Madagascar Industry and Service Sector
Industry is Madagascar’s weakest economic segment. Only around 9% of those in employment work in the secondary sector and generate around 26% of GDP. Up until 2009 the country relied heavily on promoting industrial production, but the political crisis also stopped or slowed down many reform plans here. The industry is now recovering; Hopes are placed on new international investments. However, traditionally there is no real large-scale industry like this in Europe, North America and the Far East.
According to homosociety, Madagascar has significant mineral resources such as chrome, titanium, graphite, nickel and (semi) precious stones. The island is famous for its wealth of quartz, multicolored tourmalines and sapphires. Due to the island’s special geological history, the gemstones can often be extracted from open-cast mining. There is also gold in abundance. In addition to the known oil deposits, other deposits are suspected in the Strait of Mozambique. The mining industry is particularly prone to corruption and is not transparent, and illegal business is common. Officially, the income generated by mining is relatively low. What is worrying is the fact that there is still a large percentage of child labor in gem mining.
New investments can presumably ensure that Madagascar will have more economic income in the mining sector in the future. The Ambatovy nickel-cobalt mine near Moramanga was funded by a gigantic investment volume and is expected to create several thousand jobs. It is one of the largest industrial projects in Madagascar’s history and pursues ambitious goals: local business as well as “small, medium and micro-enterprises” (SMME) are to be increasingly integrated into the mega project. The company is a joint venture between the Canadian Sherritt International, the Japanese Sumitomo Group and the Korea Resources Corporation. International Financial Cooperation (IFC – World Bank) supports contacts and activities in the private sector in Madagascar as the engine of growth development.
Other important branches of industry are the textile industry and food processing. The production of textiles employs around 400,000 workers, making it one of the largest employers in Madagascar’s industrial sector. Most of the textiles are exported. In connection with the promotion of labor market structures in the textile industry, the creation of industrial free trade zones (“zones franches”), in which, among other things, the income tax was significantly reduced to stimulate the investment climate, was significant. Production within the AGOA (African Growth and Opportunity Act; trade agreement with the USA since 2000) revitalized the textile industry before 2009. By exclusion, during the political crisis in 2009, production fell significantly before it is slowly growing again today – after being re- included in AGOA. But problems remain: 75% of the processed cotton has to be imported because the domestic goods do not meet the high international quality standards; Shortage of skilled workers slows production dynamics; logistical barriers arise from transport problems due to the weak infrastructure; Energy problems stay, the competition from Asia is fierce. In addition, there is hardly any traditional entrepreneurship in Madagascar. Individual personalities like Andry Rajoelina or Marc Ravalomanana, who became politically active as entrepreneurs, are the exception. Current strategies for sustainably developing entrepreneurship in Madagascar have only recently been implemented.
The processing of agricultural products in agribusiness companies is only slowly increasing; they mainly affect cocoa, pepper, sugar and cotton.
There is a long tradition of shipbuilding on the west coast, but it has hardly any economic significance.
Salt is traditionally extracted from the sea water in large basins on the coast, especially in the dry south. Although this branch of industry is not very dynamic, it is at least not harmful to the environment and requires little investment.
The service sector
Madagascar has made great strides in the service sector since around 2004, and value added has more than doubled since 2004. 16.5% of employees worked in the service sector in 2017, generating around half of Madagascar’s gross value added. The online sector grows constantly. More than half of GDP is generated by trade, tourism, banking and transport. Infrastructure investments are planned in the public sector, which are intended to result in both quantitative and qualitative improvements. These reform plans are to be financed by increasing state tax revenues and by external financial contributions, mainly through project financing from international sources. The state power and water company Jirama, which was affected by the cyclones Enawa in 2017, received additional subsidies from the Malagasy government. This is also subject to partial privatization in order to optimize the organizational and financial structure.
The tourism plays a significant Madagascar socio-economic role. In recent years – with the exception of the time after the political crisis in 2009 – the industry has established itself economically. Madagascar has extraordinary potential for expanding tourism development. Using this successfully and avoiding the mistakes of other tourist destinations, e.g. the destruction of one’s own culture and biodiversity, should have priority through the promotion of eco-tourism. The majority of tourists came from France in 2017, a large number but also from the US and Germany.
Madagascar wants to promote its energy sector, an important pillar of sustainable and dynamic economic development. For example, only 15% of the Malagasy people have access to electricity. In the countryside, wood and charcoal are the most important energy sources, thousands of hectares of forest are cleared every year to obtain them. When it comes to expanding the power grid, the government is counting on international investors: for example, in 2017 Siemens initiated support for electrification by installing turbines. The renewable energy is a way to reduce dependence on natural and fossil fuels in the future.