Madagascar: Risk Assessment

Country Risk Rating

D A high-risk political and economic situation and an often very difficult business environment can have a very significant impact on corporate payment behavior. Corporate default probability is very high.

Business Climate Rating

D The business environment is very difficult. Corporate financial information is rarely available and when available usually unreliable. The legal system makes debt collection very unpredictable. The institutional framework has very serious weaknesses. Intercompany transactions can thus be very difficult to manage in the highly risky environments rated D.


  • Significant mineral (precious stones, nickel, and cobalt) and oil and gas reserves
  • Agricultural and tourist potential
  • Moderate levels of public and external debt


  • Dependence on agricultural and mining products
  • Inadequate road, hydraulic and electricity networks
  • Dependence on foreign aid
  • Enduring political instability
  • Poverty affecting 3/4 of the population

Current Trends

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Growth limited by unpromising international context and political uncertainties

There could be a slight pick-up in growth in 2016. The textiles and clothing sector will continue to benefit from the positive effect of the reintegration of the country, since 2014, into the AGOA (Africa Growth and Opportunity Act), promoting access for Malagasy products to the US market. Services (55% of GDP), in particular transport and tourism, could help sustain the economy, after suffering in 2015 with the strikes at Air Madagascar. The development of the Tsimiroro oil field, for which the State granted operating licenses in April 2015, as well as the implementation of infrastructure projects suspended for a number of years, should also boost investments in 2016. However, any recovery in activity, and especially in the tourism sector as well as investments, will depend on the stabilization of the political situation and aid flows. The low level of nickel and cobalt prices, the leading sources of export earnings for the country, will limit the contribution from exports to growth. Inflation, fed in 2015 by the impact of the depreciation of the currency, the ariary, is set to remain high. The El Niño climate phenomenon could impact on harvests and create upwards pressure on food prices in 2016. The announced reduction in subsidies on energy prices (electricity, petrol), if actually implemented, will drive up prices.

Twin deficits will not be eliminated in 2016

The expected increase in tax revenues will not be enough to cover the increase in budget expenditure, thus preventing any rebalancing of the public finances. Despite the measures aimed at boosting revenues, thanks mainly to an improved tax and customs duty collection, Government revenues will remain limited due to the lack of vitality in the economy. The announced cut in subsidies should however be offset by increased investment spending, as a result of commitments made by the new government relating to infrastructure projects. This spending should be financed, at least in part, by international aid. However any restarting of payments, suspended by donor countries and international development organizations since the 2003 coup d’état, is dependent on the level of stability in the political situation. Finally, the gradual repayment of the government’s domestic debts and the financial losses accumulated by the national water and electricity operator (JIRAMA) could prove more of a burden on the budget in 2016.

The current account deficit should shrink slightly in 2016 thanks to the slowing of imports which should more than offset the stabilization, or even the decline in exports. Sales of textiles and clothing abroad are expected to increase but earnings from the leading export products (in particular nickel and cobalt) will be limited by the continuation of low prices for these commodities. Imports of consumer goods will be limited by the slow rate of growth. Purchases of capital goods, slowing with the completion of mining development projects, will remain high, but at a slightly lower level due to the development of the Tsimiroro oilfield.

Continuing political instability, increasing number of protest movements and worsening governance

The presidential election held in 2013 following a number of years of transition after the coup d’état in 2009, allowed Madagascar to rejoin the regional organization (SADC, AU), and to re-establish its relationship with international institutions and donors. The new President, H. Rajaonarimampianina, however had to deal with the resignation of his government several months after its formation and then a parliamentary vote calling for his removal. Still in power, the President however lacks the support for implementing reforms, with popular discontent taking the form of increasing numbers of protest movements and strikes. Finally, governance remains weak and the country’s ranking has slipped in the World Bank’s indicators, in particular in terms of control of corruption (from 138th place out of 215 countries in 2012, to 163rd in 2014) and government effectiveness (from 179th to 190th).


Coface (09/2016)