2012 Investment Climate Statement - Madagascar

2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012

Openness To, and Restrictions Upon, Foreign Investment

The de facto government of Madagascar officially welcomes foreign investment, but political turmoil, weakness in the judicial system and the banking sector, the high cost and low quality of electric power, corruption, lack of transparency in decision-making, and the high cost of air transport make investing in Madagascar a challenge. In 2011, no new foreign direct investment was registered, and economic prospects centered on two mining projects: the QMM mineral sands operation (Rio Tinto) with an annual export estimate of 750,000 tons of ilmenite; and the Ambatovy Project (Sherritt International Corporation, Sumitomo Corporation, and Korea Resources Corporation), which will begin nickel and cobalt extraction in 2012.

Prior to the March 2009 coup d’état, the Bretton Woods institutions had generally endorsed the government’s macro-economic regime, although they questioned certain non-transparent budget and tax decisions in late 2008. Since March 17, 2009, the World Bank’s operations in Madagascar have been guided by its Operation Policy OP 7.30, relating to de facto governments, and no fund withdrawal requests have been processed (the few exceptions include nutrition, HIV/AIDS, food security, and environmental protection). The creation of the American Chamber of Commerce (AMCHAM) in late 2008 benefited American and other businesses by providing a new forum to lobby for their interests. Due to lack of financing, the international audit scheduled for 2009 to allow Madagascar to become a full member of the Extractive Industries Transparence Initiative (EITI) was postponed to 2012. In November 2011, the EITI Board suspended the Government of Madagascar. As a result of the coup, the U.S. government terminated the Millennium Challenge Account (MCA) program on May 19, 2009, and AGOA eligibility on December 23, 2009, as the country no longer met the criteria regarding rule of law, good governance, and political pluralism.

Since April 2009, the African Union and the Southern African Development Community (SADC) have engaged in mediation efforts with the de facto regime, ousted President Ravalomanana, and other key opposition leaders in Maputo, Addis Ababa, Pretoria, Gaborone and Antananarivo. On September 17, 2011, a roadmap for ending the political crisis, endorsed by SADC, was signed in Antananarivo by most political actors. Since the signing, a consensus Prime Minister, a new cabinet, and a new parliament have been appointed in accordance with the roadmap. The next steps include appointment of an independent national electoral commission and paving the way for free and fair elections.

There is no law or regulation authorizing private firms to adopt articles of incorporation or association, which limit or prohibit foreign investment, participation or control. Further, there is no official or private practice to restrict foreign investment, participation or control of domestic enterprises. There is no mandatory screening of foreign investment, and there is no discrimination against foreign investors at the time of initial investment or after the investment is made--such as through special tax treatment, access to licenses, approvals, or procurement. There are no sectors/matters in which foreign investors are denied national treatment, and, in case of foreign investment, there is no requirement that nationals own shares.

In 2011, the World Bank noted that the economic situation remained fragile, especially on the fiscal front. Limited and direct financing have restricted public spending and investment, impeding the delivery of social and infrastructure services in both the short and long term. The loss of AGOA benefits (after December 2009) led to the closing of at least 40 apparel firms; the unemployment of an estimated 100,000 workers; and the loss of millions of USD in export revenues. Most recent analyses estimate an inflation rate of 10.3 percent and a growth rate of 1 percent in 2011.

Despite the temporary suspension of funding from the World Bank, the Economic and Development Board of Madagascar (EDBM) continues to provide support to foreign investors.




TI Corruption Index



Heritage Economic Freedom



World Bank Doing Business


137 out of 183 countries

Conversion and Transfer Policies

In 1998, the government lifted all restrictions on current payment and transfers and accepted the obligations of Article VIII of the IMF Articles of Agreement, which provides for the complete elimination of exchange controls. There are no restrictions on converting or transferring funds associated with foreign investment--including remittances of investment capital, earnings, loan repayments, and lease payments--into a freely usable currency and at a legal market clearing rate. There are no plans to change remittance policies that have tightened or relaxed access to foreign exchange for investment remittances. When delays occur in conversion or funds transfer, they are due to temporary shortages of foreign exchange. There is no limit on the inflow or outflow of funds for remittances of profits, debt service, capital, and returns on intellectual property or imported inputs. There are no surrender requirements for profits earned overseas.

Exporters and foreign investors may maintain bank accounts in foreign currencies. Some analysts assert that Madagascar pursues a managed float regime to influence exchange rates and to keep commodity prices stable.

