hydro-electric power stations and together these contribute two-thirds of its power output. But electricity makes up only 5 percent of total energy production; 82 percent of primary energy supply comes from bagasse (sugar cane residue), firewood, and charcoal, the use of which carries a high environmental cost. The development of Madagascar's extensive coal reserves has so far been frustrated by the poor road and rail system. Oil exploration is underway, but the country remains import-dependent.

ECONOMIC SECTORS

Madagascar remains a firmly agrarian society, with agriculture generating about 32 percent of GDP and 70 percent of export earnings (1999). But the industry is limited by the prevalence of subsistence production and its orientation towards the domestic market, whereas its traditional export-focused crops, such as coffee, cotton, and spices, have been hurt by waning international prices. While there has been fruitful diversification into newer crops such as cassava (tapioca) and bananas, as well as fishing and aquaculture, agriculture alone cannot sustain future growth. Sectors which have become increasingly important are manufacturing and tourism, whose potential to generate foreign exchange earnings have made their development a government priority. But while innovative and productive steps have already been taken to encourage these sectors, and economic liberalization has helped to stimulate competitiveness, the shortage of investment capital has made progress tentative and halting.

AGRICULTURE

Agriculture forms the livelihood of the overwhelming majority of Malagasy. And yet, although agriculture is a vital export earner, the industry remains underdeveloped, accounting for only one-third of GDP—a level below that of its agrarian neighbors. Despite half the country being cultivable, only 5 percent is currently used for crop production, and only 16 percent of this is irrigated; most farmers eke out a subsistence living on small family plots. Poor transport systems and highly limited access to credit have also inhibited commercial development and discouraged investment in cash crops.

The main staple crop is rice, occupying about two-thirds of all available cropland. Despite a long-standing government goal of rice self-sufficiency, however, Madagascar remains a net importer. Traditional cash crops— most of which were introduced by the French in the 19th century—include coffee, cotton, sugar cane, vanilla, and cloves. But pressure from other producing countries has undermined Madagascar's market share in these commodities and cut into export earnings. Coffee continues to hold its own, accounting for around 8 percent of exports (US$42.5 million, est. 1998), as does cotton (4.1 percent), traditionally the second most important export crop. But vanilla and cloves have been badly hit by sagging world prices, shrinking from a traditional one-third export share to around 5 percent in 1999. Non-traditional crops have fared better and include cassava (the second major crop in terms of land used), corn, sweet potato, and bananas.

With some 50 percent of all Malagasy land used for herding, livestock farming (especially Zebu beef cattle) is another important export earner, though ownership patterns and social imperatives inhibit full commercialization. Timber is also significant. Although Madagascar's native reserves have been largely cleared for farming, there is heavy international pressure to conserve what is left; about 260,000 hectares of pine and eucalyptus forests are currently under cultivation.

Fishing is growing in importance and shows considerable promise. Prawn and tuna exports in particular are valuable export earners, and production is expected by 2001 to have increased by 25 percent over its 1995 levels, with 20 percent more jobs created. Shrimp farming is also taking off; other products include tilapia, black bass, trout, and lobster.

INDUSTRY

Industry is a fledgling sector in Madagascar, providing only 13.6 percent of GDP (1998), but one showing definite potential. Mineral deposits are substantial and largely unexploited. Gold and chromite are both mined extensively, as are, on a smaller scale, graphite, mica nickel, ilmenite, and marble. Iron and bauxite, as well as semi-precious stones (especially sapphires) are being developed, and have a combined export potential of up to US$380 million. The industry is not without its problems, however. Many of Madagascar's deposits are inside national parks and hence off-limits to development. Low investment is also a hindrance, as is—in the case of gold and gemstones—chronic smuggling.

Manufacturing is an area of some success, greatly stimulated by the formation of the export processing zone (EPZ) in 1996, which offers tax exemptions for export-focused industries. The project has grown to include 150 companies and has generated 80,000 jobs, producing 37.4 percent of Madagascar's foreign trade revenue. Its main products are clothing (48 percent), handicrafts (13 percent), and agro-processing (9 percent). Textiles are another important export, supported by Madagascar's cotton industry and low wage rates, and accounts for 15 percent of manufacturing production. Other products include plastics, pharmaceuticals, leather goods, footwear, and tobacco.

