Madagascar remains a challenging environment in which to do business according to foreign investors, but the country’s immense potential can provide significant returns on investment. After years of sluggish growth, the economy expanded by 4.0 percent in 2016, 4.5 percent in 2017, and 5.0 percent in 2018, with an estimated 5.4 percent growth for 2019. For the first time in Madagascar’s history, the country has had back-to-back peaceful democratic transitions, and the new government, which took office in January 2019, has stated it will make fighting corruption a core element of its development plans.
Madagascar remains one of the world’s poorest countries, with a GDP per capita of USD 450 (2017), 40 percent lower than its GDP per capita in the 1960s. Attaining the country’s development goals will depend on the enactment of structural reforms. Foreign direct investment is below potential due to allegedly persistent corruption in the public and private sectors. Many companies have complained that lack of infrastructure (roads and electricity), lack of transparency in the award and oversight of public works projects, the opacity and inadequate management of the budget, the government’s inability or unwillingness to properly enforce regulations and laws, and the weak financial system all hold back both foreign and domestic investment.
Under President Rajoelina, the government has embarked on an ambitious development plan called the Malagasy Emergence Initiative (IEM). National and global firms are cautiously optimistic, but many are waiting for further evidence that the government is indeed serious about combatting corruption, especially given the track record of Rajoelina’s government from 2009-2014. The IEM includes plans to create industrial, agricultural, and special economic zones to encourage international and national investors. The Economic Development Board of Madagascar (EDBM) continues to carry out a number of reforms in order to improve the business environment and investment climate.
Despite the reportedly challenging context, business and investment opportunities exist for U.S. companies in energy, extractive industries, information and communication technology, tourism, construction, agribusiness, and light industry (e.g., apparel, footwear, home goods, and food). Vanilla exports, extractive industries (ilmenite, nickel, cobalt), and textile ready-made exports have been the largest drivers of economic growth over the past five years.
Table 1: Key Metrics and Rankings
|TI Corruption Perceptions Index||2018||152 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||161 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2018||106 of 126||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2013||$57||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2017||$400||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The president and his administration have underlined the importance of attracting foreign direct investment (FDI) to advance economic development in Madagascar. To help implement his IEM development plan, his government has begun a review of existing regulations and laws with the goal to speed up processes, including laws on public private partnership, industrial development, the mining code, oil and natural gas law, and rules on special economic zones. Investors in the energy sector have expressed concerns over the review of existing energy contracts, and investors in the mining sector have been similarly concerned over possible revisions to the mining code.
Although the government welcomes foreign investment, several businesses have noted that the country faces many impediments that make investing in Madagascar a challenge. These include weakness in the judicial system, the banking sector, the high cost but poor reliability of electricity, the entrenched corruption at all levels of government, and limited infrastructures. With the multiplication of air and sea carriers/routes and the promotion and diversification of travel and tourism, the cost of air transportation has decreased progressively though it remains higher than in other regions of the globe.
The legislative framework governing investment in Madagascar has no discrimination 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 on investment, both national and foreign investor reward equal treatment in any sector. There is no discrimination against foreign investors at the time of the initial investment or after the investment is made (e.g., through special tax treatment, access to licenses, approvals, or procurement).
Limits on Foreign Control and Right to Private Ownership and Establishment
In general, no limit is set for foreign ownership or control in a company. The law stipulates that investors, foreign or Malagasy, are free to hold up to 100 percent of shares of stock in the company in which they carry out their activities since the business is officially registered and complies with the set of relevant regulations in force. However, according to law no. 2003-051, the privatization trust fund set up to manage sales of government minority stakes in formerly state-owned enterprises, can only make sales to Malagasy citizens and or/corporations having majority of their shares held by Malagasy nationals.
Other Investment Policy Reviews
None within last three years. UNCTAD and WTO conducted reviews in 2015.
In 2006, Madagascar set up the Economic Development Board of Madagascar (EDBM), a one-stop shop for receiving, processing, and delivering the required administrative documents to speed up the approval of all investment projects. Its primary recommendation is for a foreign company seeking to start a business in Madagascar to consider collaborating with a local business. Post recommends the retention of competent local counsel, especially shortlisted law firms. It is almost impossible to register in Madagascar without permanent residence or contact when difficulties arise.
