Economy of Madagascar

Economy - overview:
purchasing power parity - $14.56 billion (2004 est.)
GDP - real growth rate:
5.5% (2004 est.)
GDP - per capita:
purchasing power parity - $800 (2004 est.)
GDP - composition by sector:
agriculture: 29.3%
industry: 16.7%
services: 54% (2004 est.)
Investment (gross fixed):
14.7% of GDP (2004 est.)
Population below poverty line:
50% (2004 est.)
Household income or consumption by percentage share:
lowest 10%: 3%
highest 10%: 29% (1999)
Distribution of family income - Gini index:
38.1 (1999)
Inflation rate (consumer prices):
7.5% (2004 est.)
Labor force:
7.3 million (2000)
revenues: $783.7 million
expenditures: $1.079 billion, including capital expenditures of $331 million (2004 est.)
Agriculture - products:
coffee, vanilla, sugarcane, cloves, cocoa, rice, cassava (tapioca), beans, bananas, peanuts; livestock products
meat processing, soap, breweries, tanneries, sugar, textiles, glassware, cement, automobile assembly plant, paper, petroleum, tourism
Industrial production growth rate:
3% (2000 est.)
Electricity - production:
840.2 million kWh (2002)
Electricity - consumption:
781.4 million kWh (2002)
Electricity - exports:
0 kWh (2002)
Electricity - imports:
0 kWh (2002)
Oil - production:
0 bbl/day (2001 est.)
Oil - consumption:
13,000 bbl/day (2001 est.)
Oil - exports:
Oil - imports:
Oil - proved reserves:
0 bbl (1 January 2002)
Natural gas - proved reserves:
0 cu m (1 January 2002)
Current account balance:
$-281.9 million (2004 est.)
$868.2 million f.o.b. (2004 est.)
Exports - commodities:
coffee, vanilla, shellfish, sugar; cotton cloth, chromite, petroleum products
Exports - partners:
France 37.4%, US 29.2%, Germany 5.5%, Mauritius 5.2% (2003)
$1.147 billion f.o.b. (2004 est.)
Imports - commodities:
capital goods, petroleum, consumer goods, food
Imports - partners:
China 15.5%, France 14.4%, South Africa 6.9%, Iran 6.8%, India 4.1% (2003)
Reserves of foreign exchange & gold:
$500.3 million (2004 est.)
Debt - external:
$4.6 billion (2002)
Economic aid - recipient:
$354 million (2001)
Malagasy franc (MGF)
Currency code:
Exchange rates:
Malagasy francs per US dollar - 7,150 (2004), 6,210 (2003), 6,831.96 (2002), 6,588.49 (2001), 6,767.48 (2000)
Fiscal year:
calendar year

Madagascar - THE ECONOMY

Government Policy and Intervention

Over the years, successive French colonial and independenceera governments have sought to modernize Madagascar's economy. Despite such efforts, the majority of Malagasy in 1994 continued to earn their livelihoods in ways fundamentally unchanged from those of their ancestors--small-scale farms supporting traditional irrigated rice cultivation, dryland farming of cassava and other foods, zebu cattle herding, or the raising of cash crops.

The first modern land use projects were established by French settlers or Creole immigrants from the Mascarene Islands in the nineteenth and twentieth centuries. They introduced cash crops such as coffee, sugarcane, vanilla, cloves, and sisal for export. They also built small-scale mines to exploit the island's graphite, chromite, and uranium resources. To facilitate the processing and marketing of these commodities, the immigrants established a number of financial and commercial enterprises and built a small, modern railroad system. They then brought some Malagasy into this modern sector of the economy, either as wage laborers and sharecroppers on the foreign-owned plantations, or as low-level employees in the civil service or business enterprises. The foreign owners and managers, however, retained almost all of the benefits from these operations.

After independence the Tsiranana regime did little to change the French domination of the modern sector of the economy, despite increasing outrage at this continued economic dependence. This anger, together with growing concern over an unequal distribution of wealth that left the southern and western parts of the island in relative poverty, caused the ouster of Tsiranana in 1972 and a shift in economic policy. The new military regime led by Ramanantsoa cut most ties with France and began to Malagachize the economy. Slow progress toward this goal, however, helped to precipitate the end of the Ramanantsoa regime in mid1975 . Only with the rise of Ratsiraka to the presidency later that year did the takeover of formerly French-dominated enterprises begin in earnest.

