Return to: Index of "1996 Country Commercial Guides" ||
Index of "Economic and Business Issues" ||
Electronic Research Collections Index ||
U.S. Department of State
Madagascar Country Commercial Guide
Office of the Coordinator for Business Affairs
MADAGASCAR COUNTRY COMMERCIAL GUIDE
This Country Commercial Guide (CCG) presents a comprehensive look at
Madagascar's commercial environment through economic,political and
The CCGs were established by recommendation of the Trade
Promotion Coordinating Committee (TPCC), a multi-agency task
force, to consolidate various reporting documents prepared for the U.S.
business community. Country Commercial Guides are prepared annualy at
U.S. Embassies through the combined efforts of several U.S. governement
I. EXECUTIVE SUMMARY
An island nation in the Indian Ocean with a population of about 12
million, Madagascar ranks among the poorest countries in the world. For
the past 15 years average GDP growth has lagged behind the population
growth rate of about 3 percent. Despite this substandard economic
performance, Madagascar's unique natural environment, wide variety of
resources, low-cost labor force and location on the crossroads between
Asia and Africa should interest investors.
The country's successful transition to democratic government in 1993
impeded economic decision making and halted economic reforms begun in
the late 1980s. Having peacefully implemented an elected, parliamentary
system, the focus is now on resuming economic reforms pulling the
country out of the failed socialist experiment of the past. The
Malagasy economy has traditionally been agriculturally-based: vanilla,
coffee, cloves, rice, cotton, and sisal are the chief exports, now
supplemented by frozen seafoods and textiles. Although the government
has not finalized a new structural adjustment program with the IMF, it
is under negotiation and forms the background for liberalization reforms
the government is taking.
Madagascar's appeal to investors stems from its extremely low-cost,
mostly literate and highly trainable workforce. Over 150 investors,
particularly garment manufacturers, have located in Madagascar's Free
Trade Zone, established in 1991. The absence of quota limits on textile
imports to the U.S. and special access to the European market under the
Lome Convention has further stimulated this growth. The 50 percent
devaluation of the Malgache franc from the liberalized foreign exchange
market further enhances Madagascar's export competitiveness.
The current investment code provides for exoneration from taxes on
profits, and taxes on imports such as equipment, for two years. Free
transfer of profits from investments made in foreign currency is
permitted. The new export processing zone program offers permanent
exemptions from taxes, including taxes on imports of primary materials.
The fishing, mining, tourism, and agriculture sectors all show promise.
The deteriorated state of Madagascar's communications and transportation
infrastructure is the chief impediment to doing business. Internal
communications are very difficult, and international telephone service
is unreliable and expensive. The local road network is in very poor
condition and is sometimes impassable during the rainy season.
International assistance efforts are underway to address these problems.
The legal and regulatory environment in Madagascar can be a further
source of frustration for foreign investors. Foreign ownership of land,
though legal, is rare, and the security of private property, the
enforcement of contracts, and the assignment of liability are not
assured by the inadequate judicial system. Potential investors in
Madagascar, should be aware of the country's unique but highly
threatened environment. The nature of some investment projects may
necessitate environmental impact assessment of them prior to approval.
Good prospects for future U.S. sales and investment are in
infrastructure and telecommunications, textiles, and food processing
(especially seafood) sectors. Tourism, especially "eco-tourism," has
significant potential. There are also opportunities in consulting,
BUSINESS LANGUAGE: French
II. ECONOMIC TRENDS AND OUTLOOK
MAJOR TRENDS AND OUTLOOK
Located in the Indian Ocean, between Africa and Asia,
the Island of Madagascar ranks among the poorest countries inthe world.
World Bank data places it among the poorest countries of the world in
terms of real per capita GDP. Its economic record is one of modest
growth from independence in 1960 until 1970, stagnation from 1970 to
1980, sharp deterioration between 1980 and 1985 and financial
stabilization with sluggish economic growth from 1985 through 1987.
Strong growth in GDP (4 percent) began in 1988, but the political
disruptions of 1991, including seven months government paralysis due to
political events, broke the fragile growth trend.
Since the end of the transition to democratic rule in 1993, growth has
stalled as the new government organized its economic policy. There are
some encouraging developments, however, and the country clearly has
significant economic potential. In the long run, this stems from an
industrious and trained labor force and a variety of natural resources.
In the short and medium terms,considerable economic growth can arise
from greater efficiency of the government in the allocation and use of
resources. There are promising possibilities for substantial expansion
of tourism,non-traditional agricultural exports, sea-foods, garments,
handicrafts and leather goods.
The implementation of a new structural adjustment program with the IMF
and the World Bank, anticipated before the end of this year, and the
adoption of a new investment Code could lead to an economic boost and
promote direct foreign investment in the near future.
PRINCIPLE GROWTH SECTORS
Agriculture, food processing, aquaculture, labor-intensive textile and
clothing, mining and tourism are the economic sectors that offer the
best growth prospects over the near-term. In recent years, weak prices
and increasing competition from other producing countries have cut
sharply into Madagascar's earnings for traditional agriculture exports
such as vanilla, coffee and spices.
Under World Bank guidance, liberalization and privatization have become
dominant keywords. Flour imports were liberalized in February 1995, in
May the price of vanilla was freed to better compete on the
international market, and in July all wheat imports will be liberalized.
Civil aviation and telecomunication sectors have been opened to new
competition, and privatization of parastatal banks and the petroleum
company is planned.
Many investors are now developing projects to encourage value-added
processing of agricultural products before export, and diversification
into new products such as essential oils. Fishing in Malagasy
territorial waters and shrimp farming have developed into the leading
foreign exchange earners in recent years, attracting several foreign
The country has commercially significant reserves of several
minerals, including chromite, graphite, mica, titanium and
illmenite. Significant quantities of various precious and semi-precious
stones are also found in Madagascar. The discovery last year of an
important deposit of sapphires in the south of the country has attracted
foreign investors from Thailand, Indonesia, Israel, and Europe.
