Madagascar regains momentum after global headwinds subside

Back in 2019, the Malagasy government outlined the “Madagascar Emergence Plan” (MEP), a four-year initiative designed to promote sustainable and inclusive growth in the African country.

“The ambition is to raise Madagascar to the rank of emerging middle-income countries in order to catch up on the development delay accumulated since independence,” the Economic Development Board of Madagascar (EDBM) explained at the time. “The MEP aims to stimulate the country’s economic growth through increased public and private investment, strengthening human capital, and improving governance.”

While the specific policy details of the MEP were not disclosed, the programme was broadly read as a sign that Madagascar was prepared to open up its economy to foreign investment, invest in infrastructure to stimulate private sector activity, and commit to bold reforms around transparency and governance in order to increase economic growth and put the island firmly on the road to middle-income status.

The Covid-19 pandemic which struck a year after the plan was announced represented a major – and of course unforeseen – hurdle. Economically, Madagascar suffered particularly badly during the pandemic compared to its African neighbours. While the number of deaths was relatively low, disruption to global trade and domestic lockdown measures caused Madagascar’s GDP to contract by 4.2% in 2020. Restrictions on travel brought Madagascar’s tourism industry to a standstill, while exports in key industries such as mining similarly dropped sharply.

The loss of revenues and higher government spending during the pandemic meant the budget deficit widened significantly to 5.2% of GDP in 2020, while levels of public debt increased from 37.4% of GDP in 2019 to 45.1% the year after. The pandemic is believed to have pushed almost 1.4m people in Madagascar into extreme poverty, with the World Bank warning during the pandemic that the crisis risked “hindering years of progress towards poverty reduction.”

These trends were then exacerbated by the further disruption to global trade caused by Russia’s invasion of Ukraine in February 2022. Madagascar’s agricultural sector – which employs around 80% of the country’s population – was highly exposed to the rise in fertiliser prices that the outbreak of war prompted. In turn, this contributed to higher inflation for food and other essential goods, with prices rising at a rate of 9.3% by August 2022.

The recovery begins

However, while the Covid-19 pandemic and subsequent geopolitical turbulence were inevitably a blow to Madagascar’s plans for economic growth, there are now signs that the country has regained momentum and is making strong progress on its journey towards economic development. In its 2024 country report, the African Development Bank (AfDB) predicts GDP growth of 4.5% in 2024 for Madagascar, followed by a further acceleration to 5.3% growth in 2025.

This is partly the result of short-term positive developments. The resumption of international travel has seen the number of tourists arriving in Madagascar double between 2022 and 2023, for example. Prudent deficit reduction measures, with the assistance of the International Monetary Fund (IMF), has helped Madagascar bring public spending and the country’s debt burden under control.

However, there are also longer-term trends at play which suggest that Madagascar could be in store for higher levels of growth in the years ahead and that the vision set out in the MEP could be achieved.

The Malagasy government has taken considerable steps to liberalise strategic national industries including mining, telecommunications, and energy and thereby promote greater levels of foreign direct investment (FDI). This has involved establishing new organisations, including the EDBM, designed to ease the way for foreign investors to enter the Malagasy market.

Ugo Razafindratandra, corporate relations officer at the EDBM, explains that the organisation’s mission is “to promote both local and foreign investment in order to enhance the business climate in Madagascar.”

“We also work with the private sector to ensure there is full support for the economic reforms brought forward by the public sector,” he adds. “We are a tool of the government, based in Antananarivo but with offices in all of Madagascar’s seven main cities. We work closely with government ministers to promote opportunity and investment across Madagascar. We are mainly focusing on seven strategic sectors at the moment – agribusiness, tourism, renewable energy, mining, ICT, manufacturing, and textiles.”

Red tape reduction

One of ways in which the EDBM aims to boost FDI into Madagascar is to identify any obstacles blocking investment and then work with the government to remove them. A recent example of this were problems last year at the Port of Toamasina, which handles 90% of Madagascar’s container traffic and over 80% of all trade traffic. Rising cargo volumes and insufficient capacity was leading to major delays and administrative issues, threatening to limit the amount of business and trade Madagascar could handle.