Madagascar ranks 81th out of 190 in the World Banks’ Doing Business indicators for time to start a business, compared with 76th out of 189 last year. The company registration process is among the shortest in Sub-Saharan Africa. At the EDBM one-stop shop, companies can obtain their statistical card, tax registration confirmation, commercial registration number, and apply for visa, work permit or professional card. They must also register for social security and health insurance at the same shop. Companies in Madagascar are free to open and maintain bank accounts in foreign currency. Madagascar has no dedicated investment promotion agency. Some companies raise concerns that while it can be straightforward to start a business on paper, actually establishing a business that exists in function continues to take time, including a good amount of time in country.
EDBM assists closely both local and foreign investors in registering and operating their businesses. The country’s business facilitation mechanisms provide equal treatment regardless of sex or minority in the economy. No mechanism is set to provide special assistance to these group of persons.
The Malagasy Government has set up an economic section within the Ministry of Foreign Affairs with the objective of supporting local businesses growth and increasing the exports done by companies registered in Madagascar.
The government does not offer any incentives to promote outward investment. Wealthy operators, supposedly and secretly, have invested vast amounts of cash in offshore tax havens, reportedly cited in some paradise paper leakage.
Capital controls do not exist. The mandatory repatriation mechanism of foreign currency resulting from international trading constitutes an indirect restriction on investing abroad.
2. Bilateral Investment Agreements and Taxation Treaties
Madagascar does not have a separate free trade agreement with the United States. The Malagasy government has expressed interest in negotiating a bilateral investment treaty (BIT) with the United States. Initial BIT discussions began in late 2008, but stalled due to the unconstitutional change of government in March 2009. The United States signed an agreement in 2001 on the development of trade and investment relations with the Common Market for Eastern and Southern Africa (COMESA), of which Madagascar is a member. In June 2014, the United States reintegrated Madagascar among 30 African countries benefiting from AGOA. In July 2017 Madagascar’s Prime Minister signed the TFTA (tripartite free trade agreement) which associates the EAC, COMESA, and SADC. Madagascar is one of the signatories to the African Continental Free Trade Area (AfCFTA), which would come into force once all 55 African countries ratify the free trade area.
According to the U.N. Conference on Trade and Development (UNCTAD), Madagascar has concluded nine BITs (Belgium-Luxemburg-Economic Union, France, Germany, Mauritius, Norway, South Africa, Sweden, and Switzerland), and five treaties with investment provisions (COMESA EU EPA, COMESA Investment Agreement, COMESA US TIFA, Cotonou Agreement, COMESA Treaty).
The United States has no tax treaties with Madagascar. Madagascar has tax agreement with a few countries, including France and Mauritius. In 2017, Madagascar signed a bilateral taxation treaty with Canada and ratified another bilateral taxation treaty with Morocco in November 2016.
3. Legal Regime
Transparency of the Regulatory System
Some report that bureaucracy and inconsistency in the application of regulations hinder investment and can lead to corrupt practices. Though existing legislation attempts to establish clear rules, U.S. firms claim that a lack of enforcement and a shortage of resources and capacity have led some international investors to allege unfair competition from unscrupulous actors. A lack of transparency in government regulatory decisions is a common complaint.
The National Council on Competition, instituted under law no. 2005-020 (Law on Competition) on 17 October 2005, was finally established in November 2016. The body has responsibility to hear cases of unfair competition, but has not rendered any major decisions related to unfair competition.
Tax, labor, environment, health, and safety standards are generally not used to impede foreign investment, though, as mentioned above, bureaucratic procedures and red tape are often opportunities for corruption. There are no informal regulatory processes managed by non-governmental organizations or private sector associations.
Proposed laws and regulations are generally not published in draft form for public comment. The only opportunity for comment is usually at the parliamentary level. However, the current government has developed a track record over the last year of seeking comment on proposed laws and regulations from a limited pool of stakeholders. These consultations typically do not include the public, however.
Information on debt obligations was publicly available, including in annexes to the budget and online on the websites of the Ministry of Finance and Budget and the Public Debt Department within the Treasury. However, not all deals with foreign companies were publicly available, including ones that may include debt obligations.