Ratsiraka's policy of "revolution from above" went beyond confiscating or buying out foreign firms and turning them over to Malagasy ownership; he intended to socialize the economy by nationalizing major enterprises. The state acquired majority or minority ownership in nearly all large financial, transportation, marketing, mining, and manufacturing enterprises. Firms left under private control were required to buy and sell at statecontrolled prices, and the state closely monitored the repatriation of profits. In the rural sector, Ratsiraka aimed to establish local farming cooperatives. Almost as important as this institutional reform was the regime's intention, announced in an economic plan for the 1978-80 period, to increase dramatically the level of government capital investment in all sectors of the economy in order to improve the availability of goods and services to all.

By the start of the 1980s, however, Ratsiraka's attempt to fashion viable socialist institutions and to stimulate the economy through increased investment had failed to improve economic production and welfare. Economic growth throughout the 1970s had not kept pace with the expanding population. Despite the availability of significant agricultural and mineral resources, the economy was less productive than at the start of the decade when the average per capita income was already among the lowest in the world. The only apparent effect of the enhanced level of investment, which reached all-time highs in the 1978-80 period, was to put the country deeply in debt to foreign creditors and, therefore, pave the way for a series of structural adjustment agreements signed with the IMF and the World Bank during the 1980s and the early 1990s. Such agreements were necessary because as a 1993 World Bank study pointed out, between 1971 and 1991 the per capita income of Malagasy dropped 40 percent; to return to its 1971 level by 2003, Madagascar would require a 6 percent annual growth rate.

Eventually admitting that adoption of the socialist model of economic centralization and state control was a mistake, the Ratsiraka regime in 1980 initiated a return to a more classic liberal economic model that the Zafy regime wholeheartedly adopted following its inauguration in 1993. The post-1980 Ratsiraka and Zafy regimes have overseen the privatization of parastatals, the disbanding of agricultural marketing boards, the ratification of more liberal investment codes favoring foreign investment, the privatization of the banking industry, diversification of traditional, primary-product exports, and greater investment in food production. The Zafy regime has made reinvigoration of the Malagasy economy its priority.

The major aims of the Zafy regime's agricultural policy are fivefold. The government seeks to make the country selfsufficient with regard to rice by expanding production through such measures as increased irrigation. It is also attempting to improve the quality of the major export crops--cloves, coffee, and vanilla--but to limit their quantities because of restrictions on world demand. The regime is trying to develop new export crops such as cashews, palm oil, shellfish, and soybeans and to diversify consumer food products through introducing rainfed crops such as corn and sorghum. In addition, the government is endeavoring to improve agricultural research and breeding facilities.

<>Structural Adjustment
<>Agricultural Production
<>Foreign Trade

Madagascar - Structural Adjustment

The structural adjustment requirements of the World Bank and the IMF were and remain critical to understanding the liberalization policies of the Ratsiraka and Zafy regimes. In 1980 severe balance of payments deficits led the Ratsiraka regime to seek the first of ten IMF standby and related agreements to be signed during the 1980s. The last series of agreements of the decade included one in 1988 using IMF trust funds and one in 1989 that expired in 1992. Throughout the 1980s, Madagascar also drew four times on the IMF and received four adjustment loans from the World Bank for industrial rehabilitation (1985--US$60 million), agricultural reform (1986--US$60 million), trade and industry adjustment (1987--US$100 million), and public sector reform (1988--US$127 million).

The granting of these standby and related agreements was linked to a coordinated set of structural adjustment requirements designed to foster the liberal, export-oriented economy favored by the IMF and the World Bank. For example, an IMF standby agreement signed on July 9, 1982 to cover the 1982-83 period released 51 million in special drawing rights (SDRs) only after the Ratsiraka regime agreed to reduce both the current account deficit and the budget deficit, devalue the Malagasy franc (FMG), limit domestic credit expansion, avoid any new short- or medium-term foreign borrowing, and limit public sector salary increases. Among the major measures required by later agreements were a ceiling on rice imports, increases in producer prices of rice and coffee, and a further devaluation of the Malagasy franc. Despite a reputation for reneging on commitments to reform, formerly Marxist Ratsiraka ironically became known as one of the IMF's "star pupils" in Africa.