Light manufacturing, especially in the clothing and textile
sectors, increased significantly since the establishment of a duty-free
export processing zone program in 1990.
Madagascar's unique flora and fauna is the basis for
development of the tourism industry, although the decrepit state of the
transportation and communications infrastructure is slowing the growth
of this sector. Major investments in other
hotels and similar tourist facilities will be required in order
to realize future growth. Liberalization of the Malagasy air transport
sector should boost tourism if more frequent flights to European cities
and lower fares result.
GOVERNMENT ROLE IN THE ECONOMY
In 1975 Madagascar's government implemented a socialist economic
policy focused on the principle of national self-sufficiency.
Large foreign enterprises were nationalized and bureaucratic
controls on business were implemented. These controls included
restrictions on imported goods, on the allocation of foreign
exchange, on prices and on profit margins. This resulted in a sharp
decline in economic productivity.
Structural reform negotiations with the Bretton Woods
institutions began in 1986, and have focused on liberalization
and privatization of key economic sectors to improve efficiency
Since October 1994, air transport has been liberalized and
new private companies already work in both domestic and international
traffic. The petroleum sector will be liberalized soon under the World
Bank structural adjustment program. Regarding the telecommunications
sector, the government, since last year, has already awarded contracts
to private sector suppliers of cellular and international services, and
a new administrative framework has been implemented to recast the
government role from network operator to telecommunication regulator.
In the banking sector, the privatization of the two
state-controlled commercial banks is not yet implemented, but the
foreign exchange market is now liberalized as is the holding of foreign
exchange, and the establishment of other private and off-shore banks is
BALANCE OF PAYMENTS SITUATION
Madagascar has run sizeable overall balance of payments
deficits since the mid-1980's. The current account deficit as
a percentage of GDP averaged in excess of six percent during
the last half-dozen years and will register nearly seven percent
in 1995. In the past, current account deficits have been
financed by external borrowing, resulting in a heavy external
debt burden. By the early 1980's these inflows began to dry up
and arrears rose sharply. Madagascar's external debt now stands
at over USD 4 billion (about 130 percent of GDP) and total
arrears are close to USD 1.2 billion. In 1989, Madagascar was
the beneficiary of debt cancellations by the governments of
France, Germany and the United States, and other debt was rescheduled.
Madagascar will not be eligible for additional Paris Club rescheduling
of its debt burden until agreement is reached with the IMF on a new
structural adjustment program (the last one expired in 1992). Since
1993, Madagascar has negotiated over a new structural adjustment
facility, but due to the government's economic policy indecisiveness in
the implementation of the program, driven by political risk assessments,
little progress has been made to date. On May 1994, the adoption of a
floating money system devaluated the Malagasy money up to 55 percent.
Subsequent large fiscal deficits caused an inflation rate of 40 percent
by year end.
The physical infrastructure is inadequate, in quantity
and quality, as a supporting structure for development in
Madagascar. The poor state of roads prevents the evacuation
of agricultural commodities which increases postharvest losses
and makes the supply of inputs irregular and expensive.
Railroads cover only a small portion of the island and suffer
from underinvestment and poor maintenance. The port system remains the
same unchanged essentially since independence in 1960. The recent
change in domestic and international air transport services is still
unsatisfactory because of limited traffic and high cost.
The modernization of telecommunications system is the most
significant infrastructure project now underway. A private firm is
providing cellular services, and a new digital switching system being
installed as part of a foreign assistance project within a nationwide
plan for upgrading communications.
III. POLITICAL ENVIRONMENT
NATURE OF POLITICAL RELATIONSHIP WITH THE UNITED STATES
The government and the people of Madagascar are favorably
disposed towards the United States, and relations are friendly.
The U.S. is a major bilateral assistance donor country, and also
contributes to several of the multilateral development institutions
active in the country, such as the United Nations Development Program,
the World Bank and the International Monetary Fund (IMF).
Madagascar is historically linked to its former colonial
power, France, and its government, legislature and judicial system
emulate French models.
Madagascar is a member of the Indian Ocean Commission, the
Non-aligned Movement and the Organization of African Unity. Its non-
alignment is reflected in its "all points" diplomatic
and commercial relations, which include Israel, North and South Korea,
Taiwan, China, and Iran.
MAJOR POLITICAL ISSUES AFFECTING BUSINESS CLIMATE
After years of failed socialist economic policies,
Madagascar has taken, since 1990, important steps towards economic
reforms by reducing the government's presence in the productive sectors
of the economy. After more than one year of political dispute, consensus
is building for achieving, as soon as possible, a structural adjustment
program with the IMF and the World Bank. There is general agreement on
the goals of
developing the private sector, improving export volumes, creating jobs,
and reducing public sector deficits and debts.
BRIEF SYNOPSIS OF POLITICAL SYSTEM, SCHEDULE FOR ELECTIONS
AND ORIENTATION OF MAJOR POLITICAL PARTIES
Madagascar's political system is defined by a Constitution
that was approved by referendum in 1992 and provides for a mixed
parliamentary-presidential structure. The Parliament comprises
a National Assembly and a Senate. Currently, only the National
Assembly is in place. The Senate election will probably be scheduled
for next year once local governments are elected, beginning in
September. In June 1993, the 138 National Assembly members were elected
for four years. The National Assembly elects the Prime Minister who then
designates his cabinet of ministers (the Government) with the approval
of, and in consultation with, the President.