International Regulatory Considerations
Madagascar is a member of the following economic blocks: Indian Ocean Commission (IOC), Southern African Development Community (SADC), and Common Market for Eastern and Southern Africa (COMESA). Regional regulatory systems prevail over the national system. As a former French colony, most of Madagascar’s norms and standards are French. However, in the last decade, British and other international norms or standards increasingly have been adopted in response to global market requirements. The government commits 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 laws, which in their provisions contain protections of private property and rights. Local commercial law consists mainly of the Code of Commerce and annexed laws. Recent reforms have allowed reducing significantly the delay in processing of commercial case at the trade court (TC). Recent reforms of regulations and procedure accompanied with increasing competent staff have allowed to process commercial dispute within lesser than a year while it lasted double or longer in the past. Major cities and regions do have their own competent courts although some trials fall under the jurisdiction of the central courts.
Madagascar’s Constitution Law states the independency of judicial system to the executive branch; however it has been reported that there is often flagrant interference of the last in judiciary matters apart broadening corruption within the judicial system resulting somehow in unfair and unreliable judicial process. Regulations and enforcement actions are appealable within the prescribed period. They could as well be adjudicated in the “central” court system (established in the capital).
Laws and Regulations on Foreign Direct Investment
Madagascar’s law on investments (Law n°2007-036) was promulgated in January 2008. It states foreign investors can freely own up to 100 percent of the company shares in which they operate subject to the provisions applicable to the activities with a specific regulation, foreign investors are allowed to transfer freely without prior authorization all payments relating to current transactions, including after-tax profits, dividends, salary income, allowances and savings of expatriate employees.
Other major laws in force concern foreign investors:
- Law n°2007-037 on free zone export companies
- Law n°2001-031, n°2005-022 on large mining investment (LGIM)
- Law n°1996-108 on petroleum code
- Law n°2003-036 on commercial company
Four major laws have come out in the past three years which are of interest to foreign investors:
- Law n°2015-039 on public and private partnership (PPP)
- Law n°2017-047 on the industrial development associated with the Industrial Policy of Madagascar (LDI)
- Law n°2017-023 on the special economic zone of Madagascar (ZES)
- Law 2017-020 on the law of electricity of Madagascar
In addition to the freedom of investment and equality of treatment for foreign and national investors, Madagascar’s Investment Law (2007-036) 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. There is no legal requirement that nationals own shares of foreign investment, nor any restriction on the mobility of foreign investors. The regime for visas, residence, and work permits is neither discriminatory nor excessively onerous. Since the creation of the EDBM, processing of residence and work permits has been streamlined.
Although the judicial system is independent, and the government has no right to interfere in its proceedings, some foreign investors have complained that the courts abdicate their responsibility and do not rule on the substance of tax appeals, but rather dismiss cases based on technicalities. Harassment by tax collectors assessing extraneous taxes is a frequently cited complaint by many investors. In addition, large companies nearly often lose court trials on issues related to personnel such as layoffs or dismissal of workers because of the rigidity of Malagasy labor laws. Investors have alleged interference by government officials and corrupt judges in the judicial system.
Competition and Anti-Trust Laws
The Law on Competition (Law n°2005-020) assigns the Ministry in charge of Commerce and Industry overall responsibility for ensuring fair competition in business. The law also mandates the creation of an independent Council of Competition (CC) to rule on cases brought before it relating to unfair competition. The CC began functioning in November 2016 (a decade after the promulgation of the law) and has processed dozens of cases. The CC plans to publicize their judgements online through its website
Expropriation and Compensation
The Investment Law (n°2007-036) provides foreign and local investors protection against nationalization, expropriation, and requisition, with the exception of public interest cases as established by regulation (Ordinance n°62-023). Infrastructure projects requiring the expropriation of private property must receive an official proclamation by the government that defines the public interest of the proposed project. If such cases arise, the administration cautioned the investor for a fair and prior compensation according to the market value of expropriated proprieties.
Aside from the above, there have been no government actions or shifts in government policy in the last five years that would indicate possible expropriations in the near future.
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 n°2007-036, disputes between foreign investors and the administration can be treated through arbitrage proceedings administered by the ICSID.
