Madagascar possesses large quantities ofmineral, agricultural, and marine resources, and the Government of Madagascar (GOM) publicly welcomes foreign direct investment (FDI), however U.S. companies describe the investment climate as increasingly challenging. Following a military coup in 2009, FDI decreased from an all-time high of 22 percent of GDP in 2010 to 10 percent in 2020. In 2019 the government announced a new strategy for attracting foreign investment and promoting economic development called the “Plan d’Emergence Madagascar” or PEM. As of 2023 the government has yet to publish the PEM but continues to stress the importance of FDI to achieving its development goals.
Problems investors experience in Madagascar generally stem not from the text of laws but from the perceived lack of fair and consistent implementation. Existing laws allow foreign ownership of businesses and do not generally discriminate against foreign-owned enterprises, yet foreign companies regularly report being subjected to additional licensing and tax scrutiny and unexplained holdups in receiving government approvals. There is no legal requirement that citizens own shares of foreign investments, nor any restriction on the mobility of foreign investors, but companies which lack local partners tend to face additional regulatory hurdles and other challenges. Foreign and domestic businesses frequently claim they are not consulted prior to the implementation of new government policies affecting their activities.
Due to decreasing revenues and foreign exchange levels, the government has recently instituted policies designed to increase its revenues and foreign exchange reserves derived from exports. However these moves have had a deleterious effect on the country’s exports and foreign exchange reserves. In the vanilla sector, the government in 2022-2023 introduced new regulations and limitations on exports which caused a collapse of the country’s vanilla sales during the 2022-2023 season.
Companies and individuals seeking to conduct foreign currency transactions in Madagascar must request permission from the government via a form. Restrictions on foreign currency transfers are enforced at the state and commercial bank level with close monitoring by the Finance Ministry. In 2023 the government began further restricting the outflow of Euros and U.S. Dollars from Madagascar due to an increasing shortage of foreign exchange in the country. These measures have negatively impacted the operations of foreign investors.
Madagascar was ranked 142 out of 180 countries for corruption in the 2022 Corruption Perceptions Index reported by Transparency International, and in 2022 the government threatened to prosecute the local director of Transparency International for uncovering alleged corruption. While giving or accepting a bribe is a criminal act and is subject to trial by court, corruption is an ongoing issue at all levels in Madagascar and a factor in daily life faced by most Malagasies. Corruptionis most pervasive in the judiciary, police, tax, customs, land ownership, and mining. U.S. companies operating in Madagascar cite corruption as a serious impediment to their activities.
Madagascar does not have a separate free trade agreement or a bilateral investment treaty (BIT) with the United States but benefits significantly from customs duty exemptions under the African Growth and Opportunity Act (AGOA), to the point that the United States has been its biggest individual export market since 2018. Madagascar lost its AGOA eligibility from 2010-2014 due to a military coup in 2009, but exports under AGOA – primarily vanilla and textiles – rebounded. Madagascar has a young though largely illiterate workforce. Textiles, mining, energy, and telecommunications remain the most promising sectors in a challenging investment climate.
The GOM publicly asserts it welcomes foreign investors, but bureaucratic hurdles and rent-seeking behavior continue to be a significant deterrent to it. As a result of the deteriorating investment climate and lingering political instability since a 2009 military coup, FDI has decreased from around 22 percent of GDP in 2010 to under 10 percent in 2020, while GDP per capita has decreased from around $580 in 1980 to $500 in 2020, making Madagascar one of the only non-conflict countries to have seen its GDP capita steadily decrease. In 2019 the government announced a new strategy for attracting foreign investment and promoting economic development called the “Plan d’Emergence Madagascar” or PEM. As of 2023 the government has yet to publish the PEM but continues to stress the importance of FDI to achieving its development goals.
Since President Andry Rajoelina took office in January 2019, the GOM has promoted Madagascar as an investment destination by sending delegations across Africa, Europe, and Asia while also organizing conferences and trade shows in Madagascar. This marketing push has not yet translated into increased FDI and certain developments have called the government’s commitment to increasing FDI into question. The business community in Madagascar continues to express frustration about poor and worsening transportation infrastructure; increasingly expensive and unreliable electricity and water supplies; endemic corruption; and weak enforcement of rules and regulations as impediments to investment, both foreign and domestic. In addition, the business community expresses concern about the lack of transparency in drafting investment regulations and in awarding government contracts; uncertainty about agreed terms for contracts and tenders; and centralized decision-making which has caused confusion and backtracking over the last decade.
Problems investors experience in Madagascar stem mostly from the reported lack of fair and consistent implementation of existing laws. The existing investment law allows foreign ownership of businesses and does not discriminate against foreign-owned enterprises, yet foreign companies regularly report being subjected to additional licensing and tax scrutiny. There is no legal requirement that citizens own shares of foreign investments, nor any restriction on the mobility of foreign investors, however companies which lack local partners tend to face additional regulatory and other challenges to doing business. The regime for visas, residence, and work permits is neither discriminatory nor excessively onerous, yet corruption reportedly occurs in many interactions with the government. A new version of the investment law currently under review is expected to clarify access to land and address issues of corporate social responsibility and sustainability, yet stakeholders report a lack of consultation. In practice foreign companies frequently report being singled out for lengthy and inefficient tax audits, but the draft investment law reportedly guarantees stability in matters of taxes and customs.
The government has recently instituted policies designed to increase its revenues from exports, which have had a deleterious effect on the country’s limited exports. Foreign and domestic businesses frequently claim they are not consulted prior to the implementation of new government policies affecting their activities, including export activities which should in theory benefit Madagascar’s development. For instance, small and medium mining operators stated the government did not discuss with them the introduction of exit taxes of 10 to 20 percent in the 2023 budget which led to a decrease in mining exports in 2023 and companies claiming they cannot afford further taxes. In the vanilla sector, the government in 2022-2023 introduced strict new phytosanitary regulations and limitations on exports which contributed to a collapse of the country’s vanilla sales during the 2022-2023 season.
