President Marc Ravalomanana is a man with a mission: to bring prosperity to his people by building a thriving economy, and to see Madagascar become a major player in international trading.

	Marc Ravalomanana President

The President hopes Madagascar’s future can parallel his own rags-to-riches story. Born in a village not far from the capital Antananarivo, he began his working life selling home-made yogurt from a bicycle. Today his dairy and oil products business TIKO is the largest locally-owned company on the island. Madagascar will also have to fight against the odds to improve its fortunes and alleviate the poverty of its people, but like the President, it has been gifted with the resources and potential to achieve its goals.

Ravalomanana had a rocky start to his presidency when his victory in the elections of December 2001 was disputed by the outgoing leader. The crisis lasted for six months until Ravalomanana was recognized as legitimate leader by the U.S. and France. He received a fresh mandate in elections in December 2002, and with the full support of his people has achieved political and economic stability.

The figures are impressive – 2003 saw unprecedented GDP growth of 9.6%, with 8% expected for 2004 and just 5% inflation. The President has introduced strict measures to tighten fiscal management and increase transparency and good governance. Together with the gradual liberalization of the economy and political stability, there is much to interest foreign investors. Areas of great potential include agriculture, mining and tourism.

Private investment is seen as the driver for development and policy has been focused on creating the right infrastructure to foster public private partnerships, including upgrading transport, energy and telecommunications, and reforming institutions. Tax has been reduced to 0% and for the first time since independence from France in 1960, land can now be owned by foreigners. “The engine of the development of Madagascar is the private sector,” says the President. With stability, good governance and transparency in place, the main priorities are to improve the infrastructure and deliver education, health and clean water for all. In November 2003, Ravalomanana set out a roadmap for development, the Poverty Reduction Strategy Paper, which received approval, without amendments, at the highest international level from the World Bank and the IMF.

Great efforts have also been made to diversify the economy from over-dependency on the export of vanilla, cloves and coffee by creating other export industries such as textiles. At the same time the economy has had to cope with the inflationary effect of rising world oil prices, and the government has taken steps to stabilize the Malagasy franc. Working with institutions such as the World Bank and the African Development Bank, the government has also created a bank to help finance the private sector in joint ventures, called IFC.

Within the regional framework, Madagascar works with COMESA (Common Market of Eastern and Southern Africa), SADEC (South African Development Community), and COI (Commission of the Indian Ocean) to minimize transaction costs and improve competitiveness. Foreign Affairs Minister Marcel Ranjeva has been instrumental in building strong links with international partners such as NEPAD, through which Madagascar is receiving G8 support.

Decentralization of power is a key factor in the government’s strategy to open up the rural economy and infrastructure. The selection process has already started to find the heads of the 22 regions, who will act as coordinators between the mayors, local bodies and associations, and central government. This devolution of power is welcomed by the Ambassador for the European Commission, Pierre Protar. “The EU supports the opening up of Madagascar, local development, and the consolidation of the macroeconomic and budgetary framework to improve public finances,” he says.

The European Commission is financing the 280-mile RN6 highway linking the capital to Diego in the north. This is the biggest tender in Africa and worth 19 million euros.

Transport infrastructure

Opening up the transport infrastructure will transform domestic and international trade and liberate the rural population. Within the next four years, the aim is to have nearly 9,000 miles of highway connecting the main arteries of the country: the port and airport.

	Pierrot Botozaza, Port of Toamasina

Toamasina is the largest port, handling 70% of international trade, and the target is to double its productivity in the next two years to handle five million tons of merchandise a year. Management of the port is being taken over by SPAT (Society of the Autonomous Port of Toamasina). The transition will take four years. “We want to transform the port into an industrial and commercial zone,” says deputy director, Pierrot Botozaza. “The port must become a national economic catalyst and a backbone for the development of the country.”