“In 2023, our partners in the private sector raised some issues with us regarding the Port of Toamasina. We then worked with them to facilitate the expansion of the port and develop its capacities,” Razafindratandra tells African Business. A project is now underway that will see the port both modernised and significantly expanded, with the port’s capacity set to triple by 2026.

The EDBM is also working to address the private sector’s concerns regarding access to electricity – Madagascar has long struggled to provide sufficient amounts of energy for both households and businesses – which partly explains the government’s commitment to developing Madagascar’s renewable energy sector.

There are encouraging signs that the climate for business and investment in Madagascar is steadily improving. Another step in the right direction came in June this year when Elon Musk’s global technology company SpaceX announced that its “high-speed, low-latency internet service” is now available in all parts of Madagascar, including remote rural areas. Razafindratandra says this development “will significantly help with the government’s agenda of liberalising the private sector and will enhance the competitiveness of Malagasy businesses.”

Global ties strengthen

Partly because of these improvements – as well as Madagascar’s rich supply of natural resources such as nickel – major economic powers worldwide have committed to developing their relationships with Antananarivo. In June 2023, the government of South Korea signed a memorandum of understanding (MOU) with their counterparts in Madagascar aimed “at enhancing economic relations between the two nations and offering promising investment opportunities.”

In May this year, the Abu Dhabi Ports Group also signed a MOU with the EDBM “to explore a dynamic partnership focused on bolstering commercial opportunities across the maritime, industry, and logistics sectors in Madagascar.” Josielle Rafidy from the EDBM said that “as part of its mission to promote and facilitate investment, EDBM is delighted to have signed this memorandum of understanding with the Abu Dhabi Ports Group, the world’s leading facilitator of commercial, logistics, and industrial services, as it continues to implement its large-scale investment plan in Africa.”

“This step confirms that Madagascar remains a destination for foreign direct investment in Africa and the Indian Ocean.”

Razafindratandra is keen to emphasise, however, that it is not just South Korea and Abu Dhabi that have taken an interest in the Malagasy market. “As we speak, the President of Madagascar is in China at the Forum on China-Africa Cooperation to explore what opportunities are available there,” he says.

“European investors are highly interested in Madagascar’s energy sectors; last year a consortium of French investors agreed a deal to build a hydroelectric plant in the east of Madagascar. In mining, South American investors such as Rio Tinto and Asian investors such Sumitomo are working in Madagascar. In ICT and technology, we are working with both African partners and European investors. We still have duty-free access to the US market under the African Growth and Opportunity Act (AGOA). We are working with a wide range of international partners in different sectors.”

There are reasons to be optimistic that, after all the economic challenges Antananarivo and the world has faced in the last few years, Madagascar is making progress on its mission to become an African hub for trade and investment and secure middle-income status for its citizens.

The country appears to have moved beyond the political instability which afflicted Madagascar in the years before and after the crisis of 2009 and is viewed as an increasingly stable investment destination. Since 2014, the country has had three presidential elections take place peacefully which Razafindratandra says is “a big step,” particularly when one takes into account the six successful coups d’etat which have occurred in West Africa since 2020.

More broadly, Razafindratandra is confident that Madagascar’s natural advantages, now being combined with an ambitious liberalisation agenda, will help unleash sustained prosperity.

“Madagascar is the fourth biggest island in the world – we have 5000 square kilometres of coastline, which is a huge bonus in terms of shipping and trade. We have strong human capital, with a large, young, and talented workforce innovating in technology and other sectors. Our new trade laws have focused on liberalising investment and ensuring there is equality between local and foreign investors,” he argues.

“Given the package that we are offering, we believe there is a strong possibility Madagascar will significantly improve its business climate and continue to attract more investors in the years to come.”