The Economic Development Board of Madagascar (EDBM), an investment promotion agency, has several objectives: to strengthen the competitiveness of the Malagasy private sector; to increase FDI; to develop and recommend business incentives for private investments in Madagascar; and to provide a one-stop shop to help investors set up or expand their business through tailored services by specialized advisors. EDBM is currently moving towards digitalization and paperless procedures which should enable online registration and provide tools for startups in search of investors; however, the fact that EDBM often refers foreign investment projects to the Office of the Presidency for approval limits the number of projects it approves.
Limits on Foreign Control and Right to Private Ownership and Establishment
Current laws allow both foreign and domestic private entities to establish and own business enterprises. There are no general, economy-wide limits on foreign ownership or control, however there are limits in specific sectors. For example, in the telecommunication sector, foreign ownership is restricted to 66 percent. Strategic sectors such as banking, insurance, mining, oil and gas, medical, and pharmaceuticals have extra regulatory provisions which apply to all investors, foreign and domestic.
Madagascar has no legal investment screening mechanism for inbound foreign investment, however the EDBM serves as a de-facto screening mechanism. The EDBM conducts a review of foreign investment which is submitted to the licensing authority and final ratification of foreign investment must be completed by the President’s Office. As a result, many foreign investment projects require presidential-level approval to proceed, with no predictable timeframe or standard requirements for such approval. Some of the largest foreign investment projects in Madagascar have been pending presidential approval for several years, resulting in significant financial loss to foreign investors.
Other Investment Policy Reviews
In the past three years, the government has not undergone any third-party investment policy reviews (IPRs) through a multilateral organization such as the OECD, WTO, or UNCTAD.
Business Facilitation
In 2006, Madagascar set up the EDBM as 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 for foreign companies is to consider collaborating with a local partner. Many foreign companies seek local partners to ease their introduction to the market and make new contacts.
EDBM launched an online registration service in 2022. Working in conjunction with the concerned public institutions and technical and financial partners, EDBM has planned reforms that will establish a paperless process for business registration while putting in place a unique identifier for each company. Through close collaboration with municipalities, the Ministry of Territory Development-Habitat-Public Works, and the national utility company JIRAMA, EDBM aims to modernize the issuance of building permits at the municipal level, starting in the capital city of Antananarivo.
EDBM handles business registrations, which take an average of eight days compared to the average of 21.5 days in Sub-Saharan Africa. Companies need to secure a physical local address with a signed lease before attempting to register. EDBM assists both local and foreign investors in registering and operating their businesses. At the EDBM one-stop shop, companies can obtain their business identification cards, tax registration confirmation commercial registration numbers, and apply for visas, work permits or professional cards. They must also register for social security and health insurance. Companies in Madagascar are in theory free to open and maintain bank accounts in foreign currency, however foreign currency transfers require approval of the government.
Outward Investment
The GOM does not offer incentives to promote outward investment. However, many wealthy entrepreneurs based in Madagascar have diversified their investment base by investing in Europe, the United States, Mauritius, and the Middle East, partially due to their concerns about the stability of Madagascar’s political situation and investment climate.
Companies and individuals seeking to conduct foreign currency transactions in Madagascar must request permission from the government to conduct foreign currency transfers. Restrictions on foreign currency transfers are enforced at the state and commercial bank level with close monitoring by the Finance Ministry. In 2023 the government began implementing various measures to restrict the outflow of Euros and U.S. Dollars from Madagascar due to an increasing shortage of foreign exchange in the country.
Madagascar does not have a separate free trade agreement or a bilateral investment treaty (BIT) with the United States but benefits significantly from customs duty exemptions under the African Growth and Opportunity Act (AGOA), to the point that the United States has been its biggest individual export market since 2018. Madagascar lost its AGOA eligibility from 2010-2014 due to a military coup in 2009, but exports under AGOA – primarily vanilla and textiles – rebounded, until a crash in the vanilla exports in 2022 due to government actions in the sector.
Madagascar is a member of the Common Market for Eastern and Southern Africa (COMESA) with which the United States has an agreement to develop trade and investment relations. In 2017, Madagascar signed the Tripartite Free Trade Agreement (TFFA) associating the East African Community (EAC), COMESA, and Southern African Development Community (SADC). Madagascar is one of the signatories to the African Continental Free Trade Area (AfCFTA) but is one of the last remaining countries that has not ratified the agreement as of 2023. The AfCFTA came into force on January 1, 2021, with ratification from 36 countries.
According to the U.N. Conference on Trade and Development (UNCTAD), Madagascar has concluded nine BITs (Belgium-Luxemburg-Economic Union, China, 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).
Madagascar does not have a bilateral taxation treaty with the United States but has concluded agreements/treaties with France, Mauritius, Canada, and Morocco. As a member of the African, Caribbean, and Pacific group (ACP), Madagascar signed the APEi (interim Economic Partnership Agreement) with the EU in January 2013 to have easy access to the EU market and obtain progressive tariff reductions and reciprocally, European goods except some specified ones are now entering Madagascar without paying any duty.
Foreign investors frequently note the unpredictability and lack of transparency of Madagascar’s legislative and regulatory processes. Bureaucratic delays and inefficiencies impact Madagascar’s legal and regulatory system. Non-transparent regulatory decisions have affected global investors, some alleging 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.
Madagascar has municipal, regional, national, and international laws; the most relevant for foreign businesses being national and international laws. 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. Once enacted, the full text of key regulatory actions is published on the Justice Ministry’s website under the National Center of Legal and Legislative Information and Documentation (CNLEGIS).
