Steering a path to economic growth

Your growth figures are satisfactory. What are the key sectors or factors driving growth?

Since 2021, the Malagasy economy has posted average growth of just over 4% a year, and has therefore been able to recover from the global recession of 2020 due to Covid-19. It is a figure that is indeed satisfactory, compared with the figures for other sub-Saharan countries. 

Despite a very difficult international context, the dynamism of our key sectors has enabled us to achieve this performance. The agricultural sector, particularly agricultural production, has performed well, with an average increase of 7% in recent years. Fishing activities have also supported our economy, with increasingly significant export volumes. 

In the industrial sector, the textile industry plays an important role thanks to AGOA, under which Madagascar was the second-largest exporter of clothing to the US in 2022. In addition, the country has a large reserve of strategic minerals (cobalt, nickel, graphite, etc.), in which investment has increased by up to 236% since 2021 to meet global demand, particularly for graphite, a product needed for the energy transition. 

Tourism is also a key sector of our economy. We are gradually returning to the business volumes of 2019, and this year, hope to be able to reach or even exceed pre-Covid levels.

Finally, I must mention the telecommunications and digital sector in general, which has also underpinned our performance, given data consumption, which has risen considerably since 2020, following strong mobilisation around online professions and meetings. Indeed, Madagascar benefits from three high-performance submarine cables, enabling it to position itself as a hub for digital development, attracting considerable offshore activity to the area (call centres, etc.). 

More generally, the reforms we have carried out have certainly played a role in our economic performance. I could mention, for example, the new mining code, the investment code, the reform of the legal framework for the telecommunications sector and many other reforms, particularly in the area of public finance, where last year we adopted a decree on the management of public investments for the first time. 

Thanks to these recent reforms, we have created an increasingly attractive and secure environment for investment. As a result, we hope to see even greater economic dynamism in the years ahead, with the backing of our technical and financial partners, whose support we appreciate. 

The tourism sector has seen growth, but does infrastructure remains an obstacle to its development?

One of the state’s priorities has been to encourage investment in the tourism sector. Incentives to this end have been and are being put in place. The call for national and international investment was officially launched by His Excellency the President of the Republic, and in particular directed towards the major international hotel groups (Accor Group, Radisson, Marriott, etc.). 

In fact, the recent investment in Madagascar by the Emirates airline, with 4 direct flights a week from Dubai to Antananarivo, will completely change the tourism landscape in Madagascar. This investment will also lead to others, such as the construction of at least ten 5-star hotels, as requested by the airline – which is currently looking for investors. 

Natural resources are becoming increasingly important to the economy. What projects are currently in progress?

Our natural resources management focuses on: 

– Turning our natural resources into a driving force for economic expansion in Madagascar; 

– Ensuring the sustainable management of our natural resources, in particular Madagascar’s endemic fauna and flora;

– Supporting our local leaders and inhabitants in the management of our resources in Madagascar; – Improving in situ and ex situ management of our resources; 

– Promoting ecotourism by showcasing our ancestral treasures; and

– Protecting our resources from illegal activities.

Public investment is high, at over 12% of GDP. What are the government’s priorities and how are you working with your partners to accelerate investment?

Public investment was a priority for the Malagasy Government in 2023. 

To accelerate investment, collaboration with partners is essential. The government is working closely with technical and financial partners (TFPs), such as the World Bank, the International Monetary Fund and the European Union, to mobilise the necessary resources and implement strategic infrastructure projects. 

The government is also encouraging public-private partnerships (PPPs) to attract more private investment in key sectors, particularly infrastructure development.

Structural reforms, including the simplification of administrative procedures and the securing of property rights, are being implemented to create a more attractive investment climate.

You have a budget deficit of 5%, while the tax/GDP ratio remains low. This doesn’t make it easy for your ministry, which has to manage tight budgets with many priorities. How do you manage and maximise your budget? Have you regained access to donor aid or aid from allied countries regarding the country’s budget deficits?

Indeed, the tax burden averages 10.0% of GDP, while the public deficit is around 5.0% (particularly from 2022). On the other hand, the primary domestic balance (revenue minus expenditure excluding external factors) is contained at a deficit of 1.5% of GDP. The overall deficit is thus mainly the result of capital expenditure financed by external borrowing. 

As far as budgetary aid is concerned, we have our traditional and historic donors, including the World Bank, the AfDB and the AFD, which continue to support us in maintaining an acceptable level of primary balance for the country. The IMF’s balance of payments assistance under programmes agreed with the institution is also retroceded to the State to finance its budget.

You have also made your voice heard regarding financing the fight against climate change, and the support of the developed world for countries like Madagascar, that are victims of climate change. What are you asking for and how have things progressed? 

We would like access to the various climate change financing windows and instruments, and are seeking support to that end. We are also lobbying for advanced countries to write off our debts to the extent of the costs of the climate-related disasters we suffer, once the damage has been assessed.

We benefit annually from revenues from carbon purchases and are implementing the REDD+ programme, but we continue to call for the price of carbon to be reconsidered.

In addition, Madagascar has received special funding from its main donors to deal with the damage caused by the climate:

Other specific climate resilience projects are already being implemented. In addition, the climate change aspect is currently taken into account in the negotiations for all new projects: agriculture, sustainable and resilient infrastructures, renewable energy, development, etc. Climate considerations are also a trigger for budget support. 