If the foreign investor is the initiator of the proceedings, he or she may also choose to submit the dispute to the Trade Court, the competent Malagasy jurisdiction. However, the Malagasy judicial system is considered slow and complex and has a reputation for opacity, corruption, and executive influence. Recent reforms of regulations and procedure accompanied with increasing competent staff have allowed to process commercial dispute within lesser than a year while it lasted double or longer in the past.
No specific domestic legislation provides for enforcement of awards under the 1958 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 mean of settling commercial disputes between private parties.
Madagascar has been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1989.
International Commercial Arbitration and Foreign Courts
The independent Malagasy Arbitration and Mediation Center (known by its French acronym, CAMM) was created in 2001 as a private organization to promote and facilitate the use of arbitration to resolve commercial disputes, both international and domestic, and to lessen reliance on an overburdened court system. As a result, many private contracts now include arbitration provisions that allow the CAMM to mediate eventual disputes.
According to its General Secretary, the CAMM have mediated over 30 cases from 2012, none of which involved a U.S. party. Over the last few years, the CAMM has extended its partnership with similar foreign organization in France (CMAP), Mauritius, Reunion Island, Comoros, and Seychelles. They have also started to approach English speaking chambers of commerce to promote their service to other businesses from the commonwealth countries
Madagascar’s law n°2003-042 handles collective debt settlement procedures, which treats all parties equally in bankruptcy proceedings. According to the latest World Bank Doing Business report, creditors have the right to initiate insolvency proceedings only when seeking liquidation of the debtor, but not when seeking reorganization.
Law n°2003-042 removed bankruptcy offenses from the criminal code and transferred them in the provisions for bankruptcy in the law n°2007-018 on the collective debt settlement procedures itself.
Bankruptcy offenses are punishable by fines and imprisonment depending on the nature of the offense – ranging from simple, negligent, or fraudulent bankruptcy. The court system has reduced the associated prison sentences from those stipulated in the previous insolvency framework.
The central bank of Madagascar, in collaboration with a technical partner, is planning to establish an independent Credit Reporting Office (BIC), which would provide full package of services to the stakeholders in the financial system of Madagascar.
4. Industrial Policies
Madagascar extends certain incentives for investment, outlined in domestic legislation, particularly in the Export Processing Zones, in the large mining investment (LGIM), and recently in the law on Special Economic Zone (SEZ), and the law on Industrial Investment Zone (ZII).
For example, the Law on large-scale mining investments – LGIM (Law n°2001-031, modified by Law n°2005-022) establishes a special regime in terms of currency exchange, taxes, customs duties, and legal protections in favor of large investments in the mining sector that are over USD 25 million. It includes attractive royalty and taxation rates designed to incentivize not only investment in the mining sector, but also local transformation of the mined substances. These incentives include fixed tax rates on corporate profits of 25 percent, compared to 35 percent in the general tax regime, which fall to 10 percent when the investor processes locally the raw substances into final or semi-final products. The Government has set up a steering committee called the “LGIM Committee” which would act as the only interface between the Malagasy government and the investor.
Foreign Trade Zones/Free Ports/Trade Facilitation
The January 2008 Law on Free Zone Companies (Law 2007-037) established an Export Processing Zone (EPZ) regime to incentivize investment in three categories: (1) investment in export-oriented manufacturing industries; (2) development or management of industrial free zones; and (3) provision of services to EPZ companies. The EPZ regime provides certain tax advantages and incentives to EPZ companies, to include: temporary tax exemptions of two to fifteen years (depending on the category of enterprise); no VAT or customs duties on imports of raw materials; no registration taxes; no customs tax on exported goods; income tax on expatriation not exceeding 30 percent of the taxable basis; and free access to foreign currency deposited in the company’s foreign currency bank account. Free zone companies are exempted to pay income tax in the first five years of operation. From the sixth year of operation, the income tax rate is only 10 percent. These incentives are conditioned upon a performance guarantee and requires 95 percent of an EPZ company’s output be exported.
Performance and Data Localization Requirements
Employment and Investor Requirements
The government encourages local employment and capacity building but does not mandate it.