Development of the rail network will be co-ordinated with the ports to integrate transport logistics. Currently, a railroad run by private partner Madarail links the capital Antananarivo with Toamasina, and the government is finalizing the concession for a rail link in the south. “We are looking for more private investment for the main airport, to open up the capital, and welcome more freight traffic from overseas,” says Vice PM and Minister of Transport, Zaza Ramandimbiarison.

The state-operated Air Madagascar began after independence in 1962. It now has 13 aircraft and made an operational profit of around $10 million in 2003. Air Madagascar is heavily involved in upgrading Tana airport, putting in new counters and a new IT system. “We are hoping for increased foreign investment and business set- ups to bring more business travelers to Madagascar and encourage air travel within the country. Considering the state of the roads, flying remains a good option,” says Berend Bruns, director general.

Meanwhile, Madagascar is completely reforming its post, telecoms and information and communications technology. The post is becoming more reliable, and Minister of Telecommunications, Clermont Mahazaka says work has already begun on an undersea fiber optic cable to link Madagascar directly to the African mainland. Fixed, cellphone and telecenter operations will put people in touch with the world and open up the possibility of service industries in the ICT sector, such as call centers.


Time to modernize

	Left: Olivier S. Andrianarison, Minister of Trade and Industry Right: Berend Bruns, Air Madagascar

Minister for Trade and Industry, Olivier Andrianarison says Madagascar must modernize to compete and its young population will be of great benefit in developing the services sector. “Madagascar must increase capacity, and modernize agricultural and industrial production,” he says.

This is certainly true of agriculture, where expansion and diversification will help alleviate widespread rural poverty. Although over 80% of the population make their living from agriculture (it accounts for a third of GDP and 70% of exports), only 10% of the land is currently being exploited. Add to this the opportunities for fishing and aquaculture of the extensive coastline, and the scale of possible development becomes clear. Tapping this potential is a key priority of the Poverty Reduction Strategy, which aims to grow the sector by 4% a year. “We are surrounded by countries who have problems with resources, for whom Madagascar could act as a bread basket,” says Harison Randriarimanana, Minister of Agriculture and Fishing. Madagascar could become the rice store for COMESA, he argues, and could supply Arabic countries with the thousands of sheep they currently import from Australia. Its vanilla is the best in the world, and with proper investment, such development can be successful, as the shrimp industry has already proven. “Our small farmers cannot do it alone,” cautions the minister. “We need investors to build a large industrial plant with high productivity.”

The experience of the Food and Allied Industries Ltd (FAIL) group shows this kind of development can bring rewards. FAIL has been in Madagascar for around 10 years. Its poultry arm, Avitech, produces 80,000 poussins a week. It later created the society Panagora, to import and distribute food throughout Madagascar, and now has four distribution centers. Meanwhile, its service company FTL Madagascar offers logistics and international transportation, and newly formed LFL Sarl provides animal foodstuffs for the livestock industry. FAIL’s ambitious plans include entering the tourism industry using expertise gained from running hotels in Mauritius.

By far the largest agro-food company is TIKO, which has been in operation for 25 years. Despite the political crisis of 2002, sales bounced back by 60% in 2003 and were projected at 25% up in 2004. This growth is in part due to the launching of four MAGROs – Malagasy Wholesale Centers – to manage supply and distribution. Another 20 will follow this year. Like FAIL, it takes its social responsibilities seriously “Our social priority remains to keep prices down in order to make our products accessible to a majority of Malagasy people,” says director general Nasolo Ranaivoson.

	The first anti-cyclone house produced by SEIMad. www.seimad.mg

Progress is already evident in the growing demand for housing, particularly from the middle classes, working in the private or public sector, who would like to own their own home. The Bank of Africa has loaned 5 billion Malagasy francs ($502,500) to state construction organisation SEIMad, which currently has five large building sites on the go. SEIMad has also developed an anti-cyclone house with a steel frame able to resist winds of up to 250 kilometers an hour. It now needs to promote the house and find funding, possibly from the government, to subsidize construction.