According to its agreement with the IMF, Madagascar was required to limit its deficit to 5 percent of GDP for the period from 1989 to 1992. It succeeded in doing so until 1991 when production dropped, inflation increased, and tax income decreased because of political disturbances. Since then the government has not acted on the increased budget deficit, which was scheduled to be 6.2 percent of GDP in 1994, causing dissatisfaction on the part of World Bank officials.

Economic reform was stalled by the economic and political turmoil associated with the downfall of Ratsiraka and his replacement by the popularly elected Zafy regime in 1992. Although publicly critical of the IMF and World Bank during the 1993 election campaign, Zafy, who is a strong proponent of a liberal, free-market economy, initiated negotiations with these financial institutions to resume Madagascar's structural adjustment programs (and thereby gain access to more than US$1 billion in blocked development funds). However, negotiations throughout the first half of 1994 were tense as Zafy sought to avoid conditions that, no matter how logical from the macroeconomic perspective of long-term reform and development, would constitute political suicide. General principles of reform that the World Bank considered necessary included macroeconomic stability, which implied moderate rates of inflation and of exchange; foreign trade and financial policy modifications that allowed the convertibility of the current account and liberalized import regulations; and the elimination of barriers to economic activity, such as eliminating obstacles to foreign investment and to participation in the export processing zones (EPZs). The World Bank's reform principles also involved encouraging the private sector by privatizing the parastatals, as well as concentrating government investment on infrastructure programs and the development of human resources by improving education, including technical education, and health facilities, including family planning to limit population growth. Among the specific reforms demanded by the World Bank were the revision of the 1994 budget, a new timetable for proposed privatization of parastatals, further reforms of the public sector, and the restructuring of terms for marketing agricultural products, most notably vanilla.

The IMF echoed these demands and added several more. These included allowing the Malagasy franc to float freely on the international currency market, restructuring the National Bank for Rural Development, privatizing the National Bank for Trade Development, and forcing all banks to maintain reserves of 10 percent of all deposits. To avoid pressures from the World Bank, the government sought funds from other sources. Considerable furor developed in the spring of 1994, when it became known that without the knowledge of the minister of finance, who was supposed to authorize such transactions, or the prime minister, but with the agreement of president Zafy and the president of the National Assembly, Richard Andriamanjato, the governor of the Central Bank of the Malagasy Republic, Raoul Ravelomanana, had signed promissory notes to several European banks committing Madagascar to repay loans of US$2 million. In short, the Zafy regime must balance the need for international funds (and the conditions that accompany their disbursement) with the need to maintain popular support if Zafy intends to seek a second term in office.

Madagascar - Agriculture

Traditional farming methods vary from one ethnic group or location to another, according to population density, climate, water supply, and soil. The most intensive form of cultivation is practiced among the Betsileo and Merina groups of the central highlands, where population densities are the highest. At the other extreme are the extensive slash-and-burn methods of brush clearing and shifting cultivation in the south and the east.

The Betsileo are probably the most efficient traditional rice farmers. They construct rice paddies on narrow terraces ascending the sides of steep valleys in the southern portion of the central highlands, creating an intricate landscape reminiscent of Indonesia or the Philippines. The irrigation systems use all available water, which flows through narrow canals for considerable distances. Some of the rice paddies cover no more than a few square meters. Only those surfaces that cannot be irrigated are planted in dryland crops.

In parts of the central highlands two rice crops a year can be grown, but not on the same plot. The Betsileo use a variety of local species that can be sown at different times, employing irrigation to grow some varieties in the dry season and waiting for the rainy season to plant others. The fields surrounding the typical Betsileo village often represent a checkerboard of tiny plots in different stages of the crop cycle.

The cultivation cycle begins with the repair of irrigation and drainage canals and plowing, which is performed with a longhandled spade or hoe. Manure or fertilizer is then spread over the field. If the supply of manure or artificial fertilizer is limited, only the seedbeds are fertilized. After fertilizing, family and neighbors join in a festive trampling of the fields, using cattle if available. Occasionally, trampling takes the place of plowing altogether. If the rice is to be sown broadcast, it may be done on the same day as trampling. In the more advanced areas, the seedlings are raised in protected seedbeds and transplanted later.

