Madagascar - Executive SummaryMadagascar - Executive Summary

Madagascar is an island nation located in the western Indian Ocean. In 2014, the first elected administration since 2009 assumed power. Since his election, the President has emphasized the importance of attracting foreign investment, citing private sector-led growth as the engine for the future economic development of Madagascar. To this end, the government has promised to undertake a number of revisions to update the legislative framework governing the business and investment environment.

Despite these intentions, attracting foreign direct investment has remained a challenge due to persistent corruption at all levels of government, a lack of resources, and the government’s difficulty enforcing regulations. A severe lack of infrastructure, particularly in the areas of transportation and provision of electricity, also creates challenges. Though there is no formal discrimination against foreign investors, foreign companies are frequently the target of harassment by tax authorities and are often subject to nuisance suits regarding questionable tax assessments and labor law violations.

Extractive industries, particularly the mining sector, have been the largest driver of economic growth over the past few years, though the current slump in global demand for commodities has slowed activity in this sector over the past year. Nevertheless, a number of deposits have been identified for future commercial development – including iron ore, ilmenite, graphite, coal, and rare earths. The eventual development of these projects may present opportunities for U.S. suppliers of machinery and power generation equipment. Madagascar also has approximately 250 plus available oil exploration blocks, which it intends to auction off after passage of its revised petroleum legislation, planned for later this year.

Over the past year, the sectors that have attracted the most new foreign direct investment have been the services industry (call centers, focusing primarily on the francophone market) and light manufacturing in the apparel industry. Madagascar’s eligibility for duty free access to the United States under the African Growth and Opportunity Act was reinstated in June 2014, and the extension by the U.S. Congress of the AGOA legislation for a further ten years in July 2015 has prompted further investment in the Malagasy apparel sector. Malagasy exporters under AGOA have begun to diversify from apparel to include other products, such as accessories and handicrafts.

Other sectors that are potentially attractive for U.S. investors include energy, construction, agribusiness, fisheries and aquaculture, and tourism. The government recently passed legislation establishing the first ever regulatory framework for public-private partnerships, and it will seek foreign investment to rehabilitate and extend its dilapidated infrastructure in accordance with its five-year National Development Plan.

The legislative framework governing investment in Madagascar does not discriminate against foreign investors, nor does it prohibit, limit, or condition foreign investments. Any natural person or legal entity, Malagasy or foreign, is free to invest in Madagascar, in accordance with the laws and regulations in force, and national treatment is not denied to foreign investors in any sector.

Despite presenting challenges to investment akin to those encountered in many other developing countries, Madagascar remains a country of vast resources and potential.

Table 1

Millennium Challenge Corporation Country Scorecard

The Millennium Challenge Corporation, a U.S. Government entity charged with delivering development grants to countries that have demonstrated a commitment to reform, produces scorecards for countries with a per capita gross national income (GNI) of $4,125 or less. A list of countries/economies with MCC scorecards and links to those scorecards is available here: http://www.mcc.gov/pages/selection/scorecards. Details on each of the MCC’s indicators and a guide to reading the scorecards are available here: http://www.mcc.gov/pages/docs/doc/report-guide-to-the-indicators-and-the-selection-process-fy-2015.