3. Legal Regime
Transparency of the Regulatory System
Bureaucratic delays and inefficiencies plague Madagascar’s legal and regulatory system. Non-transparent regulatory decisions have affected global investors who alleged unfair competition or lack of transparency. High-level corruption and alleged collusion between business and political elites have been a recurring issue in Madagascar for decades. Its auditing and financial information reporting systems are transparent and consistent with international norms, International Standards on Auditing (IAS) and International Financial Reporting Standards (IFRS), respectively. Although the regulations strive to establish clear rules, a lack of enforcement combined with shortage of resources and capacity hinder their efficacy. In addition, certain investment policies are not harmonized and, in some areas, can be contradictory. A policy harmonization process for Special Economic Zones is underway.
Madagascar has municipal, regional, national and international laws; the most relevant for foreign businesses would be national and international laws.
Depending on the circumstances, regulations can be suggested, drafted, or amended by various actors such as government or its institutions, business associations, academics, civil society organizations, and/or individual experts. Non-governmental organizations, industry associations and private organizations such as the American Chamber of Commerce, can also be influential voices in raising concerns about new legislation or regulations. For instance, the Chamber of Mines has had an important role in pushing back against the Rajoelina government’s proposed amendments to the mining code which would have discouraged further investment in the sector.
If the GOM decides to move ahead with a bill, it is transmitted to the National Assembly and then the Senate for study and voting. It may go forth and back between them. Once the bill passes in both Chambers, it goes to the High Constitutional Court (HCC) for constitutional verification. Finally, the President has the ultimate right to proclaim or deny a proposed law. The President also has the right to enact a proposed law by decree if Parliament does not pass the legislation, though it is still subject to constitutionality checks by the HCC. Laws are published by their insertion in the Official Gazette of the Republic or its broadcast on national radio or TV in case of emergency.
Scientific, data-driven assessments, and quantitative analysis are not yet common practice. Regulatory reviews usually take place when a non-governmental organization or interest group protests against a new or amended regulation. Though public comments are welcomed and recorded in a registry before consideration and processing, there is no set mechanism which makes them available to the public. There is also no formal mechanism in place to make draft bills or regulations available for public comment or public consultation prior to their adoption. This applies to investment law and regulations as well. Informally, draft legislation and regulations do circulate and institutional pushback can lead to further changes as was the case with the revision of the mining code, where the circulation of draft bills led to protests from interest groups. As a result, the government withdrew the drafts for further consultation and review.
There is no centralized location for publication of draft regulatory actions. Once enacted, the full text of key regulatory actions is published on the Justice Ministry’s website through the link to the National Center of Legal and Legislative Information and Documentation (CNLEGIS). http://www.cnlegis.gov.mg/ page_find_direct_mots/.
The regulatory enforcement mechanisms are usually defined along with the enactment decree of each regulation. The enforcement process may be legally reviewed. Anyone can lodge a complaint with the administrative courts, which are responsible for judging failure to comply with administrative regulations. The Council of State is at the apex of the administrative order and is responsible for ensuring the legality of the GOM’s actions and oversight of lower courts. It also handles appeals for annulment of actions by local and regional authorities. The HCC verifies the conformity of laws with the Constitution of the Republic of Madagascar.
Since the last ICS report, while several regulatory changes including enforcement reforms have been announced, there have been no reforms relating to foreign investors. One of the changes is the appointment of the Integrity Safeguarding Committee (CSI), which has been tasked with the development of the national integrity system (NIS) to ensure the coordination, monitoring, and evaluation of the anti-corruption system; and elaborating and implementing the national good governance policy. In general, the reforms carried out improve the economy, governance, land tenure, and the rule of law, although sometimes they make the administration more cumbersome and complex.
Accounting regulations appear transparent. The country has no stock market, and therefore, no publicly listed companies.
Budget proposals, enacted budgets, and audited end-of-year reports are publicly available. The timing of their release often hampers public debate; for instance, budget proposals are usually published just two weeks before they are voted on. The enacted budget is often not available until many weeks into the start of the fiscal year.
Income and expenditure are not truly representative of the governments revenues and expenses. Income calculations exclude fees and royalties from the mining sector, while expenditure does not break out the transfers and subsidies to state-owned enterprises. The interim audit for the 2018-19 budget noted issues with fiscal transparency where the government changed beneficiaries and/or amounts allocated by the initial appropriation without further parliamentary approval. Government contracts are not fully transparent as to their funding arrangements. The 2019-20 budget also had a set-aside under Sovereign Funds, amounting to 1.9 percent of the budget earmarked for discretionary use under special presidential projects.
Debt obligations are not fully transparent. For example, the rate of return and the subscribers of non-market treasury bills (called “special TB”) are not readily available to the public.