The President was elected in February 1993 by direct, universal
suffrage for a five-year term. The Prime Minister and his government
constitute the executive branch, but matters of sovereignty - foreign
affairs and national defense - belong to the President. Both the
Government and the Parliament share legislative initiative. In addition
to the executive (President and Government) and the legislative
(National Assembly and Senate), the Constitution provides for an
There are considerable checks and balances. The Government
can be censured and dismissed by an absolute majority in the
National Assembly. On the other hand, the President and the
Council of Government (i.e., the Prime Minister and his Cabinet)
can by decree dissolve the National Assembly. The Constitutional Court
must approve the constitutionality of every law before it is
promulgated. Barring a dissolution, the next National Assembly elections
will take place in 1997, followed by Presidential elections in late 1997
- early 1998.
Political parties currently tend to divide along populist
versus reformist lines, the major difference being the degree
of adherence to economic reform prescribed by the IMF and World
The major reformist parties tend to be more economically conservative;
i.e., favor balanced budgets, a reduced public sector, private sector
development, pro-market forces and a privatized banking system. The
economic policy of the Government of Prime Minister Francisque Ravony
tends now in this direction.
IV. MARKETING U.S. PRODUCTS AND SERVICES
DISTRIBUTION AND SALES CHANNELS
Imported goods can enter Madagascar via air to the international airport
in Antananarivo or via sea to the ports of Tamatave, Mahajanga, Toliara,
and Antsiranana. Products are then distributed by road or rail
throughout the country. Distribution is usually handled by the importing
company or by the Indian and Chinese businessmen who are both retailers
USE OF AGENTS AND DISTRIBUTORS ; FINDING A PARTNER
The use of agents and distributors, particularly those with
prior experience in distributing imported products, is highly
recommended. Local agents have contacts to develop a customer
base, and can easily communicate in Malagasy and/or French.
Partners can be found by obtaining lists of importers from
the Embassy Commercial Section or by contacting the market
research firms listed in Appendix E. The Embassy recommends that
U.S. firms visit Madagascar and negotiate a distribution contract face
to face, in order to develop a sense for the realities of doing business
in Madagascar and to develop trust between the U.S. and Malagasy
Malagasy businessmen express interest in establishing
franchises of U.S. businesses in Madagascar, but there is not
enough consumer buying power to support such ventures in many areas.
Existing franchise operations that appear to be profitable include:
Avon, Yves Rochard, Benetton, Score and Champion. A number of leading
U.S. products or services are sold through distributorships: American
Express, DHL, Caterpillar machinery, General Motors cars and parts.
Direct marketing for U.S.- made products is not recommended.
The Malagasy consumer is not used to Western marketing styles
and prefers a local flavor to advertising. In addition, French
language nuances may not be evident to an American advertiser.
However, the Embassy does encourage U.S. businessmen to direct
market to locate distributors and agents.
Joint ventures are almost a necessity for foreign investors,
as foreigners are effectively not allowed to own land in Madagascar and
the bureaucratic process for establishing a new enterprise is time
consuming and requires much maneuvring. The benefit to joint ventures is
that the Malagasy partner will know or can quickly cope with the
bureaucratic process for establishing new enterprises, which involves
obtaining permits from several different ministries. The drawback is
that a Malagasy partner will likely be a minority shareholder in dollar
There are few licensing ventures in Madagascar, the most
prominent being that of Coca Cola with Star Brewery (owned by
Henri Fraise and Fils Co.), a relationship of 40+ years.
Malagasy investors express an interest in license agreements,
but it is recommended that contracts be negotiated carefully
because of the lack of consistency in the Malagasy Commercial
STEPS TO ESTABLISHING AN OFFICE
Office space can be found through a handful of real estate
agents, advertisements in local papers, or word of mouth.
Landlords will rent to new companies even if they have not
obtained all their operating permits. Electric and water
services can be obtained quickly but obtaining telephone service
is extremely difficult and will remain so until the telephone
system is modernized. Office furniture can be obtained locally
at reasonable prices, but imported office equipment (particularly
computers) is very expensive because of high customs duties.
There are increasing numbers of multilingual, qualified secretaries and
administrative assistants interested in working with foreign businesses.
The purchasing power of the average Malagasy citizen is very
low. Most Malagasy can literally only buy immediate necessities.
In addition, culturally the Malagasy are reserved, often shy.
As a result there is not much value put on showy salesmanship.
Retailers and sales clerks respond to custumer's need and process sales,
but do not practice sales techniques common in the United States and
even in Europe.
ADVERTISING AND TRADE PROMOTION
Marketing is a relatively new industry to Madagascar.
Avenues of advertising include billboards, posters, newspapers,
radio and television. Prominent campaigns have European
influence and often link the product with leisure activities
or personal enjoyment. The quality of production of advertising
campaigns varies and depends on the budget of the advertiser.
It is possible to pay a newspaper for a full page article/
advertisement, or the three television stations to broadcast
an info/advertisement program.
L'Express de Madagascar
P.O. Box 171
Tel: (261 2) 203 10
Fax: (261 2) 213 83
P.O. BOX 1414
Antananarivo 101 - Madagascar
Tel: (261 2) 300 38
Fax: (261 2) 273 51
P.O. BOX 659
Antananarivo 101 - Madagascar
Tel: (261 2) 226 35
Fax: (261 2) 222 54
15, Rue Ratsimilaho
Antananarivo 101 - Madagascar
Tel: (261 2) 256 34
DMD (Dans les Media Demain)
58, Rue Tsiombikibo - Ambatovinaky
Antananarivo 101 - Madagascar
Tel: (261 2) 277 88
Fax: (261 2) 359 79
ROI (Revue de l'Ocean Indien)
P.O. Box 46
Antananarivo 101 - Madagascar
Tel: (261 2) 225 36
Fax: (261 2) 345 34
Television Malagasy (state)
Immeuble Solima - Antaninarenina
Antananarivo 101 - Madagascar
Tel: (261 2) 268 30
Fax: (261 2) 248 52
MA TV (private)
P.O. BOX 1414
Antananarivo 101 - Madagascar
Tel: (261 2) 208 97
Fax: (261 2) 344 21
41 bis, Rue Andriba - Mahamasina
Antananarivo 101 - Madagascar
Tel: (261 2) 207 30
Fax: (261 2) 203 02
Pricing of imported products depends on import duties
which range from 0 to 100 percent. Profit margins on all products tend
to be small. As a result of the devaluation of the Malagasy Franc on May
1994, the local price of imported goods has risen arise dramatically.
