Since assuming office in 2014, the government of President Hery Rajaonarimampianina has publicly emphasized the importance of combating corruption and improving the business and investment climate, citing private sector led growth as the engine for the future economic development of Madagascar. However, despite a number of programs to improve the country’s investment climate, including through reform of the existing regulatory framework, progress reigning in corruption has been largely absent.
Foreign direct investment has failed to reach its potential due to persistent corruption in government and in the private sector. Both foreign direct investment and domestic investment are held back by the lack of infrastructure (notably roads and electricity), the lack of transparency in the award and oversight of public works projects, generally inadequate audit and management of budgets, the government’s inability or unwillingness to properly enforce regulations and laws, and a weak financial system.
The best options for U.S. investment are the extractive industries, light manufacturing in the apparel sector, construction, energy, agribusiness, and tourism. The extractive industries, particularly the mining sector, have been the largest driver of economic growth over the past few years, though low commodity prices in recent years have added an additional obstacle for investors.
In its 2015-2020 five-year development plan, the government plans to seek public-private partnerships with private industry, in addition to traditional donor aid in order to rehabilitate and extend its dilapidated infrastructure. This may present opportunities for U.S. investment, particularly if the government succeeds in its efforts to reform the management of the state-owned water and electric utility JIRAMA. Following a major cabinet reshuffle in April 2016, the government announced a number of reform projects and efforts to improve the business and investment climate. However, these efforts, especially within JIRAMA, have not produced concrete results so far. The mining sector has, to date, been the primary recipient of foreign investment.
The IMF released the first $43.5 million tranche of a $304.7 million Extended Credit Facility for Madagascar in September 2016. Progress on IMF-monitored reforms is broadly satisfactory, with generally good performance on indicative targets and structural reforms. However, the poor financial health of the national utility, JIRAMA, and the national airline, Air Madagascar, remain major concerns that will require significant but unknown increases in government subsidies – threatening to undermine progress in all other areas. Resolution of these potential budgetary uncertainties depends on improvements in governance, including the fight against corruption.
|TI Corruption Perceptions Index||2016||145 of 176
|World Bank’s Doing Business Report “Ease of Doing Business”||2017||167 of 190||doingbusiness.org/rankings|
|Global Innovation Index||2016||125 of 128||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, stock positions)||2015||$170 million (+16.4% from 2014)||http://www.bea.gov/
|World Bank GNI per capita||2015||420||http://data.worldbank.org/
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
President Hery Rajaonarimampianina came into office after democratic elections in late 2013, ending five years of rule by an unelected coup regime that was largely characterized by corruption and rent seeking. As the Finance Minister in that regime, Rajaonarimampianina was the transition regime’s candidate in the 2013 elections but broke away from his former benefactors after he was elected president. Since taking office, his government has emphasized the importance of combating corruption and improving the business and investment climate, citing private sector led growth as the engine for its future economic development. The President and his administration have repeatedly underlined the importance of attracting foreign direct investment (FDI). This commitment is enshrined both in the government’s official policy document, the General Policy for the State, and the National Program for Development (NDP), which prioritizes the country’s development objectives in the short to medium term. However, clear actions in support of these pronouncements are difficult to identify.
Although the government welcomes foreign investment, the country faces many impediments that make investing in Madagascar a challenge. These include weakness in the judicial system and the banking sector, the high cost and low reliability of electricity, entrenched corruption at all levels of government, and limited road, rail, and port infrastructure. With the arrival of new operators such as Turkish Airlines and Ethiopian Airlines, the cost of air transportation has decreased slightly, though it remains higher than in other countries in the region.
The current government inherited numerous problems from the coup regime – a stagnating economy, increased poverty, and poor social conditions. In recognition of Madagascar’s return to elected government, many international donor countries that had rescinded or curtailed their development aid to Madagascar, including the United States, resumed cooperation in 2014. Beginning in January 2015, Madagascar resumed duty free exports to the United States under the African Growth and Opportunity Act (AGOA) in recognition of the country’s return to constitutional order. However, the continuing low global prices of commodities, difficulty accessing credit, and prevailing corruption limited the amount of foreign and local investment to Madagascar in 2016. Economic growth reached 4.1 percent, boosted by record high prices of vanilla and foreign assistance.