International Regulatory Considerations
Madagascar is a member country of the following economic blocks: Indian Ocean Commission (IOC), Southern African Development Community (SADC), Common Market for Eastern and Southern Africa (COMESA), and the Continental African Free Trade Area (ZLECA). The regional regulatory systems prevail over the national system in case of trade disputes amongst members.
As a former French colony, most of the norms and standards in force are French, although other international norms are increasingly in use as the country’s trade relationships become more diversified.
Madagascar is a member of WTO and the GOM has committed to notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).
Legal System and Judicial Independence
French civil law largely inspires Madagascar’s legal code, which contains protections of private property and rights.
The civil court system has its own independent jurisdiction, where civil and commercial cases are heard. The country’s written commercial law consists mainly of the code of commerce and annexed laws. Recent reforms of commercial regulations and procedures have halved processing times for commercial cases at the Trade Court. Major cities and regions do have their own competent courts, although some trials fall under the jurisdiction of the central courts.
Madagascar’s constitution provides for an independent judiciary. However, there is often flagrant interference by the executive branch in judicial matters, particularly through the appointment of compliant judges. Bribery and corruption are also factors affecting the fairness of the judicial process.
Regulations or enforcement actions are appealable within the prescribed time and are adjudicated in the national court system established in the capital city Antananarivo.
Laws and Regulations on Foreign Direct Investment
The country’s investment law was promulgated in January 2008 and governs foreign direct investment as well. In addition to the freedom of investment and equality of treatment for foreign and national investors, Madagascar’s investment law includes articles on the protection of patent rights and protections against expropriation, freedom to transfer funds abroad without prior authorization, and a stability clause guaranteeing investor privileges from future legal or regulatory measures.
Major laws, regulations, and judicial decisions which have come out in the past year are:
- Law n˚2018-043 dated February 13, 2019 against money laundering and financing of terrorism acts
- Law n˚2018-042 dated January 17, 2019 authorizing the ratification of the loan agreement to finance the “integrated poles of growth and project (PIC 2.2)” between the government and the International Development Association (IDA)
- Law n˚2018-039 dated January 7, 2019 authorizing the ratification of the statutes of the “Eastern and Western Africa Bank for Commerce and Development or Trade and Development Bank (TDB)”
EDBM is Madagascar’s one-stop-shop for investment and its website www.edbm.mg provides summaries of relevant laws, rules, procedures, and reporting requirements for investors as well as links to the relevant laws. Comprehensive details are found on the Ministry of Justice website at cnlegis.gov.mg
EDBM has links to relevant laws and reporting requirements for investors.
- Law n˚2007-036 on investment
- Law n˚2007-037 on export processing zone
- Laws n˚2001-031 and n˚2005-022 on large mining investment
- Law n˚1996-108 on petroleum, code
- Law n˚2003-036 on commercial company
The following laws enacted in the last five years, also relate to foreign investment.
- Law n˚2015-039 on Public and Private Partnership (PPP)
- Law n˚2017-047 on Madagascar’s Industrial Development which is reflecting the Industrial Policy (LDI)
- Law n˚2017-023 on Madagascar’s Special Economic Zone (SEZ)
- Law n˚2017-020 on Madagascar’s Electricity Law
- The e-commerce and digital activity law has been adopted but is still awaiting its enforcement decree
Competition and Anti-Trust Laws
The Ministry of Commerce and Industry has the overall responsibility to ensure fair competition between businesses. The 2018 law on competition and anti-trust issues attempts to give teeth to the independent Competition Council (CC) which rules on unfair competition cases; the CC has the power to assess proportionate penalties for abuses of dominant market position. However, the CC is largely unfunded.
Expropriation and Compensation
The investment law provides protection to foreign and local investors against nationalization, expropriation, and requisition, with the exception of public interest cases as established by regulations. For infrastructure projects which require expropriation of private property, the GOM must issue an official proclamation that defines the public interest of the project and the owner of the private property must be paid the fair market value of the concerned property prior to its expropriation. The government may also legally expropriate property when a judicial ruling permits it in cases where there is proven money laundering, profiting from trafficking, acts of terrorism, or a failure to make tax or debt payments.
Recent expropriations have taken place as described above. For instance, a well-known businesswoman recently had her new four-star hotel located near Antananarivo international airport expropriated after a court ruling against her for tax evasion. Court procedures included evidence presented by the Directorate General of Taxes and the Directorate General of Customs.
There were cases where asset owners alleged a lack of due process. In the case noted above, the businesswoman claimed she was victimized due to political bias.
ICSID Convention and New York Convention
Madagascar is a member state to the International Centre for the Settlement of Investment Disputes (ICSID) and under the Investment Law, disputes between foreign investors and the administration can be resolved through arbitration proceedings administered by the ICSID.