More and more businessmen are listing their prices in French Francs,
awaiting stabilization of the Malagasy Franc.
SALES SERVICE/CUSTOMER SUPPORT
The concept of sales service and customer support is also
relatively new to Madagascar and is primarily found among
distributors of computers and automobiles. Retailers of most
consumer goods rarely accept returns of defective products.
In addition, companies that offer servicing very often lack
spare parts and their technicians may have only limited training.
Objects in need of repair may have to be sent to Europe or the company
may have to wait months to receive a necessary spare part.
To protect the consumer's rights, two private consumer
organizations were created in 1992 and 1994 but their
actions against the price increases of goods are very limited.
SELLING TO GOVERNMENT
As part of its liberalization strategy, the government
frequently advertises in official and local journals or via
radio, requesting bids for supplying the government or government-funded
projects. Some of these are intended for international bidders and some
only for local companies. These bids are opened publicly and tend not to
be contested. However,
last year, an international bid in hotel management was
cancelled for political reasons and the practice of awarding
government contracts without making a public request for bids
PROTECTING YOUR PRODUCT FROM IPR INFRINGEMENT
Officially, Malagasy law protects property rights infringement.
Madagascar is a member of the World Organization
of intellectual Property (Organisation Mondiale de la Propriété
Intellectuelle - OMPI) and has created two offices dedicated to
IPRI protection: OMAPI, Office Malgache de la Propriété industrielle
(Malagasy Office for Industrial Property) and OMDA,
Office Malgache des Droits d'Auteurs (Malagasy Office for Copyrights).
However, there is little enforcement: pirated audio
and video recordings are the most flagrant violations of property
infringement in Madagascar, and imported "fake" consumer goods can also
be found (such as imitation Cartier bags or Rolex watches). Local
industry is not capable of producing quality imitations.
NEED FOR A LOCAL ATTORNEY
It is recommended that foreign investors or businessmen
ask the assistance of a local attorney before finalizing any
contract or operating agreement in Madagascar.
V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT
BEST PROSPECTS FOR NON-AGRICULTURAL PRODUCTS
As reform and renewal of Madagascar's economy proceeds, some U.S.
businesses will find the country a promising market. Telecommunications
and transportation (and agro-industry) sectors will be undergoing major
reinvestment programs over the next 5-10 years, using multilateral, as
well as bilateral assistance. U.S. makers of telecommunications
equipment, road-building and repair machinery, and civil aviation
equipment are well positioned to benefit. (Caterpillar recently
celebrated its 2000th sale since it established a distributor in
Antananarivo.) Agro-industry too will face major renewal and upgrading
as the country addresses the past 30 years of low investment. Again,
U.S. suppliers have much to offer in this area. The mining sector also
might offer an attractive market if planned reforms of the mining code
open the country to greater investment.
Due to its reknown biological diversity and unique plant and animal
life, Madagascar holds great potential for eco-tourism and
environmentally sensitive technologies. The country still has very poor
infrastructure in the hospitality industry however, and its low per
capita income puts some new technologies out of reach unless development
assistance funding or bilateral export financing options exist.
Madagascar presents a market of needs that U.S. companies could readily
fill, but it remains a market of low purchasing power.
VI. TRADE REGULATIONS AND STANDARDS
TRADE BARRIERS, TARIFFS AND NON-TARIFF BARRIERS
Madagascar's transportation and telecommunications networks
impose significant costs on local firms, both in terms of
direct expenses and diminished efficiency.
Although foreign trade is now liberalized, a heavily bureaucratic
regulatory system remains a burden for business people.
The small size of the Malagasy market and generally low
income levels limit the attractiveness of the market for many
potential foreign exporters. The current unavailability of
Eximbank coverage is also a significant handicap for potential
U.S. exporters of capital goods.
According to the 1995 financial law, there are four kinds
of import duties:
- Import tax (TI): ranging from exempt to 30%
- Custom fees (DD): ranging from exempt to 30%
- Value added tax (TVA): ranging from exempt to 25%
- Consumption tax (DA): ranging from exempt to 100%
Imports are valued on C.I.F.
Imports into Madagascar are liberalized and no longer need
any import license except for a few categories of items which
are considered by the government as "strategic" such as guns,
explosives, precious stones, and radioactive products.
Before importing, importers are required to submit their
"Fiche Statistique d'Importation" (Import Data File) accompanied
by proforma invoice to their primary commercial bank, with an
information copy to the Ministry of Commerce.
The following documents are required for commercial shipments to
Bill of Lading or Airway bill
Certificate of origin
Report of VERITAS
Bureau inspection for quality and quantity control before
Personal effects of diplomatic corps and international
organizations and institutions with diplomatic privileges
are not subject to import taxes upon entry, but if they are
selling their effects before leaving the country, they must
pay the import duties mentioned above.
Temporary entry is also granted to any factor input or goods used within
the free trade zones.
Imports of pornographic material are prohibited.
SPECIAL IMPORT PROVISIONS
No import duties are levied on the following:
- Non-commercial parcels sent by postal packet,
parcel post, or by air, when no import declaration
- Commercial consignements sent by postal packet, parcel
post, or by air;
- Personal effects of travelers/tourists;
- Books, publications, and documents referred to in UNESCO
FREE TRADE ZONES/WAREHOUSES
Firms operating in the free trade zones are exempted from
LABELLING, MARKING REQUIREMENTS
Madagascar adheres to international labeling and marking
standards, though there is no strong enforcement.
