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Madagascar Economy
 
 
 

General

Agriculture, including fishing and forestry, is a mainstay of the economy. Major exports are coffee, vanilla (Madagascar is the world's largest producer and exporter of vanilla), sugarcane, cloves, cocoa, rice, cassava (tapioca), beans, bananas, peanuts and livestock products. Vanilla has historically been of particular importance, and when in 1985 Coca-cola switched to New Coke which involved less vanilla, Madagascar's economy took a marked downturn, but returned to previous levels after the return of Coke Classic.

Structural reforms began in the late 1980s, initially under pressure from international financial institutions, notably the World Bank. An initial privatisation program (1988-1993) and the development of an export processing zone (EPZ) regime in the early 1990s were key milestones in this effort. A period of significant stagnation from 1991 to 1996 was followed by five years of solid economic growth and accelerating foreign investment, driven by a second wave of privatizations[citation needed] and EPZ development. Although structural reforms advanced, governance remained weak and perceived corruption in Madagascar was extremely high. During the period of solid growth from 1997 to 2001, poverty levels remained stubbornly high, especially in rural areas. A six-month political crisis triggered by a dispute over the outcome of the presidential elections held in December 2001 virtually halted economic activity in much of the country in the first half of 2002. Real GDP dropped 12.7% for the year 2002, inflows of foreign investment dropped sharply, and the crisis tarnished Madagascar's budding reputation as an AGOA stand-out and a promising place to invest. After the crisis, the economy rebounded with GDP growth of over 10% in 2003. Currency depreciation and rising inflation in 2004 have hampered economic performance, but growth for the year reached 5.3%, with inflation reaching around 25% at the end of the year. In 2005 inflation was brought under control by tight monetary policy of raising the Taux Directeur (central bank rate) to 16% and tightening reserve requirements for banks. Thus growth was expected to reach around 6.5% in 2005.

Following the 2002 political crisis, the government attempted to set a new course and build confidence, in coordination with international financial institutions and donors. Madagascar developed a recovery plan in collaboration with the private sector and donors and presented it at a "Friends of Madagascar" conference organised by the World Bank in Paris in July 2002. Donor countries demonstrated their confidence in the new government by pledging $1 billion in assistance over five years. The Malagasy Government identified road infrastructure as its principle priority and underlined its commitment to public-private partnership by establishing a joint public-private sector steering committee.

In 2000, Madagascar embarked on the preparation of a Poverty Reduction Strategy Paper (PRSP) under the Heavily Indebted Poor Countries (HIPC) Initiative. The boards of the IMF and World Bank agreed in December 2000 that the country had reached the decision point for debt relief under the HIPC Initiative and defined a set of conditions for Madagascar to reach the completion point. In October 2004, the boards of the IMF and the World Bank determined that Madagascar had reached the completion point under the enhanced HIPC Initiative.

The Madagascar-US Business Council was formed as a collaboration between the United States Agency for International Development (USAID) and Madagascan artisan producers in Madagascar in 2002. The US-Madagascar Business Council was formed in the United States in May 2003, and the two organisations continue to explore ways to work for the benefit of both groups.

The government of President Ravalomanana is aggressively seeking foreign investment and is tackling many of the obstacles to such investment, including combating corruption, reforming land-ownership laws, encouraging study of American and European business techniques, and active pursuit of foreign investors. President Ravalomanana rose to prominence through his agro-foods TIKO company, and is known for attempting to apply many of the lessons learned in the world of business to running the government. Some recent concerns have arisen about the conflict of interest between his policies and the activities of his firms. Most notable among them the preferential treatment for rice imports initiated by the government in late 2004 when responding to a production shortfall in the country.


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