In case a foreign investor initiates the proceeding, he/she can decide to file the dispute at the Madagascar Trade Court, which is the country’s competent jurisdiction in such matters. However, no specific domestic legislation provides for enforcement of awards under the New York Convention and/or under the ICSID Convention.
Investor-State Dispute Settlement
As a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention), Madagascar also accepts international arbitration as means of resolving investment disputes. Based on the obligation of the New York convention, domestic courts should recognize and be willing to enforce foreign arbitral awards. International arbitration is accepted as a way of settling commercial disputes between private parties. Madagascar has also been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1989.
Investment disputes involving foreign investors over the last 10 years include:
1) A Cypriot holding company affiliated with a U.S. energy company is the claimant in a business dispute with its partners, including a Malagasy business. The claimant has filed for arbitration in New York. The partnership sells electricity to state-owned energy company JIRAMA and in 2019 was in discussions with the GOM about the terms of its Power Purchase Agreement. Following the election of President Rajoelina in December 2018, the Energy Ministry has sought to renegotiate all contracts signed by previous governments. The claimant raised objections to the reopening of its contract, which had been signed by a previous government for a term of 20 years. JIRAMA also owed the claimant overdue payments, but was reportedly making them in a piecemeal fashion as of early 2020. Embassy Antananarivo continues to follow developments in this case.
2) In 2019, the Paris Commercial Court ordered Madagascar’s state-owned airline company Air Madagascar to pay $20 million to Air France in connection with the leasing of two A340s in 2011.
3) In 2016, an international power producer (IPP) supplying electricity to Antananarivo, complained of non-payment by the national utility JIRAMA, a state-owned enterprise. After weeks of negotiations combined with threats to withdraw by the IPP, the government agreed to pay the IPP using a different payment mechanism.
4) In 2012, the government shut down the telecommunication operator “Life,” a Mauritius controlled company, without providing evidence of substantial wrong doing. The company sought compensation and sued the Malagasy government at ICSID in August 2017 but there has been no resolution.
Madagascar does not have a history of extrajudicial action against foreign investors since the 1970s. However, enforcement by local courts of foreign arbitral awards against the government is uncommon. In the case of Air France, the GOM has not yet paid the fines ordered by the Paris Commercial Court. As far as Post is aware, none of Madagascar’s commercial courts have taken up this verdict.
International Commercial Arbitration and Foreign Courts
Two types of alternative dispute resolution (ADR) mechanisms are available in Madagascar, namely “arbitration” and “mediation.” Arbitration is a contractual jurisdictional mode of settlement of commercial disputes. The procedure involves submitting a dispute between two or more parties to the jurisdiction of an arbitral tribunal consisting of a sole arbitrator or three arbitrators.
Mediation is a structured process in which two or more parties to a dispute voluntarily attempt to reach an agreement on the resolution of their dispute with the assistance of a mediator, who is a neutral, impartial, and independent third party.
Both procedures are recognized by law. Arbitration results in an enforceable title in the form of an arbitral award, whereas mediation results in an agreement between the parties that does not constitute an enforceable title.
A privately managed entity named Center for Arbitration and Mediation of Madagascar (CAMM), created in 2001and then restructured in 2012, promotes and oversees ADR mechanisms to resolve international and domestic commercial disputes and lessen reliance on an overburdened court system. The CAMM helps companies manage their conflicts, determine the best way to settle them quickly and durably, and helps ensure the security of their investments and the maintenance of business continuity. As a result, many private contracts now include arbitration provisions that allow the CAMM to mediate eventual disputes.
Since the 8th Economic Forum of the Indian Ocean Islands in 2012, CAMM has initiated a process with its counterparts in Reunion, Mauritius, and Comoros for the setting up of a cross-border dispute resolution platform in which co-mediation will play an important role. CAMM recognizes and enforces arbitral awards in that sub-region. However, only the commercial judgements of these foreign courts are recognized and enforceable under the CAMM.
CAMM only applies in disputes amongst private parties and so has no jurisdiction in disputes involving SOEs. In the latter case, it is tried in civil court. While the SOE does not always win, the judgement is not always enforced.
In 2019, Madagascar ranked 161 among 190 in the World Bank’s Ease of Doing Business survey and it ranks 135 for the “resolving insolvency” criteria. The bankruptcy law, which was last updated in 2014, lays out collective debt settlement procedures, which treat all parties equally in bankruptcy proceedings. Creditors have the right to initiate insolvency proceedings only when seeking liquidation of the debtor, but not when seeking reorganization. Bankruptcy is no longer a criminal offense, but is punishable by fines and imprisonment depending on whether it is deemed simple, negligent, or fraudulent bankruptcy. The court system has reduced the associated prison sentences from those stipulated in the previous insolvency framework.