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, equal treatment as nationals is granted to foreign investors in any sector. There is no discrimination against foreign investors at the time of the initial investment or after the investment is made, such as 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. The Investment Law (Law 2007-036) 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 except for the telecommunication sector, where shares of the foreign companies cannot exceed 66 percent. Investment in certain sectors such as telecommunications, banking, and insurance, is subject to specific regulations, but national treatment is not denied to any foreign investor even in these sectors. However, concerns are growing because the recent draft of the new petroleum code appears to force the foreign investor to partner with a state-owned company. The minimum stake for the state-owned company has not yet been finalized.
Other Investment Policy Reviews
The British consultancy “Control Risks” put Madagascar on its list of countries with “high political risk” along with Libya, Cote d’Ivoire, Cameroon, and Eritrea. It warned that Madagascar could fall into the “safety risk” zone following the looting of a sugar company in Morondava and the deterioration of the infrastructure of JIRAMA.
Madagascar created the Economic Development Board of Madagascar (EDBM) as a one-stop shop for receiving, processing, and delivering the required administrative documents to speed up the approval of all investment projects. The EDBM has significantly streamlined the process for establishing a business in Madagascar, though some investors continue to report delays. However, it is strongly advised that a foreign company seeking to start a business in Madagascar consider partnering with a local business to set up the registration despite the existence of the one-stop shop. Post recommends the retention of competent local counsel. It is almost impossible to register in Madagascar with no permanent residence or contact when difficulties arise. Madagascar is ranked 128th out of 189 for the starting business registration by the World Bank’s Ease of Doing Business report. The EDBM, whose mission is to attract FDI, receives funds from the World Bank. The EDBM has a website in English: http://www.edbm.gov.mg/ .
According to the World Bank, it takes three procedures and 12 days to establish a foreign-owned limited liability company (LLC) in Madagascar (Antananarivo). This process is among the shortest in Sub-Saharan Africa and much faster than the IAB global average. An LLC can be entirely foreign-owned; investment authorizations are no longer required. However, at least one of its executives must reside in Madagascar. If a newly-established company (domestic or foreign) wants to engage in international trade, it must register with the Ministry of Commerce and Trade. At the one-stop shop, companies can obtain their statistical card, tax registration confirmation, commercial registration number, and 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. Minimum capital requirements have been abolished. Madagascar does not have an investment promotion agency to facilitate foreign investment, but EDBM assists both local and foreign companies to register and to operate their businesses.
The Malagasy Government has setup an economic section within the Ministry of Foreign Affairs with the objective of supporting local businessmen and increasing Malagasy exports. The government does not offer any incentives to promote outward investment.
Capital controls do not exist. However, the mandatory repatriation of foreign currency resulting from international trading constitutes an indirect restriction on investing abroad.
Bilateral Investment Agreements and Taxation Treaties
Madagascar does not have a free trade agreement with the United States. The Malagasy government has expressed interest in negotiating a bilateral investment treaty with the United States. Initial 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), in which Madagascar is a member.
2. Bilateral Investment Agreements and Taxation Treaties
According to the U.N. Conference on Trade and Development (UNCTAD), Madagascar has concluded bilateral investment agreements with Belgium, Canada, China, France, Germany, Mauritius, Norway, Sweden, and Switzerland.
3. Legal Regime
Transparency of the Regulatory System
Bureaucracy and inconsistency in the application of regulations hinder investment and can lead to corrupt practices. Though existing legislation attempts to establish clear rules, 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) 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 general public.
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
Madagascar’s legal system is based on French civil law, and its provisions contain protections for private property rights. Local commercial law consists largely of the Code of Commerce and annexed laws, which are reportedly applied in a non-discriminatory manner. However, the Malagasy judicial system is slow and complex and has a reputation for opacity, corruption, and executive influence.
Laws and Regulations on Foreign Direct Investment
The major laws affecting foreign investment include: the Law on Investments (Law 2007-036), the Law on Free Zone Companies (Law 2007-037), the Law on Large Scale Mining Investments (Law 2001-031, modified by Law 2005-022), the Petroleum Code (Law 96-108), and the Law on Commercial Enterprises (Law 2003-036). The mining and Petroleum codes are under review with the assistance of the World Bank and a U.S. consulting firm.
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 always lose court trials on issues related to personnel, such as layoffs or dismissal of workers, because of the rigidity of Malagasy labor laws. Investors frequently allege interference by government officials and corrupt judges in the judicial system.
