Industrial Development in Madagascar

Madagascar

Industrial Development

Traffic on a street in Antananarivo
Courtesy J.D. von Pischke

After registering a negative average annual growth rate of - 2.8 percent from 1981 to 1986, industrial development improved from 1987 to 1991 with a positive, albeit small, average annual growth rate of 1.1 percent. As of 1993, it was estimated that industrial output was responsible for 13 percent of GDP, and that the food-processing, mining, and energy sectors contributed 65 percent of the manufacturing portion of this total.

The establishment of EPZs and the passage of a new investment code in 1990 contributed to an expansion of industrial output (see table 5, Appendix). Despite the implications of the title, the EPZs do not require registered companies to establish themselves in specific geographic zones but merely constitute entities that fall under a specific fiscal code. The EPZs are financially attractive in that registered companies only pay one tax on profits (impôt sur les bénéfices) and another on revenues from capital transfers (impôt sur les revenus de capitaux mobiliers), and, in the case of the former, receive an exemption of as much as the first fifteen years of operation. From 1990 to 1993, 100 new companies had established themselves in the EPZs, creating more than 17,500 jobs and generating more than US$113 million in foreign investments. The majority of these firms were distributed among three economic sectors--clothing (48 percent), handicrafts (13 percent), and agro-processing (9 percent). Only 14 percent were owned by Malagasy; the remainder were owned by French (55 percent), Mauritian (16 percent), South African (4 percent), or other nationals (11 percent). Another 7,000 jobs and US$70 million in investments were generated by more than 160 new companies taking advantage of the new investment code. The creation by the International Finance Corporation (IFC--see Glossary) in June 1994 of the US$2.6 million Madagascar Capital Development Fund is designed to encourage Malagasy firms to establish themselves in the EPZs.

Madagascar contains a wide variety of minerals, but most of the deposits exist in scattered and relatively inaccessible locations. The government nationalized all mineral deposits in 1975, bringing mineral exploitation under the National Military Office for Strategic Industries (Office Militaire National pour les Industries Stratégiques). In 1990 a new mining investment code that encouraged private investment and exploitation was implemented, but the results have been disappointing. Several companies, including most recently Royal Dutch Shell, which disbanded its operations in early 1994, have sought unsuccessfully to find petroleum.

In another venture, in August 1993, a Swiss enterprise, International Capital and Securities Exchange, obtained the right to explore and mine for gold over a twenty-five-year period. French government sources estimate Madagascar's gold production at about three to four tons of gold annually and its potential yield double that. In 1992, however, as a result of smuggling, only thirty-seven kilograms of gold were officially exported.

Madagascar has reserves of bauxite, chromite, graphite, limestone, mica, nickel, and limestone. The exploitation of these minerals varies. More than 108,000 tons of chromium ores and concentrates, mostly in Andriamena in the central area and near Befandriana Avaratra on the north central area (Madagascar is the world's tenth largest producer), and 10,600 tons of graphite were successfully extracted in 1992. In contrast, the production of ilmenite ore, used in the manufacture of titanium, ceased in 1977 (although a joint Malagasy-Canadian firm is expected to resume production beginning in 1995). In the southeast, some 100 million tons of bauxite deposits at Manantenima in the southeast are at present unexploited. A variety of other minerals are mined on a small scale, including agate, beryl, quartz, garnet, amazonite, amethyst, moonstone, tourmaline, citrine, and a number of abrasives and feldspars.

Madagascar depends completely on foreign imports to satisfy its oil needs, but it also refines some petroleum for export. Two-thirds of all electricity demand is met by production from seven hydroelectric power plants that serve Antananarivo, Antsirabe, and the Andriamena chrome mine; the remaining onethird is met by thermal stations. Many plants have their own small diesel or steam generators. Energy needs are also met by firewood and charcoal, which has contributed to the precarious nature of the country's forests and serious erosion problems, and by the bagasse from sugarcane used in sugar production; two power stations using bagasse as fuel and a solar energy plant are planned. Reserves of 100 million tons of coal are found primarily near Sakoa in the southwest, although less than 10,000 tons are used on an annual basis. The government seeks to expand domestic coal use.

Another area that the government has begun to develop is that of tourism, which has good potential in view of Madagascar's exotic flora and fauna, and some 5,000 kilometers of beaches. In early 1989, the regime launched a tourism plan designed to bring in 100,000 tourists annually by 1995. Thus far, however, the greatest number of tourists attracted has been 52,900 in 1990, compared with 250,000 on the much smaller island of Mauritius. To achieve its goal, Madagascar needs further infrastructure in the way of transportation, accommodations, and other facilities, as well as a greater sense of security on the part of foreigners--in 1993 gendarmes shot two German researchers in error, causing Germany, which was Madagascar's second largest tourist source, to boycott the island.

Data as of August 1994

This is excerped from the Country Studies--Area Handbook program of the U.S. Department of the Army. The original version of this text is available at the Library of Congress.
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