The Ministry of Commerce, with the assistance of ISO, is
working now on developing a comprehensive, enforceable system of
Exports are also liberalized. However export authorization
is required for certain "endangered" items specified by the
Convention on International Trade in Endangered Species (CITES),
such as crocodiles and crocodile skin products, live animals and
reptiles, and precious woods.
- Commercial invoice
- Bill of Lading or Airway bill
- Insurance certificate
- Certificate of origin
- Phytosanitary certificate, if required
- Commitment of repatriation of foreign exchange earnings
- Packing list
- Export declaration
- Customs declaration
- Analysis of quality certificate, if required.
MEMBERSHIP IN FREE TRADE ARRANGEMENTS
Madagascar is a signatory to the following international
- 1964: United Nations Convention on Trade and Development
- 1994: World Trade Organization (WTO), formerly General
Agreement on Trade and Tariffs (GATT).
- 1990: Lome IV, between the European Union and ACP countries.
- 1993: Preferential Exchange Zone (Zone d'échanges
Préférentiels - ZEP), which is the Common Market
for the Eastern Africa and Australia - COMESA.
Madagascar has bilateral commercial agreements with
Mauritius and Seychelles.
Bilateral commercial agreements are being studied with
- South Africa
VII. INVESTMENT CLIMATE
OPENNESS TO FOREIGN INVESTMENT
In the past, potential investors in Madagascar have been compelled to
deal with a thicket of bureaucratic obstacles as they sought the
necessary permits and approvals. Investors needed the authorization of
those government ministries claiming technical competence in the
targeted industry. Ministerial overlap was a serious problem and often
investors had no idea which ministries to approach or where to start.
It was a process lacking in transparency, and rife with corruption.
The introduction of a "guichet unique," or "one-stop shop" in September
1994, to serve as the focal point for new project proposals, has the
potential to simplify the approvals process. This office does not have
decision-making authority, but is responsible for directing a proposal
to the relevant technical ministries. Investors who have used it claim
it is very helpful in centralizing the application process, but could be
quicker and more responsive. The guichet unique claims a 45-60 day
processing time, though delays are frequent. After a two-year
transitional period this office is slated to become autonomous.
Another goal of this "streamlined" project examination process is to
clarify the standards for project approval and the reasons for refusals.
Authorities now review investment proposals for the type of investment,
contribution to the sector, technological level, and labor impact in the
given region, all in light of the government's investment priorities.
CONVERSION AND TRANSFER POLICIES
Until May 1994, the foreign exchange value of the Malagasy franc was set
administratively. The local currency remained highly over-valued in
spite of several large devaluations since the mid-1980s. The low levels
of Central Bank foreign currency reserves meant that foreign exchange
was essentially unavailable for holders of Malagasy francs wishing to
convert them into foreign currency. All available foreign exchange was
needed to finance the importation of petroleum products and other
The establishment of an interbank foreign currency market in May 1994,
essentially floated the currency and quickly resulted in a fifty percent
depreciation of the Malagasy franc vis a vis the French franc, the
reference currency. Local businessmen are now free to bid for foreign
exchange in this market. A Central Bank requirement that local banks
repatriate a portion of their foreign currency reserves held in banks
abroad has had the effect of keeping the interbank market supplied with
foreign exchange, though shortages often occur as demand exceeds supply.
Malagasy companies must repatriate foreign exchange earned from exports
within 90 days of shipment, though may keep in the country foreign-
currency-denominated bank accounts for a percentage of these earnings,
ranging from 5-20 percent. Any amount of foreign currency may be held
in these accounts if it does not derive from export earnings.
Transferring money out of the country is not legally restricted, but is
subject to availability on the interbank commercial market as the
Malagasy franc is not exportable.
EXPROPRIATION AND COMPENSATION
During the 1970s, the socialist government of Madagascar pursued a
policy of national "self-sufficiency" that included the expropriation of
foreign-owned companies. The seizure of property owned by foreign oil
companies to create SOLIMA, the government oil parastatal, was the most
visible expression of this policy. The government has settled the
expropriation claims of some of the affected companies, but others
remain outstanding after nearly twenty years.
In the future, expropriation of foreign-owned property by the Malagasy
Government is not likely. The present government is supportive of
foreign investment and seems to realize the damage done by past policies
to foreign perceptions of the business climate in Madagascar. A new
investment code is under preparation, as is a new mining code.
Additionally, it is now legally possible for foreign-owned businesses to
own land, but the procedure to do so has yet to be implemented.
The Malagasy Government does not have a record of expeditious settlement
of expropriation claims. The still unsettled claim of one U.S. oil
company, whose assets were expropriated along with those of other
foreign companies to create the Malagasy national oil company (SOLIMA),
dates from 1976. Although recent negotiations toward a settlement have
apparently been conducted in good faith, the government does not seem to
place a high priority on coming to closure. To date the government has
not accepted binding arbitration as a settlement option in these
Investors in Madagascar face a legal environment in which the security
of private property and the enforcement of contracts is inadequately
protected by the judicial system. Legal traditions inherited from the
French (pre-1960 French law) were superimposed on a system designed to
facilitate state control under a socialist regime. Private sector
dispute settlement mechanisms were not developed extensively. The legal
framework in which the private sector operates in Madagascar suffers
from 1) problems in the content of the law as written; 2) problems
caused by insufficient dissemination and knowledge of the laws; and 3)
problems related to inconsistent application and enforcement of the
laws. Judicial reform is underway both in substance and procedure, but
legal processes in Madagascar will continue to move slowly.
Political violence directed against foreign-owned projects or
installations in Madagascar has not been a problem.
