MARIE-CHANTAL UWANYILIGIRA & MARCELLE AYO
The COVID-19 pandemic has taken a heavy toll on Madagascar’s economy, sending it into recession in 2020 for the first time in a decade, and pushing an additional 1.4 million people into poverty. This has worsened the poverty situation, which is already among the highest in the world with a poverty rate of around 75%, in a country with a fast-growing population.
But the crisis is also an opportunity for Madagascar to rethink its development model by placing private sector-led solutions more firmly at the heart of its growth strategy.
With its vast agricultural land, almost unparalleled biodiversity, and young population, Madagascar’s potential for growth is great. The digital revolution, which is transforming all sectors of African economies, is also a chance for the island nation to improve financial inclusion, particularly for women, SMEs, and those in the informal sector.
Seizing these opportunities will help Madagascar achieve a much-needed resilient and inclusive recovery from the pandemic and build a long-term foundation for growth and job creation.
The country has the means to do so: A new report by the World Bank and IFC, the Madagascar Country Private Sector Diagnostic (CPSD), argues that Madagascar has opportunities in human and physical infrastructure and three other real sectors with especially high potential for growth and job creation: agribusiness, tourism and apparel.
The agriculture and agro-processing sector supports 75% of the population, but most in the sector still practice subsistence farming. Even so, Madagascar, world famous for its vanilla, has a comparative advantage in several value chains with high export potential, including cocoa, lychees, and livestock products. Removing trade barriers, improving logistics and the use of fertilizers, and making farming practices more sustainable could further increase farmers’ access to markets and enhance domestic supply chains.
Tourism, devastated globally by COVID-19, is another area where Madagascar could realize significant development gains. The country has exceptional natural and cultural assets, and with the right legislation to support new concessions and attract investors, there is room to increase tourist arrivals, especially in high value-added segments such as ecotourism or marine tourism.
Meanwhile, Madagascar is also well-positioned to grow its apparel industry. Already the third-largest exporter of apparel in Sub-Saharan Africa, Madagascar could expand its market share in this labor-intensive industry by improving its investment climate and by helping smaller businesses integrate into regional and global value chains.
In addition to these three sectors, better adoption of digital technology could help Madagascar create jobs and meet the needs of its poorest. Digital solutions such as mobile money are already helping entrepreneurs and the country’s informal sector access financial services. Establishing an efficient regulatory framework in telecoms could help attract additional investment into the country’s digital infrastructure and skills, as well as improve the affordability and coverage of ICT services.
To harness these and other opportunities, Madagascar will need to make bold decisions and develop a long-term strategy to strengthen its private sector, resolve constraints hindering competitiveness across most industries, and enable entry for a wider class of domestic and international investors.
The first challenge — and arguably most important — is to create a more business-friendly environment. Reducing the costs of starting and operating a business, improving the conditions of competition, and establishing impartial regulations will be crucial to attract investors, launch new projects, and build confidence in the private sector.
To help ensure that projects reach fruition and transform people’s lives, Madagascar’s government would also do well to build its capacity to better implement policies and reforms, and work more closely with the private sector through public-private dialogue platforms.
Finally, Madagascar faces significant infrastructure challenges that limit productivity and sap investor interest, especially in poorly served rural communities. The most urgent needs here are to expand access to affordable electricity and strengthen transportation networks. This will require both increased investment and reforms to encourage private sector participation.
The CPSD provides short- and medium-term priority recommendations. The World Bank Group — a longstanding partner with Madagascar — will channel its private sector development, investment, and advisory operations in the country to target the sectors and reforms highlighted in the report — and support the Government of Madagascar in implementing its development agenda.
Now more than ever, the World Bank Group stands ready to support Madagascar’s public and private sectors to help the Malagasy people emerge stronger from the crisis.
