Discusses key economic indicators and trade statistics, which countries are dominant in the market, and other issues that affect trade.
COVID-19 has dealt a harsh setback to Madagascar’s growth trajectory and its plans to grow its way out of poverty. After growing 3.2 percent in 2018 and 4.4 percent in 2019, the economy shrank 7.8 percent in 2020, slipping into recession following the economic disruptions tied to the COVID-19 outbreak. All major sectors were in the red in 2020. The economy is still in recovery mode in 2021; the World Bank projected a two percent growth rate for the year for Madagascar in January 2021, but six months into 2021 the growth picture is not promising. The most serious drought in the country’s southern region in over four decades will likely exacerbate economic strains, push human migration into the north and east, and will challenge efforts to turn back environmental destruction. Meanwhile, slowdowns in government spending and production are creating additional headwinds.
Despite the Government of Madagascar’s (GOM) stated desire to open the country up to foreign investment, fears of political turmoil, private sector concerns about government policy, ubiquitous corruption, and the impact of COVID-19 travel and other safety restrictions combine to make it a challenging environment for business. President Rajoelina’s blueprint for economic success – the four-year Plan d’Emergence – envisages major infrastructure spending and private sector engagement as the twin pillars of his strategy for economic development, but it is yet to be released, even though the GOM now claims it is being implemented. The emergency post-COVID recovery plans announced in July 2020 have also not been implemented.
The U.S. market plays a key role in Madagascar’s economic performance. The United States became Madagascar’s biggest single national export market in 2018, but COVID-19 related trade disruptions caused Madagascar’s exports to the United States to fall by 17 percent from $533.6 million in 2019 to $439.3 million in 2020. Vanilla, cloves, essential oils, textiles, nickel, and cobalt comprise the bulk of Madagascar’s exports to the United States and represent about 20 percent of Madagascar’s total exports. Prior to the reinstatement of AGOA benefits in late 2014, only 8.6 percent of Malagasy exports went to the United States, whereas today the number is 37.3 percent. While Madagascar’s exports to the United States have improved significantly in the last five years, imports from the United States have lagged, stalling at around 2.4 percent of total Malagasy imports in 2020 and in the first six months of 2021. The United States is only the twelfth largest exporter to Madagascar, notably behind countries like China, India, France, and UAE in 2020.