SERVICES

TOURISM.

Madagascar's climate, beaches (4,827 kilometers—or 3,000 miles—of them), and unique ecology (Madagascar is home to many endangered species of flora and fauna) make tourism one of its most dynamic and promising sectors. The industry has the potential not only to create jobs and wealth, but to turn Madagascar's unusual and endangered environment into a productive asset. Interest is great, and two-thirds of the country's visitors come for eco-tourism. In 1998, tourists brought in US$92.2 million. But although visitor numbers are rising steadily (doubling since 1994), volume is still low.In 1997 Madagascar attracted less than a fifth of neighboring Mauritius's 536,000 visitors. Further development of the industry also faces significant difficulties. Air links to Europe and Asia are few and expensive, hotel facilities are sparse and inadequate, and investment is scarce. Government attempts to meet these obstacles have included rationalizing (removing inconsistencies and streamlining) the relevant laws, creating a coordinated tourist authority, and liberalizing the airline market.

FINANCIAL SERVICES.

Limitations in the financial sector continue to impede growth. The nation's assets are controlled by the central bank and 5 commercial banks, the largest of which, BNI-Credit Lyonnais, has a total asset base of US$200 million. Few Malagasy, however, qualify for these banks' services. The problem is especially acute in the rural areas where only 1.5 percent of small farmers have access to credit; the agriculture sector itself receives only 5 percent of total lending. High interest loan rates and fees have also discouraged business borrowing. The lack of a stock exchange and shareholding culture have further restricted financing options.

RETAIL.

Few in Madagascar can afford more than the bare essentials, and steady depreciation of the currency has eroded purchasing power even further. This combined with the poor condition of the country's transport network means that trade tends to be localized and retailing minimal. However, the opening of the economy has expanded the range of goods available somewhat, especially in the main urban centers like Antananarivo.

INTERNATIONAL TRADE

Trade continues to run heavily in Madagascar's disfavor, with imports exceeding exports by more than US$200 million. Although there are signs the situation may be improving, the disparity remains debilitating.

The main trading partner is Madagascar's old colonial patron, France, which in 1998 took 39.6 percent of its total exports, at a value of US$349 million. France in turn supplied 24.1 percent of its imports, mostly machinery

(25.7 percent), textiles and clothes (16.1 percent), chemicals (13.2 percent), and transport equipment (10.6 percent). Other buyers of Malagasy goods are Mauritius (6.9 percent), the United States (5.9 percent), and Germany (4.4 percent). Germany was also the source of 7.3 percent imports, while Iranian oil accounted for a further 7.1 percent.

Under the Lomé Convention, Madagascar enjoys preferential entry to European export markets. It is also a member of the 20-nation Common Market for Eastern and Southern Africa trade group (COMESA), whose long-term plans include monetary union and a common central bank. Madagascar has also applied to join the similarly aimed Southern African Development Community (SADC).

MONEY

Madagascar's external debt stands at over US$3.3 billion, its annual deficit at around 4 percent of GDP (1999). This is some improvement over the previous 6 years, when the deficit had averaged in excess of 6 percent per annum, but it remains a heavy economic burden, and has put considerable pressure on its currency. Inflation has long been a problem, with an average of 60 percent as recently as 1994. But while efforts by Madagascar's central bank have seen this fall in 1998 to 6.4 percent, further progress is hindered by the high world oil price; and increased government spending saw this bounce back up to 14.4 percent in 1999.

Since the Malagasy franc was first floated in 1994 it has lost about half its value against the U.S. dollar. Although this has made imports more expensive, it has also enhanced Madagascar's export competitiveness. The Malagasy franc now sits at about 7,000 to the U.S. dollar.

POVERTY AND WEALTH

Chronic poverty is Madagascar's foremost burden. Its wage rates are amongst the lowest in the world, and, according to a 1993-94 survey, 70 percent of the country

lived below even Madagascar's own baseline poverty level, and conditions had not improved by the end of the century. Average per capita GDP sits at US$250 per annum (1999), low even for sub-Saharan economies, and one-hundredth of France's GDP per capita. Although the economy continues to grow, the effects remain unfelt by the majority of the population, for whom disease and famine are continual blights.

