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A strangulated economy

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“The suspension of aid following the unconstitutional power change has had a considerable impact on the education, health and food security sectors”, observes Fatma Samoura, UN Development Programme representative in Madagascar, According to a report tabled by the Prime Minister’s office with UNDP’s support, development aid flows fell by 43% to US $ 405 m between 2008 and 2011, in a country where extreme poverty affects 56.5% of the population. And things got worse these recent years: in 2005, 68% of the population was living below the poverty line. In 2010, the rate jumped to 76.5% in average and even 82.2% in rural areas. Mothers die more often when giving birth: the report registered 498 deaths over 100,000 births as against 469 in 2004. This is not surprising in a country where the fall of aid funds has forced the government to reduce health expenditures by 50% in 2012.

e2A European diplomat admits that EU sanctions were not adapted to the situation. They hit the poorest whereas no targeted sanctions, such as the classical visa ban and assets freeze, were taken against politicians, who were not affected. Last August at last, the EU decided to resume development aid, with a EUR 100 million package which targets health and education of the most vulnerable people. But the bulk of the EUR 600 million earmarked for the 2007-2013 has not been disbursed and many projects of support to the productive sectors of the economy and to the infrastructure have simply not materialized.
Yet, donors are not the only responsible for this situation. Those politicians who, in 2009 ,incited young thugs to set fire to the Magro supermarket in the centre of the capital, Antananarivo, which belongs to the ex-President Marc Ravalomanana, or closed his yoghurt producing plant at Ansirabe, destroyed also hundreds of jobs.

Life has become extremely hard for the Malagasy population. Food insecurity affects 35% of the rural households. And the rate of people who are not sufficiently nourished is 68% in the Southern Madagascar. Teachers of the public sector demonstrate in the mornings to ask for salary increase and go work in private schools in the afternoons. Many civil servants cannot afford the money to buy charcoal for cooking and buy instead a rice meal in cheap shops. Bernard, a rickshaw driver in Antsirabe is also affected by the drop of his clients’ revenues. As many cannot afford anymore to take a ride, his earnings have dropped from 15,000 to 5,000 Ariary a day (less than two dollars). And the minimum salary is twice lower.
According to business strategy consultant Thierry Rajaona, public works and housing have been the worse hit by the crisis, owing to the freeze of European aid. The textile sector suffered also a lot, owing to United States’s decision to ban Madagascar from continuing to benefit from the African Growth Opportunity Act, which allowed Malagasy garments and apparels to enter duty free and quota free on the American markets. As a result, 50,000 jobs were lost at Antsirabe and Antananarivo.
e3Agriculture production has decreased since the “green revolution” introduced during Ravalomanana’s period (2002-2009) owing to new agricultural techniques. During that period, rice production doubled to 5 million tons. But after 2009, owing to a lack of subsidies, production decreased. Today, the country imports some 200,000 tons of rice. Ten percent consist in World Food Program supplies and WFP is also distributing food in the primary schools and among tuberculosis patients of the poorest suburbs of the capital and in the South of the country. On the roads towards Antsirabe, on the highlands, or towards Tamatave, on the Eastern coast, peasants sell carrots, beans, cassava and sweet potatoes, showing the fabulous potential of the island. But those who are hungry cannot afford to buy them. Tourism also so been seriously hit. There were 375,000 in 2008, but only 225,000 in 2011.
However, the Malagasy economy has shown some resilience, Rajaona points out. Despite the spectacular drop of the aid flows, Madagascar’s GDP increased by 0.6% in 2011 although the GDP per capita decreased by 2.3% last year. The trend is largely owed to the huge mining investments such as the Ambatovy project whose plant is in Tamatave and which represents one of the largest in Sub-Saharan Africa. The company, a joint venture whose shareholders are Canadian, South Korean and Japanese, plans to start commercial production by end 2012 with an average output of 60,000 tons of nickel and 5,600 tons of cobalt and should contribute every year some $ 100 million of taxes and royalties, providing 6,000 jobs.
By 2019, Madagascar could also become a oil producing country. Madagascar Oil, whose promoters are British, is in a pole position to become the first company to produce oil, with an expected output of 150,000 barrels/day on its onshore permit of Tsimiroro, between the capital and the Western Coast. Now, the country’s more serious challenges in the sector of extractive industries and in all the other sectors of the economy is the governance and transparency. Alongside Rio Tinto, both Ambatovy and Madagascar Oil have joined the Initiative for the Transparency of Extractive Industries (EITI) whose objective is to curb corruption while making sure that amounts of payments made by the companies to the National Treasury coincide with the figures of state revenues from that origin. But not all mining and oil companies followed this example yet.

François Misser

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