Expropriation and Compensation

There are no recent cases of expropriation actions by the de facto government, although in 2010 the Ministry of Mines and Hydrocarbon sought unsuccessfully to acquire four of Madagascar Oil’s (MO) oil exploration blocks. Local investors fear a return of monopoly or the nationalization of a few key sectors (particularly telecommunications and mining). There are no laws that force local ownership.

Dispute Settlement

Madagascar's legal system is based on French civil law, and its provisions contain adequate protections for private property rights. Malagasy commercial law consists largely of the Code of Commerce and annexed laws, which are reportedly applied in a non-discriminatory manner. Madagascar has a written bankruptcy law, created in 1996 and currently included in the Code of Commerce. The Malagasy judicial system is slow and complex, and has a reputation of opacity and corruption. In the past, U.S. assistance has supported the development of alternative dispute resolution systems to provide more rapid, more transparent, and less costly resolution of commercial disputes.

Under the privatization law, the government accepts binding international arbitration of investment disputes between foreign investors and the state. The courts in theory recognize and enforce foreign arbitral awards, and international arbitration is accepted as a means for settling investment disputes between private parties. The Malagasy Arbitration and Mediation Center (CAMM, in its French acronym) was created in 2000 as a private organization to promote and facilitate the use of arbitration to resolve commercial disputes and to lessen reliance on a court system that is, at a minimum, overburdened. As a result, many private contracts now include arbitration clauses.

Madagascar is a signatory to the International Center for the Settlement of Investment Disputes (ICSID) Convention. Madagascar is also a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Madagascar has been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1989.

Performance Requirements/Incentives

As a signatory of the WTO Agreement, Madagascar is bound by the WTO TRIMS (Trade Related Investment Measures). Performance requirements are not imposed as conditions for establishing or maintaining investments, except in the Export Processing Zones (EPZ) regime, under which firms must export 95 percent of output to qualify for EPZ investment incentives. Foreign or local investors can benefit from tax exemptions so long as their EPZ projects fall into the following categories: (1) investment in export-oriented manufacturing industries; (2) development or management of industrial free zones; or (3) provision of services to EPZ companies.

The EPZ law approved in December 2007 granted the following advantages and tax incentives to EPZ companies: (1) the EDBM is in charge of EPZ companies' approval and has to deliver an eligibility certificate within 20 days of deposit of file; (2) 15 years tax exemption for EPZ companies; (3) no VAT or customs duties on imports of raw materials; (4) no registration taxes; (5) no customs tax on exported goods; (6) income tax on expatriation not exceeding 30 percent of the taxable basis; and (7) free access to foreign currency deposited in the company's foreign currency bank account.

The new export promotion law that was adopted in December 2008 determined that these EPZ provisions (advantages and tax incentives) would only be offered until December 2010. To date, existing EPZ companies continue to enjoy the advantages described above.

There is no requirement restricting the mobility of foreign investors. The regime for visas, residence and work permits is neither discriminatory nor excessively onerous. Since the creation of the EDBM, processing of residence and work permits has been streamlined.

There is no requirement that investors purchase from local sources, or export a certain percentage of output (except for EPZ companies), or only have access to foreign exchange in relation to their exports. There is no requirement that nationals own shares of foreign companies, that the share of foreign equity is reduced over time, or that technology is transferred on certain terms. There are no government-imposed conditions on permission to invest (although investors must apply for such permission), including location in a specific geographical area, specific percentage of local content or local equity, substitution for imports, export requirements or targets, employment of host country nationals, or technology transfer. Investors are not required to disclose proprietary information to the government as part of the regulatory approval process. U.S. and other foreign firms are able to participate in government-financed and/or subsidized research and development programs on a national treatment basis. There are officially no discriminatory or preferential export or import policies, which would affect foreign investors, nor discriminatory tariff or non-tariff barriers.

Right to Private Ownership and Establishment

Foreign and domestic private entities may establish and own business enterprises and engage in all forms of remunerative activity. They may freely establish, acquire, and dispose of interests in business enterprises. The government remains a minority shareholder in some privatized companies--such as the Malagasy Telecommunications Company (Telma)--and continues to own Air Madagascar, but competitive equality is the official standard applied to all private enterprises with respect to access to markets, credit, and other business operations, such as licenses and supplies.

Protection of Property Rights

Secured interests in property are recognized, but not entirely enforced in the country. Banks and insurance companies use mortgages on commercial property to guarantee loans.

