by Otavio Veras, Researcher Associate of the NTU-SBF Centre for African Studies
Synopsis
This Wednesday, May 18th, Singapore was host for a very special guest: a delegation from Madagascar, the 4th largest island in the world, located in East Africa, Indian Ocean. The entourage was headed by His Excellency, Mr. Hery Rajaonarimampianina, President of Madagascar, and included other members of the government, and business and political leaders.
The conference was held in the luxurious Conrad Centennial Singapore, and started with the signing of a Memorandum of Understanding (MOU) between the Malagasy Government and the Singapore Cooperation Enterprise, an arm of the International Enterprise (IE) Singapore, the government agency driving Singapore’s external economy. A full day of presentations showed all the economic prospects and how policies are being shaped to foster foreign investment in the country. Delegates at the Forum learned a lot about Madagascar’s people, its culture and the plans the state has to become a bridge between East Africa and Asia.
The Country in Numbers
Although Madagascar and Asia are thousands of kilometres apart, they share a common heritage: the island’s first settlers came from Borneo, not from Africa. Madagascar hosts a unique wild life, with 90% of its native animals and plants found nowhere else. The country has a length of 1,600km from North to South, 570km from East to West, and 5,000km of coastal length. It has a strategic location, close to Africa and not far from Asia and the Middle East.
Madagascar is home to 23 million people and have French and Malagasy as official languages. It had a GDP of US$ 9.7 billion in 2015, with an annual GDP growth rate of 3.2%. One-third of the economy comes from Agriculture, 54% comes from the Services sector and the remaining 13% comes from Industry. Antananarivo is the political, economic, educational and cultural heart of Madagascar. The administrative capital is located 170km from the Indian Ocean, at 1,280m above sea level and concentrates around 1.4 million people.
Malagasy Economy
The largest African island currently faces a US$ 329 million deficit in its export-import balance, having imported US$ 2.375 billion and exported US$ 2.046 billion in 2015. The main exporting commodity comes from its rich soil: nickel. In 2015, Madagascar exported US$ 550 million of the mineral. Another important industry present in the country is that of textiles. Last year, US$ 417 million in textiles were exported from Madagascar. Vanilla and Cloves come in third and fourth place as the most exported products, counting for US$ 198 million and US$ 160 million, respectively, in 2015. Raw material, energy and food are amongst the main import materials.
The soil of Madagascar holds many promising mineral reserves. Graphite, bauxite, rare-earth and ilmenite are the among the most encouraging prospects. Oil and gas are also vastly underexplored, offering attractive investment opportunities.
Being an island with exuberant biodiversity, Tourism is a key source of business. The sector counts for 15.7% of the GDP and employs 577,000 people. Currently, the country attracts 300,000 tourists per year, but the plan is to increase this number to 1 million tourists by 2020. To achieve this goal, the country will need to build over 20,000 hotel rooms in the next 5 years.
The textile industry, second most important in terms of exports after mining, is continuously thriving. In 2008, Madagascar was the 2nd largest exporter of textile to the U.S. Today, it harbours a highly skilled working force at relatively low wages, which makes the country very competitive against China. To increase the competitiveness, the country claims that the a new working force for the textile industry can be trained within 3 weeks, in comparison with the 3 months of training needed for an average new worker from the African continent.
In the infrastructure sector, Madagascar has projects to extend the existing ports of Toamasina, Mahajanga, Toliara and Diego and to build new port facilities for coal, limestone and iron ore in Soalara (South) and Soalala (West). There are projects aimed at the extension of the existing airports and construction of the Sakoa coal railway.
Agribusiness also has a lot of potential. Madagascar has a wide variety of soils and climates, which allow for a range of different crops to be grown. The country is one of the main exporters of lychee to France around Christmas time, while vanilla, coffee and cocoa from Madagascar rank among exotic and desirable products in the international market.
The country promotes a welcoming business environment for agriculture, having 18 million hectares of arable land and a rural population of 15 million people. The country promotes tax exemptions on fertilizers and agricultural equipment and local investors and smallholders are able to obtain long-term leases for agricultural land at rates as low as US$ 10 per hectare, per year. Water extraction fees for irrigation are negligible and most of the agricultural areas are within 200km of major ports, which considerably lowers crop transportation costs.
Strategy Forward
One point that was evident during the forum was Madagascar’s strong commitment to attracting investments and generating economic growth. The country is currently targeting four macroeconomic goals: ensure a domestic and foreign capital balance; control inflation, which is currently at 7.6% per annum; stabilize exchange rates; and strive for an inclusive economic growth.
The country is also engaged in fighting poverty, which will be done through job creation and the regularization of businesses in the informal sector, which will increase tax income; and reduce economic inequality. As continuous steps to achieve these targets, the government is also committed to fight corruption, to create policies that will secure a stable business environment, to promote the development of the private sector, and to welcome international investors. In 2015, Madagascar received US$ 193.4 million of foreign direct investment (FDI).
Madagascar also has a broad plan for reforming the state’s fiscal policy. Madagascar is strengthening customs control procedures, cancelling tax cuts, recovering tax arrears, and minimizing the use of exemption rules. On the government expenditure control, the country is engaged in advancing measures that will reduce inefficiencies. It is delaying civil service recruitment, saving in subsidies, lowering spending in unnecessary goods and services, eliminating civil servants that do not exist (ghost workers), and prioritizing infrastructure projects such as roads, ports, railroads, airports and energy supply.
A strong commitment with public-private partnerships (PPP) is promoted through a comprehensive legal framework and the country has a daring, but achievable target of increasing investment to US$ 20.5 billion until 2022. From this, US$ 5.5 billion would come from PPPs.
Conclusion
The forum ended with an enthusiastic note from Mr. Chabani Nourdine, Minister of Industry and Private Sector Development, inviting Singapore to visit and invest in Madagascar.
Obvious examples of sharing Singapore’s competencies, would include Singapore Cooperation Enterprise and Surbana Jurong International. Given the infrastructure development envisaged, entities such as Surbana Jurong would be able to add immense value.
Singapore, with its expertise in many sectors and its privileged geographical location, can therefore certainly engage in many ventures in the African island and serve as a link between that country and the rest of Asia.
Otavio Veras is a Research Associate at the NTU-SBF Centre for African Studies in Singapore. He holds a bachelor’s degree in Civil Engineering from Instituto Militar de Engenharia (IME) in Brazil. Otavio also has a post-graduate degree in Oil and Gas Offshore Systems from Universidade Federal do Rio de Janeiro (UFRJ) and an MBA degree from INSEAD.
Otavio has 8 years’ experience in O&G and 3 years in Mining. Within the Oil and Gas industry, he held roles ranging from Structural Subsea Engineer and Project Manager to Business Intelligence Analyst. In Mining he worked as a Commercial and Logistics Analyst.