Country Report Madagascar December 2008

Outlook for 2009-10

The Economist Intelligence Unit expects the president, Marc Ravalomanana, to set the political agenda over the forecast period after the sweeping victories of his ruling party, Tiako-I-Madagasikara (TIM), in the legislative, municipal and regional elections held over the past two years. However, the opposition could rebuild itself as a result of rising popular disenchantment with the political system. Economic reforms will make slow progress under the poverty reduction and growth facility (PRGF) covering the period 2006-09, and the government's attention will focus on drawing up detailed programmes for implementing the Madagascar Action Plan (MAP). New mining exports, strong agricultural growth and high inflows of foreign direct investment into the mining sector will support real GDP growth of 5.8% in 2009 and 7.2% in 2010. The sharp fall in imports, owing to lower global energy and food prices, will help to reduce the current-account deficit from an estimated 15.3% of GDP in 2008 to 11.8% of GDP in 2009 and 9.9% of GDP in 2010.

The political scene

Relations between the government and Madagascar's opposition parties have grown increasingly confrontational, with numerous public protests being met with police repression and arrests. The independent mayor of Antananarivo, Andry Rajoelina, has seen off an attempt by the government to curb the power of the capital's municipal authorities.

Economic policy

The government wants to delay the abolition of fiscal incentives offered to large mining investors and to companies operating under the export-processing zone (EPZ) regime, despite announcing their phase-out earlier in the year. The IMF has continued to insist on the abolition of the EPZ regime to boost fiscal revenue collection, which remains among the lowest in the region. The government has increased its stake in the national carrier, Air Madagascar, from 80% to 89.5%, and appears to have shelved plans for its privatisation.

The domestic economy

Production of vanilla, Madagascar's primary agricultural export, is set to remain strong, despite disease and cyclone damage. The global economic downturn and falls in commodity prices have not yet slowed the pace of development in Madagascar's mining sector, with the two largest projectsthe Taolagnaro ilmenite project and the Ambatovy nickel projectboth well advanced.

Foreign trade and payments

According to IMF data, Madagascar's foreign-exchange reserves have continued to grow strongly, reaching US$982.6m at the end of August.

This report covers the following industry codes:
SIC Code: 10;70;47;49;60;13
NAICS Code: 212;72;48;22;52;211