Rice-farming techniques among the Merina resemble those of the Betsileo but are usually less advanced and intensive. The Merina territory includes some areas where land is more plentiful, and broader areas permit less laborious means of irrigation and terracing. Although rice is still the dominant crop, more dryland species are grown than in the Betsileo region, and greater use is made of the hillsides and grasslands.

In the forested areas of the eastern coast, the Betsimisaraka and Tanala peoples also practice irrigated rice culture where possible. The dominant form of land use, however, is shifting cultivation by the slash-and-burn method, known as tavy. The smaller trees and brush are cut down and left to dry, then burned just before the rainy season. The cleared area is usually planted with mountain rice and corn. After two or three years of cultivation, the fields are usually left fallow and are gradually covered by secondary vegetation known as savoka. After ten or twenty years, the area may be cultivated again.

Because the slash-and-burn method destroys the forest and other vegetation cover, and promotes erosion, it has been declared illegal. Government assistance is offered to those cultivators who prepare rice paddies instead, and those practicing tavy are fined or, in extreme cases, imprisoned. Despite the penalties, and much to the chagrin of forestry agents, tavy continues to be practiced. Even those who cultivate wet paddies often practice tavy on the side. The crop cycle for tavy is shorter than for irrigated rice, and generations of experience have taught that it is one of the only forms of insurance against the droughts that occur about every three years. Moreover, the precipitous slopes and heavy, irregular rains make it difficult to maintain affordable and controllable irrigation systems.

A similar system of shifting cultivation is practiced in the arid, sparsely populated regions of the extreme south and southwest. The dry brush or grassland is burned off, and droughtresistant sorghum or corn is sown in the ashes. In the Antandroy and some Mahafaly areas, however, the main staples of subsistence--cassava, corn, beans, and sorghum--are also grown around the villages in permanent fields enclosed by hedges.

Dry-season cultivation in empty streambeds is practiced largely on the western coast and in the southwest and is called baiboho. The crops are sown after the last rising of the waters during the rainy seasons, and after the harvest fresh alluvial deposits naturally replenish the soil. Lima beans (known as Cape peas) are raised by this system on the Mangoky River system delta, along with tobacco and a number of newer crops.

The traditional livestock-raising peoples are the Bara, Sakalava, and other groups of the south and the west, where almost every family owns some zebu cattle. The common practice is to allow the animals to graze almost at will, and the farmers take few precautions against the popular custom of cattle stealing. These farmers are also accustomed to burning off the dry grass to promote the growth of new vegetation for animal feed. The cattle generally are slaughtered only for ceremonial occasions, but these are so frequent that the per capita meat consumption among the cattle herders is very high.

Fishing is popular as a sideline by farmers who supplement their farm produce with fish from freshwater rivers, lakes, and ponds. Perhaps two-thirds of the total yearly catch is consumed for subsistence; transportation costs to the capital make the price of marketed fish prohibitively expensive to other domestic consumers. The introduction of tilapia fish from the African mainland in the 1950s increased inland aquaculture. Many families, particularly in the central highlands, have established fish ponds to raise carp, black bass, or trout. The breeding of fish in rice fields, however, requires sophisticated water control and a strong guard against dynamiting, poisoning, and poaching, which remain chronic problems.

<>Agricultural Production

Madagascar - Agricultural Production

The 1984-85 agricultural census estimated that 8.7 million people live in the rural areas and that 65 percent of the active population within these areas lives at the subsistence level. The census also noted that average farm size was 1.2 hectares, although irrigated rice plots in the central highlands were often 0.5 hectares. Only 5.2 percent (3 million hectares) of the country's total land area of 58.2 million hectares is under cultivation; of this hectarage, less than 2 million hectares are permanently cultivated. Agriculture is critical to Madagascar's economy in that it provides nearly 80 percent of exports, constituting 33 percent of GDP in 1993, and in 1992 employed almost 80 percent of the labor force. Moreover, 50.7 percent (300,000 square kilometers) of the total landmass of 592,000 square kilometers supports livestock rearing, while 16 percent (484,000 hectares) of land under cultivation is irrigated.

