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Economics and Business in Madagascar

According to COUNTRYAAH, Madagascar is a distinctly agricultural country, where large sections of the population live in the countryside, and where agricultural products make up the most important part of both exports and industrial inputs. Madagascar does not have natural resources of great commercial importance, and both mining and industry are little developed. Madagascar is considered one of the world's least economically developed countries.

Business of Madagascar

Since independence in 1960, growth in the country's economy has not kept pace with population growth. Periods of political turmoil have also contributed to economic stagnation and Madagascar's heavy external debt. The country is totally dependent on financial aid. The close ties to the colonial power France continued after independence, but were weakened in the early 1970s, when a more radical policy, in the socialist direction, was waged. This included an orientation towards the Soviet Union and a nationalization of privately owned trading, insurance and oil companies. Already in 1963, the multinational currency became CFA francs(Communauté Financière Africaine) replaced by Malagasy franc, and as part of the new radical policy, Madagascar withdrew from monetary cooperation within the franc zone. Foreign aid from Western countries slowed somewhat, but was supplemented by assistance from the Soviet Union, China and North Korea.

As a result of financial problems from the mid-1970s, economic restructuring programs were implemented in the second half of the 1980s, in line with the demands of the World Bank and the International Monetary Fund (IMF), among other things, with the result that government control was weakened. The highly pressured economy was the main reason for a new foreign policy course change in the 1990s, with increased cooperation among others with South Africa, Israel, South Korea and Taiwan.

In 1990, multi-party government was introduced, with a strong power struggle after the 1991 election, which led to much of the social life for a period being partially paralyzed. In 2002, Madagascar survived its most serious constitutional crisis since independence, fearing the formation of statehood. Both political crises had a negative effect on the country's economic development. In addition, the country is regularly hit by storms.

Agriculture, forestry, fishing

Madagascar is, above all, an agricultural country, and at the beginning of the 2000s, this sector employed about two-thirds of the population and accounted for about three-quarters of GDP. Only about 5 per cent of the island's area is arable land, while around 58 per cent are pastures.

In the highlands, artificially irrigated areas make up over half of the cultivated land. Agriculture is mainly conducted according to old methods, and the majority of farmers practice traditional rice cultivation, often in terraces in the highlands. About half of the cultivated area is planted with rice, and Madagascar - which has a higher average rice consumption than any other country - is normally self-sufficient with this product. Rice is grown partly in monoculture, but also with manioc and corn. Secondary rice areas are the coastal plain in the east and the delta areas in the west. Several cyclones in recent years have done great damage to the rice fields and have in some years necessitated imports.

Other foods for local consumption include corn, cassava, fruit and sweet potatoes. There is also considerable cultivation of tobacco, as well as some production of cotton, coconuts, cocoa and beans. Agricultural products account for around 80 percent of Madagascar's export revenue. Export production also often comes from small farms: in the east coffee (robusta) is grown, in the west peanuts (peanuts), in the north vanilla and spices. On larger plantations in the east sugar cane and sisal are grown. These were partially converted into cooperatives in the 1970s(Fokonolama). Of the export products, coffee, essentially robust, is the most important, and normally alone accounts for a quarter of the export value.

Madagascar has regained its position as the world's largest exporter of vanilla, having been bypassed by Indonesia for a period in the 1990s. About half of world production comes from Madagascar, but it is threatened by other manufacturers and synthetic products. The production of cloves is also considerable, but declined from 2000; the same was true of cinnamon and pepper. Madagascar also produces some ylang-ylang and geranium, whose oils are used in the perfume industry.

The large stock of livestock (especially in the west) yields little return, and is often kept for prestige or ritual reasons. There are large populations of cattle, pigs, sheep, goats and birds. Norwegian mission and assistance have contributed to the development of agriculture, including through running an agricultural school in Antsirabe. Animals and meat are exported to the African mainland, the Gulf states and other islands of the Indian Ocean.

