Country Brief

Key Facts  (Brief last Updated March 2009 )    

2006* Population, total (millions) 19.7 Population growth (annual %) 2.7 Life expectancy at birth, total (years) 56 Poverty headcount ratio at $2 a day (PPP) 85 GDP (current US$) (million) 5 499 GDP growth (annual %) 6.2 GNI per capita, Atlas method (current US$) 320 Inflation, consumer prices (annual %) 10.3 Foreign direct investment, net inflows (% of GDP) 6.1 Unemployment, total (% of total labor force) 2.8 Time required to start a business (days) 7 Internet users (per 1,000 people) (2004 figure) 5 Source:  World Development Indicators   *Most recent data available 2001-2006

Located in the Indian Ocean off the south-east coast of Africa, Madagascar is one of the largest islands in the world, covering 587 thousand sq. km. With 18.6 million inhabitants, the island’s population density is quite low (31 inhabitants per sq. km) and more than two-thirds of the population lives in rural areas.

The country was a former French colony, and regained its independence in 1960. During the 1960s, Madagascar was one of the better-off African countries in terms of per capita income and living standards. Subsequently, Madagascar lost this position due to several decades of economic mismanagement. Per capita income declined from US$473 in 1970 to US$290 in 2005, placing Madagascar among the world’s poorest countries. According to the 2005 household survey, more than two-thirds of the population (68.7%) lives below the poverty line. The poverty rate in rural areas is significantly higher than in urban areas.

The 2007/2008 United Nations Development Program Human Development Report 2007/2008 ranked Madagascar 143 out of 177 countries.

Since 2002, Madagascar has embarked on an ambitious transformation path that has brought improvements in social, economic and governance indicators. The economy grew at an average of 5 percent per year, and poverty declined to 69 percent from its peak of 80 percent in 2002. But the macroeconomic situation remained fragile. Governance continued to be weak, and social indicators were still low and prospects were slim that Madagascar would be able to achieve the Millennium Development Goals by 2015. Magnifying these challenges is population growth, now averaging 2.7 percent a year, placing enormous demands on the government and the economy—first to educate people, then to generate jobs for them. Furthermore, Madagascar faces the challenge of preserving its unique environment and biodiversity which is of global significance.

To address these challenges, the Government of Madagascar had put in place a bold development strategy for 2007-2012—the Madagascar Action Plan (MAP), a second-generation Poverty Reduction Strategy. The MAP was prepared in a participatory way and outlines eight strategic commitments: (1) responsible governance; (2) connected infrastructure; (3) educational transformation; (4) rural development and a green revolution; (5) better health, family planning, and the fight against HIV/AIDS; (6) a high-growth economy: (7) a cherished environment; and (8) national solidarity.

The ongoing political crisis that began in January 2009 has the potential to reverse hard-won development gains. As a result of the political situation prevailing in Madagascar, beginning March 17, 2009, the World Bank operations in Madagascar are guided by operational policy 7.30 “Dealing with de facto Governments.”

Economy

Economic Performance

As noted earlier, after being one of the better-performing African economies in the 1960s, Madagascar lost this position due to several decades of economic mismanagement. From the 1970s until the second half of the 1990s, annual growth of Gross Domestic Product (GDP) averaged only 0.5 percent compared with population growth of about 2.8 percent. Per capita income declined from US$473 in 1970 to US$290 in 2005, placing Madagascar among the world’s poorest countries. Achieving political stability is essential for jumpstarting economic growth, reducing poverty, and helping to lay the foundations of sustainable development.

Madagascar ’s sources of growth come from (i) agriculture as local output is generally competitive; (ii) tourism as the country’s rich natural environment makes it an attractive destination for tourists; (iii) low-wage, low-to-moderate skill and labor-intensive goods such as handicrafts, textiles, and clothing; and (iv) mining which is currently benefiting from huge increases in foreign investment due to the commodity boom. After the 2002 crisis GDP growth rebounded to 9.8 percent in 2003 from a 12.7 percent plunge a year before and continued to grow at an average rate of about 5 percent per year between 2004 and 2006.

In 2006 the economy grew at 5.0 percent despite a sharp increase in world petroleum prices, and a financial crisis at the state-owned electricity and water utility enterprise JIRAMA that disrupted economic activity through power cuts and tariff increases. Economic growth in 2007, at 6.2 percent, was driven by strong secondary sector growth but agricultural growth was disappointing.

