Madagascar

Growth, still underpinned by ore, struggles to take off

In 2025, growth will continue to be driven by the extractive industries (nickel, ilmenite, graphite) and manufacturing (textiles). The continued implementation of the new mining code, revised and validated by the Constitutional Court in July 2023, will continue to stimulate investment. Legislation has increased the combined royalty and community rebate rates to 5% (from 2%) and reduced the validity of an operating licence to 25 years (from 40), renewable once for 15 years (from 20). Despite the tougher conditions, foreign and domestic investment will continue to increase. This is due to a more attractive legal and regulatory environment and sustained global demand for the country's mineral resources, which are essential to the energy transition.

Mineral exports will also be boosted by the commissioning of major graphite extraction facilities (the world's third-largest supplier) and gold sales, which have benefited from the lifting of the ban on its export since March 2023. With gold prices soaring since 2024, Madagascar will also benefit from the construction of a refinery financed by the United Arab Emirates and operational from 2025, which will enable the export of around 15 tonnes of gold a year. Public investment will support the construction sector by targeting infrastructure projects such as the construction of a water pipeline in the south and a new motorway linking Antananarivo and Toamasina by the end of 2027.

Last, the country will also benefit from a boom in tourism and a rebound in agriculture. Rice production will increase in the first half of the year and vanilla production will remain high for the 2024-2025 season, while also benefiting from rising prices. However, despite the favourable outlook, public and private investment could be thwarted by poor governance (corruption) and climatic risks. Private consumption (66% of GDP) will also be limited by widespread poverty and inflation. Inflation will remain high, despite a slight easing due to monetary tightening and lower prices for imported raw materials such as oil and foodstuffs. Madagascar will actually benefit from the end of the Indian embargo on non-basmati rice, announced for 2024, and from the increase in its domestic rice production.

Twin deficits still high despite mining and budget reforms

In 2025, the public deficit should just stabilise due to the slow and only gradual implementation of the reforms supported by the IMF. The recovery plan for the national water and electricity production and distribution company, Jirama, which suffered losses following an accident at a hydroelectric power station in 2022, will reduce the budgetary risk. The introduction of an automatic mechanism for setting fuel prices and the lifting of price ceilings on essential imports (rice, sugar and cement) will reduce government transfers. However, government capital spending on infrastructure projects (roads and access to electricity) will continue to be steep. Project aid will fall as a percentage of GDP, but tax revenues will stabilise, with mining revenues boosted by the new code. While the government is attempting to increase the tax base, notably by raising excise duties on tobacco and restoring the VAT rate to 20% for diesel and petrol, tax performance will remain weak and reforms very gradual. These are supported by the IMF, which approved two new programmes in July 2024 following the cancellation of the 40-month Extended Credit Facility (ECF) signed in March 2021. This decision stems from the government's desire to align itself with the new General State Policy resulting from the new presidential term (December 2023). The new agreement comprises a 36-month ECF of USD 337 million, of which USD 48 million was disbursed immediately, as well as a Resilience and Sustainability Facility of USD 321 million. In addition to IMF disbursements, the deficit will continue to be financed by concessional external borrowing. By 2025, almost 70% of public debt will be external, almost entirely held by official creditors. The ratio of public debt to GDP should remain stable, in line with the stabilised budget deficit.

In 2024, the trade deficit rose sharply as a result of the significant contraction in exports, linked in particular to the fall in world prices for nickel and vanilla, which respectively account for 26% and 17% of Madagascar's exports. By 2025, the trade deficit should have narrowed, allowing the current account deficit to contract, although it will still remain high. Growth in exports, driven by minerals and vanilla, will outstrip the increase in imports. In line with the infrastructure investment policy and the development of mining projects, the bill for intermediate goods and equipment will be costly. The services deficit will narrow as tourism continues to recover, with the number of annual arrivals expected to grow by 25%.

Remittances from expatriates (2.4% of GDP in 2023) will exceed dividend repatriations from foreign investors. The deficit will continue to be financed by foreign direct investment, mainly in the mining and fishing sectors, and by international aid.

President Rajoelina re-elected despite popular discontent

President Andry Rajoelina was re-elected for a five-year term in November 2023 after winning almost 59% of the vote. Opposition candidates suspected irregularities and called for a boycott, so turnout was low (46%). The presidential coalition also won a majority in the National Assembly in the legislative elections of May 2024 (84 out of 163 seats). Despite the government's strong position, instability will remain high due to popular discontent, particularly in urban areas where the opposition won more votes in the elections. Social unrest will continue to be fuelled by poor governance (corruption) and socio-economic grievances linked to high inflation and an entrenched food crisis as a the result of external supply shocks, persistent drought in the south and recurrent cyclones. Added to this is a high poverty rate (80%) and prevalent crime and banditry. However, having banned all forms of political demonstration in March 2023, the government will not hesitate to crack down on opponents in the event of protests. The risk of a coup d'état cannot be ruled out given that the army has already intervened in the past during contested transitions, most recently in 2002 and 2009.

Internationally, the country will continue to depend on foreign aid (multilateral organisations, France and the US). The country will also strengthen its ties with China and India, its main sources of imports (fabric, iron, rice).

Last updated:November 2024