2013 Investment Climate Statement - Madagascar

2013 Investment Climate Statement
Bureau of Economic and Business Affairs
April 2013

Openness To, and Restrictions Upon, Foreign Investment

Officially, the de facto government of Madagascar (GOM) welcomes foreign investment. However, political turmoil, weakness in the judicial system and the banking sector, the high cost and low quality of electric power, corruption, a lack of transparency in decision-making, limited road, rail and port infrastructure, and the high cost of air transport make investing in Madagascar a challenge. According to the Economic Development Board of Madagascar (EDBM), few foreign investors showed investment interest in 2012, but there was no available data on the real flow of FDI.

Prior to a 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. Effective March 17, 2009, the World Bank’s operations in Madagascar have been guided by its Operation Policy OP 7.30 for dealing with de facto governments, and no fund withdrawal requests have been processed since that date except those dealing with nutrition, HIV/AIDS, food security, and environmental protection. As a result of the coup, the USG 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. On October 26, 2012, the Board of the Extractive Industries Transparency Initiative (EITI) extended Madagascar’s suspension from the EITI due to the African Union’s continued non-recognition of the government.

Since April 2009, the African Union and the Southern African Development Community (SADC) have engaged in mediation efforts with the regime, ousted President Ravalomanana, and other key opposition leaders. Since the September 2011 signing of SADC’s Roadmap for Ending the Crisis in Madagascar, a consensus Prime Minister, an expanded Cabinet, a new parliament, and a transitional independent national electoral commission (CENIT) have been appointed. Key provisions of the roadmap remain unfulfilled, however, including those calling for the return of all political exiles and for respect for human rights and media freedom.

There is no law or regulation authorizing private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation or control. Furthermore, 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 the 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. There is no legal requirement that nationals own shares of foreign investment.

In its October 2012 economic update, the World Bank noted that due to the three and half years of political crisis, the economy has severely stalled, poverty has sharply increased, and social outcomes have worsened. Most recent projections anticipated an inflation rate of 8.5% and a growth rate of 2.5% in 2012.

Increasing corruption by officials and direct supporters of de facto President Andry Rajoelina have progressively deterred major foreign investment in Madagascar and discouraged the companies already invested in the country.

The judicial system does not function independently of the de facto government. In some sectors, such as extractive industries, bureaucrat bodies intended to govern the sector have been dismantled by the de facto government.




TI Corruption Index



Heritage Economic Freedom



World Bank Doing Business


142 out of 185 countries

Conversion and Transfer Policies

In 1998, the GOM 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, 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 limitation 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. Madagascar uses exchange rate policy to counter underlying currency market pressures and keep commodity prices stable.

Expropriation and Compensation

There are no recent cases of expropriation actions by the GOM. However, local investors fear a return of monopoly or the nationalization of 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 for 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 GOM 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 (known by its French acronym, CAMM) 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, as well as 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 provided 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.

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 that would affect foreign investors, nor discriminatory tariff or non-tariff barriers. In April 2011 and again in January 2013, the de facto regime rejected market-based economic principles by imposing a fixed retail price on fuel distributors.

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 in 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, MCA'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 World Intellectual Property Organization (WIPO) 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 due to resource constraints, absence of political will, and weakness of the judicial system. 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 regulations impede investment and can be a breeding ground for corrupt practices. The lack of transparency in government regulatory decisions has generated numerous 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.

Some investors, especially in the mining sector, have encountered difficulty and/or delays in obtaining necessary operating permits as a result of irregularities in the regulatory system. Ambatovy, a USD 6 billion laterite nickel mining project that represents the largest foreign direct investment in Madagascar, faced significant obstacles and political inference before obtaining a temporary, six-month operating permit from the de facto regime.

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 parliamentary level.

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 underdevelopment of the banking system, banks are free to support the flow of resources in the product and factors markets. The assets of the country's largest bank total an estimated USD 400 million. Credit is usually allocated on market terms, and the private sector/foreign investors can 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. 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 Malagasy Air Transport Company (Air Madagascar) and the Malagasy Water and Energy 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.