EDBM has enhanced the mobility of foreign investors and their employees by streamlining processes for business visas, residency, and work permits.
Goods, Technology, and Data Treatment
The host government has no “forced localization,” policy, which forces foreign investors to use domestic content or technology.
There is no requirement for foreign IT providers to turn over source code and/or provide access to encryption.
No measurements prevent or unduly impede companies from freely transmitting customer or other business-related data outside the economy/country’s territory.
No mechanisms exist to enforce any rules on local data storage within the country/economy.
Investment Performance Requirements
The host country does not enforce performance requirements.
However, there are investment incentives that apply uniformly and systematically to both domestic and foreign investors.
The IT industry association (GOTICOM) is actively working with the relevant authorities to update the regulatory framework governing the IT sector.
5. Protection of Property Rights
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.
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 with formal title. The majority of land ownership disputes are resolved at the local level without recourse to judicial proceedings. The small percentage of disputes that rise to 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 n°2007-036 provides foreign investors with authorization to access a real estate property through lease with a maximum duration of 99 years, renewable, so long as the concerned property serves exclusively and continuously to carry out commercial activity. The law specifically prohibits the acquisition of land by foreign investors for resale in its original state, or for sale after its development.
Banks and insurance companies use mortgages and liens on commercial property to guarantee loans.
Over the past years, the government has re-initiated land reform with the intent to complete the process that was on standby since 2009. By the end of 2017, the parliament adopted a new national land policy and act to redefine the status of every land. The purpose of the act is to determine the management of titled properties, the registration procedures for immovable property, and the procedure for restoring land documents.
Intellectual Property Rights
Protection of intellectual property rights (IPR) is uneven in Madagascar. Officially, authorities protect against infringement but, in reality, enforcement capacity is quite limited due to resource constraints, weakness of the judicial system, and a lack of awareness of IPR among consumers. These constraints have led some international investors to experience difficulties enforcing their rights. For example, it is common to see pirated digital film or song sold in street markets.
The administration failed to enact IP-related laws or regulations over the past two years, although there is currently a reform bill working its way through Parliament. The bill would incorporate The Hague (international registration of industrial designs) and Lisbon (protection of origin appellation and international registration) Agreements, as well as adopt international treaty classifications for patents, design and industrial models, and brands and figurative elements into the legislative framework.
Madagascar does not track or report seizures of counterfeit goods. Counterfeit goods are widely seen in local markets. Media counterfeit and piracy is extremely common even though the lack of electricity and media playback devices limits the size of the market.
In 2017, Madagascar’s IP authority (“Office Malgache des Propriétés Industrielles” – OMAPI) signed an agreement with its Chinese counterpart for OMAPI to train Malagasy officers and to support each other in protecting brands and commercial names. The Chinese entity promised to donate a new office building and equipment to OMAPI.
Madagascar is not included in the United States Trade Representative (USTR) Special 301 Report, nor is it included in the Notorious Markets List.
6. Financial Sector
Capital Markets and Portfolio Investment
There is no stock exchange in Madagascar, though the private Mercantile Exchange Madagascar (MEX), launched crypto-currencies (bitcoin and ethereum) in January 2018.
The Central Bank and the Ministry of Finance require documents prior to any transfer of currency to foreign countries. There is no ceiling imposed to international transactions but justification remains mandatory.
Credit is allocated on market terms and the Government/Central Bank does not cap. The Central Bank uses indirect tools to limit credit/loans, such as reserve requirements ratio (13 percent of deposits) imposed on banks. Foreign investors are able to get credit on the local market if they have an officially registered company/subsidiary located in the country.
The private sector has access to a variety of credit instruments, such as short, medium, and long-term loans in different categories (e.g., credit lines and leasing). The Government does not limit the amount of credit available.
Money and Banking System
Madagascar’s financial sector is comprised of 11 commercial banks, one of which is local, with the rest subsidiaries of foreign banks, mostly based in Mauritius, France, and mainland Africa. The top four banks account for more than 80 percent of assets and deposits. Only 12 percent of the population has a bank account, which includes accounts with microfinance institutions. The vast majority of the banking clientele is therefore represented by corporate or professional entities.