There are three procedures that apply when assessing the fate of a company in difficulty. The first – preventive settlement – is a reconciliation procedure designed to avoid the suspension of payments or the cessation of activity of a firm in difficulty which has not yet defaulted on payments. This procedure, which is non-contentious, requires the agreement of all parties and aims to reach an agreement on the settlement of debts and avoid individual lawsuits.
The two other procedures – receivership and liquidation of assets – are intended to remedy payment defaults and correspond to the current judicial settlement and bankruptcy procedures. Some of the provisions include the appointment of a receiver, who is a representative of the creditors, by the Commercial Court to supervise the debtor who continues to manage the business. While a compensation agreement is being negotiated, all claims are frozen; the compensation to creditors may be on unequal terms and sale of the business is subject to a transfer plan.
5. Protection of Property Rights
Madagascar ranked 164 on the World Bank’s 2019 Doing Business survey in registering property. Property rights and interests are poorly respected because of alleged widespread corruption in the Domain and Topography Department and a lack of material and technological resources. Mortgages and liens are used in commerce and business to guarantee commercial loans. However, the registration system is cumbersome, complicated and unreliable.
Upon independence, Madagascar continued the land tenure policies of the French colonial administration with the presumption of state ownership of all land and the central government being the sole provider of legitimate land titles. However, due to the length and cost of the procedures for registering land, together with the remoteness of the authorities, customary practices for recognition of property rights prevailed at the local level. Recognition of property rights at this local level entailed the use of non-uniform, handwritten titles. The Land Title Office in Antananarivo is the only place to obtain an official title whenever a locally registered business wants to acquire a large parcel of government land. Registering a land title or transfer remains difficult, costly, and time-consuming for those outside the capital.
When the Land Ownership Act was amended in 2005, more than 90 percent of the occupants did not have a land title. The situation has not improved significantly despite several efforts financed by traditional donors. In 2005, with the support of a Millennium Challenge Corporation Compact, the government embarked on a land reform project to simplify the registration process and to reconcile the existing formal and informal land titles. The reform reversed the presumption of state ownership of land and introduced private ownership, while at the same time decentralizing land registration and recognizing/formalizing the existing local customs for social recognition of property rights. The 2009 political crisis disrupted this reform process, leaving the country with approximately 10 percent of its existing land plots formally titled.
The majority of land ownership disputes are resolved at the local level without recourse to judicial proceedings. The small percentage of disputes that go through the court system remain bogged down due to the complexity of the cases and the lack of clear evidence of ownership, and even when determinations are made, they are often not adequately enforced.
The investment law authorizes foreign investors to possess real estate through renewable 99-year leases, so long as the concerned property is used exclusively and continuously to carry out commercial activity. The regulation specifically prohibits the acquisition of land by investors for resale in its original state, or for sale after its development. The amendment to the investment law slated for later in 2020 is expected to further clarify access to land for foreigners.
In principle, if a property is legally purchased but unoccupied, property ownership stays with the legal owner even if squatters take over the land. In practice, due to corruption and lack of oversight, there have reportedly been instances of fraudulent transfer of property rights. The national land policy (PNF) that the GOM developed in 2016 has done little to correct the situation due to slow enforcement.[i]
Intellectual Property Rights
The “Office Malgache des Propriétés Industrielles (OMAPI),” Madagascar’s intellectual property rights authority was created in December 1992. OMAPI publishes the titles it grants in the Official Gazette of Industrial Property (GOPI) and provides the public with industrial property documentation such as patent documents, industrial property legislation in various countries, and multilateral treaties on industrial property rights (IPR). The “Office Malgache des Droits d’Auteurs (OMDA),” is Madagascar’s agency to protect authors’ rights and copyrights. OMDA’s mission is to ensure the exclusive protection, defense and management of the economic interests of Malagasy and foreign authors, performers, and their successors concerning the use of scientific, literary and artistic works.
Officially, these authorities protect against IPR infringement, but in reality, enforcement capacity is quite limited due to resource constraints including poor digitalization, weakness of the judicial system, and lack of awareness of intellectual property rights among businesses and consumers. Due to these constraints, international investors have faced difficulties defending their interests. Madagascar neither tracks nor reports seizures of counterfeit goods, which are easily available in local markets as are unauthorized copies of famous brands, songs, and videos.
New IPR laws have stalled for years due to inaction by Parliament and the Office of the Prime Minister. The proposed legislation incorporates The Hague (international registration of industrial designs) and Lisbon (protection of origin appellation and international registration) agreements, and other international treaty classifications. The adoption of these bills would substantially improve IPR in Madagascar, provided OMAPI has sufficient funding for enforcement.
Madagascar was not listed included in the United States Trade Representative (USTR) ecial 301 Report or the Notorious Markets List.