Transparency of the Regulatory System
Bureaucratic delays and inefficiencies plague Madagascar’s legal and regulatory system. Non-transparent regulatory decisions have affected global investors, some of whom have 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. That said, auditing and financial information reporting systems are transparent and consistent with international norms, IAS and 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 the 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 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. 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 approve or veto 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 consultation prior to their adoption. This applies to investment law and regulations. Informally, draft legislation and regulations do circulate, and institutional pushback can lead to 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/%20page_find_direct_mots/ .
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 ultimately 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 are intended to 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 such as national utility JIRAMA whose financial statements have not been disclosed since 2018.
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 had a set-aside under Sovereign Funds, amounting to 1.9 percent of the budget earmarked for discretionary use under special presidential projects. In 2020, the Government received around USD 840 million from various donors, including USD 337 million from the IMF as a Rapid Credit Facility, which was provided without preconditions. The GOM’s expenditure reports show 80 percent of the money disbursed thus far for COVID-19 went toward subsidies for JIRAMA, with only twenty percent going toward social assistance for the poor, public health investment, and mitigating economic fallout. In 2021, donors and the International Community have asked for more transparency regarding the use of all COVID-19 assistance due to the slow pace of government expenditure during the pandemic and delays in reporting how funds were actually spent.
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 (AfCFTA). 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 of French origin, 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, the executive branch has a history of interfering in judicial matters 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 years are:
- Law 2020-003 on organic farming
- Law 2020-003 on organic farming
- Law n˚2018-043 dated February 13, 2019 against money laundering and financing of terrorism acts
- 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 growth corridor project (PIC 2.2) between the government and the International Development Association (IDA)
- Law n˚2018-042 dated January 17, 2019 authorizing the ratification of the loan agreement to finance the integrated growth corridor 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)”
- 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˚2007-036 on investment
- Law n˚2007-037 on export processing zone
- Law n˚2007-037 on export processing zone
- Laws n˚2001-031 and n˚2005-022 on large mining investment
- Laws n˚2001-031 and n˚2005-022 on large mining investment
- Law n˚1996-108 on petroleum code
- Law n˚1996-108 on petroleum code
- Law n˚2003-036 on commercial company
- 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˚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˚2017-047 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˚2017-023 on Madagascar’s Special Economic Zone (SEZ)
- Law n˚2017-020 on Madagascar’s Electricity Law
- Law n˚2017-020 on Madagascar’s Electricity Law
The e-commerce and digital activity law have been adopted but is still awaiting its enforcement decree
Competition and Antitrust 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 empower 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, except for 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 whose new four-star hotel located near Antananarivo international airport was expropriated after a court ruling against her for tax evasion was later convicted twice and sentenced to a total term of 17 years of hard labor and a fine of MGA 100 million (USD 28,571). 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.
In recent road construction projects funded by international donors, the GOM has been asked to contribute toward compensation payments to landowners whose property was appropriated for the project.
Dispute Settlement
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. 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 made some payments on dues owed to the Claimant but the Claimant is now involved in an internal dispute with their local partner, which is subject to international arbitration.
2) In 2019, the Paris Commercial Court ordered Madagascar’s state-owned airline company Air Madagascar to pay USD 20 million to Air France in connection with the leasing of two A340s in 2011. The case is still pending in French courts.
3) In 2016, an international power producer (IPPs) 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. The details of the agreement have not been made public.
4) In 2012, the government shut down the telecommunication operator “Life,” a Mauritius controlled company, without providing evidence of substantial wrongdoing. 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 2001 and 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.
Bankruptcy Regulations
In 2020, Madagascar had an overall 161 out of 190 ranking in the World Bank’s Ease of Doing Business survey; it ranked 135 in the same survey 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.