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

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

Corporate Social Responsibility (CSR)

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

Political Violence

As in 2009 and 2010, Madagascar experienced political violence and civil unrest in 2012. The ongoing political crisis continues to create the conditions for possible future instability. At various times, small improvised explosive devices have been detonated in the capital but have caused only superficial damage. A 2012 military operation against organized cattle rustlers in the south has impacted economic operations and has led to numerous accusations of human rights violations against the de facto regime. The army put down an attempted mutiny at a military base near the capital in July. Street demonstrations are forbidden by the de facto regime, but opposition political gatherings are permitted indoors.

Public safety remains fairly adequate, although petty crimes have increased as the economic and political crisis has worn on. 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, being an island, has no belligerent neighbors.


In 2012, Transparency International ranked Madagascar 118th out of 175 countries surveyed with a score of 32/100 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 is most pervasive in the following areas: judiciary, police, tax, customs, land, trade, mining, industry, environment, education, and health. The Independent Anti-Corruption Bureau (BIANCO) is the agency formally responsible for combating corruption, and Transparency International has an office in the country. Corruption at high levels exists in nearly all sectors.

Smuggling of precious stones, hardwood, and animals increasingly drains Madagascar's natural resources and breeds criminality. In April 2010, the de facto regime adopted a decree to prohibit all exports of rosewood and precious timber. Despite this ban, containers of rosewood continue to be shipped. In September 2011, the de facto regime decided to include rosewood in Annex III of the Convention on International Trade in Endangered Species (CITES).

Madagascar created a Financial Intelligence Unit (SAMIFIN) in mid-2008 to carry out research and financial analysis related to money laundering. In 2012, SAMIFIN received 61 suspicious transaction reports and referred 23 cases to public prosecutors.

Madagascar signed and ratified the UN Anticorruption Convention and the African Union Convention against Corruption. It has not yet signed the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Transparency International has operated in Madagascar since 2002.

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

Bilateral Investment Agreements

According to the International Center for the Settlement of Investment Disputes (ICSID) and the U.N. Conference on Trade and Development (UNCTAD), Madagascar has concluded bilateral investment agreements with Belgium, Canada, China, France, Germany, Mauritius, Norway, Sweden, Switzerland, and Thailand,. Madagascar has also signed double taxation treaties with France and Mauritius. The Malagasy government previously 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, OPIC and Madagascar signed a bilateral Investment Incentive Agreement, which updated the previous agreement of 1963. Madagascar is a member of the MIGA. The average daily exchange rate in 2012 was 2,188 Ariary per one USD.


Madagascar has a significant pool of available labor, due to the combined impacts of unemployment and underemployment. Private sector wages have been relatively stable and are below those in most competitor countries; indeed, 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 approximately 45 USD per month (91,000 Ariary). 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. Madagascar is a member of the International Labor Organization (ILO) and adheres to the ILO convention protecting workers rights.

Foreign Trade Zones/Free Ports

The incentives available in the 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.

Foreign Direct Investment Statistics

During 2012, QMM/Rio Tinto continued its mining and exportation of ilmenite (titanium-iron oxide) and related products. Ambatovy, a Canadian-Japanese-Korean partnership, concluded its construction of the nickel and cobalt mine and began exploitation/exportation. As the two companies are the largest contributors of foreign direct investment in the country, and with the Ambatovy project’s investment phase coming to an end, foreign exchange inflows fell in comparison to 2011.

According to the Central Bank of Madagascar, FDI inflows for 2011 amounted to USD 940.8 million, and during the first quarter of 2012, it amounted to USD 256.6 million.

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





2012 (First quarter)

FDI inflows





FDI stock





Source: Central Bank of Madagascar




2011 (First Semester)

Extractive activities








Fishing and Fish farming








Gas, electricity, water production and distribution




Construction and Public Work








Hotels and Restaurants












Real Estate and services to enterprises




Oil distribution