Though public comments are allowed and may be recorded in a registry before consideration and processing of new law and regulations, there is no formal mechanism in place to make draft bills or regulations available for public comment or consultation prior to adoption. Rather, the ability of companies and stakeholders to raise concerns on draft legislation usually depends on their ability to procure copies of the draft legislation informally.
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.
In 2022 the GOM created the Integrity Safeguarding Committee (CSI), which has been tasked with developing a national integrity system to ensure the coordination, monitoring, and evaluation of the anti-corruption system; and elaborating and implementing the national good governance policy.
Auditing and financial information reporting systems are technically transparent and consistent with international norms, IAS and IFRS respectively. The country has no stock market, and therefore, no publicly listed companies. However, the Central Bank, in partnership with the World Bank’s International Finance Corporation (IFC), planned to set a roadmap for the creation of a stock market in 2022, though no clear timeline has been set so far.
Government budgets are publicly available, and the government conducts sporadic reviews of its own budget execution, however such reviews have recently found large scale disappearance or misuse of government funds, including funds donated by the international community to address COVID-19, for which there has been no accountability to date.
Madagascar is a member of regional groupings IOC, SADC, and COMESA, and has agreed to join the African Continental Free Trade Area (AfCFTA), however its national systems take precedence in most areas.
In practice, Madagascar adheres to French norms and standards, though there is no official regulation requiring specific norms or standards.
Madagascar has been a member of WTO since November 17, 1995 and a member of GATT since September 30, 1963, however the country does not regularly notify draft technical regulations to the WTO Committee on Technical Barriers to Trade, and some regulations, particularly in the vanilla sector, may be in violation of WTO rules.
Madagascar is a member of regional groupings IOC, SADC, and COMESA, and has agreed to join the African Continental Free Trade Area (AfCFTA), however its national systems take precedence in most areas.
In practice, Madagascar adheres to French norms and standards, though there is no official regulation requiring specific norms or standards.
Madagascar has been a member of WTO since November 17, 1995 and a member of GATT since September 30, 1963, however the country does not regularly notify draft technical regulations to the WTO Committee on Technical Barriers to Trade, and some regulations, particularly in the vanilla sector, may be in violation of WTO rules.
Legal System and Judicial Independence
Madagascar’s legal code is based on French law and contains protections for 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 have their own 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. In one recent case a foreign investor alleged that their Malagasy business partner bribed the High Constitutional Court to investigate charges against the foreign investor.
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 n°2007-036 was promulgated in January 2008 and governs foreign direct investment as well. An abridged English version of the investment law may be consulted on the UNCTAD investment policy hub. 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 four years are:
Law n˚2021-002 on the ratification of the Loan Agreement for the Financing of the Integrated Urban Development and Resilience Project (PRODUIR)
Law n˚2021-001 on the ratification of the Project to Support Digital Governance and Reforms of Civil Status and Identifiers (PRODIGY)
Law n˚2020-011 on banking activities
Law n˚2020-005 on insurance activities
Law n˚2020-003 on organic farming
Law n˚2019-015 on the Illicit Asset Recovery Act
Law n˚2018-043 dated February 13, 2019 against money laundering and financing of terrorism acts
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 http://www.cnlegis.gov.mg/ percent20page_find_direct_mots/
EDBM has links to relevant laws and reporting requirements for investors:
The following laws enacted in the last ten years also relate to foreign investment:
Law n˚2015-039 on Public and Private Partnership (PPP)
Law n˚2017-047 on Madagascar’s Industrial Development which is reflecting the Industrial Policy (LDI)
Law n˚2017-023 on Madagascar’s Special Economic Zone (SEZ)
Law n˚2017-020 on Madagascar’s Electricity Law
The e-commerce and digital activity laws have been adopted but is still awaiting its enforcement decree.
Competition and Antitrust Laws
Foreign companies often describe anti-competitive and monopolistic behavior by local companies in Madagascar, allegedly in collusion with GOM officials. The Ministry of Commerce and Industry (MICC) has overall responsibility for ensuring fair competition between businesses. The 2018 law on competition and anti-trust issues attempted to empower an independent Competition Council (CC) to rule on unfair competition cases, however, the CC is largely unfunded.
The MICC has setup an agency called the National Authority Responsible for Commercial Corrective Measures (ANMCC) to develop national regulations, conduct investigations, and apply trade remedies to trade practices deemed harmful to domestic industries. In 2019, the ANMCC imposed a 38 percent tax on concentrated milk imported from Malaysia for 18 months. In 2023, additional duty taxes were imposed on noodles, blankets, and powdered detergent following allegations of dumping.
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.
Foreign companies have not reported expropriation recently; however expropriations of local companies have taken place as described above. 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.
If 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 a means for 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 holding company affiliated with a U.S. energy company and its British CEO are claimants in a business dispute with its former Malagasy business partner, with ongoing court cases in both New York and Madagascar.
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 supplying electricity to Antananarivo complained of non-payment by the state-owned energy company JIRAMA. The government ultimately agreed to pay the foreign company using a different payment mechanism, but the details of the agreement have not been made public.
The GOM does not have a history of extrajudicial action against foreign investors, although Malagasy businesses have pursued foreign partners in courts outside of Madagascar. Enforcement by local courts of foreign arbitral awards against the government is uncommon.
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 state-owned enterprises (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
Madagascar’s bankruptcy law, which was last updated in 2014, lays out collective debt settlement procedures, which treat equally all parties 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.
Madagascar extends certain incentives for investment, outlined in domestic legislation, particularly in the Export Processing Zones (EPZ), in large mining investment (LGIM), and recently in the law on Special Economic Zones (SEZ), and the law on Industrial Investment Zones (ZII).