Potential foreign investors may be required to demonstrate that their
project will generate local employment, maximize the use of local
inputs, or train Malagasy workers for eventual technical or managerial
roles in order to receive project approval. Under the guichet unique,
the approval process is becoming transparent, but is still capricious,
subject to bureaucratic and political influence. Investment incentives
are available for industries, under the Export Processing Zone (EPZ)
regulations. Foreign or Malagasy investors can benefit from tax
exemptions provided their projects fall into certain qualifying
1) investment in export-oriented manufacturing industries; 2)
development or management of industrial free zones; or 3) provision of
services to EPZ companies.
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
Previously, foreigners were prohibited from owning property in
Madagascar. The government created a mechanism in 1994 whereby non-
Malagasy persons can apply and be granted the right to hold land. To
date this mechanism has not been used, and most foreign investors
continue to have local partners who can hold land for the company.
Alternatively, leasing for up to fifty years is possible with approval
from the Ministry of the Interior.
Property rights in the mining sector deserve special attention because
Madagascar's mineral wealth is of particular interest to foreign
investors. A new mining code is under preparation but is still not in
force. The old Mining Law (#90-017 dated July 20, 1990) attributes
ownership of all mineral deposits to the state, regardless of the
identity of the owner of the surface land, and exploiters/investors can
lease the land.
Landowners can lose rights over their land if the government decides to
excavate sub-surface materials. The same law allows mining authorities
to classify mineral deposits according to national defense needs. An
administrative decision can easily change a mineral's classification and
affect the interests of a private investor. The criteria determining
ministerial classification are not specified.
PROTECTION OF REAL & INTELLECTUAL PROPERTY RIGHTS
Madagascar has in place a legal system that de jure effectively protects
property rights. De facto the legal system works capriciously, and
legal recource for foreign investors does not generally favor them.
Madagascar's observation of rights regarding intellectual property,
copyright and trademarks is good for a developing country. The
government claims to comply with the Uruguay Round's Trade related
aspects of Intellectual Property (TRIPS) Agreement. A government office
of Intellectual/Industrial Property (OMAPI) supervises all aspects of
copyright and trademarks protection. Compliance with these regulations
is uneven. Major brand names and franchise rights are respected, but
pirated copies of videotaped movies and music cassettes sell openly.
REGULATORY SYSTEM: LAWS AND PROCEDURES
In general, the Malagasy regulatory apparatus leaves a great deal to be
desired in terms of transparency and streamlining. Transparency in the
investment project approval process is improving (see section "Openness
to Foreign Investment") and could move further. Tax evasion is
widespread in Madagascar with bribery of customs or other tax officials
a routine occurrence. To the extent that businesspersons engage in such
tax evasive behavior without being called to account, other firms are
placed at a competitive disadvantage if they do not follow suit. Tax
law targets mining and the chief agricultural export crops (vanilla,
coffee, cloves), particularly as these are traditionally the most
lucrative businesses. Environmental impact review is becoming a part of
the investment review process, however, the procedures are new and it
can be used as a bureaucratic obstacle at times.
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
Until the recent introduction of an interbank foreign exchange market,
the rather rudimentary Malagasy financial system did little to support
inward investment flows and the efficient allocation of capital
resources. Local and foreign business persons can now bid for foreign
exchange in this market to meet external obligations. In the past,
local bankers have complained that one of the principal factors
constraining the extension of local credit has been the lack of bankable
projects. Recent foreign and local investment has increased the number
of viable projects, but credit assessment is not a strong skill of the
Another problem has been the large fiscal deficits run by the central
government, deficits which have compelled the central bank to restrict
credit creation in the banking system to keep a lid on inflationary
pressures. Now, government deficits have led to high inflation and the
33% Central Bank key interest rate makes credit unaffordable to many
businesses. This situation is likely to persist until the central
government institutes effective fiscal reforms.
The banking system in Madagascar consists currently of five commercial
banks. European banking institutions hold a controlling interest in two
banks: Banque Malgache de l'Ocean Indien (BMOI) and BNI-Credit Lyonnais
Madagascar (BNI-CL). Union Commercial Bank (UCB) is controlled by a
Mauritian bank. Bankin' Ny Tantsaha Mpamokatra (BTM, Bank for Rural
Development), is wholly-owned by the Malagasy government and Banky
Fampandrosoana Ny Varotra (BFV, Bank for Commerce and Trade) is sixty-
five percent owned by the state. BTM and BFV are both nearly insolvent
and the government is under pressure from the World Bank and IMF to
There is no stock market in Madagascar and mergers, acquisitions and
takeovers are not a significant element of the local commercial and
BILATERAL INVESTMENT AGREEMENTS
According to the Ministry of Industry, the only country with whom
Madagascar has concluded a bilateral investment protection treaty is
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS
Madagascar is a member of the Multilateral Investment Guarantee Agency
(MIGA). OPIC is active, funding the expansion of a U.S.- owned cellular
telephone system in the capital, now spreading to regional cities. EXIM
Bank coverage is presently not available for Madagascar.
With widespread unemployment and underemployment Madagascar is a labor
surplus country. Wage rates in Madagascar are among the lowest in the
world. Malagasy workers are relatively easily trained and skill
availability is good for the types of manufacturing that dominate this
sector, i.e. textiles, knitting and clothing assembly. More highly
sophisticated manufacturing skills are not available. Workers in
Madagascar enjoy the right of free association and are free to organize
and engage in collective bargaining. Safety standards in the workplace
are generally not enforced and do not meet U.S. standards.
FOREIGN TRADE ZONE/FREE PORTS
Since 1991, Export Processing Zone (EPZ) regulations in Madagascar allow
foreign or Malagasy investors to qualify for tax exemptions provided
their projects fall within one of three categories: 1) Investment in
export-oriented manufacturing industries; 2) Development or management
of industrial-free trade zones; or 3) Provision of services to EPZ
companies. All three may qualify for tax holidays of varying terms.