Competition and Anti-Trust Laws
The Law on Competition (Law 2005-020) assigns the Ministry of Commerce and Consumption the overall responsibility for ensuring fair competition. The law also mandates the creation of an independent National Council of Competition (NCC) to rule on cases brought before it relating to unfair competition.
Expropriation and Compensation
The Investment Law (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 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. In these cases, the investor is to be granted a fair and prior compensation according to the market value of expropriated interests.
There are no recent cases of expropriation actions by the government of Madagascar, though as reported in local and international media, there were attempts by the previous de facto coup regime to expropriate oil blocks belonging to an international oil company in 2010. The company and the ruling regime resolved this case without resorting to expropriation.
Aside from the above, there have been no government actions or shifts in government policy occurring in the last five years that would indicate possible expropriations in the foreseeable future.
ICSID Convention and New York Convention
Madagascar is a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention) and under the Investment Law (2007-036), disputes between foreign investors and the State are handled 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 Commerce Tribunal, the competent Malagasy jurisdiction. However, the Malagasy judicial system is slow and complex and has a reputation for opacity, corruption, and executive influence. A poll conducted by the national statistics agency, INSTAT, in 2014 found that 45.5 percent of the Malagasy population has no confidence in the judicial system, compared to 35 percent for the government and 34 percent for the police.
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 also accepted as a means of settling commercial disputes between private parties.
Madagascar has also been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1989.
International Commercial Arbitration and Foreign Courts
The 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 clauses, which allow the CAMM to mediate eventual disputes. However, the CAMM only mediated a total of 25 cases in year 2016, according to its General Secretary.
Madagascar has a bankruptcy law (2003-042). 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.
In reorganization proceedings, all creditors have the right to vote on the reorganization plan, not just those whose rights are modified or affected by the plan. Creditors are not divided into classes for the purpose of voting on the reorganization plan. Dissenting creditors are not required to receive as much under the reorganization plan as they would have under liquidation.
Creditors have the right to object to a decision of the court to approve or reject claims against the debtor brought by the creditor itself or by other creditors. The insolvency framework does not afford creditors the right to participate in the selection of an insolvency representative, to approve the sale of substantial assets of the debtor, nor to access information about the insolvency proceedings.
Law 2003-042 removed bankruptcy offenses from the Penal Code but maintained them in the bankruptcy law itself. Bankruptcy offenses are punishable by fines and imprisonment depending on the nature of the offense – ranging from simple, to negligent, to fraudulent bankruptcy. The associated prison sentences were reduced from those stipulated in the previous insolvency framework
4. Industrial Policies
Madagascar extends certain incentives for investment, outlined in domestic legislation, particularly in the Export Processing Zones and in the mining sector. The Law on Large Scale Mining Investments (Law 2001-031, modified by Law 2005-022) establishes a special regime in terms of currency exchange, taxes, customs duties, and legal protections to large investments in the mining sector of approximately $25 million or more – including 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 products are processed locally. The Government has set up a committee called “committee on the LGIM” which could be seen as the only interface between the Malagasy government and the investor. The Law on Large Scale Mining Investments has encouraged growth in the mining sector, which has been the biggest driver of GDP growth in the last five years.
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
The government does not follow forced localization.
Regulation of the local IT sector is embryonic, and there are no requirements for foreign IT providers to turn over source code and/or provide access to surveillance (backdoors into hardware and software or turn over keys for encryption).
There are no current mechanisms to enforce any rules on maintaining a certain amount of data storage within the country. The IT Industry Association (GOTICOM) is actively working with the relevant authorities on updating the legislative and regulatory framework governing the 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.
This reform process was interrupted by the 2009 political crisis, 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 (2007-036) provides foreign investors authorization to acquire real estate property through lease with a maximum, renewable duration of 99 years, so long as the property is solely and continuously used to carry out commercial activity. The law specifically prohibits the acquisition of land by foreign investors for resale in its original state, or for resale after development. Banks and insurance companies use mortgages and liens on commercial property to guarantee loans.
Since coming to power in 2014, the government has re-initiated land reform with the intent to complete the process that was interrupted in 2009. A new national land policy could be adopted in 2017.
Intellectual Property Rights
Protection of intellectual property rights is uneven. 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 intellectual property rights among consumers. These constraints have led some international investors to experience difficulties enforcing their rights.