We are also constantly calling for a debt-for-climate swap, so that we can exchange our debts for climate credits. 

The New Collective Quantified Goal for climate finance (NCQG) must be higher than the current target of $100bn per year and reflect the real needs of developing countries fighting climate change, estimated at between $5.8 and $5.9trn for the pre-2030 period.

As far as the Green Climate Fund (GCF) is concerned, it has financed 9 projects worth $131.7m and 2 preparation programmes worth $1.8m. 

Some funding has already been received for adaptation, mitigation and other cross-cutting capacity-building themes (PAZC, Af-Rice, PACARC, SLEM, ARCHE… CNs, CDNs, SLT…). The structures are already in place and participation in international negotiations is increasing, as are [our] stands at side-events. We have already ratified the Kyoto Protocol and the Paris Agreement, and have submitted our Nationally Determined Contributions. 

Are you considering raising green bonds, debt-for-climate swaps, or other instruments that could take advantage of the country’s nature and biodiversity?

We are indeed considering raising green bonds and exploring debt-for-nature swaps. These are good  initiatives.

Thanks to the REDD+ process, Madagascar has developed the first Emissions Reduction Programme in the country’s eastern rainforest ecoregion, called ‘Atiala Atsinanana’. The programme has been approved by the Carbon Fund. Madagascar has now received $8.8m in carbon credits for reducing 1.76m tonnes of carbon emissions in 2020, making it the third African country (after Mozambique and Ghana) to be paid by the World Bank for REDD+. 

There are major private sector groups in Madagascar, some of which operate on a continental scale. What can they do to attract more FDI to the country and what can the government do to attract investment in priority sectors and in areas that create value and jobs?

To attract more FDI to Madagascar, the government and the private sector need to work together to strengthen the business climate, promote a skilled workforce, develop Public-Private Partnerships (PPPs), diversify target sectors, make the most of local assets, and strengthen incentives and security.

Large Malagasy companies have the capacity to play a key role in setting an example in terms of good governance, financial transparency and social responsibility. They also have the opportunity to play an active role in improving the infrastructure essential for FDI, such as transport networks, information technology and financial services. At the same time, the government is continuing to implement regulatory and administrative reforms such as digitisation to simplify operations, cut red tape and give tax advantages to investors. This includes improving the Economic Development Board of Madagascar’s (EDBM’s) intervention framework and setting up a one-stop shop for investment procedures, as well as simplifying administrative procedures.

Private companies have the opportunity to invest in vocational training programmes and work with educational institutions to improve the skills of the local workforce, further enhancing the country’s attractiveness to investors. The state, for its part, has the opportunity to support these initiatives by reforming the education system to match the skills of graduates with market needs, while funding or incentivising companies that train locally. Initiatives have already been implemented with this in mind, such as the establishment of regional vocational training centres in production hubs, specialising in trades essential to priority sectoral industries (textiles, agro-industries, tourism, etc.).

Large companies have the opportunity to work with the government on essential infrastructure projects that help attract FDI, such as industrial parks, special economic zones and energy projects. The government has the capacity to put in place solid and attractive legal frameworks for PPPs, to ensure the transparency of selection processes and to guarantee political and legal stability that reassures investors (such as, reforms underway; implementing decrees for the SEZ Act, reform of the ZEF regime, etc.).

By exploring and developing new high-potential sectors, such as green technologies, organic farming and upmarket tourism, companies can create unprecedented investment opportunities. The government’s role is to target these sectors with specific public policies, such as aid for innovation, tax incentives and targeted international promotion campaigns, which are currently more structured and geared towards new markets (UAE, China, Continental Africa, etc.).

Companies can improve the visibility of Madagascar’s natural and cultural resources as part of their investment strategy in order to attract international investment, particularly in the fields of sustainable tourism, renewable energies and agro-industry. These assets can be promoted on a global scale through economic missions, international trade fairs and communication campaigns.

Companies have the opportunity to work with the government to create attractive incentives for investors (under the PLR scheme), while helping to create a secure framework for FDI. It is essential that the government ensures the security of investment by safeguarding property rights, fighting corruption and establishing an effective commercial justice system.

These different areas of cooperation highlight the complementary roles of the private sector and the government in creating a favourable framework for FDI, while encouraging the creation of added value and jobs. They include the strategic role of the EDBM in catalysing the attraction of FDI to Madagascar, and the proactive role of local companies.

The AfDB has said that to attract more foreign capital, Madagascar ‘should build a new economic model based on green and inclusive growth’. What do you think of this, and what path is the country taking to this end?

Madagascar is currently in a phase of improving the working climate with the private sector by revising and developing regulatory frameworks, in order to make them more favourable to sustainable investments. The environmental and social aspects take into account global environmental issues such as climate change, loss of biodiversity and pollution of all kinds. The work includes the creation of environmental standards and the labelling of private initiatives, the revision of the MECIE decree, the creation of the National CSR Strategy as well as the text on ‘social and conservation enterprises’ and the introduction of extended producer responsibility for investors. In short, it is essential to implement incentive measures while introducing the ‘polluter pays’ principle.