Personal taxes are reduced and EPZ firms are exempt from paying customs
duties, import and value-added taxes, and export duties on their
products, which should be 100% for export. EPZ firms may be set up in
special zones or may establish themselves independently. They, like any
foreign investment, are now legally eligible to hold real property, but
similarly are subject to the regulations that have yet to grant
foreigners real estate ownership.
The Free Trade Zone is currently the major focus of direct foreign
investment in Madagascar. Of the 150 companies granted status as FTZ
companies, about 40% are European (chiefly French) investments, 30% are
Mauritian-owned, 20% are Asian-owned, and 10% are Malagasy held.
CAPITAL OUTFLOW POLICY
There is little, if any, outward direct investment from Madagascar and
the government has no programs to support such investment. Foreign
investors may freely repatriate profits. Malagasy investors are
required to repatriate foreign currency profits and convert them to
Malagasy francs within 90 days of export.
MAJOR FOREIGN INVESTORS
There are no comprehensive statistics available on foreign investment
flows. Investment in the Free Trade Zone companies was chiefly French
and Mauritian, as noted above. The remainder were divided between
entities from Mauritius, Hong Kong, South Africa, Singapore, Germany,
Italy and Spain.
VIII: TRADE AND PROJECT FINANCING
BRIEF DESCRIPTION OF BANKING SYSTEM
The banking system in Madagascar consists currently of
five banks. European banking institutions hold a controlling
interest in two banks: Banque Malgache de l'Océan Indien (BMOI) and BNI-
Crédit Lyonnais (BNI-CL). Union Commercial Bank (UCB) is controlled by a
Mauritian bank. Bankin'ny Tantsaha Mpamokatra (BTM) is wholly-owned by
the Malagasy state and Banky Fampandrosoana Ny Varotra (BFV) is sixty-
five % owned by the state. Following an agreement with the World Bank
and IMF, these two banks should be totally privatized by mid-1997.
FOREIGN EXCHANGE CONTROLS AFFECTING TRADING
Exporters are required to repatriate their foreign currency
earnings within ninety days of acquisition.
Since May 1994, there is an interbank foreign exchange market, which
fixes daily the rate of the FMG (Malagasy Franc) according to a floating
GENERAL FINANCING AVAILABILITY
The availability of local financing has been constrained
recently by the Central Bank, in order to control inflation
in the wake of large public sector fiscal deficits that have
absorbed much of the available pool of local savings. Excessive money
creation by the Central Bank has already contributed to Madagascar's 18
percent rate of inflation in 1994 and up to 40 percent this year.
EXPORTS AND PROJECT FINANCING
Only a few exporters can get export credit in Madagascar.
The credit granted is mainly for the purchase of traditional
agricultural products such as vanilla, coffee, cocoa, and cloves. In
case of pre-financing by importers, exporters still have to pay high
interest rates to their banks.
Eximbank financing is not available in Madagascar. The World
Bank and the African Development Bank have financed a variety of
infrastructure and other types of projects. Generally speaking, the
financing possibilities that are available to local firms are quite
limited both in terms of variety and capacity.
LIST OF BANKS WITH CORRESPONDENT U.S. BANKING ARRANGEMENTS
BTM: Bankers Trust/New York
Bank of New York
French/American Bank/New York
Société Générale/New York
BMOI: French/American Bank/New York
Dresdner Bank/New York
UCB: Citibank/New York
BNI: Bankers Trust/New York
Bank of New York
American Express International Bank/New York
Chase Manhattan Bank/New York
Riggs National Bank/Washington, D.C.
BFV: Bank of New York
American Express International Bank/New York
Bank of America/San Francisco
Bankers Trust/New York
Chemical Bank/New York
French/American Bank/New York
IX: BUSINESS TRAVEL
Laws and common business practices are based on the European,
particularly French, business style.
TRAVEL ADVISORY AND VISAS
A visa is required for entry into Madagascar and should be
obtained prior to arrival, either at the Malagasy Embassy in Washington
D.C. or in other cities where Madagascar has diplomatic or consular
- New Year's Day, January 1
- Day Commemorating the Martyrs, March 29
- Easter and Easter Monday
- Labor Day, May 1
- Ascension (6th Thursday after Easter)
- Pentecost (7th Sunday after Easter), Pentecost Monday
- OAU Day, May 25
- Independence Day, June 26
- Assumption, August 15
- All Saint's Day, November 1
- Christmas, December 25
Problems with air, train and road transportation have already been
mentioned in Chapter II. Visitors to the capital city of Antananarivo
or other cities can easily find taxis. Taxi fares are relatively low.
Rental cars are available but can be quite expensive depending on the
vehicle type, and non-residents are usually required to hire a
chauffeur. Air charters can be arranged to various destinations in the
French is the common language of business, though more and
more businesspersons speak English.
As noted previously, the telecommunications system is being
modernized. There are now 3 television stations that broadcast in French
and Malagasy. One of them, MA TV, broadcasts English news in the
evening. CNN is available at some hotels, via satellite. There are
several radio stations broadcasting in Malagasy, French, with some
English language programs.
There are four hotels in Antananarivo that are comfortable
by U.S. standards: the Hilton, the Colbert, the Panorama and the Radama.
Hotels in other areas of the country vary greatly in quality. Short-
term lease furnished flats are now offered by some companies in the
Visitors to Madagascar are advised to obtain vaccinations
against Polio, Hepatitis A or Immune Globulin, Yellow Fever and Typhoid.
Malaria medication for chloroquine-resistant areas should be taken
during the rainy season in Antananarivo (November through April) and at
all times in coastal regions.
Local tap water is not clean, and should be boiled and
filtered before being drunk. Fresh fruits and vegetables should be
thoroughly washed, preferably with iodine or chlorine, before being
consumed. Meat and poultry should be cooked thoroughly. Restaurants are
relatively inexpensive. The more expensive, the more reliable. Chinese
and European cuisine are most common.