Madagascar’s investment law, which encourages local as well as foreign private investment, is based on the principle of freedom of investment for all nationalities and all sectors; freedom to transfer profits, dividends, salaries, and savings; and freedom to recruit and dismiss foreign employees. Foreign investors may freely hold up to 100 percent of the shares (except for telecommunications where foreign shares are limited to 66 percent) in the company. Free zones and companies exporting at least 95 percent of production are exempt from customs duties and VAT for a 2 to 15-year period depending on the sector and then pay a 10 percent rate on inputs.
Other regulations provide more indirect incentives for FDI, such as the one governing self-generation of electricity. All companies which carry out self-generation of electricity and use at least 70 percent of the electricity produced for their own purposes, can sell the remainder subject to conditions determined by the regulator. The General Tax Code (CGI) provides exemptions from taxes for the import and sale of inputs for exclusively agricultural use, agricultural materials and equipment and materials and equipment to produce renewable energy. The law on Large Mining Investments (LGIM) governs investments exceeding USD 25 million and complements the mining code.
As part of the PEM, the government has committed to infrastructure projects, with the aid of public-private partnerships (PPPs). This includes several ambitious infrastructure projects in the telecommunications sector, with the installation of more than 12,000 km of fiber optic network and more than 14,000 km of Hertzian networks. In the energy sector, the PEM includes four projects for the construction of hydroelectric power plants, which should generate more than 700 MW greener energy in total before 2030. The PEM also envisions the creation of special economic zones, including a zone specializing in the textile industry (an integrated industrial zone of + 1600 acres); other multi-sector industrial and service zones; and exclusive agricultural promotion zones. The special economic zones provide a secure mechanism for access to land.
The GOM does not normally issue guarantees or jointly finance foreign direct investment projects. Usually, for infrastructure projects, the government offers incentives in the form of provision of land, establishment of leases and concessions, tax incentives, transfer of benefits and revenues, and social integration of the project. To fill the gap in public infrastructure, due in part to the inadequacy of the public investment budget and limited assistance from traditional donors, the government is looking at fixed-term Build-Own-Operate-Transfer (BOOT) concessions to attract foreign direct investment in exchange for preferential benefits.
Foreign Trade Zones/Free Ports/Trade Facilitation
The 2008 Law on Free Zone Companies 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 repatriation 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 from income tax in the first five years of operation. From the sixth year of operation, the income tax rate is 10 percent. These incentives are conditioned upon a performance guarantee and require 95 percent of an EPZ company’s output be exported. More than 225 companies currently benefit from this incentive regime, 46 percent of which are in the textile sector.
Madagascar ratified the trade facilitation agreement (TFA) in June 2016. It has established its trade facilitation roadmap, a short but comprehensive document laying down a strategic vision for implementing trade facilitation reforms within a defined period (3 to 5 years). Donors have funded several capacity building and technical assistance workshops for Malagasy government officials to enable the effective implementation and enforcement of the TFA. Implementation is in its early stages at this point.
Performance and Data Localization 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. Some regulations, including the LGIM, prioritize the hiring of local staff over foreigners at the senior management level so long as they have equivalent skills.
Obtaining official approval is mandatory for any FDI. EDBM assists the investor with the application process and Madagascar’s Council of Ministers decides whether to grant agreement based on EDBM’s written guidance. The Council’s assent must then receive final approval from the President.
Madagascar has no “forced localization” policy which would force foreign investors to use domestic content or technology. However, the government recommends transfer of technology and continuous capacity building to enhance business competitiveness. There are no measures in place that prevent or unduly impede companies from freely transmitting customer or business-related data outside Madagascar’s territory. There is no requirement for foreign IT providers to turn over source code and/or provide access to encryption. Post is not aware of any mechanism to enforce rules on local data storage within the country.
Madagascar does not enforce performance requirements but there are investment incentives (described earlier) that apply uniformly and systematically to both domestic and foreign investors.
Property rights and interests are reportedly ignored due to perceived widespread corruption in the Domain and Topography Department and a lack of material and technological resources. Mortgages and liens are used in commerce and business to guarantee commercial loans. However, applicants have found the registration system to be unreliable.
Upon independence, Madagascar continued the land tenure policies of the French colonial administration with the presumption of state ownership of all land and the central government being the sole provider of legitimate land titles. However, due to the length and cost of the procedures for registering land, together with the remoteness of the authorities, customary practices for recognition of property rights prevailed at the local level. Recognition of property rights at this local level entailed the use of non-uniform, handwritten titles. The Land Title Office in Antananarivo is the only place to obtain an official title whenever a locally registered business wants to acquire a large parcel of government land. Registering a land title or transfer remains difficult, costly, and time-consuming for those outside the capital. A World Bank-funded project implemented by the Ministry of Agriculture, Livestock and Fisheries in partnership with the Ministry in charge of Land Management and Public Works is gearing up to issue two million land certificates, and to operate 438 land offices.
When the Land Ownership Act was amended in 2005, more than 90 percent of the occupants did not have a land title. The situation has not improved significantly despite several efforts financed by traditional donors. In 2005, with the support of a Millennium Challenge Corporation Compact, the government embarked on a land reform project to simplify the registration process and to reconcile the existing formal and informal land titles. The reform reversed the presumption of state ownership of land and introduced private ownership, while at the same time decentralizing land registration and recognizing/formalizing the existing local customs for social recognition of property rights. The 2009 political crisis disrupted this reform process, leaving the country with approximately 10 percent of its existing land plots formally titled. The National Land Program (2016-2020) focused on improving land certification for women through education of local authorities and extensive communications on the importance and benefits of land registration.
Most land ownership disputes are resolved at the local level without recourse to judicial proceedings. The small percentage of disputes that go through the court system remain bogged down due to the complexity of the cases and the lack of clear evidence of ownership, and even when determinations are made, they are often not adequately enforced.
