Madagascar Economy Facts

by ebizdir · Published January 30, 2023 · Updated February 22, 2023

Economical overview

Despite natural resources in the form of minerals, gemstones and forests, Madagascar has had a weak economic development and is among the world’s poorest countries. Isolation from the outside world during the period 2009–2014 meant a financial crisis. Agriculture forms the basis of the economy and employs almost eight out of ten Madagascans.

Agriculture accounts for one fifth of the country’s GDP, but the sector fails to produce enough food for the rapidly growing population. Vanilla is an important export product, but in the industry, mainly textile factories, now contributes the largest export income. Many of the goods are manufactured in economic free trade zones created in the 1990s. In the free-trade zones, foreign companies can establish themselves tax-free and manufacture various kinds of industrial products. Exports of oil, precious stones and various minerals also generate some income, as well as sales of fish and seafood.

Countryaah.com: Major imports by Madagascar, covering a full list of top products imported by the country and trade value for each product category.

Although the free trade zones have created many new jobs in the cities, Madagascar has an extensive informal sector, which is estimated to employ around 75 percent of the economically active population and contribute to a quarter of GDP.

Economic downturn

Planning economic experiments in the 1970s and 1980s, as well as a lack of economic reforms in the 1990s, are part of the explanation for the slow progress. During President Ravalomanana (2002–2009), a certain economic recovery was noticed. In collaboration with institutions such as the IMF and the World Bank, Ravalomanana pushed through market economy reforms and made investments in infrastructure and education. Foreign investment increased, especially from Mauritius and France, but the improvements never benefited the rural population. Eight of ten Madagascans remained poor.

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Following Andry Rajoelina’s coup takeover in 2009, the economy collapsed when, among other things, the EU and the US targeted sanctions on the country, which were also excluded from the AU and SADC. Most donors withdrew their support, with the exception of the most urgent humanitarian aid. The textile industry was hit hard when the United States excluded Madagascar from the AGOA (African Growth and Opportunity Act) agreement, which provides some 40 sub-Saharan countries with trade benefits in the US market in exchange for being able to show some level of development in a number of areas.

Unemployment rose rapidly in the capital Antananarivo. In rural areas, poverty spread, while criminal leagues began to devastate forests and chase endangered animals.

Political turmoil frightened many foreign investors and tourists. Investors were troubled by unclear rules for economic activity in Madagascar, sometimes pared with uncertainty over who actually ruled the country. The Western sanctions meant that investments from countries such as China and Saudi Arabia became more important.

Some recovery

A hope of recovery was raised in January 2014 when Madagascar got a new elected president, Hery Rajaonarimampianina, and the isolation from the outside world could be broken. The World Bank, the IMF and the donors resumed their support for Madagascar, while the country was welcomed back by the AU and SADC. The United States reopened Madagascar in the AGOA trade agreement that year.

Hopes have since been linked to a burgeoning ecotourism which, however, requires large investments in infrastructure, hotels and more. A business center for IT communication is being developed in Antananarivo. In 2016, an IMF program was launched to help the government to increase tax collection and eliminate expensive fuel subsidies. The government also aimed to broaden the economy and get rid of the dependence on a few export products.

In 2018, a rapid recovery took place. When Andry Rajoelina returned in January 2019 as president (this time the general election), he began investing in agricultural development, a better business climate and anti-corruption. In the same year, the IMF reported that agricultural production (mainly vanilla) had increased, as was the activities of the private sector, especially in the construction industry, telecommunications and transport. The mining industry also reported an upturn.

However, Madagascar is still dependent on external loans and assistance to cope with its finances, despite the fact that the country has on several occasions had its foreign debt written down by donor countries and international lending institutions. An important reason for the high debts is that the tax revenues to the state are among the lowest in the world, since so few Madagascans have formal employment registered with the authorities. Another consequence of this is that the state budget is deducted with deficits.