APPENDIX A: COUNTRY DATA
Population Growth rate: 2.8%/year
Religions: 70% Christian, 6% Muslim. The remainder adhere to
traditional, ancestor-oriented animist beliefs.
Government system: mixed Parliamentary-Presidential.
Languages: Malagasy and French
Work week: Monday-Friday: 40 hours/week.
APPENDIX B: DOMESTIC ECONOMY
- GDP (USD Million): 2,938 3,100
- GDP growth rate 0.2% 3.4%
- GDP per capita (USD) 220 220
- Government spending as a
percent of GDP 19.9 22.8
- Unemployment 40% 40%
- Foreign exchange reserves
(USD Million) 91.9 105.8
- Average exchange rate for
USD 1.00 3,064 4,500
- Foreign Debt (USD Million) 4,081 4,354
- Debt Service ratio 62.4 59.9
- U.S. Military Assistance
(USD Million) 0.0 0.0
- U.S. Economic Assistance
(USD Million) 33.6 28.2
APPENDIX C: TRADE
(in USD Million unless otherwise indicated)
- Total Country exports: 318.01 N/A
- Total Country imports: 443.67 N/A
Source: Central Bank/State Data Office
- U.S. Exports: 47.93 N/A
- U.S. Imports: 56.98 N/A
Source: U.S. Department of Commerce
* - All 1995 Data estimated.
APPENDIX D: INVESTMENT STATISTICS
There are no reliable statistics regarding investment. The new guichet
unique (see part VII) may start producing some.
APPENDIX E: US AND COUNTRY CONTACTS
COUNTRY GOVERNMENT AGENCIES
- Ministère de la Promotion du Commerce et du Ravitaillement
P.O. BOX 245
Tel: (261 2) 272 92
Fax: (261 2) 312 80
- Ministère de la Promotion de l'Industrie et de l'Artisanat
P.O. BOX: 527
Tel: (261 2) 255 15
Fax: (261 2) 277 90
- Ministère de l'Energie et des Mines
P.O. BOX 527
Tel: (261 2) 255 15
Fax: (261 2) 325 54
- Ministère d'Etat à l'Agriculture et au Développement Rural
P.O. BOX 842
Tel: (261 2) 247 10
Fax: (261 2) 265 61
- Ministère des Postes et Télécommunications
Tel: (261 2) 261 21
Fax: (261 2) 240 08
- Banque Centrale de Madagascar
Tel: (261 2) 217 51
Fax: (261 2) 345 32
- Guichet Unique
Ministere de l'Economie et du Plan
P.O. Box 674
Antananarivo 101 - Madagascar
Tel: (261 2) 202 84
Fax: (261 2) 285 08
COUNTRY BUSINESS ASSOCIATIONS
- Chambre de Commerce, d'Industrie et d'Agriculture d'Antananarivo
P.O. BOX 166
Tel: (261 2) 202 11
Fax: (261 2) 202 13
- FIVMPAMA (Association of Malagasy Businessmen)
12, rue Rainizanabololona - Antanimena
Tel: (261 2) 347 54
Fax: (261 2) 320 56
- GEM (Groupement des Entreprises de Madagascar)
P.O. Box 1695
Antananarivo 101 - Madagascar
Tel: (261 2) 238 41
- SIM (Syndicat Industriel de Madagascar)
P.O. Box 1756
Antananarivo 101 - Madagascar
Tel: (261 2) 206 35
Fax: (261 2) 243 94
COUNTRY MARKET RESEARCH FIRMS
- Automated Data Analysis, Processing & Trading (ADAPT)
P.O. BOX 4212
Tel: (261 2) 291 92
Fax: (261 2) 291 92
- Société d'Assistance aux Sociétés (SAS)
P.O. BOX 8019
Tel: (261 2) 335 24
Fax: (261 2) 268 63
- Cabinet Fivoarana
P.O. BOX 3854
Tel: (261 2) 219 25
Fax: (261 2) 271 41
- Cabinet d'Etudes, de Conseil et d'Assistance à la
Lot IVD 17 Bis, Tsiazotafo
Tel: (261 2) 347 26
Fax: (261 2) 206 44
- Maurice Charles Andriamampianina, Ph.D.
111 D 14, Antanimena
Tel: (261 2) 350 43
- Cabinet Ravonison, Gast et Associés
Lot 1B 26-9, Rue de la Réunion
Tel: (261 2) 261 71
Fax: (261 2) 446 33
P.O. BOX 3476
Tel: (261 2) 420 44
Fax: (261 2) 420 44
- Ocean Consultants
P.O. BOX 3528
Tel: (261 2) 428 06
Fax: (261 2) 271 26
COUNTRY COMMERCIAL BANKS
- Banque Malgache de l'Océan Indien (BMOI)
P.O. BOX 25 B, Place de l'Indépendance
Tel: (261 2) 346 09
Fax: (261 2) 346 10
- Union Commercial Bank (UCB)
P.O. BOX 197, Lalana Solombavambahoaka
Tel: (261 2) 272 62
Fax: (261 2) 287 40
- BNI - Crédit Lyonnais Madagascar (BNI-CL)
P.O. BOX 174, Analakely
Tel: (261 2) 239 51
Fax: (261 2) 337 49
- Banky Fampandrosoana Ny Varotra (BFV)
P.O. BOX 196, Antaninarenina
Tel: (261 2) 206 91
Fax: (261 2) 345 35
- Bankin'Ny Tantsaha Mpamokatra (BTM)
P.O. BOX 183, Antaninarenina
Tel: (261 2) 202 51
Fax: (261 2) 213 98
APPENDIX F: MARKET RESEARCH
APPENDIX G: TRADE EVENT SCHEDULE
Month Title Location
September Salon international de l'élevage Antananarivo
October Manja 95 (clothing exhibition) Antananarivo
To the top of this page