The sector is stable and highly profitable with a return on equity of approximately 31 percent. The overall assets of all banks amount $2.1 billion. Following the IMF recommendation for further independence, the Central Bank has adopted a new chart in which two Deputy Governors assist the Governor, one dealing with the monetary policy and the other with all administration affairs.
In order to establish a bank account, foreigners must have established residency status.
Foreign Exchange and Remittances
To date, there is no restriction on capital inflows and outflows; however, justification is mandatory before sending money overseas.
Funds must be converted into any world currency. U.S. dollars and Euros are the most used foreign currencies.
The Central Bank performs a managed floating exchange rate. The exchange rate is neither fixed nor pegged to any major foreign currency. However, the Central Bank allows it to fluctuate within a band of 2 percent (up or down) in a daily basis in order to avoid abrupt variation. Therefore, whenever the local currency tends to fall beyond 2 percent within a day, the Central Bank intervenes by selling its reserve to respect the maximum acceptable daily variation rate.
There are no restrictions on converting or transferring funds associated with foreign investment, including remittances of investment capital, earnings, loan repayments, and lease payments.
There are no plans to change remittance policies that have tightened or relaxed access to foreign exchange for investment remittances. There is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital, and returns on intellectual property.
Sovereign Wealth Funds
No Sovereign Wealth Fund (SWF) or Asset Management Bureau (AMB) exist in the country, aside from the Privatization Trust Fund established in 1996, whose sole function is to manage the State’s minority shares in privatized enterprises in preparation for their auction to the local private sector. All of the Privatization Trust Fund’s investments are domestic, given that the shares it holds are the remaining minority shares of the State resulting from the privatization of earlier state-owned companies. The fund adopts a passive role as a portfolio investor and does not take an active role in the management of the assets in which it holds shares.
7. State-Owned Enterprises
Out of 53 companies with state stakes, 7 entities are wholly-owned, 12 majority-owned, and 24 minority-owned. These entities remain active in various sectors/industries, but detailed data are scarcely available. Generally, the SOEs have independent boards but there is always majority government representation among board members that influence the management.
Two major SOEs operate in air transport and energy sectors, namely the national air transport company, Air Madagascar (90 percent state-owned until mid-2017), and the water and electric utility, JIRAMA (100 percent state-owned).
Two years ago the Government lowered its participation in Air Madagascar to 51 percent from 89.56 percent following the sale of Air Madagascar to France’s Air Austral. The strategic plan aims to recover and restore the company’s fundamentals in order to return to profitable operation by 2020.
Private enterprises are, for the most part, allowed to compete with SOEs under the same terms and conditions for market access, credit, and other business operations. There are cases of non-market-based advantages for SOEs from the host government. Recently, the government banned France’s Corsair from routes linking Reunion Island to Madagascar. The national water and electricity company JIRAMA keeps the monopoly of electricity transmission and distribution.
There is currently no specific structure of corporate governance specified for SOEs, though the government is currently in the process of establishing one. Improving the governance of SOEs has long been a condition of multilateral donor institutions such as the World Bank and the IMF.
Madagascar’s privatization program was established in 1996 through legislation calling for state divestment in public enterprises (Law 96-011). The government subsequently listed 53 public enterprises in various sectors for privatization, including agriculture, oil (downstream), mining, transport, and telecommunications.
With support from the World Bank, the government privatized some of these firms between 2003 and 2010 through tender processes. Privatized companies included: Hasyma, a cotton plantation; Telma, a telecommunications company; and three major banks (BFV, BNI and BTM). Foreign investors were allowed to participate in these tenders. However, a number of the large state-owned enterprises that were also identified for divestment as part of the World Bank project were never privatized, including the national airline Air Madagascar and JIRAMA.
The administration established a Privatization trust fund to manage the government’s minority stakes in formerly state-owned enterprises for possible sale to private investors. The trust fund has auctioned off the state’s existing minority stakes in Telma, as well as in the numerous firms that emerged from the break-up and privatization of SOLIMA, the former national downstream petroleum company. According to the law n°2003-051, the sale of these stakes by the privatization trust fund are restricted to Malagasy citizens and/or corporations having majority of their shares held by Malagasy nationals, in an effort to increase domestic shareholding.