Poverty levels are not helped by skewed distribution. Traditional Malagasy society is highly hierarchical, with a rigid ranking system according to ethnicity, age, and gender. The effect has been to rigidify social structures and to leave Madagascar's richest 10 percent controlling 35 percent of the country's wealth. Corruption and patronage too tend to concentrate wealth in the hands of the elite, though the planned devolution of governmental power to the regions may go some way to expanding the political class.

WORKING CONDITIONS

The Malagasy workforce is estimated to be around 7 million strong. Unemployment is officially low— around 2.8 percent in rural areas, 6.6 percent in the cities—but these figures are likely to be significantly underestimated. Although the rate has been slowly falling,

more than half the workforce is still underemployed . At least in the short-term, the down-sizing of the public sector is likely to see more jobs lost. Hardest hit are the young; 22 is the average age of the unemployed.

Despite Madagascar's poverty and falling government investment in education, literacy remains relatively high (by sub-Saharan standards). More than 90 percent of children enroll in primary school, and 16 percent go on to secondary school. The literacy rate is 72 percent for men and 52 percent for women. The result is a generally adaptable workforce.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

c. A.D. 300-800. The first humans arrive in Madagascar, from Indonesia.

1642. French presence established.

1890. European powers recognize Madagascar as a French protectorate.

1944. Madagascar receives French overseas territory status.

1958. Madagascar becomes a self-governing republic within the French Community.

1960. Independence from France.

1972. Philibert Tsirinan, Madagascar's first president, is forced to resign after mass demonstrations.

1975. Didier Ratsiraka becomes Madagascar's second president.

1992. New Constitution enacted; Ratsiraka defeated in elections by Albert Zafy.

1996. Zafy impeached by parliament; Ratsiraka returns to office.

1999. Madagascar becomes eligible for U.S. debt relief.

FUTURE TRENDS

Madagascar remains desperately poor, and its people afflicted with malnourishment, endemic poverty, and disease. And yet there are signs that some cautious optimism may be in order. Progress has been slow and painful, but real. After many years of government control, new free market policies have been implemented and the government is slowly putting the productive sectors of the nation into private hands. And while climatic factors remain a wild-card threat, on-going attempts to diversify the economy and address poverty levels will help to reduce exposure. But much will depend on continued international support.

DEPENDENCIES

Madagascar has no territories or colonies.

BIBLIOGRAPHY

Brown, Mervyn. Madagascar Rediscovered: A History from Early Times to Independence. Hamden, Connecticut: Archon Books, 1979.

Covell, Maureen. Madagascar: Politics, Economics, and Society. New York: Frances Pinter, 1987.

Economist Intelligence Unit. "Country Profile: Madagascar, Mauritius, Seychelles, Comoros."<http://db.eiu.com/report_dl.asp?mode=pdf&valname=CPAMGB>. Accessed December 2000.

Economist Intelligence Unit. "Country Report: Madagascar."<http://db.eiu.com/report_dl.asp?mode=pdf&valname=CRAM GC>. Accessed December 2000.

U.S. Department of State. Country Commercial Guide: Madagascar. Washington DC: U.S. Department of State, 2001. <http://www.state.gov/www/about_state/business/com_guides/2001/africa/madagascar_ccg2001.pdf>. Accessed December 2000.

U.S. Library of Congress. "Country Studies: Madagascar (1994)." <http://lcweb2.loc.gov/frd/cs/mgtoc.html#mg0006>. Accessed December 2000.

—Alexander Schubert

CAPITAL:

Antananarivo.

MONETARY UNIT:

Malagasy franc (FMG). One franc equals 100 centimes. Coins come in denominations of 1, 2, 5, 10, 20, 25, 50, 100, and 250. Paper currency includes denominations of 500, 1,000, 2,500, 5,000, 10,000, and 25,000 FMG.

CHIEF EXPORTS:

Coffee, vanilla, cloves, shellfish, sugar, petroleum products, clothing and textiles.

CHIEF IMPORTS:

Manufactured and consumer goods, petroleum, food.

GROSS DOMESTIC PRODUCT:

US$11.5 billion (purchasing power parity, 1999 est.).

BALANCE OF TRADE:

Exports: US$600 million (f.o.b., 1998 est.). Imports: US$881 million (c.i.f., 1998 est.).