The investment law authorizes foreign investors to possess real estate through renewable 99-year leases, so long as the concerned property is used exclusively and continuously to carry out commercial activity. The regulation specifically prohibits the acquisition of land by investors for resale in its original state, or for sale after its development. The amendment to the investment law slated for later in 2020 is expected to further clarify access to land for foreigners.
In principle, if a property is legally purchased but unoccupied, property ownership stays with the legal owner even if squatters take over the land. In practice, due to corruption and lack of oversight, there have reportedly been instances of fraudulent transfer of property rights. The national land policy (PNF) that the GOM developed in 2016 has done little to correct the situation due to slow enforcement.
Intellectual Property Rights
The “Office Malgache des Propriétés Industrielles (OMAPI),” Madagascar’s intellectual property rights authority was created in December 1992. OMAPI publishes the titles it grants in the Official Gazette of Industrial Property (GOPI) and provides the public with industrial property documentation such as patent documents, industrial property legislation in various countries, and multilateral treaties on industrial property. The “Office Malgache des Droits d’Auteurs (OMDA),” is Madagascar’s agency to protect copyrights. OMDA’s mission is to ensure the exclusive protection, defense, and management of the economic interests of Malagasy and foreign authors, performers, and their successors concerning the use of scientific, literary, and artistic works.
Officially, these authorities protect against IP infringement, but enforcement capacity is limited due to resource constraints including poor digitalization (though online registration and search of trademarks were made available recently), weakness of the judicial system, and lack of awareness of intellectual property rights among businesses and consumers. Due to these constraints, international investors have faced difficulties defending their interests.
Madagascar neither tracks nor reports seizures of counterfeit goods, which are easily available in local markets as are unauthorized copies of famous brands, songs, and videos.
New IP laws have stalled for years due to inaction by Parliament and the Office of the Prime Minister. The proposed legislation incorporates The Hague (international registration of industrial designs), and Lisbon (protection of origin appellation and international registration) agreements, and other international treaty classifications. The adoption of these bills would substantially improve the IP rights in Madagascar, provided OMAPI has sufficient funding for enforcement.
Despite Madagascar’s challenges with IP rights enforcement, it is not listed in USTR’s Special 301 report, which highlights online and physical markets that engage in and facilitate substantial copyright piracy and trademark counterfeiting. Madagascar is also not listed on USTR’s notorious market report which targets countries where large-scale intellectual property rights infringement takes place.
For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.
Challenges raising capital domestically are often cited as disadvantaging startups and small businesses in Madagascar. Madagascar has no stock market, but in 2022 the government partnered with the IFC to set a roadmap to create and implement one. Madagascar has a competitive bond market but in the last two years, this competitive market lost its dynamic in favor of other non-transparent sales of new category of bonds with a more attractive and fixed return. Foreigners living overseas and companies with headquarters outside Madagascar cannot participate in its bond markets. Portfolio investment opportunities are extremely limited. Foreign investment in government debt is still limited to Malagasy nationals and legal residents.
Central Bank and Ministry of Finance approval is required prior to any transfer of currency to foreign countries. There is no official ceiling imposed on international transactions, but justification remains mandatory and recently approval from the Ministry of Finance has become more difficult to get as the government seeks to retain foreign currency in Madagascar.
The private sector has access to a variety of credit instruments. Credit is provided at market terms and can be offered either in local or foreign currency. Credit obtained in local currency is often more expensive than foreign currency due to inflation and lack of competition.
The Central Bank does not impose direct caps on loans but instead uses indirect tools to limit credit, such as imposing reserve requirements on banks (13 percent of deposits in local currency). The Central Bank had reversed its policy of differentiation in 2020 of reserve requirements on deposits in local currency and in foreign currency due to its inefficiency. Foreign investors can get credit on the local market if they have an officially registered company/subsidiary located in the country. In June 2022, the average interest rates on loans to customers was as high as 12.31 percent, between 8.98 percent for long term loans and 13.7 percent for short term loans. For deposits, the average return was 3.12 percent.
Money and Banking System
Madagascar’s banking penetration rate is very low. Less than 10 percent of the population has a bank deposit account, which includes accounts with microfinance institutions. Less than three percent of the population has access to commercial bank loans, and there are just 97.3 deposit accounts per 1000 adults.
There are only twelve commercial banks in Madagascar. As rates are high and competition low, banking activities are very profitable. Loans and credit to the private sector represent 53 percent of bank assets whereas loans (including treasury bills) to the government represent 13 percent. Non-performing loans accounted for 10 percent of overall loans and credit in June 2022. Since 2021, there has been an expansion in the granting of loans and the mobilization of deposits for investment in income-generating activities. Overall assets of all commercial banks were USD 4.3 billion or 28 percent of GDP as of June 2022.
Madagascar has a central bank system. Its main objectives are to ensure the stability of the local currency internally (acceptable inflation rate) and externally (acceptable fluctuation of the exchange rate). As part of ongoing negotiations with the IMF, the Central Bank is currently weighing a strategy that would target interest rates instead of the money supply to ensure tighter control of monetary policy.
As of November 2019, the Central Bank is no longer using a benchmark rate as a reference to its monetary policy tools. Instead, it has implemented two different rates. The first is the deposit rate of 8.10 percent that commercial banks may use while depositing their excess of liquidity; the second rate is the lending rate set at 10.10 percent. Banks will use this latter rate while borrowing money from the Central Bank for their normal operations or to honor their reserve requirements. By adopting this policy, the Central Bank is now tightening monetary policy to curb inflation, which is currently 10.8 percent on a year-on-year basis.
Only two of twelve operating commercial banks are local. The others are subsidiaries of French, Moroccan, Gabonese, and Mauritian banks and are subject to prudential measures imposed by the Banking and Financial Supervision Committee (CSBF). Madagascar has not lost any correspondent banking relationships in the past three years.
