Madagascar presents both challenges and opportunities for business and investment. The country’s economic struggles are characterized by sluggish growth, persistent poverty, and limited structural transformation. Weak governance, inadequate human and physical capital development, and slow structural transformation have contributed to the country’s economic challenges. However, Madagascar also possesses vast potential for growth, with a young population, unique biodiversity, dense forests, fertile agricultural land, and a lengthy coastline. Recent bold reforms in mining, telecom, and energy aim to foster the growth needed to break the cycle of poverty, create jobs, and stimulate the private sector. These reforms, which promote market competition and transparency, are crucial for addressing elite capture and unlocking opportunities for economic advancement.
Despite the economic challenges, Madagascar presents opportunities for private sector investment. The country boasts rich natural capital, including dense forests, a lengthy coastline, substantial mining potential, abundant water resources, and diverse biodiversity. However, mobilizing private climate finance will require fiscal incentives, financing models, and technical and financial support for businesses involved in developing natural capital. The country’s limited and dilapidated infrastructure poses significant obstacles to market entry. Endemic poverty and low purchasing power make Madagascar a challenging market for American imports, particularly for mass consumption products. However, the country’s economy is a consumer economy backed by the well-established agriculture sector, developing tourism, textiles, and mining industries of Madagascar. Malagasy farming grows staple tropical plants such as rice and manatees as well as cash crops, including vanilla and coffee. The garment and clothing industry with 400,000 employees was the largest formal employer as of with half of it in the export processor region (EPZ). To generate hundreds of thousands of new jobs, the industry is ready to provide low-cost labor. Madagascar’s structural economic transformation has been limited, with more than 90% of the working-age population engaged in subsistence agriculture and informal jobs, hindering job creation, economic growth, and poverty reduction. Investment averaged 19.4% of GDP during 2013 to 2019, which is much lower than its level for peer countries. The country’s infrastructure constraints limit production and job creation, impose additional costs on traded goods, and inhibit economic growth. However, with its young population, vast and unique biodiversity, dense forests, fertile agricultural land, unparalleled touristic assets, and one of the longest coastlines in Africa, Madagascar has excellent potential for growth. Recent bold reforms in mining, telecom, and energy can help foster the growth Madagascar needs to leap out of the poverty track it is in. These reforms, bringing more market competition and transparency, are at the core of addressing elite capture and unlocking the door for jobs and private sector.