8. Responsible Business Conduct
There is poor awareness of Responsible Business Conduct (RBC) among producers and consumers, but several large, formal sector companies, particularly those with foreign investment, carry out RBC activities. For example, Rio Tinto and Ambatovy, the country’s two largest mining companies, have won the support of local communities through RBC programs and through responsible business ethics.
The government enforces labor, employment rights, and consumer and environmental protections in part through periodic inspections, though a lack of resources and capacity, as well as continued corruption at lower levels, impedes the effectiveness of this enforcement. Nevertheless, the government does not waive these requirements in order to attract foreign investment, except for some particular exemptions to its labor code provided to EPZ companies.
Many companies with foreign investment, particularly from western countries, adhere gradually to international standards in these areas through their participation in voluntary certification schemes, such as the Worldwide Responsible Accredited Production (WRAP) principles in the apparel sector. There is also a vibrant NGO and civil society sector, particularly regarding environmental issues, but it, too, suffers from a lack of resources and capacity.
Madagascar is a member of the Extractive Industries Transparency Initiative (EITI), under the Minister to the Presidency in charge of Mines and Petroleum. However, there is no law or domestic transparency measures mandating the disclosure of payments for projects related to the commercial development of mines and hydrocarbon resources.
While giving or accepting a bribe is a criminal act and is subject to trial by court, complicated administrative procedures introduce delays and uncertainties, increasing possibilities for corruption. High levels of corruption exist in nearly all sectors, but are most pervasive in the areas of judiciary, police, tax, customs, land, and mining industry. Despite maintaining an anti-corruption stance publicly, the outgoing administration made little progress in reigning in corrupt practices or prosecuting corrupt officials. The incoming administration leadership has announced measures to eradicate corruption, and has begun to prosecute major corruption cases.
The Independent Anti-Corruption Bureau (BIANCO) is the agency formally responsible for combating corruption. Madagascar has a Financial Intelligence Unit (SAMIFIN) to carry out research and financial analysis related to money laundering. At end of year 2018, the legal framework to combat corruption misses the law for recovery of unlawful assets pending its vote in national assembly. By June 2018, BIANCO enacted the first Anti-Corruption Special Court for Antananarivo. Additional PACs are now present in all six provinces, including Antsiranana, Fianarantsoa, Mahajanga, Toamasina, and Toliara.
Transparency International Initiative Madagascar (TI-IM) has an office in the country working here since 2002. TI-IM, BIANCO, SAMIFIN, POLICE and GENDARME collaborate closely to bring cases to the courts. In 2018, Transparency International’s Corruption Perceptions Index indicated that Madagascar ranked 152 out of 180 nations scoring 25/100, while remaining below the average for African countries.
There is no requirement for companies to establish internal codes of conduct that, inter alia, prohibit bribery of public officials. However, some foreign companies have begun to orient their internal control, ethics, and compliance programs to prevent bribery, while the Foreign Corrupt Practices Act prohibits U.S. firms from engaging in such behavior. Madagascar signed and ratified the UN Anticorruption Convention and the African Union Convention against Corruption. It has not signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
Resources to Report Corruption
Contact at government agency or agencies are responsible for combating corruption:
Mr. Jean Louis ANDRIAMIFIDY
>BIANCO (Independent Bureau Anti-Corruption)
Villa “La Piscine”, Ambohibao, Antananarivo, Madagascar, and P.O. Box 399
Telephone: +261 20 22 489 79; +261 20 22 489 93 ; +261 033 02 002 99
>Email: firstname.lastname@example.org or
Contact at “watchdog” organization (international, regional, local or nongovernmental organization operating in the country/economy that monitors corruption):
TRANSPARENCY INTERNATIONAL-INIATIVE MADAGASCAR (TI-IM)
Lawyer Alex RAFAMANTANANTSOA
Chairperson of TI-IM
Transparency International Initiative, Madagascar
Villa Huguette (rez-de-chaussee), Lot II U86 Cite Planton – Ampahibe, 101 Antananarivo, Madagascar
Telephone: +261 20 22 288 73 ; +261 34 96 418 79
Email: email@example.com; firstname.lastname@example.org;
SEHATRA FANARAHAMASO FIAINAM-PIRENENA (SEFAFI): (Monitoring of Public Activities)
Lawyer Sahondra RABENARIVO
Lot III M 33K Andrefan’Ambohijanahary, Antananarivo 101, Madagascar
Telephone: +261 32 59 761 52
Afrobarometer, Madagascar Office c/o COEF Resources
COEF Resources, PO Box 4075, Antananarivo 101, Madagascar
Telephone: +261 20 22 283 82
10. Political and Security Environment
At the beginning of 2018, there was significant uncertainty about the 2018 presidential election – which candidates would be allow to run, and whether the election would be free and fair. The situation allegedly worsened in April after a controversial electoral bill, which resulted in street protests, prompting the president to form a caretaker government to help organize the elections with involvement of the international community including the AU, SADC, UN, EU, and United States. The 2018 election occurred peacefully on November 7, followed by a second round on December 19, resulting in the first time Madagascar has had two peaceful democratic transitions back-to-back. Legislative elections held in May 2019 were largely peaceful as well.
