Country Risk Rating

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. - Source: Coface

Business Climate Rating

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, cobalt) and oil reserves
  • Agricultural sector potential - world’s leading producer of vanilla
  • Expansion of the tourism sector
  • Public debt mostly on concessional terms


  • Dependence on agricultural and mining output
  • Inadequate road, hydraulic, and electricity networks
  • Dependence on foreign aid
  • Chronic political instability

Current Trends

Following the Political Crisis, Recovery, Hampered by Poor Weather, Resumes

Growth in 2017, hampered by the violent passage of the Enawo cyclone just when the island was struggling to recover from the drought brought on by El Nino, stagnated. Nevertheless, the momentum gained following the political crisis (2009-2013) is expected to pick up again in 2018. After two years of poor harvests, activity in the agricultural sector, which represents almost a quarter of GDP, is expected to be more productive. In the secondary sector, agri-industry will benefit, in particular, from the increased contribution of the Nosy Be and Morondava sugar refining mills. For its part, the textile industry should continue to benefit from Madagascar’s reinstatement in the African Growth and Opportunity Act (AGOA). This sector is also set to be one of the main beneficiaries of the island’s membership of the Afreximbank in June 2017.

The outlook for the tourism sector is also brighter after it was hit by the bad publicity accompanying the political crisis, benefiting, in addition, from more positive growth dynamics in Europe (from where most tourists originate). Identified because of its potential in the National Development Plan (NDP) 2015-2019, tourism will benefit from public investment flows. Investment in the context of the NDP, aimed at infrastructure development, is therefore expected to continue to drive growth in the construction sector too. Activity in this sector will further benefit from reconstruction work after Cyclone Enawo. The island’s membership of the Asian Infrastructure Investment Bank (AIIB) could also help support new projects.

In contrast, despite lower inflation, linked to the expected dip in food prices, household consumption is likely to remain limited. Still high, inflation will have an impact, with over 80% of the population living below the poverty threshold. Despite more positive prospects overall, rising tensions and political uncertainty in the run-up to the 2018 elections present significant risks in a country struggling to recover from a major political crisis.

Twin Deficits Still High

The public deficit, although remaining high, is expected to reduce in 2018. Public accounts will benefit from higher revenues, thanks to the pick-up in activity and further progress on tax collection. Higher levels of aid, which will be used, in particular, to finance infrastructure projects, are also expected to support an overall increase in revenues.

Current spending, although still high, is expected to fall in 2018. This is explained by the fact that current spending was particularly high in 2017 due to the payment of subsidies, especially to the national water and electricity company (Jirama) as a result of the weather events. This drop in current spending will, however, be largely offset by a rise in capital spending, which could exceed 10% of GDP in 2018. In an electoral year, budget slippage that would widen the deficit cannot, however, be ruled out. The international institutions, which had suspended aid between 2009 and 2014, will be paying particular attention. This is true for the IMF, which supports the island to the tune of USD 305 million under its ECF arrangement. Public debt, given its primarily concessional nature, will continue on a sustainable path.

The current account deficit is expected to widen in 2018, despite IMF support and the probable rise in remittances from expatriates. The value of imports will still exceed that of exports, hit by a fall in export competitiveness. In particular, vanilla, of which Madagascar is the world’s leading producer, is in crisis: bad weather not only resulted in disappointing harvests in 2016 and 2017 but also triggered a surge in prices (above USD 600/kg in March 2017 against USD 100/kg in 2015) for poor quality vanilla. The 2017-2018 harvest does not look very promising. The price of nickel, Madagascar’s main export product, will remain relatively low. Dividend repatriation to non-resident companies, especially in the mining sector, will further impact the income balance.

2018 Election Tensions

The political agenda will be dominated by the presidential and parliamentary elections due to be held before December 2018. This will be the second presidential election after that of 2013 which brought an end to four years of political crisis triggered by a coup d’état in 2009. President Henry Rajaonarimampianina, who has often had to deal with rumbling social discontent in a country suffering from poverty, corruption and infrastructure shortcomings, will certainly fight to remain in office. The holding of presidential elections, therefore, presents a substantial risk: the thorny question of the eligibility of the potential candidates, Marc Ravalomanana and Andry Rajoelina, needs, in particular, to be settled and could engender controversy and protests. The government is considering postponing the elections until 2019, which could also spark a crisis. The business climate, suffering from government inefficiency and, above all, corruption, remains very poor.


Coface (01/2018)