The impact of this current political crisis is difficult to predict, more so because Madagascar is also being buffeted by the global financial turmoil. Preliminary estimates indicate that the GDP growth rate is likely to be negative in 2009 -- down from a pre-crisis projection of 7.5%. This negative impact will emerge through the combination two forces: (i) the slowdown of private activities in the industrial and service sectors, and (ii) fiscal adjustment of public spending.

Two factors will however help mitigate the negative impact of the current crisis on GDP growth. First, the agricultural sector has remained relatively isolated from recent external and internal disturbances, with a large majority of farmers operating in the informal sector. The weight of this sector is predominant in employment (with about 70% of the active population reporting an activity linked to the primary sector). Second, the projected increase in mining production and exports will occur since QMM/Rio Tinto was scheduled to start its operation during the first half of 2009.

The slowdown in economic activity and the quasi-paralysis of public administration have resulted in a significant decline in domestic tax and customs revenues (respectively 20% and 35% lower than initially expected during the first quarter). More worrisome is that this gap grew to 36% and 50% respectively for domestic tax and customs revenues in March 2009.

The World Bank Program

Program to date

The World Bank has been present in Madagascar since September 1963. Over recent years, the portfolio has performed well and the Bank has accumulated significant knowledge and experience. The portfolio currently consists of 21 projects with total commitments of US$1,115 million.

World Bank Country Assistance Strategy

The World Bank’s Country Assistance Strategy (CAS) for FY07-11 supports the Government established Madagascar Action Plan (MAP) in high priority areas, where the Bank Group has a comparative advantage. The CAS aims at removing bottlenecks to sustainable and shared growth. Good governance and improvements in welfare indicators are central to the strategy. The specific results supported by the Country Assistance Strategy are organized around two main pillars. The first pillar concentrates on activities that will help remove constraints to investment and growth in rural and urban areas, while the second brings together activities geared towards improving the scope and quality of service delivery. Consultations with Government in preparation for the CAS Progress Report were held in Madagascar in November 2008, prior to the onset of the political crisis.

As part of its Country Assistance Strategy, the Bank supports a number of programs including budget support (Poverty Reduction Support Credits), sector-wide operations (SWAPs), investment projects, public-private partnerships and analytical and advisory activities (AAA). Poverty Reduction Support Credits (PRSCs) have served as a forum for policy dialogue with the government and as a platform for donor harmonization.

International Finance Corporation (IFC)

IFC has a total commitment of $57 million and a strong program that includes a range of investment and technical assistance services supporting private sector investments in the key growth sectors of infrastructure, mining, agribusiness, and tourism.

The IFC is working to improve access to finance through credit lines, micro-finance, and leasing, and IFC and IDA are working together on guarantees. The IDA-IFC Risk Sharing Facility is the first joint IFC and IDA instrument developed in the history of the Bank. The IDA-IFC MSME program was set to be extended to more banks and funding is available form the Catalytic Growth Fund. In addition, IFC established a Small & Medium Enterprise Solutions Center (SSC) with a $10m investment fund. This Center is a one-of-a-kind in the IFC and has been a major success, with $5.6 million committed to date. Through the SSC, the Private Enterprise Partnership (PEP) Africa is successfully implementing programs in leasing, eco-tourism, and export promotion. Finally, in partnership with the Economic Development Board of Madagascar (EDBM), FIAS and the World Bank, IFC has a comprehensive 3-year Investment Climate reform program.

Multilateral Investment Guarantee Agency (MIGA)

MIGA’s main focus in Madagascar is to work with the Bank Group and other partners to facilitate foreign direct investment (FDI) toward development of the country’s energy sector. The Agency’s portfolio in Madagascar consists of four projects in support of the agribusiness, infrastructure, services and tourism sectors of the country.

World Bank Institute

The designation of Madagascar as a WBI Focus Country three years ago led to a better integration of WBI activities in the Bank-wide assistance strategy and a substantial increase in the country’s participation in WBI-related activities including removing bottlenecks to investment and growth, outreach to parliamentarians, role of media including radio in development, social accountability, and improving access and quality of services by focusing on social protection.

Contacts

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