Security remains a concern, with security deteriorating over the past few years as criminal elements took advantage of distracted and ineffective successive governments. Reports of banditry, cattle rustling, and crime are rising and diversifying to spread over many areas. The new administration has made security issues a central element of its new mandate, and initial reports are that the security situation is improving across the country.
11. Labor Policies and Practices
Madagascar has a significant pool of available labor, due to the combined impacts of unemployment and underemployment, though the availability of skilled labor is more limited. Nevertheless, the quality of Madagascar’s unskilled labor is high and is frequently raised by private investors as a key attraction for the country. The Labor Law (2003-044) differentiates between firings and lay-offs, and allows employers to adjust employment in light of fluctuating market conditions with the payment of a severance. The monthly minimum wage was increased in 2018 to USD 50 per month.
The government does not mandate hiring of local nationals, except in the mining sector, in which large investment projects are required to give preference to nationals given equal skills and qualifications. The law provides that public and private sector workers may establish and join labor unions of their choice without prior authorization or excessive requirements. Civil servants and maritime workers, however, have separate labor codes, while essential workers, including police, military, and firefighters, may not form unions. The law provides that unions operate independently from government and political parties, and this is generally respected.
Labor protections under EPZ companies are slightly different from the general labor code, as EPZ labor contracts may differ in duration, restrictions on the employment of women during night shifts, and the amount of overtime permitted. The labor law establishes labor dispute mechanisms, which proceed progressively from internal negotiation to outside mediation from the Ministry of Labor to arbitration or legal settlement through the competent courts.
The law provides workers in the private sector, except for seafarers, the right to bargain collectively. According to union representatives, collective bargaining rights are more readily exercised and respected in larger international firms, such as those in the telecommunications and banking sectors. In EPZs and smaller local companies, employees tend to be more reluctant to make demands for fear of reprisals.
12. OPIC and Other Investment Insurance Programs
On March 31, 1998, the Overseas Private Investment Cooperation (OPIC) signed a bilateral Investment Incentive Agreement with Madagascar, which updated the previous agreement signed in 1963. OPIC and Madagascar concluded two memoranda of understanding in 2004 pledging cooperation attracting U.S. investment in several sectors, including telecommunications and information technology, agribusiness, mining, energy, and tourism. The grain mill that was the only active OPIC project in the country, USD 11.6 million insurance facility for the revitalization and operation of the mill signed in 2011, closed its business in 2017 due to unlawful competition in import-distribution. Madagascar has been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1989.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
* Source for Host Country Data: Figures taken from the Central Bank’s annual survey on FDI, last done in 2014.
Table 3: Sources and Destination of FDI
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||554.9||100%||Total Outward||N/A||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Table 4: Sources of Portfolio Investment
Madagascar does not have any portfolio investments from overseas. Foreigners are able to purchase neither internal debt securities nor Treasury bill. The absence of any stock market does not also provide the opportunity to foreign individuals or corporates to purchase shares in any Malagasy corporation.
14. Contact for More Information
Commercial (Economic) Assistant
U.S. Embassy, Antananarivo, Madagascar
Telephone: +261 20 23 480 00 ext 2277