Foreigners having legal residency status in the country can establish a bank account in either local or major foreign currencies (USD and Euro), however the Finance Ministry is increasingly restricting such accounts as of 2023.
Foreign Exchange and Remittances
Foreign Exchange
Companies and individuals seeking to conduct foreign currency transactions in Madagascar must request permission from the government for each transfer. Restrictions on foreign currency transfers are enforced at the state and commercial bank level with close monitoring by the Finance Ministry. In 2023 the government began implementing various measures to further restrict the outflow of Euros and U.S. Dollars from Madagascar due to an increasing shortage of foreign exchange in the country. These measures have negatively impacted the operations of foreign investors and foreign diplomatic missions.
Madagascar adopted a managed floating exchange rate system in 1994. The exchange rate fluctuates but the Central Bank intervenes to prevent abrupt depreciation or appreciation of the Ariary. In general, the Central Bank of Madagascar keeps the value of the Ariary fluctuating in a two percent range. The Central Bank’s regular interventions to stabilize the currency during the COVID-19 pandemic and resulting decline in Malagasy exports has limited depreciation to 4.7 percent during 2020. However, from June 2022 until mid-January 2023, the local currency depreciated against major foreign currency and lost 12 percent of its nominal value between May 31, 2022, and January 12, 2023. This depreciation resulted from a higher trade and budget deficit. The depreciation accelerated from October 2022 following the disruption of the vanilla market by government actions that created a shortage of foreign currency supply in the forex market.
In 2020, Madagascar set up a national gold reserve because of the implementation of the MOU between the Ministry of Mines and Strategic Resources (MMRS) and the Central Bank of Madagascar (BFM). The GOM not only wants to use gold as a reserve asset of the Central Bank but to use repatriation of profits from gold exports to strengthen the national currency. However, in September 2020, the GOM suspended gold exports after exporters failed to repatriate their profits. On March 31, 2023 the Council of Minister’s approved the restart of gold exports.
Remittance Policies
Madagascar has in recent years had a chronic shortage of foreign exchange. The GOM has sought to limit the amount of Euros and U.S. Dollars exiting the country and is increasingly implementing procedures to force investors to bring in and keep foreign currency in Madagascar. Exporters must repatriate their assets within 90 days for manufacturers of goods and 30 days for service providers. They are required to repatriate all their turnover, with at least 70 percent of it going into the forex market within 30 days.
Sovereign Wealth Funds
Madagascar does not have a Sovereign Wealth Fund (SWF) that manages national savings for investment purposes. However, Madagascar’s Prime Minister said during his address at the National Assembly in December 2020 that the government was committed to the establishment of a sovereign wealth fund. A board of the SWF, in charge of managing and spending the funds has been set by the cabinet, but to date, it did not benefit from any transfer from the budget.
The government has shares in 53 public companies of an industrial and commercial nature, with a majority stake in 27 enterprises; in 11 cases, the government owns over 95 percent of the entity. A list of operating state-owned enterprises can be found here. Detailed information about state-owned companies (SOEs) is not easy to come by but they operate in many key sectors such as aviation, public utility (running water and electricity), ports, hotels, insurance, finance, woodworking, mining, maintenance and construction of ships, and real estate. The government has minority shares in three major banks, the beverage industry, oil distribution, and mining activities. The two most well-known SOEs are JIRAMA (100 percent state-owned), the water and electricity utility, and Air Madagascar whose equity tie-up with France’s Air Austral has now ended. The GOM has spent substantial amounts subsidizing the operations of both entities. Improvement in the governance and a return to profitability of SOEs is a long-standing condition for assistance by multilateral donor institutions such as the World Bank and the IMF.
In theory, private enterprises are allowed to compete with SOEs under the same terms and conditions for market access, credit, and other business operations. The reality is somewhat different. State-owned enterprises dominate the sectors in which they operate. Any investor seeking to compete with an SOE in Madagascar should consider not only market-entry difficulties, but also its ability to compete for scarce resources and permits.
Privatization Program
The government privatized many SOEs following the enactment of a 2004 law on privatization, including in the telecommunications and banking sectors. Almost all state-owned banks were purchased by foreign investors including foreign state-owned banks during this period. The government has not announced or made moves to further privatize SOEs in recent years.
Human rights concerns – particularly the prevalence of child labor throughout Madagascar – may pose a challenge for foreign investors. Overall, Responsible Business Conduct (RBC) has not been a priority for the local business community or for the GOM. The GOM does not have a dedicated policy on RBC at present. But this may change as the new investment law currently being drafted is expected to incorporate RBC standards. Large corporations including multinationals in the mining sector, local conglomerates, commercial banks, and sizable international service firms proactively comply with universal RBC standards on governance, environmental concerns, and corporate social responsibility. The National Environment Office (ONE) does require environmental impact assessments to be conducted.
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 all levels, impedes the effectiveness of this enforcement. The government does not waive these requirements to attract foreign investment, except for some exemptions to its labor code provided to EPZ companies. Many companies with foreign investors, particularly from western countries, are moving to international standards 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 community, particularly regarding environmental issues, but civil society also suffers from lack of resources and capacity.
Poor and slow enforcement of domestic laws relating to human rights, labor rights, consumer protection, environmental protections, and other laws/regulations fail to protect individuals from adverse business impacts. NGOs, unions, business associations, and other entities have been very active in raising awareness of RBC particularly in relation to environmental protection, child labor, and human rights but are not always effective. There have been some notable advances in the campaign against sexual harassment and discrimination based on gender and religion. Child labor is an ongoing issue in several sectors. The U.S. Department of Labor report on the worst forms of child labor includes the exploitation of child labor in Madagascar’s production of vanilla, sapphires, precious stones, and mica. The government has made moderate advancement in efforts to eliminate the worst forms of child labor, with assistance from international donors. However, due to the pandemic, the Ministry of Mines’ draft plan to fight child labor in mica mining is still in draft stage and has not yet been submitted to donors. It includes the improvement of livelihood in the concerned regions but does not specify corrective measures against the companies or individuals involved.
