MADAGASCAR – Hopes & Mirages!

“Economic growth without social progress lets the great majority of people remain in poverty , while a privileged few reap benefits of rising abundance.” -John F. Kennedy

Business and economy are intertwined, and so is economic and social progress. Madagascar, the fourth largest island, has emerged as a competent, yet low-income economy, owing to entrepreneurial set-ups apart from political and social elements. The current generation of Malagasy face the biggest challenge of striking a balance between economic growth, equitable development and natural conservation. The 2011 ranking of “Doing Business” shows the Sub-Saharan African nation at 140th spot (a downfall of two ranks against the 2010 spot of 138) out of 183 economies. The statistics paint a vivid picture of the urge the nation has to develop. With initiatives like the Madagascar-U.S. Business Council and Millennium Challenge Account, Madagascar is leaving no stone unturned to explore and tap its potential.

Entrepreneurial endeavors are an attempt of the Malagasy people to make a fresh start. Factors like dealing with construction permits, registering property,  getting credit, paying taxes, protecting investors and trading across borders contribute to start-ups in Madagascar. Apart from these, social, economical and political conditions decide the fate of a venture.

Social

A major bottle-neck condition in Madagascar is the human right issue – corruption, arbitrary arrests, widespread underage prostitution and child labor are huge obstructions to any new investment. A very “delicate” situation in the society can incur heavy fiscal damage. The nation has also witnessed rises of accusations of media censorship since 2009 due to alleged increased restriction on coverage of government opposition. This seemed to be in absolute contradiction to the nation’s motto, “Tanindrazana, Fahafahana, Fandrosoana” (“Fatherland, Liberty, Progress”). The public health is also an issue of concern, especially after the fatal Rift Valley Fever outbreak in July 2008 that left 520 inflicted cases according to the Ministry of Health. Similar viral infections are suspected almost every year when South-Eastern trade winds give rise to catastrophic cyclones. The most destructive since 1927 was cyclone Geralda (’94), which rendered over 500,000 people homeless, causing a loss of property worth US $4 million. The UN Food and Agricultural Organization (FAO) might have developed an Emergency Response Plan, however, nature has different plans! And business surely has no room for treacherous partnerships.

Economic

The UN Central Emergency Response Fund (CERF), worth a total of $376,000, also could do no good to the seething economy as the torn nation had rescue and restoration as its priority. With a population of 19,625,030, the GNI per capita of US $412.00 sounds too minimal. Moreover, the uncertainty involved makes business even more precarious. 1991-96 was a period when the nation witnessed a significant stagnation, but surprisingly, what followed was a duration of solid economic emancipation and accelerated foreign investment. Today in 2011, the scene may not seem to be so unpredictable, courtesy of predictive modeling and data analysis tools. With several structural reforms like privatization programs and development of export processing zones (EPZ), the condition is expected only to improve. Talking from an entrepreneur’s point of view, all it takes to launch a start-up is a mere time of 7 days:

1. Deposit registered status and apply for license (carte professionnelle) and statistical identifications – 5 days.
2. File a notice of constitution to be published in a daily newspaper in French – 2 days.

Political

In 1991, a  six-month political crisis led to a 12.7 % drop in GDP, underscoring the interdependency of politics and economy. Currency depreciation and rising inflation are all the by-products of internal political turmoil. The government of Madagascar, after years of political unrest, designed a recovery plan after collaborating with private sectors and donors. The struggle for control in Malagasy Republic has thrown economic interests to backburner. The moment a public policy of the government fails, the inevitable game of passing the buck begins. A constant debatable topic in the political history has been the role of the public-private sector working together. Recent developments, however, have  signaled a positive impact; the “Friends of Madagascar” conference and the setting up of joint public–private sector steering committees are some notable efforts.

HOPES

What to expect:  “No nation was ever ruined by trade.”

This remark of Benjamin Franklin highlights the importance of trade for a nation. Madagascar, the country that owns half of the world’s vanilla export market, fortunately has a favorable trade location. With its Indian Ocean neighbors, Mauritius and Comoros, on one side, African countries on the other, and relations with former ruler France, this has made Madagascar a hot cake. Agriculture (including fishing and forestry) is the backbone of the economy. Agricultural produce from Madagascar – coffee, sugarcane, cloves, cocoa, rice, cassava, beans, bananas, peanuts and livestock products – are exported around the globe. If we trace back the steps of international trade in Madagascar, it was the launch of the Third Republic (1993) that marked a shift towards the capitalist economic growth model, necessitating expanded diplomatic and trade ties with global markets. The fisheries sector, especially the export of shrimp, is the most rapidly growing area.

Canal de Pangalanes, a chain of man-made and natural lakes connected by French-built canals just inland from the east coast, is another feather in the cap of the otherwise structurally crippled nation. The government has made road infrastructure a priority. Furthermore, export products are not limited to agricultural production only. Madagascar, rightly termed as the “eighth continent,” houses 80% of the world’s endemic species of herbs and flora. Madagascar Periwinkle, a native vegetation, has recently been established as the most effective treatment for Leukemia and Hodgkins Disease. The administration of several faritas (regions) responsibly maintain the distinctive ecology.

The biodiversity here has opened avenues for yet another sector of entrepreneurship – eco-tourism. The UN has declared six national parks as World Heritage Sites; Marojejy, Masoala, Ranomafana, Zahamena , Andohahela and Andringita National Park, together called Rainforests of Atsinanana. The lemur species, a type of primates, is found only in Madagascar. According to Wikipedia reports, “the island is home to 170 palm species, three times as many as found  on maininland of Africa, 165 of them are endemic. The traveler’s palm, endemic to eastern rain forests, is highly iconic of Madagascar and is featured in the national emblem.”

MIRAGES

Catch them if you can! Madagascar is a land abound in unprocessed resources. While deriving fine products from agricultural land has no evident side-effects, the processing of mineral resources makes the nature pay a hefty price. The EPZs may look financially attractive, but the setting up of factories backfires on the natural flora and fauna, a non-renewable asset.

After several failed ventures, including Royal Dutch Shell, many international firms are still in the destructive mining process, the latest addition to the list being Rio Tinto. Rio Tinto’s strapline of “global citizen, local partner” demonstrates an aspiration to become a neighbor of choice, but is yet to reconcile with operations. Its ambitious venture, QMM, will not only destroy natural beauty over 6,000 hectares of land, but also demolish ports meant for trade, and also cause water pollution. The implications create an antagonistic environment which QMM tries to appease through community financial contribution. Such a “goodwill gesture,”’ however, does not compensate for the local community experiences.

Conclusion

Madagascar is the 37th Heavily Indebted Poorest Countries (HIPC) in the world according to the World Bank. Eradication of poverty and emancipation of economy must feature on the priority list of its citizen. Foreign export, tax reforms to extract investment, eco-tourism and herbal resources provide for a subtle way of boosting the economy, but new mining codes for digging up semi-precious stones from the heart of Earth is not needed. The basic principle of business is contradicted as the percentage of gain is nothing to what the nation loses! Nature has enough for everyone’s need, not greed!

By Ilat