The government significantly reorganized the agricultural sector of the economy beginning in 1972. Shortly after Ratsiraka assumed power, the government announced that holdings in excess of 500 hectares would be turned over to landless families, and in 1975 it reported that 500,000 hectares of land had been processed under the program. The long-range strategy of the Ratsiraka regime was to create collective forms of farm management, but not necessarily of ownership. By the year 2000, some 72 percent of agricultural output was to come from farm cooperatives, 17 percent from state farms, and only 10 percent from privately managed farms. Toward this end, the Ministry of Agricultural Production coordinated with more than seventy parastatal agencies in the areas of land development, agricultural extension, research, and marketing activities. However, these socialistinspired rural development policies, which led to a severe decline in per capita agricultural output during the 1970s, were at the center of the liberalization policies of the 1980s and the structural adjustment demands of the IMF and the World Bank.

The evolution of rice production--the main staple food and the dominant crop--offers insight into some of the problems associated with agricultural production that were compounded by the Ratsiraka years. Rice production grew by less than 1 percent per year during the 1970-79 period, despite the expansion of the cultivated paddy area by more than 3 percent per year. Moreover, the share of rice available for marketing in the rapidly growing urban areas declined from 16 or 17 percent of the total crop in the early 1970s to about 11 or 12 percent during the latter part of the decade. As a result, Madagascar became a net importer of rice beginning in 1972, and by 1982 was importing nearly 200,000 tons per year--about 10 percent of the total domestic crop and about equal to the demand from urban customers.

The inefficient system of agricultural supply and marketing, which since 1972 increasingly had been placed under direct state control, was a major factor inhibiting more efficient and expanded rice production. From 1973 to 1977, one major parastatal agency, the Association for the National Interest in Agricultural Products (Soci�t� d'Int�r�t National des Produits Agricoles-- SINPA), had a monopoly in collecting, importing, processing, and distributing a number of commodities, most notably rice. Corruption leading to shortages of rice in a number of areas caused a scandal in 1977, and the government was forced to take over direct responsibility for rice marketing. In 1982 SINPA maintained a large share in the distribution system for agricultural commodities; it subcontracted many smaller parastatal agencies to handle distribution in certain areas. The decreasing commercialization of rice and other commodities continued, however, suggesting that transportation bottlenecks and producer prices were undermining official distribution channels.

To promote domestic production and reduce foreign imports of rice, the Ratsiraka regime enacted a series of structural adjustment reforms during the 1980s. These included the removal of government subsidies on the consumer purchase price of rice in 1984 and the disbanding of the state marketing monopoly controlled by SINPA in 1985. Rice growers responded by moderately expanding production by 9.3 percent during the latter half of the 1980s from 2.18 million tons in 1985 to 2.38 million tons in 1989, and rice imports declined dramatically by 70 percent between 1985 and 1989. However, the Ratsiraka regime failed to restore self-sufficiency in rice production (estimated at between 2.8 million to 3.0 million tons), and rice imports rose again in 1990. In 1992 rice production occupied about two-thirds of the cultivated area and produced 40 percent of total agricultural income, including fishing, which was next with 19 percent, livestock raising, and forestry.

In February 1994, Cyclone Geralda hit Madagascar just as the rice harvesting was to start and had a serious impact on the self-sufficiency goal. In addition, the southern tip of Madagascar suffered from severe drought in late 1993, resulting in emergency assistance to 1 million people from the United Nations (UN) World Food Program (WFP). This WFP aid was later transformed into a food-for-work program to encourage development.

Other food crops have witnessed small increases in production from 1985 to 1992. Cassava, the second major food crop in terms of area planted (almost everywhere on the island) and probably in quantity consumed, increased in production from 2.14 million tons in 1985 to 2.32 million tons in 1992. During this same period, corn production increased from 140,000 tons to 165,000 tons, sweet potato production increased from 450,000 tons to 487,000 tons, and bananas dropped slightly from 255,000 tons to 220,000 tons.

Several export crops are also important to Madagascar's economy. Coffee prices witnessed a boom during the 1980s, making coffee the leading export crop of the decade; in 1986 coffee earned a record profit of US$151 million. Prices within the coffee market gradually declined during the remainder of the 1980s, and earnings reached a low of US$28 million in 1991 although they rebounded to US$58 million in 1992. Cotton traditionally has been the second major export crop, but most output during the early 1980s was absorbed by the local textile industry. Although cotton output rose from 27,000 tons in 1987 to 46,000 tons in 1988, once again raising the possibility of significant export earnings, the combination of drought and a faltering agricultural extension service in the southwest contributed to a gradual decline in output to only 20,000 tons in 1992.