A prohibition on land ownership by foreigners impedes access to real property, and the entire issue remains highly controversial and problematic on a cultural level despite legal advances. A system of long-term leases--up to 99 years--was established in 2008 following the adoption of investment law 2007-036 to address the issue, but there have been long delays and few successes so far in the approval of land leases for foreigners. The new investment law grants land and properties to companies registered in Madagascar under certain conditions fixed by EDBM, which issues authorization documents. In addition, MCC's contribution to the land tenure issue improved the land rights process, prior to early termination of the program in late 2009 due to the political crisis.

Madagascar is a member of the WIPO (World Intellectual Property Organization) and is a signatory to the WTO TRIPS agreement on trade related aspects of intellectual property. Two government offices share responsibility for the protection of intellectual property rights: the Malagasy Office for Industrial Property (OMAPI) and the Malagasy Copyright Office (OMDA). Protection of intellectual property rights is uneven. Officially, authorities protect against infringement, but in reality, enforcement capacity is quite limited. Major brands are generally respected, but pirated copies of movie DVDs, music CDs and tapes, electronic equipment and spare parts are sold openly. Some television stations regularly show pirated copies of first-run U.S. and European movies. Madagascar has not yet signed the WIPO Internet treaties.

Transparency of the Regulatory System

Excessive complexities and inconsistently applied bureaucratic regulations are an impediment to investment and can be a breeding ground for corrupt practices. The lack of transparency in government regulatory decisions has generated complaints from investors. Although regulatory decisions can impede start-up in particular industries, the normal business registration process has been streamlined by EDBM and generally takes less than two weeks.

Tax, labor, environment, health, and safety standards are generally not used to impede foreign investment. Bureaucratic procedures and red tape are often sources of corruption. There are no informal regulatory processes managed by non-governmental organizations or private sector associations. Proposed laws and regulations are not published in draft form for public comment. The only opportunity for comment on proposed laws and regulations is at the Parliament’s level.

In April 2011, the de facto regime rejected market-based economic principles by imposing a fixed retail price on oil on distributors. The regime has implemented price caps on other commodities, and in at least one case forced a foreign commodity producer to abrogate an existing international sales contract and sell its product to local brokers for domestic consumption.

Accounting systems are transparent and consistent with international norms, and there are no private sector and/or government/authority efforts to restrict foreign participation in industry standard-setting consortia or organizations.

Efficient Capital Markets and Portfolio Investment

In spite of the general under-development of the banking system, banks are free to support the flow of resources in the product and factors markets. Credit is usually allocated on market terms, and the private sector/foreign investors are able to obtain credit on the local market. However, many of the EPZ companies use the services of banks in neighboring Mauritius, where the sector is more developed.

Within Malagasy law, there is an effective regulatory system established to encourage and facilitate portfolio investment. The total assets of the country's largest bank are estimated at around USD 400 million.

There are no cross-shareholding arrangements used by private firms to restrict foreign investment through mergers and acquisitions. There are no visible private sector and/or government efforts to restrict foreign participation in industry or control of domestic enterprises.

Competition from State-Owned Enterprises (SOEs)

Private enterprises are allowed to compete with public enterprises under the same terms and conditions with respect to access to markets, credit, and other business operations, such as licenses and supplies. The main SOEs are: the national airline (Air Madagascar), and the national water and electricity company ("Jiro sy rano malagasy" or JIRAMA). SOEs have boards of directors for which seats are specifically allocated to senior government officials, private operators, or politically-affiliated individuals.

SOEs are required by law to publish an annual report and to submit their books to an independent audit.

A sovereign wealth fund (SWF) or asset management bureau (AMB) does not exist in the country.

Corporate Social Responsibility (CSR)

There is a lack of general awareness of corporate social responsibility (CSR) among producers and consumers, but several large, formal sector companies apply CSR principles. Although not all companies follow the OECD Guidelines for Multinational Enterprises, firms who pursue CSR garner favorable public opinion.

Political Violence

Compared to 2009 and 2010, Madagascar did not experience significant political violence in 2011. Opposition political gatherings were allowed in privately-owned areas, but requests to hold public demonstrations were mostly denied.

Public safety is fairly adequate, although standard warnings--to guard against street crime and theft from vehicles, and to minimize or avoid nighttime road travel--apply, particularly in rural areas.

Madagascar, an island state, has no belligerent neighbors.


