Madagascar, the forgotten country of Africa, is separated by more than 400 km from the African continent by the channel of Mozambique. Its landscape, the richness of its biodiversity, its ecosystems, its natural riches and the ethnic variety of its inhabitants attract our attention. In addition, the country has more than 4800 km of coastline which favours great fishing potential. With the current negotiation of the fisheries partnership agreement between the EU and Madagascar the income of the country is being put at risk.
Although its economy expects to grow by 4% in 2017, its nearly 25 million inhabitants face major challenges such as reducing extreme poverty, improving the living conditions, implementing a model of sustainable development and assuring food sovereignty. Despite being a national economy with a small international debt the country is 154th in the ranking of human development established by the United Nations Development Program (UNDP) in 2016 which places Madagascar among the poorer countries of Africa.
WTO, SADC and EPAs
Madagascar is currently part of different Trade Agreements. First, it is member of the World Trade Organization (WTO) which means respecting international trade rules whoever the counterpart and whatever the content of the agreement. But Madagascar is part of other international agreements.
Madagascar is far away from the African continent but has tried hard to develop its economy in cooperation with other regional countries. Thus, after a period of sanction between 2009 and 2014, Madagascar is now a member of the Southern African Development Community (SADC). Through this inter-governmental organization, the member states look for eradication of poverty and a regional integration of their economies. However, Madagascar must face up to some practical challenges to improve its productivity in a way that allows an interregional trade of goods and services, facilitates customs administrative procedures and fosters foreign investment that helps economic, infrastructures and industrialization development.
In spite of Madagascar being a member of SADC, the Economic Partnership Agreement (EPA) with the European Union (EU) has been negotiated as a member of the Eastern and Southern African (ESA) region. In 2009 Madagascar (along with Mauritius, Seychelles and Zimbabwe) signed an Economic Partnership Agreement and it has been applied since 2013. Due to the implementation of the EPA, Madagascar is facing the loss of the tax revenues from import products. The EU had promised economic help to overcome this shortfall but the reality is that it is not enough. This amount was established previously and it has not increased. This amount is 4 euros per inhabitant per year.
The quality of the goods has not improved despite the arrival of new technology. We can find foreign goods of quality but the Malagasy goods are still far from the quality required by European standards. It means that Malagasy products cannot compete with European products. The European products are consumed by foreigners in luxury supermarkets and shops but most of the local population has not access to them. In these supermarkets 90% of the products are foreign. Very few goods are produced by the local markets. Even dairy products are exported from counties like Belgium or The Netherlands. The Malagasy products are consumed basically in local markets and few products are exported triggering an inequality on trade balance.
The Malagasy products have difficulty accessing the European market as well. The European standards of sanitary and phytosanitary rules are higher and most Malagasy industry is unable to reach them. The same happens with border measures and administrative requirements. In fact, since 2013 the situation of Malagasy economy has not changed despite the implementation of EPAs.
Challenges of Malagasy Economy
The opportunities and challenges of the Malagasy economy are no different from those of other African countries. Although, there are many macroeconomic challenges such as the financial sector, the budget policy or the public governance or the natural resources management, I would like to point out two aspects of the Malagasy economy related to the Economic Partnership Agreements that have direct impact on the people and must be addressed to improve their quality of life.
First, the agriculture, fishing and forestry sectors are the main pillar of the Malagasy economy. Agriculture accounts for 30% of GDP and employs about 75% of the work force. Small farmers tend to grow rice for their families, while larger growers will store the grain to sell. However, home-grown production does not meet domestic demand and some rice has to be imported. Other products like vanilla, cassava, mangos, bananas, sugar cane, palm, soybean, coconut and sunflower oil are produced by foreign companies for sale abroad.
Deforestation and soil erosion are a major threat, reducing the ability of local farmers to produce enough food. New farming practices and different crops therefore need to be more widely introduced. I consider that Malagasy government must ensure the food sovereignty and facilitate the property rights of the land to local farmers to avoid land grabbing acquisition from transnational companies which try to take advantage of the economic agreement.
Second, industry in Madagascar is very limited. Only few sectors like textiles have developed an infant industry that competes with second hand clothes coming from other countries. For example, luxuries (1,551 tariff lines) coming from the EU are all exempted of taxes because of the EPAs. In 2015, the tax revenues of luxuries amounted to 17 billion Ariary. There are other sectors with small industries like soap or wine but with no possibility of entering the European market. They are present in the local market but with few export possibilities.
In Madagascar, the political stability has helped to improve legal security for investors and has consolidated new industries. However, the informal economy is still the biggest sector in the country but productivity for the subsistence economy is low. In 2015, the International Monetary Fund approved a disbursement under the Rapid Credit Facility, while technical and financial partners provided support for the National Development Plan. The results of these credits are still to be seen but to obtain economic growth that reduces unemployment and poverty reduction requires structural transformation of the economy in more productive sectors, with an integration of rural and urban areas economies and public policies that support proper exploitation of the land.
José Luis Gutierrez Aranda