HomeReportsBureau of Economic and Business Affairs2017 Investment Climate Statements…Madagascar

# 					2017 Investment Climate Statements: Madagascar			

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													Executive Summary											

                -  Executive Summary 
                -  1. Openness To, and Restrictions Upon, Foreign Investment   
                -  2. Bilateral Investment Agreements and Taxation Treaties   
                -  3. Legal Regime   
                -  4. Industrial Policies   
                -  5. Protection of Property Rights   
                -  6. Financial Sector   
                -  7. State-Owned Enterprises   
                -  8. Responsible Business Conduct   
                -  9. Corruption   
                -  10. Political and Security Environment   
                -  11. Labor Policies and Practices   
                -  12. OPIC and Other Investment Insurance Programs   
                -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                -  14. Contact for More Information   

## Executive Summary

Since assuming office in 2014, the government of President Hery Rajaonarimampianina has publicly emphasized the importance of combating corruption and improving the business and investment climate, citing private sector led growth as the engine for the future economic development of Madagascar. However, despite a number of programs to improve the country’s investment climate, including through reform of the existing regulatory framework, progress reigning in corruption has been largely absent.

Foreign direct investment has failed to reach its potential due to persistent corruption in government and in the private sector. Both foreign direct investment and domestic investment are held back by the lack of infrastructure (notably roads and electricity), the lack of transparency in the award and oversight of public works projects, generally inadequate audit and management of budgets, the government’s inability or unwillingness to properly enforce regulations and laws, and a weak financial system.

The best options for U.S. investment are the extractive industries, light manufacturing in the apparel sector, construction, energy, agribusiness, and tourism. The extractive industries, particularly the mining sector, have been the largest driver of economic growth over the past few years, though low commodity prices in recent years have added an additional obstacle for investors.

In its 2015-2020 five-year development plan, the government plans to seek public-private partnerships with private industry, in addition to traditional donor aid in order to rehabilitate and extend its dilapidated infrastructure. This may present opportunities for U.S. investment, particularly if the government succeeds in its efforts to reform the management of the state-owned water and electric utility JIRAMA. Following a major cabinet reshuffle in April 2016, the government announced a number of reform projects and efforts to improve the business and investment climate. However, these efforts, especially within JIRAMA, have not produced concrete results so far. The mining sector has, to date, been the primary recipient of foreign investment.

The IMF released the first $43.5 million tranche of a $304.7 million Extended Credit Facility for Madagascar in September 2016. Progress on IMF-monitored reforms is broadly satisfactory, with generally good performance on indicative targets and structural reforms. However, the poor financial health of the national utility, JIRAMA, and the national airline, Air Madagascar, remain major concerns that will require significant but unknown increases in government subsidies – threatening to undermine progress in all other areas. Resolution of these potential budgetary uncertainties depends on improvements in governance, including the fight against corruption.*Table 1*