The GOM encourages adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals but has no similar domestic measures requiring supply chain due diligence. There are no laws or domestic transparency measures mandating the disclosure of payments for projects related to the commercial development of mines and hydrocarbon resources, but in June 2020, the Extractives Industries Transparency Initiative Board (EITI) agreed that Madagascar has fully addressed seven of the fifteen corrective actions from the country’s first Validation.
Due to high crime rates, Madagascar has a booming private security industry and is a signatory of The Montreux Document on Private Military and Security Companies. There have been no major armed conflicts in Madagascar in recent decades but incidents of killings by armed bandits – as well as battles between bandits and police– occurred in rural areas. The U.S. Embassy recommends Americans avoid travel at night in Madagascar due to the threat of attacks by bandits.
The government has a national climate strategy and other national strategies for enhancing environmental protection and monitoring biodiversity, ecosystem services, and natural capital.
Some of these strategies relate to greenhouse gas mitigation and clean development mechanisms. These include the National Climate Change Adaptation Plan and the Sustainable Development of Coastal and Marine Areas of Madagascar.
Madagascar does not have a net-zero target in place. However, the country’s National Determined Contribution (NDC) to help achieve the goals of the Paris Agreement aims to reduce greenhouse gas emissions by 14 percent by 2030 versus a business-as-usual scenario from 2000 levels. The sectors being targeted for mitigation are energy, agriculture, waste, and land use. To achieve these climate goals, the power policy measures focus on renewable energy auctions, import tax incentives, renewable energy targets, and VAT incentives. Madagascar does not have a legislated clean energy target, although it is aiming for 85 percent of power generation to come from renewables by 2030, consisting of 75 percent hydro, 5 percent solar and 5 percent wind.
The government promotes private sector investment in cleaner energy, particularly as it looks to improve access to electricity. It has eliminated import tariffs and value-added tax on solar and wind technology. The 2015-2030 National Energy Policy aims for 70 percent access to electricity and modern lighting by the end of this decade. Some 70 percent of this target is based on extending the power grid, 20 percent on building mini-grids, and 10 percent on individual off-grid solutions.
The National Energy Policy mentions the use of firewood and charcoal as one of the main causes of deforestation and degradation of natural forests, whose cover decreased from 9.4 million ha in 2005 to 9.2 million ha in 2010, a reduction of almost 40,000 ha per year. This activity has always represented more than 90 percent of the energy consumed and most of the wood used comes from illegal and destructive exploitation of forest resources. In addition, the National Biodiversity Strategy and Action Plans 2015-2025 cites the emergence of large-scale mining and hydrocarbons among the main causes of deforestation and forest degradation.
Public procurement policies are subject to Decree No. 99-954 (1999) amended by Decree 2004-167 (2004) on the Compatibility of Investments with the Environment (MECIE). Depending on the size of the project and the sensitivity of the environment, Malagasy legislation provides for three different forms of impact studies: the Environmental Impact Assessment (EIA), the Environmental Commitment Program (PREE) and Compliance (MEC). The preparation of the EIA dossier is the responsibility of the project promoter while the evaluation of the project dossier is coordinated by the National Office for the Environment (ONE).
Foreign investors are subject to all environmental laws and are required to carry out EIAs, however, enforcement is sporadic. Some foreign and many local businesses do not abide by the laws and environmental degradation is rampant throughout Madagascar.
Madagascar was ranked 142 out of 180 countries for corruption, according to the 2022 Transparency International Corruption Perceptions Index. While giving or accepting a bribe is a criminal act and is subject to trial by court, corruption is an ongoing issue at all levels in Madagascar and a factor in daily life faced by most Malagasies. Corruption is most prevalent with the judiciary, police, tax, customs, land, and the mining industry. U.S. companies operating in Madagascar cite corruption as an impediment to their activities, since they must abide by the Foreign Corrupt Practices Act while competing local and foreign firms that routinely engage in corruption.
The government has created various agencies to fight corruption, including the Independent Anticorruption Office (BIANCO) and the Committee for Safeguarding Integrity (CSI). BIANCO enforces anti-corruption laws while CSI monitors the implementation of the national anticorruption strategy. Madagascar also has a Financial Intelligence Unit (SAMIFIN) to carry out research and financial analysis related to money laundering. BIANCO, CSI, and SAMIFIN all have difficulty investigating corruption cases linked to high-level officials and private citizens from elite families, however, and instead tend to focus on lower-level corruption.
There is no requirement for companies to establish internal codes of conduct that prohibit bribery of public officials, and many foreign and local companies are believed to engage in corruption. Both the anti-corruption law and the penal code prohibit any individual/enterprise from giving money, presents, or other gifts to public officials to obtain advantages they are not entitled to, but donations of luxury goods to judges, for example, are commonplace. The law also provides that any private enterprise that commits corrupt practices to obtain a permit, license or authorization is excluded from government procurement, however Post has received multiple reports of corruption in public procurement negatively impacting U.S. companies.
Madagascar ratified the United Nations Convention against Corruption and the African Union Convention on Preventing and Combating Corruption in 2004. Madagascar also joined the Southern African Development Community (SADC) Protocol against corruption in 2007 but has not yet signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transaction.
NGOs and associations are involved in governance and anti-corruption projects. The law does not have any explicit provisions protecting NGOs and associations, and in 2022 the government threatened to prosecute the local director of Transparency International for revealing purported corruption. The government has not dropped the investigation but has not moved forward with prosecution. Environmental activists have also been harassed and threatened by various means.