Forests cover about 27 percent of Madagascar's land, but forestry plays little role economically, although some of the raffia is exported. However, charcoal is the country's most important fuel source. In many places, too much felling and deviation has led to soil erosion. From the late 1980s, new measures have been implemented to protect the remaining forests of Madagascar, which houses a unique plant and animal life - which is also the basis for an expanding tourism industry. Organized theft of rose trees is a major problem.

The island state of Madagascar has to a small extent developed a deep sea fishing that has considerable potential, not least in the east. Much of the fishing continues with traditional methods and small boats, but industrialization has taken place in recent years, with assistance from France and Japan, among others. The most important part of deep sea fishing is shrimp and tuna, and the export of shrimp is bypassed in value only by coffee and vanilla. Some lobster is also exported. At the beginning of the 2000s, exports of fish and fish products accounted for just under 10 per cent of total export value. There is also considerable inland fishing, including fish farming in the rice fields.

Mining and energy

Madagascar has known deposits of a variety of metals, but substantially in quantity and with a quality that prevents commercial exploitation. It recovered some glimmer in the south by Tôlanaro and chromium at Andriamena, as well as graphite and some semi-precious stones, all of which is exported, and it takes a certain amount of gold recovery, not least illegally. Ilmenite has been detected in the southeast, where the world's largest deposits of titanium are believed to exist. Other proven minerals include iron ore, coal, nickel, cobalt, copper, bauxite and lead. The extraction of some deposits will conflict with Madagascar's protected natural areas.

Madagascar has significant hydropower potential, estimated at 7,800 megawatts (MW). However, only 350 MW of this potential was developed in 2014. The country's seven hydropower plants cover around three-fifths of the country's power generation. The remaining power is produced by coal-fired thermal power plants and diesel-powered generators, which together make up 150 MW.

Per capita, the annual consumption of electrical energy is estimated at 48.5 kilowatt hours (kWh), which is among the lowest in the world. In rural areas, only 4 per cent of the population has access to electricity, while the proportion for the country as a whole is 15 per cent.

Fuel and coal account for four-fifths of the country's total energy consumption. Oil exploration has been going on for several periods after the Second World War, and deposits of both crude oil and natural gas were detected in 2005, but no commercially viable discoveries. The exploration has concentrated on the Morondava basin off the west coast, where the Norwegian company TGS-Nopec started new seismic surveys in 2005.

Industry

Madagascar has a poorly developed industrial sector, although the country was one of the first in Africa to establish industrial enterprises. The industry consists essentially of food companies, linked to the processing of agricultural products, and is largely located at Antananarivo. Cement production takes place in Mahajanga and Toamasina, as well as from 2001 at Antananarivo. Some wood products and agricultural implements are also produced. At the beginning of the 2000s, the sector accounted for about 14 per cent of GDP and about 7 per cent of employment. The production of textiles, paper and soap is traditionally important; so is the brewery industry.

In the export production zones, capital is invested mainly from South Asia and Mauritius, as well as France, and to a large extent in the textile industry. It grew in the 1990s and gained a particular boost when Madagascar gained favorable access to the US market.

Transport and Communications

Madagascar has a relatively poorly developed transport network, and the mountainous landscape and the large forests have hindered efficient development of the transport network, which is affected by cyclones. A narrow-gauge railway network (1095 kilometers) links the port city of Toamasina with Antananarivo and Antsirabe, and Manakara on the southeast coast with Fianarantsoa. The road network has a total length of approximately 50,000 kilometers and includes, among other things, the main road from Antsiranana to the north through the central highlands to Toliara on the southwest coast and Tôlanaro in the south.

Air traffic plays a relatively significant role in the island's transport, and there are over 200 airstrips; International airport can be found at Antananarivo. Of the 18 seas, Toamasina is on the east coast, which handles two-thirds of the freight volume, and Mahajanga on the northwest coast is the most important.

Foreign Trade

Since the beginning of the 1970s, Madagascar has had a deficit in trade abroad. Agricultural products account for about 80 percent of the export value, with coffee, vanilla and shrimp as the main commodities. Imports include oil and petroleum products, chemicals, machinery, transport equipment and food products. France is by far the largest trading partner.

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