General Information

Economic Indicators

Trade Indicators

Economic Overview

Agriculture dominates the Malagasy economy, accounting for about 32 % GDP and 80% of exports. Recent estimates are that 80% of the work force is engaged in the agricultural sector, while an estimated 65% of the population lives at subsistence level. 1

Manufacturing accounts for about 13% of GDP. 2 Low labour costs have encouraged clothing manufacturers to move some operations from Mauritius to Madagascar. A program of duty-free-zones has also attracted some clothing manufacturers. The clothing sector promises to become increasingly important relative to the previous industrial sectors - food processing (currently 50% of industrial activity) and textiles (about 25%). The duty-free program provides for tax benefits and duty-free import of manufacturing inputs for export-oriented industries. By early 1993, about 70 companies established under the provisions of this law employed more than 17,000 workers. 3

Other industries showing promise for foreign exchange and employment are tourism, clothing manufacture, fishing, commercial agriculture, and mining. Because of its unique and diverse flora and fauna, Madagascar also has the potential of becoming a centre of world eco-tourism. The future development of this activity will depend on improvements in the transportation and communication infrastructure in Madagascar.

FDI remains low and was less than 0.4% of GDP in 1997. 4

Regulatory Environment

Since the end of the transition to democratic rule in 1993, the new government has moved to reorganise national economic policy with some encouraging developments. The country has significant economic potential based on an industrious and trained labour force and a variety of natural resources that have only begun to be explored. In the short and medium terms, considerable economic growth can arise from the privatisation of state-held companies. Long-term growth will need significant investment in new mining, manufacturing and agro-industry sectors and revision of investment costs to attract this investment. 5

The prevailing challenge for Madagascar is to maintain macroeconomic stability and create an economic environment conducive to higher levels of investment and private sector development. The economy remains highly vulnerable to external shocks, in particular adverse weather conditions. The primary sector accounts for about 40% of GDP, while 31% of merchandise exports stem from the traditional agricultural production (coffee, vanilla, cloves and pepper).

A significant share of government revenue is collected through customs duties, import taxes and value added taxes on imports. Although lowered recently, tax and customs duty rates are still high. Madagascar does not have significant non-tariff barriers to trade. 6

Current Process of Liberalisation

Madagascar has made significant progress in liberalising its trade regime since the early 1990s. Price distortions have been removed, the exchange rate has been floated, energy prices increased, commodity subsidies removed and the financial sector has been strengthened. 7

In March 1995, countries participating in the Cross-Border Initiative (including other IOR-ARC members - Kenya, Mauritius and Tanzania) agreed to eliminate tariffs on intra regional trade and harmonise external tariffs by October 1998. The harmonised external tariff will consist of three non-zero bands a weighted average of 15% and a maximum tariff of 20-25%. The agreement also called for the dismantling of import licences and similar non-tariff barriers, except for a short "negative" list for health and security reasons. Moreover agreement included the liberalisation of services trade, the harmonisation of transit charges, the documentation of common road customs, and the development of insurance for transit. Quantitative restrictions on exports to all countries are also to be eliminated. Madagascar is now in the final stages of meeting the requirements of the Cross-Border Initiative.

Madagascar has embarked on a new structural adjustment program to consolidate the progress achieved in stabilising the economy and liberalising the external sector. It will also implement important structural reforms in the areas of public service, air transport, petroleum, and communications. A restructuring of public banks and privatisation is planned to allow for greater efficiency, competitiveness and foreign investment. 8

1. World Bank Group Countries: Madagascar, (22.12.1999 ); TradePort (US Department of Commerce National Trade Data Bank, http://www.tradeport.org/ts/, 06-11-98).
2. World Bank Group....
3. radePort, (U.S. Department of Commerce National Trade Data Bank, (http://www.tradeport.org/ts/, 06-11-98).
4. orld Bank Group....
5. Trade Compass Country Commercial Guides,
   (http://www.tradecompass.com/library/books/com_guide/).
6. Trade Information Centre, US Department of Commerce (http://tradeinfo.doc.gov/).
7. World Bank Group....
8. Trade Compass....