Madagascar

Economic Overview

The Republic of Madagascar, the world's fourth-largest island, possesses an economy of unique potential and persistent challenges. Its unparalleled biodiversity makes it a global hotspot for conservation and eco-tourism, while its agricultural sector is a key global supplier of vanilla. However, the country's development has been hampered by a history of political instability, weak infrastructure, and extreme vulnerability to climate shocks, particularly devastating cyclones. The 2025-2026 outlook is for a fragile recovery, contingent on political stability, international support, and favorable weather conditions.

GDP Size & Growth Trajectory

Madagascar's economy is small and has experienced volatile growth. After a post-pandemic rebound, growth moderated. The IMF forecasts real GDP growth to be around 4.0% in 2025. This growth is dependent on the performance of the agricultural sector, a recovery in tourism, and the mining sector.

Sector Composition

• Services: This is the largest sector, contributing around 55% of GDP. It is led by trade, transport, and a slowly recovering tourism sector.
• Agriculture: This sector is the backbone of the economy, contributing about 24% of GDP and employing around 80% of the population. Madagascar is the world's leading producer of vanilla, which is a critical source of export earnings. Cloves and shrimp are also major agricultural exports. The sector is dominated by smallholder farming and is highly vulnerable to cyclones and drought.
• Industry: The industrial sector accounts for about 20% of GDP. It includes a significant mining sector, with major investments in nickel and cobalt production. The textile industry, producing for export, is also a key component.

Inflation Trends

Inflation has been a persistent challenge, driven by high food and import prices, particularly after climate-related shocks disrupt local food supplies. The Central Bank of Madagascar works to contain these pressures, but they remain a concern for the economy.

Fiscal & Monetary Policy Stance

• Monetary Policy: The Central Bank of Madagascar manages the Ariary (MGA), the national currency, with a focus on managing inflation and maintaining a stable exchange rate.
• Fiscal Policy: The government is reliant on international aid and works closely with the IMF and World Bank on programs aimed at improving public financial management and expanding the tax base.

Table 1: Key Macroeconomic Indicators (2023-2026F)

Market Size & Demand Potential

The domestic market is large in terms of population but is constrained by very low purchasing power and high levels of poverty.

Population Size and Demographics

With a population of over 30 million, Madagascar has a significant human resource base. The population is extremely young, with a median age of around 19 years.

Urbanization and Consumer Hubs

The capital city, Antananarivo, is the main political, economic, and administrative center. Other important cities include Toamasina (the main port) and Antsirabe.

Business Environment

The business environment is challenging, largely due to political instability, weak infrastructure, and governance issues.

Ease of Doing Business & Regulatory Reforms

The country ranks low on global ease of doing business indices. The Economic Development Board of Madagascar (EDBM) serves as the investment promotion agency and a one-stop-shop for business registration, but bureaucratic hurdles and corruption are significant concerns for investors.

Political Stability & Governance

Madagascar has a history of recurrent political crises, coups, and unconstitutional changes of government, which have been the primary obstacle to its economic development.

Political Environment

The country is a semi-presidential republic. The political landscape is highly fragmented and prone to instability, which often disrupts economic policy and deters long-term investment.

Rule of Law & Investor Protection

The legal system is based on French civil law. While a legal framework for investment exists, the rule of law is weak and inconsistently applied. The judiciary is susceptible to political influence, and contract enforcement is a major challenge.

Infrastructure Readiness

Infrastructure is severely underdeveloped and a major constraint on economic growth, particularly in the transport and energy sectors.

Transport and Logistics

As a large island, maritime transport is crucial. The Port of Toamasina is the country's main port but requires modernization. The road network is in poor condition, making it difficult and expensive to transport goods internally, particularly from agricultural production zones to the ports.

Energy Sector

Access to electricity is extremely low, especially in rural areas. The country is heavily reliant on imported diesel for power generation, which is expensive. There is significant untapped potential for renewable energy, particularly hydropower and solar, but development has been slow.

Sector-Specific Opportunities

1. Tourism (Eco-tourism)

This sector holds the most unique and significant potential for Madagascar. The island's unparalleled biodiversity, with thousands of species of flora and fauna found nowhere else on earth (including lemurs), makes it a world-class destination for eco-tourism, wildlife tourism, and scientific research. Investment is needed in high-quality eco-lodges, tourism infrastructure, and conservation efforts.

2. Agriculture (High-Value Exports)

There are opportunities to improve the value chains of Madagascar's key exports:

• Vanilla: Improving quality, traceability, and local processing.
• Fine Cocoa: Developing a niche in high-quality cocoa production.
• Essential Oils: Expanding the production of cloves, ylang-ylang, and other essential oils for the global fragrance and cosmetics industries.

3. Mining

Madagascar has significant mineral deposits, including nickel, cobalt, ilmenite, graphite, and precious stones. The Ambatovy mine is one of the world's largest nickel and cobalt operations. This sector attracts large-scale foreign investment but requires careful navigation of the political and regulatory environment.