Signs of recovery in Madagascar

The Malagasy government is calling on Chinese investors to participate in the sustainable development of the economy.

The Indian Ocean Island of Madagascar, famed for its extravagant biodiversity, is slowly emerging from a period of protracted political instability and economic stagnation. In January last year, the investor-focused Hery Rajaonarimampianina was inaugurated as President of the Fourth Republic, after elections described by international observers as free and fair.

This marked the end of a bitter political struggle, which saw one of the poorest countries in the world isolated by the international community and excluded from many donor programs.

In its latest assessment, the International Monetary Fund praised the government for its "commitment to addressing Madagascar's challenges" and highlighted "early signs of an economic recovery in 2014, with growth estimated at 3 percent and December inflation under 7 percent".

There were hopes this marked a significant turning point in the fortunes of a country where growth has averaged a lowly 1.8 percent a year since independence from France in 1960 and where more than 90 percent of the population continues to survive on less than $2 a day.

The country was plunged into political turmoil in early 2009 amid protests during which at least 130 people died. The president at that time, Marc Ravalomanana was forced to cede power to a military council at gunpoint and as he fled to South Africa, his fierce political rival and Mayor of Antananarivo, Andry Rajoelina was installed as president of the High Transitional Authority, promising to hold elections by October 2010.

It was a pledge he never kept and amid accusations of orchestrating a coup d'tat, the transitional administration found itself condemned as unconstitutional and ostracized by the international community.

The impact of the coup on Madagascar's already fragile economy was immediate. GDP growth, which had reached 7 percent in 2008, contracted to just 0.6 percent the following year.

Donor contributions, which accounted for 40 percent of Madagascar's budget and 75 percent of public expenditure, were severely curtailed and both the African Union and the Southern African Development Community suspended membership. According to the National Tourism Office, visitor numbers plunged by more than half.

In 2010, US President Barack Obama also removed Madagascar as a beneficiary of the African Growth and Opportunity Act.a key agreement that gives sub-Saharan African countries preferential trade status with duty free entry to the United States for certain goods. Madagascar's exclusion from AGOA was keenly felt by some of its poorest citizens.

In the important textiles sector, for example, 30,000 workers lost their jobs and in the Free Trade Zone, half the 350 export companies shut down.

After nearly five years of instability, the deadlock was finally broken after a two-round presidential election, brokered by former Mozambican President, Joaquim Chissano. The winner, Hery Rajaonarimampianina, was finally inaugurated in January 2013 promising open political dialogue in the spirit of national reconciliation.

He said the administration's priorities were to tackle poverty, improve access to education and health services and create a business friendly environment to attract investment.

Progress since has been swift and in the 15 months since taking power, the new administration has made impressive strides towards getting Madagascar back on firmer footing. Madagascar was rapidly readmitted to the African Union and the Southern African Development Community, donor organizations began distributing funds again and the US lifted all restrictions, restoring eligibility to AGOA in June last year.

"The main conclusion that the international community should draw from the return of political stability in Madagascar is that we now have the means and the will to put in place reforms necessary to tackle poverty," said Minister of Finance, Franois Marie Maurice Gervais Rakotoarimanana. "I've always maintained that one of the challenges in the fight against poverty is that its effects are poorly understood. When people die of malaria, for example, the root cause is not the disease, but poverty. We are now committed to achieving economic growth, but that is not the objective in and of itself. The key is to make sure that our economic gains are felt by all sections of society."

Government officials concede that growth remains uneven and annual GDP per capita stubbornly remains below $500, but in its recently launched National Development Plan, the government has instigated a raft of reforms that promise access to health, education, hygiene and water for the entire population.

In health, for example, these include commitments to develop the country's health infrastructure, improve vaccination coverage and access to contraception, reduce the rate of HIV infection by half and train more healthcare professionals.

Likewise in education, the priorities are to reverse the fall in education standards since the coup. It is early days, but indicators suggest that the country is moving in the right direction. Primary education completion rates, for example, now exceed 70 percent, up from under half in 2004.

In its report the IMF acknowledged these gains. "The new government has given priority to raising social and infrastructure spending back to more normal levels and creating a foundation for faster and more inclusive growth and for poverty reduction."

"What we've learned over the years is that political crises weaken all the institutions of the state," said Minister of Economy and Planning, Herilanto Raveloharison. "Even though economic growth is of course welcome, we have to ensure that it translates to development that is sustainable and inclusive. That is why our national development plan is so critical.

"We are starting from the ground up. To restore confidence in our institutions, we are putting great emphasis on improving governance. That means, for example, rooting out corruption and enhancing the judiciary."

With growth apparently stable at about 3 percent, the second stage has been to cement recent economic gains, which have been given a boost by the growing mineral exports, fewer food imports and lower than expected international oil prices. "Our monetary policy and budget planning will remain cautious," assures Raveloharison. "We have a grip on inflation which is now heading lower, towards 7 percent, and we will maintain the budget deficit at 3 percent. Our third priority is to increase the level of private investment."

The government has identified four key sectors, namely agriculture, energy and mining, tourism and infrastructure, to drive the economy in the future, and is calling on the private sector and foreign investors to participate in the sustainable development of the economy.

In terms of the energy sector, for example, international oil companies are waiting for a new petroleum law which will precipitate a new round of auctions for onshore and offshore exploration blocks.

"Another sector to highlight is infrastructure and we have created a ministry to oversee all the major projects currently underway.

"These include building new highways, major extensions of Port Tamatave and Ivato International Airport, as well as the construction of dams for agricultural use," continues Raveloharison.

"There are a lot of opportunities for China in this domain. We have a large Chinese community here and strong relations with Beijing and although Chinese companies have invested here for years, we have seen a significant increase in investment from China in recent times. They are already present building roads, hospitals, schools, but I stress that there is the potential for a lot more."

The banks are playing their part. Although the sector is small, with only 11 mainly foreign-owned banks, they emerged relatively unscathed from the global financial crisis in part due to the fact that they tend on concentrate on retail rather than investment banking.

Their major challenge has been to encourage greater uptake of their services in a country where only 5 percent of the population has an account.

"At the Bank of Africa we are committed to being good corporate citizens first and foremost," said Abdallah Ikched, CEO of the bank, which is the market leader in terms of deposits, loans and profitability.

"Our primary objective is to work for the betterment of the country and its people. We are playing an important role in the growth and dissemination of banking services here. Two years ago, we had 268,000 account sholders.

"That has now leapt to nearly 540,000. One of the secrets of our success is that we have tailor-made products designed specifically for each market that we are present in.

"In Madagascar, for example, we have a mortgage product called Akani which translates as 'home'. The fact that we manage more accounts than any other bank in Madagascar shows that not only do we believe in the country, but also that the people believe in us."

"Since the new government took control, we are seeing strong signs that the economy is getting back on track, funds are being released and investors are coming back," continues Ikched.

"After 5 years of crisis, everyone is in a hurry. We know it will take time, but I believe once Madagascar has some momentum it will be unstoppable."

"China is incontestably a leader in infrastructure development and we have seen the impact their assistance can make in countries across Africa because they have the finances, expertise and experience to contribute significantly," said Rakotoarimanana.

"We are extremely rich in natural resources and we are committed to establishing a stable and attractive business environment, so we invite Chinese investors to join us in unlocking those riches."

(China Daily 04/22/2015 page17)