A draft bill to modernize intellectual property protections is under examination by the Ministry of Justice prior to its submission to the Parliament in 2017. The reforms would incorporate the Hague (international registration of industrial designs), and Lisbon (protection of origin appellation and international registration) agreements, as well as other international treaty classifications in the matter of patents, design and industrial models, and brands and figurative elements into the legislative framework.
Madagascar does not track or report on seizures of counterfeit goods. Counterfeit goods are widely observed in local markets. Media piracy is extremely common, but the lack of electricity and media playback devices limits the size of the market.
6. Financial Sector
Capital Markets and Portfolio Investment
There is no stock exchange in Madagascar, and plans to create one were scuttled while still in the analysis and study phase by the 2009 political crisis.
Banks are free to support the flow of resources in the product and factor markets, and credit is usually allocated on market terms. However, the banking sector is relatively small, with approximately $1.4 billion in total credit, making access to credit expensive, particularly for small and medium enterprises. Although the banking sector comprises 80 percent of the financial system, it only offers basic savings and credit products to a select clientele. Mobile banking is growing very quickly, partly due to a World Bank project designed to encourage it. Credit tends to be of short to medium term in nature, and there is no corporate or municipal debt market in the country.
Money and Banking System
Madagascar’s financial sector is comprised of 11 commercial banks, all of which are subsidiaries of foreign banks, mostly based in Mauritius, France, and mainland Africa. The top four banks account for more than 86 percent of assets and deposits. Only 6 percent of the population has a bank account, so the vast majority of the banking clientele is represented by corporate or professional entities.
The sector is stable and highly profitable despite a relatively large non-performing loans ratio of 13.1 percent of total loans, and a complete lack of deposit insurance. The sector remains profitable, with a return on equity of approximately 31 percent.
The overall assets of all banks are estimated at $2.1 billion as of March 2016 with the largest bank boasting approximately $700 million of total assets. Madagascar has had an autonomous Central Bank since 1973, though the level of executive influence over the bank increased during the period of coup governance. In response to a recommendation by the IMF that it become more independent, the Central Bank revised its structure in March 2017. Under the new framework, the Central Bank Governor is assisted by two deputy governors, 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
While some foreign exchange controls exist, they are not especially restrictive. There are repatriation requirements for export earnings, and some specific capital controls, but Madagascar abides by the IMF’s Article VIII statutory framework, which prohibits direct government limitation on foreign exchange use and availability. Investment Law (2007-036) provides foreign and local investors the freedom to freely transfer abroad without prior authorization. When delays occur in conversion or funds transfer, they are due to temporary shortages of foreign currency on hand.
This foreign currency market determines the exchange rate, with daily fluctuations in the exchange rate. The Central Bank reserves the right to intervene in order to avoid abrupt variations in the exchange rate. Normally, it allows the local currency to fluctuate within a band of 2 percent. The Central Bank can intervene if the Malagasy ariary gains or loses more than 2 percent in a single day.
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
Two major SOEs operate in the travel and energy sectors — the national air transport company, Air Madagascar (90 percent state-owned), the water and electric utility, JIRAMA (100 percent state-owned). However, the Government promised to lower its participation on Air Madagascar to 51 percent following an agreement with French company Air Austral that has not yet been finalized. Other SOEs with significant shareholding by the state include a forestry company (FANALAMANGA), a chrome mining company (KRAOMA), an insurance company (ARO), an airport management company (ADEMA), the Tamatave commercial port company (SPAT), and a real estate company (SEIMAD). The Treasury, within the Ministry of Finance, maintains a list of the 50 SOEs on its website, including those enterprises in which the State has only a minority shareholding: http://www.tresorpublic.mg/?page_id=214&content=temp&type=statistique .
Private enterprises are, for the most part, allowed to compete with state-owned enterprises (SOEs) under the same terms and conditions with respect to access to markets, credit, and other business operations.
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 International Monetary Fund.
Madagascar’s privatization program was established in 1996 through legislation calling for state divestment in public enterprises (Law 96-011). The government subsequently identified over fifty public enterprises in various sectors for privatization, including: agriculture, petroleum, mining, transport, and telecommunications, among others. Partially through support provided by the World Bank from 2003 to 2010, the government privatized a number of these firms through tender processes, including two large enterprises: Hasyma, a cotton plantation, Telma, a telecommunications company, and three major banks BFV (commerce), BNI (industry), and BTM (Agriculture). 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.