SEIMad has already secured international funding. The Bank of Montreal has agreed to $15 million in principle, and director general Harimamy Rajaonarison hopes to get another $15 million from the African Development Bank. “With this, we could build 900 houses, which is modest compared to the demand,” he says. SEIMad also acquires land on behalf of the state for tourist development, and identifies hotel groups who would like to invest in Madagascar.

Tourism

2003 saw the construction of 540 extra hotel rooms and the creation of 1100 jobs. By 2007, Minister of Culture and Tourism Jean Jacques Rabenirina aims to be attracting some 500,000 visitors a year. “Our aim is to promote our cultural diversity and prioritize tourism development, to safeguard our cultural heritage, encourage the arts at national and international level, and make tourism a lever for sustainable development which respects the natural, social, economic and cultural environment,” he says.

With 3,100 miles of sandy beaches, vast biodiversity and strong culture and traditions, the world’s fourth largest island has much to offer visitors from all over the world. The main destinations are at Nosy Be, Tuléar and the island of Sainte Marie. The government has produced a master plan targeting higher-end tourism and new direct links, like Bangkok-Antananarivo and Milan-Nosy Be should help bring more visitors.

The ministry has created the Tourist Real Estate Reserve to identify areas for investment, while Guide (a one-stop shop for investments and business development) is smoothing the way, cutting bureaucracy and red tape. Current projects include a possible five hotels from the Accor group, the 3,000-room Eden Park complex near Morondava with French, Mauritian and German interests, and a hotel on the islet Iranja by South African company Legasy Bullington. The independent three star Hotel du Louvre in Antananarivo has 60 rooms and is strategically located for both tourists and business visitors, near the banks and ministries. It has first-class facilities, including a Business Center with Internet, fax, and wi-fi.


Energy and mining

Half the country’s energy needs are supplied by thermal plants, and half by hydroelectric power. Over the next 10 years, the government aims to increase hydroelectric power to 75% – more cost-effective long term. “Energy is a tool for development. If one wants to attract industry to Madagascar (in tourism and so on), if one wants each village to have water, electricity, not to use wood for cooking and to decrease deforestation in Madagascar, one must supply energy everywhere in the country,” says Jacquis H. Rabarison, Minister of Energy and Mines.

	Jacquis H Rabarison, Minister of Energy and Mines

The oil and gas to fire the thermal plants is still imported, and exploration for oil has so far yielded no results. Recently, however, three companies – one U.S. and two U.K. – have signed agreements/joint ventures with state operator OMNIS on oil exploration. Managed like a private company, OMNIS promotes the sector overseas and advises potential investors.

A new mining law was introduced in 1999, and is being rigorously applied to allow transparency and good governance. Potential for mineral exploration is huge – foreign companies such as Dynatec and QMM are mining or conducting feasibility studies for iron, uranium, cobalt and ilmenite, while state company Kraoma is already mining chromite. Its price has nearly tripled in the past two years. Meanwhile, the World Bank is financing a study to determine the extent of the island’s mineral resources to inform potential investors.

Shell has been operating in Madagascar since 2000, when it bought the distribution activities of the state-run Solima. It has 52 retail gas stations, and is part of Shell Oil Product Africa (SOPA) based in Nairobi. It imports directly to three terminals in Toamasina, Mahajanga and Diego. “The improvement of the highways will determine where and how we can do business in the different regions of the country. According to the privatization agreement, each company had to be present in all regions,” says Jean Pierre Wyns, country chairman. “We also pay a great deal of attention to protecting the environment, which is very unique in Madagascar.”

Wyns is also keen to stress Shell’s good relations with oil regulator, OMH. Although no longer in control of oil prices, the organization, led by director general Manitrisa Ratisimiala Ramonta, is currently redrafting all regulations in consultation with the private sector under the private public partnership principle.