Two other export crops--cloves and vanilla--have also declined in importance from the 1980s to the 1990s. Indonesia, the primary importer of Malagasy cloves, temporarily halted purchases in 1983 as a result of sufficient domestic production, and left Madagascar with a huge surplus. A collapse in international prices for cloves in 1987, compounded by uncertain future markets and the normal cyclical nature of the crop, has led to a gradual decline in production from a high of 14,600 tons in 1991 to 7,500 tons in 1993. Similarly, the still stateregulated vanilla industry (state-regulated prices for coffee and cloves were abolished in 1988-89) found itself under considerable financial pressure after 1987 because Indonesia reentered the international market as a major producer and synthetic competitors emerged in the two major markets of the United States and France. As a result, vanilla production has declined from a high of 1,500 tons in 1988 and 1989 to only 700 tons in 1993.

The fisheries sector, especially the export of shrimp, is the most rapidly growing area of the agricultural economy. This production is making up for lost revenues and potential structural decline within the ailing coffee, vanilla, and clove trade. Since 1988 total fish production has expanded nearly 23 percent from 92,966 tons to 114,370 tons in 1993. The export of shrimp constituted an extremely important portion of this production, providing export earnings of US$48 million in 1993. It is estimated by Aqualma, the major multinational corporation in the shrimp industry, that expansion into roughly 35,000 hectares of swampland on the country's west coast may allow for the expansion of production from the current 6,500 tons and US$40 million in revenues to nearly 75,000 tons and US$400 million in revenues by the end of the 1990s. The prospects are also good for promoting greater levels of fish cultivation in the rice paddies, and exports of other fish products, most notably crab, tuna, and lobster, have been rising.

Livestock production is limited in part because of traditional patterns of livestock ownership that have hampered commercialization. Beef exports in the early 1990s decreased because of poor government marketing practices, rundown slaughtering facilities, and inadequate veterinary services. Approximately 99 percent of cattle are zebu cattle. In 1990 the Food and Agriculture Organization of the UN estimated that Madagascar had 10.3 million cattle, 1.7 million sheep and goats, and some 21 million chickens.

Madagascar - Industry

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. 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 (imp�t sur les b�n�fices) and another on revenues from capital transfers (imp�t 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) 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 Strat�giques). 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.

Madagascar - Foreign Trade

As of 1992, 81.1 percent (US$311 million) of Madagascar's total exports of US$383.5 million were to the industrialized West. Four countries served as the primary destination of Malagasy goods: France (30.4 percent), the United States (13.3 percent), Germany (10.1 percent) and Japan (7.5 percent). In contrast, only 51 percent (US$313.2 million) of Madagascar's total imports of US$614.1 million in 1992 came from the industrialized West (a sharp decline from 78.7 percent in 1980), and only France remained a significant partner (providing 29.9 of Madagascar's imports). Whereas Japan and Germany were responsible for 4.3 and 3.9 percent of Madagascar's imports, respectively, the United States contributed a meager 1.1 percent. Russia remains marginal in terms of both imports and exports (less than 1 percent), and, along with the other former communist countries, has never constituted a major trading partner of Madagascar. In aggregate terms, Madagascar's exports to the industrialized West dropped slightly from US$316 million in 1980 to US$311 million in 1992.

Two trends in trade with the developing world stand out. First, Madagascar slightly increased the percentage of goods exported to other southern countries from 14.3 percent in 1980 to 18.8 percent in 1992. Other African countries were the major market for Malagasy goods (11.0 percent) in 1992, Asia came in second (7.1 percent), and the Middle East and Latin America together imported only 0.5 percent. In aggregate terms, Madagascar's exports to the developing south expanded from US$57.5 million in 1980 to US$72.3 million in 1992.

A second, more noticeable shift occurred in terms of Madagascar's imports from other southern countries, increasing from US$55 million in 1980 to US$301 million in 1992. In sharp contrast to regional patterns related to exports, Madagascar imported the majority of its goods from Asia (15.5 percent) and the Middle East (8.5 percent). Other African countries were the source of only 6.1 percent of Madagascar's imports, and Latin America registered the negligible total of 2.1 percent. A burgeoning trade deficit that exceeded US$230 million in 1992 remains one of the biggest trade problems confronting Malagasy policy makers.

The following is excerpted 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.
Full index of Country Studies-Madagascar