Madagascar Economy Overview

Madagascar Economy Overview

Estimated GDP: $ 12.55 billion (2019; estimated)

Per capita income (purchasing power parity): US $ 929.9 (2018)

Rank of human development (HDI, 2018): Rank 162 (out of 189), value: 0.521

Proportion of poverty (less than $ 2 per day): 70.7% (2017)

Distribution of income (Gini coefficient): 42.7 (2012) (no more recent data available)

Economic Transformation Index (BTI): Rank 119 (of 137) (2020)

Economic situation and economic system

According to franciscogardening, Madagascar is one of the poorest countries in the world economically. The focus on agriculture, a lack of infrastructure, historical disadvantages due to colonial rule and political unrest after independence, energy problems, corruption and mismanagement characterize the economic reality of the “big island”. According to official data, more than three quarters of the Malagasy people still live below the poverty line of 1.90 US dollars a day. With a gross income of around 400 US dollars per capita, Madagascar is below the average of many other African countries. The HDI (rank of human development) is 0.521 (2018), making Madagascar 162nd out of 189 countries worldwide. Multidimensional Poverty Index (MPI) from 2008/9 (newer figures are not available) ranked the country 104 out of 120 countries – this ranking is unlikely to be much better today. The MPI shows a breakdown: 69% were poor, 36% were extremely poor.

Before the unrest in 2009, Madagascar was still considered a politically stable and investor-friendly country with high economic development potential. The crisis had significant economic consequences as the collapse of the economy and the emergence of related problems such as dwindling interest from foreign investors and tourists, rising unemployment and declining tax revenues were overshadowed by the suspension of financially important programs by international donors.

Worrying is the fact that the high risk of poverty of the population politically different orientation of the economy and government orientation, seemingly unaffected by decades reform plans on the part of the reigning top political and socio-economic efforts of national and international organizations and promises still high remains. There is a risk of further deterioration in living conditions, as there is a strong exclusion of large sections of the population through poverty, which initiates a vicious circle characterized by a lack of educational opportunities, unemployment, lack of prospects, crime, etc. The great poverty was also the subject of the Pope’s visit in 2019, during which Pope Francis called for self-help and named corruption as one of the main causes of poverty.

Since the country’s political stabilization in 2014, economic growth rates have been slowly increasing again. In 2017, Madagascar recorded economic growth (GDP) of around 4.1 percent (compared to the previous year). In 2019, the International Monetary Fund recorded growth of 5.2 percent. While this is a good sign from a macroeconomic point of view, it cannot hide the overall poor economic situation. The inflation dependent on agriculture and the fluctuation of international prices fluctuates in recent years. It was very high in 2018, after having been very low in 2014. However, it was significantly higher during the political crisis in 2009 and in the years after, and in 2019 it fell again. At the same time, government debt as a percentage of GDP increased and in 2017 had its highest level since 2007 (44% of GDP). The bureaucracy works slowly: Madagascar was only 161st out of 190 countries in Doing Business 2020. The business risk for investments is very high and therefore cannot be insured (Coface Risk Assessment). The hopes for the future lie primarily in donor-financed projects that mainly cover the infrastructure. The affluent middle and upper class of Madagascar is very small and is mainly concentrated in the capital Antananarivo. The corona virus and the widespread paralysis of the economy made the situation in Madagascar much worse in 2020. The president is trying to raise funds to support the economy.

In order to improve the diverse problems of the economic reality of Madagascar, there would have to be – in addition to direct aid for the economy as a result of natural disasters – continuous growth impulses, which would then have to be steered financially and structurally by transparent institutions and corruption-free organizations in the necessary directions. The probability is high that the difficult framework Madagascar’s political reform will lead to implementation deficits, lost time and ultimately no implementation of improvements, quite apart from the fact that stable political conditions and an economic policy oriented towards the common good have existed for years and that strategic programs have been anchored would have to. The economic policy of Madagascar has only recently tried to combine trend-setting reform plans of the special economic zones (ZES = Zones Économiques Spéciales) with more entrepreneurship initiatives in order to attract investors interested in the country. It remains to be seen whether this will succeed and whether it will bring lasting impulses, especially for young people, because here too there is criticism of the program.

Madagascar Economy Overview