Resources to Report Corruption
Contact at the government agency or agencies that are responsible for combating corruption:
Bureau Indépendant Anti-Corruption (BIANCO)
Name: Mr. Laza Eric Donat Andrianirina
Title: Director General
Organization: Independent Bureau Anti-Corruption (Bianco)
Address: Villa “La Piscine”, Ambohibao, Antananarivo, Madagascar, Po Box 399
Telephone Number: +261 20 22 489 79 / +261 20 22 489 93 / +261 33 02 002 99
Email Address: Bianco.Dg@Moov.Mg; Contact@Bianco-Mg.Mg; Www.Bianco-Mg.Org
Sampan-draharaha Malagasy Iadiana amin’ny Famotsiam-bola (SAMIFIN OR Malagasy Financial Intelligence unit)
Name: Mr. Mamitiana Rajaonarison
Title: Director General
Organization: Anti-money laundering and counter-financial terrorism intelligence Agency (Samifin)
Address: lot I 102 A Lohanosy, Ambohijanaka, Antananarivo, CP 102,
Telephone Number: +261 34 30 332 23
Email Address: Faranirina@samifin.gov.mg
Comité pour la Sauvegarde de l’Intégrité (CSI OR Committee for the Safeguard of Integrity)
Name: Mrs. Sahondra Rabenarivo
Title: Chairperson
Organization: CSI
Address: Villa Analamanga, près Banque Centrale, BP 873, Antaninarenina, Antananarivo, Madagascar
Telephone Number: +261 32 07 005 56
Website: www.csi.gov.mg
Email Address: contact@csi.gov.mg
Transparency International-Initiative Madagascar (Ti-Im)
Name: Mrs. Ketakandriana Rafitoson
Title: Chairperson of Ti-Im
Organization: Transparency International Initiative, Madagascar (Ti-Im)
Address: Villa Huguette (Rdc), Lot Ii U86 Cite Planton, Ampahibe, Antananarivo, Madagascar
Telephone Number: +261 20 22 288 73; +261 34 08 463 16
Email Address: Contact@Transparency.Mg; krafitoson@Transparency.Mg
HYPERLINK “http://www.transparency.mg”www.transparency.mg
President Andry Rajoelina claimed power through a military coup in 2009 in which civilians were killed by police during protests in Antananarivo. Following that incident there were no major civil disturbances during 2014 elections and the 2019 elections in which Rajoelina returned to power via the ballot box. In 2022 a largescale mining project operated by a major foreign investor was forced to close operations twice due to protests at its site that the company alleged were organized by local politicians, and a separate American mining company reported its mine has been taken over by criminals allegedly linked to politicians. Although the country’s deteriorating economic situation makes political instability and lawlessness an increasing threat for investors, violence against foreigners and foreign investments remains relatively rare.
Companies often site the lack of skilled labor as an impediment to investment.Over 75 percent of the labor force works in the informal sector and most of the population is illiterate. The quality of Madagascar’s labor is variable, witha small subset of the literate population possessing skills in sectors such as textiles, financial services, and IT, however brain drain towards France and other countries also limits the number of educated workers available in Madagascar.
In general, labor laws do not include requirements for investors to hire local nationals, except in the mining sector where specific local labor requirements apply.The labor code includes specific provisions protecting workers against abrupt dismissals, but it also allows the employer to lay off workers for economic reasons. In such a situation, the employer has the right to furlough employees for a maximum period of six-month period during which all salary and allowances are suspended. After the six months, if the activities do not resume, the employer is required to pay severance, including the unpaid salary.
There is no unemployment insurance or other safety net for those who are laid-off or fired. Several provisions of the labor code were deliberately circumvented during the pandemic to the detriment of workers, without leading to serious repercussions or sanctions by the government. Examples include non-payment of dues, deducting lockdown days from annual leave, withdrawal of health insurance coverage even after salary deductions, and failure to provide adequate protective measures against COVID-19 infection.
Madagascar does not have a history of waiving labor laws to attract or retain investment. The labor code covers private sector workers while civil servants and maritime workers have separate labor codes, and a specific law ruling EPZ companies includes provisions related to their workers’ rights. EPZ labor contracts may differ in duration, restrictions on the employment of women during night shifts, and the amount of overtime permitted.
The law provides that public and private sector workers may establish and join labor unions of their choice without prior authorization or excessive requirements. Essential workers, including seafarers, police, military, and firefighters, may not form unions. Unions generally operate independently from government and political parties. According to union representatives, about 20 percent of the formal sector has collective bargaining agreements, and collective bargaining rights are more readily exercised and respected in larger international firms, such as those in the telecommunications, mining, and banking sectors. In EPZs and smaller local companies, employees tend to be more reluctant to make demands for fear of reprisals.
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 labor inspectorate under the leadership of the Ministry of Labor oversees resolving disputes by negotiation between workers and employers. The labor court is viewed as a last-resort option when previous attempts to settle the dispute through alternative means have failed.
The DFC is currently exploring investment opportunities in Madagascar, including in the areas of health and infrastructure. 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. Additionally, OPIC and Madagascar concluded two memoranda of understanding in 2004 pledging cooperation in attracting U.S. investment in several sectors, including telecommunications and information technology, agribusiness, mining, energy, and tourism. However, there are currently no active OPIC projects in Madagascar. Madagascar has been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1989.
Paul, Colombini
Economic Officer
c/o U.S. Embassy to Madagascar and Comoros
Lot 207 A Point Liberty, Andranoro, Antehiroka,
Antananarivo, CP 105, Madagascar
Phone: 020 23 480 00
ColombiniPC@state.gov
OR
The Political and Economic Section
U.S. Embassy to Madagascar and Comoros
Lot 207 A Point Liberty, Andranoro, Antehiroka,
Antananarivo, CP 105, Madagascar
Phone: 020 23 480 00; ext. 2277 or ext. 2158
AntanCommercial@state.gov