Since it gained independence in 1961 it is fair to say that Madagascar hasn’t lived up to its full potential. Despite escaping the widespread conflict that has afflicted so many other African countries its per capita income has halved over the last 50 years. As a result the country has suffered on a wide range of development indicators including a high rate of infant malnutrition. The nation’s infrastructure is chronically underfunded, roads crumble in the rains and there are daily electricity blackouts.
Some commentators might argue that this underdevelopment is a result of abundant natural resources. Timber, nickel, precious gems (particularly sapphires), vanilla cloves and orchids are all famed Malagasy produce. But this wealth is another example of the natural resource curse, instead of enriching all 24 million Malagasies. Exports of costly gems, highly sought after rosewood and vanilla have typically just benefited the nation’s elite, transnational firms and criminals with very little trickling down to the masses.
Poor Governance
Governance is a major stumbling block on the island. Instability, coups which led to diplomatic isolation and the fact that the government’s sphere of influence doesn’t fully extend across the whole country make it a daunting place to invest. The legal system is based on French Civil Code, which is good in theory but implementation is poor and investors would be wise to avoid courts. It is no surprise that the country has failed in the past to become an investment hotspot. Madagascar stands in contrast to its island neighbour Mauritius which has reaped the rewards through its status as an oasis of stability.
All this would put off most investors, but like every other corner of the globe and taking bigger risks many other nation’s firms. Chinese ventures have made their mark in Madagascar with heavy investment in the mining and extractive sectors.
China in Madagascar
Chinese involvement in Madagascar goes back to the nineteen century when many Chinese settlers moved to the island and intermarried with locals – adding to the wide mix of ethnicities that make up the Magalasy population and giving them the local moniker – “Old Chinese”.
But now new Chinese settlers are arriving and they are not always welcome. Relations between government, Chinese investors and the local populace are often strained. The perception has grown that Chinese firms take natural resources, ruin the environment but just offer poorly paid work in return.
Like many other African nations Chinese goods have become popular in Madagascar, at the same time many Chinese extractive firms have set up operations on the island. Some estimates put 800 Chinese ventures across the country – one such operation is Jiuxing Mining. Jiuxing was driven from the island by angry Magalasy farmers who accused the mine owners of ruining their farms.
While widespread negativity around the mining sector is undeniable there’s another side to the Madagascan economy which has not be been fully told.
Eco-Tourism
Perhaps the greatest prize lies with Madagascar becoming a eco-tourism hotspot – its distinctive wildlife and fauna, (around 70% of its animals and plants are unique to island) are a major draw. In addition its spectacular beaches make it an attractive destination for adventurous holiday makers. The 80 or so Lemur species are perhaps the most charismatic animals that make their home on the island and a major draw for visitors. But like other species they face an uncertain future thanks to habitat destruction caused by loggers and farmers. Unfortunately the island has suffered from predatory forest felling, poaching, wildlife smuggling and many other environmental crimes which have destroyed much of its forest and fauna.
Apart from extending wildlife parks, solutions to the environmental destruction on the island involve connecting local communities to reforestation and ecotourism and have been put into practice by NGOs such as SOS – Save our Species, but these schemes need to be scaled up across the island in order to amplify their impact.
Impact Investment in Madagascar
For example in Kianjavato south of the capital Antananarivo a community earns credit which can be exchanged for sewing equipment, solar panels and bicycles through planting trees, enhancing the environment and opening economic opportunities. Currently eco-tourism contributes around just 5% of the nation’s GDP but if the sector was promoted an supported in the right way it could grow in size and significance and support the island financially. Unfortunately the temptation to log or poach wildlife offers quick but unsustainable returns and threaten to undermine the ecotourism sector.
Madagascar also holds great potential for renewable energy, micro solar grids, wind power and hydro power. This new technology can all have a bright future given the mountainous terrain and sunny climes enjoyed by the island.
Madagascar suffers from political instability, woeful infrastructure and scores poorly on the World Bank’s annual doing business survey, all of which should be putting off investors, but recently he country is enjoying increased economic growth and has perhaps turned a corner on the instability of the past, all of which makes it an excellent time to reconsider the country as an investment destination.