A Privatization Trust Fund was established in 1996 to manage the government’s minority shares in formerly state-owned enterprises for eventual sale to private investors. Currently, the trust fund is preparing to auction off the state’s existing minority shares 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. By law (Law 2003-051) sales of these shares by the Privatization Trust Fund are restricted to Malagasy citizens and/or corporations with the majority of their shares held by Malagasy nationals in an effort to increase domestic shareholding.
8. Responsible Business Conduct
There is a lack of general awareness of Corporate Social Responsibility (CSR) among producers and consumers, but several large, formal sector companies, particularly those with foreign investment, apply CSR principles. Public opinion is favorable regarding those firms who pursue CSR.
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 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 has an Extractive Industries Transparency Initiative (EITI), headed by the Minister of Mines and Petroleum. 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 following areas: judiciary, police, tax, customs, land, trade, mining, industry, environment, education, and health. The government, despite maintaining an anti-corruption stance publicly, has made little progress in reigning in corrupt practices or prosecuting corrupt officials.
The Independent Anti-Corruption Bureau (BIANCO) is the agency formally responsible for combating corruption. Madagascar also created a Financial Intelligence Unit (SAMIFIN) in mid-2008 to carry out research and financial analysis related to money laundering. Transparency International has an office in the country and has operated here since 2002.
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 controls and ethics and compliance programs to prevent bribery, while U.S. firms are prohibited from engaging in such behavior by the Foreign Corrupt Practices Act. 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
BIANCO (Independent Bureau Anti-Corruption) is responsible for combatting corruption.
Mr. Jean Louis ANDRIAMIFIDY
Villa “La Piscine”, Ambohibao, Antananarivo, Madagascar, P.O. Box 399
+261 20 22 489 79; +261 20 22 489 93
Mr. Claude FANOHIZA
Transparency International Initiative, Madagascar
Lot II M 98 B (2e étage) – Antsakaviro, 101 Antananarivo, Madagascar
+261 20 22 653 57
email@example.com ; flesné@transparency.mg
10. Political and Security Environment
Although Madagascar has a history of coups and political instability, it does not have a significant history of political violence. There were occasional demonstrations and strikes in the urban areas, but most of these were monitored and resolved without incident. Some isolated incidents of violence occurred in 2014 but there was no widespread civil unrest.
In December 2014 in the southwestern city of Morandava, employees of a sugar factory clashed with security forces, looted and burned down the facility after a month-long strike resulting from a labor dispute with the factory’s Chinese managers. Local media reported up to seven deaths and approximately $80 million in damages from the incident. During the same month, the local branch office of the state-owned electric and water utility was looted and burned in Toamasina, the country’s principal port city on the east coast. Local media reported one death and seven seriously injured as the result of clashes between security forces and the demonstrators, who were allegedly dissatisfied with load shedding and poor service delivery from the utility.
Cattle rustling has been an increasing problem in the rural south of the country and also occurs in other regions, leaving hundreds of civilians and security forces dead in recent years. The government has deployed sporadic security operations to restore order over the past few years, with limited success.
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 touted by private investors as primary 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 this year to $42 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 terms of 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) and Madagascar signed a bilateral Investment Incentive Agreement, 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 one active OPIC project in the country, a $11.6 million insurance facility for the revitalization and operation of the mill signed in 2011, recently terminated operations. Madagascar has been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1989.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
|Host Country Statistical Source||USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|Host Country Gross Domestic Product (GDP) ($M USD)||2015||$9,744||2015||$9,739||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical Source||USG or International Statistical Source||USG or international Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|U.S. FDI in partner country ($M USD, stock positions)||2014||$183.5||N/A||N/A||BEA data available at http://bea.gov/international/direct_investment_
|Host country’s FDI in the United States ($M USD, stock positions)||2014||N/A||N/A||N/A||BEA data available at http://bea.gov/international/direct_investment_
|Total inbound stock of FDI as % host GDP||2014||54.6%||N/A||N/A||N/A|
Table 3: Sources and Destination of FDI
Madagascar is not enlisted in the IMF CDIS data. The following figures come from the Central Bank which makes an annual survey on FDI along with the National Statistics Institute. The latest available statistics is as of 2014.
|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 bills. 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
Timothy L. Cipullo
Deputy Pol/Econ Chief
U.S. Embassy Antananarivo
+261 33 44 324 08