In 2011, Transparency International ranked Madagascar 100 out of 183 countries surveyed, with a score of 3 on the Corruption Perception Index (CPI), indicating a severe corruption problem. While giving or accepting a bribe is a criminal act and is subject to trial by court, complicated administrative procedures introduce delays and uncertainties, increasing possibilities for corruption. Corruption at high levels exists in nearly all sectors, and is most pervasive in the following areas: judicial, police, tax, customs, land, trade, mining, industry, environment, education, and health. The Independent Anti-Corruption Bureau (BIANCO) is the agency responsible for combating corruption, and Transparency International has operated in Madagascar since 2002.

Smuggling of precious stones, hardwood, and endangered species increasingly drains Madagascar's natural resources and breeds criminality. In April 2010, the de facto regime adopted a decree to prohibit all export of rosewood and precious timber. Despite this ban, containers of rosewood are reportedly still being shipped. In September 2011, the de facto regime decided to include rosewood in Annex III of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), requiring rosewood importing countries to hold import permits approved by CITES authorities.

Madagascar created a Financial Intelligence Unit (SAMIFIN) in mid-2008 to carry out research and financial analysis related to money laundering. In 2011, SAMIFIN received 49 suspicious transaction reports and referred 14 cases to public prosecutors. There are no reports that prosecutors brought any case to trial, or that such cases resulted in a criminal conviction.

Madagascar has signed and ratified the UN Anticorruption Convention, and the African Union Convention against Corruption, but has not yet signed the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

There is no requirement yet for companies to establish internal codes of conduct that, inter alia, prohibit bribery of public officials. However, some foreign companies have their own internal controls, ethics, and compliance programs to prevent bribery.

Bilateral Investment Agreements

According to the International Center for the Settlement of Investment Disputes (ICSID) and the United Nations Conference on Trade and Development (UNCTAD), Madagascar has concluded bilateral investment agreements with Belgium, Canada, China, France, Germany, Mauritius, Norway, Sweden, and Thailand. Madagascar has also signed double taxation treaties with France and Mauritius. As the Malagasy government had expressed interest in negotiating a bilateral investment treaty with the United States, initial discussions began in late 2008, but stalled due to the unconstitutional change of government in March 2009.

OPIC and Other Investment Insurance Programs

On March 31, 1998, the Overseas Private Investment Corporation (OPIC) and Madagascar signed a bilateral Investment Incentive Agreement, which updated the previous 1963 agreement. Madagascar is a member of the Multilateral Investment Guarantee Agency (MIGA). The average daily exchange rate in 2011 was 2,014 Ariary per one U.S. dollar.


Madagascar has a significant pool of available labor, due to the combined impact of unemployment and under-employment. Private sector wages have been relatively stable and are below those in most competitor countries; this fact, combined with the high quality of much Malagasy labor, may constitute the country's strongest attraction for foreign investors. The minimum wage for the non-agricultural private sector in 2011 was 91,000 Ariary per month (approximately 45 USD). The Constitution and Labor Code grant workers in the private and public sectors the right to establish and join labor unions, and to bargain collectively. The National Labor Code and implementing legislation prescribe working conditions, wages, and standards for worksite safety. As a member of the International Labor Organization (ILO), Madagascar adheres to the ILO convention protecting workers rights.

Foreign Trade Zones/Free Ports

The incentives available in the Export Processing Zone (EPZ) are described in "Performance Requirements/Incentives.” There is no distinction between foreign and domestically owned firms, in terms of eligibility for EPZ treatment, which has been granted by the EDBM since December 2007. As stated earlier, EPZ incentives were offered only through December 2010, but pre-existing EPZ firms have maintained their incentives and status beyond that date.

Foreign Direct Investment Statistics

The positive trend of foreign direct investment (FDI) inflows was reversed in 2010 and likely will be for 2011 as well. The political and economic crisis continues to threaten potential investors. The two largest mining investment projects (Ambatovy and QMM) are nearing the end of their investment phase, substantially reducing the flows of FDI into the country.

FDI inflows and stocks during the past three years (in USD)





FDI inflows




FDI stock




Source: Central bank

Extractive industries remain the most important sectors receiving FDI, due mainly to the large investments in QMM and Ambatovy. Manufacturing, oil distribution, construction and public works, and telecommunications are the other main sectors.




Extractive activities






Fishing and Fish farming






Gas, electricity, water production and distribution



Construction and Public Works






Hotels and Restaurants









Real Estate and services to enterprises



Oil distribution












Source: Central Bank

Given the importance of mining companies in FDI, Canada, Japan, the Republic of Korea and the United Kingdom are the four top countries of origin of FDI in Madagascar, followed by France, China and Mauritius.













Republic of Korea
































United Kingdom












Source: Central Bank