TRALAC - Trade Law Centre

Madagascar: Post-AGOA reflections

Tuesday, 19 January 2010

Source: Bloomberg

Madagascar’s government expects the economy to grow 2.6 percent this year, a forecast that some analysts say is unrealistic as donors continue to withhold aid and the country’s year-long political crisis drags on.

The economy has suffered a series of “hard blows” since political unrest erupted last year, Minister of Economy and Industry Richard Fienena said in an interview in the capital, Antananarivo, on Jan. 15. The economy only expanded 0.6 percent last year, he said, calling on donors to resume aid.

Growth had been forecast to reach 7.5 percent before President Andry Rajoelina forced his predecessor, Marc Ravalomanana, from power with the help of the military in March last year. Rajoelina has rejected a series of power-sharing accords that he discarded last year with leaders of three opposition parties. On March 20, he plans to hold parliamentary elections that have been rejected by opposition parties.

Private industry will drive economic growth this year, now that the “monopoly on economic activity” presided over by former President and businessman Marc Ravalomanana has been removed, Fienena said. “Now everyone can participate in the economy.”

Madagascar’s oil and mineral wealth have attracted international investors including Rio Tinto Plc, the world’s third-largest mining company, Frances’s Total SA and Canada’s Sherritt International Corp.

Still, last year the International Monetary Fund estimated that donor assistance accounted for about 50 percent of the budget, and 75 percent of the government’s investment budget.

Analysts doubt whether new investors will commit funds to the island before a solution to the political crisis is found.

‘In Difficulty’

“We have forecast the economy to grow by 0.1 percent in 2010,” Kissy Agyeman-Togobo, senior Africa analyst at London- based Global Insight, said in a telephone interview. “All the indicators show that the economy is in difficulty. Uncertainty over future political and investment developments leaves Madagascar’s short-term growth prospects subject to a large degree of risk, especially because of a lack of donor support.”

The tourism industry contracted by two thirds as a result of the political crisis last year, said Agyeman-Togobo.

“We don’t yet know if a growth rate of 2.6 percent is realistic,” Jacques Morisset, the World Bank’s lead economist in Madagascar, said in a telephone interview. “There are so many unknown variables that have to be considered, it is very difficult to predict.”

Textile Industry

In December, the U.S. suspended Madagascar from the African Growth and Opportunities Act, a trade agreement allowing African states to export some goods to the U.S. duty free. With the cancellation of the AGOA accord as many as 100,000 jobs in the textile industry are at risk, said Fienena, a member of former President Didier Ratsiraka’s administration in the 1990s.

The U.S. may now go further. On Jan. 18, the U.S. said that Madagascar may face sanctions if the country’s leadership moves ahead unilaterally, working in an atmosphere of intimidation in which journalists are being harassed and opposition figures are unable to operate freely.

As the prospect of sanctions loom, donor aid remains stalled and the textile and tourism industries collapse, Fienena remains optimistic.

“In terms of the economy, the worst of the crisis is over and we need to deal with the impacts,” he said. “The problem now is psychological.”