Madagascar: the curse of economic growth

The Indian Ocean island nation of 22 million people is famous for at least two things: its unique pristine biological diversity and its recurrent political turmoil— the most recent which ended last January with the election of a new President. But there’s another striking feature about Madagascar which barely gets notice even by its professional watchers: the relations between political crises and its business cycles. Economic growth and politics apparently operate at cross purposes. Growth spurts generates political crises in cyclical fashion.  Economic prosperity in Madagascar displays a destructive impulse: elites fight over its spoils in a way that end up sinking the whole country into periodic political turmoil and recessions.

The Madagascar Cycle

As the country slowly recovers from one of its most damaging political crisis which started in 2009, the newly elected President, Hery  Rajaonarimampianina seems to want do the right things. Sustained economic growth remains a center piece of his agenda to reconstruct the country and build peace. But how growth interacts with the conflict systems remains a major threat. Remarkably, with the exception of the period 1978-80, the cyclical crises which have marked politics in the country (1972, 1991, 2002, and 2009) seem to proceed immediately periods of relative strong economic growth indicated on the graph : 1968-1970, 1988-1990, 1996-2000, and 2004-2008.

Economic growth, simply put, spurts with a curse. Periods of development boom have been short lived.  Higher levels of corruption and inequality coincide with times of prosperity, suggesting a destabilizing role of economic and political elites in a business cycle –conflict vicious system. In good times, some peoples, interests and sectors are left out of ‘’ the party.’’ Others fight back in way that spoils the party for everyone. In fact some analysts have pointed at the great clash of interests between state administration, security forces and large-scale economic ventures as the country's Achilles' heel (Jutersonke and Kartas 2010). According to the Mio Ibrahim Index, an authoritative African governance rater, the rule of law score dropped substantially over the growth period of 2006-2008 from 58.1 to 51.4, respectively. During that same business cycle, accountability –which includes corruption – declined from 56.0 to 53.3. In fact, accountability ratings in 2000 and 2008 barely changed: 50.3, 50.2 respectively— all periods of peak economic performance.  Over its two business cycles in the past decade, the country witnessed the most remarkable drop in its relative position against other countries on the Transparency International Index.

The heavy footprints of  elites' greed were revealed in the just ended crisis. In contrast to previous crises, old grievances between the two major ethno-regional blocs, the Merinas and the Cotiers did not hold water. The main protagonists, ex-President s Ravalomananana and Rajoelina were all elites from the high land Merina region. The crisis started when a military directorate took power from the former President, Marc Ravalomanana and handed it over to the then Antananarivo Mayor Andry Rajoelina. The standoff that followed is the worst since the coming of democracy to the country, marked by a five year long sanctions by the international community. The previous crisis lasted only for 14 months.

While it is difficult to put an exact figure on the total cost of the recurrent crises, however, the World Bank estimates that the just ended crisis cost the government almost $6.3 billion over the period 2009-2012 alone. This is more than half the GDP and 15 times what the Government spends on healthcare a year. The per capita income dropped significantly over the past ten years too. In 1980, more than 85 percent of the population lived below the official 1.25$ poverty line. And in 2010— the most updated data— it has barely changed with 81.2 percent poverty head count (World Bank 2014). With more than 92 percent of the population living under $2 a day, Madagascar is now one of the poorest countries in the world.  The cumulative impacts are dire. With only 1.9 percent of the population classify as middle class against an African average of 33 percent, the staying power of the recurrent conflicts is very high (Kingombe, 2014).

Another curse in waiting

Yet Madagascar’s natural resource base remains rich and diverse with considerable running room to bounce back and sustain long-term economic growth. The country is richly endowed with mineral deposits.   Mining is becoming an important foreign exchange earner—amplify by the recent discovery of nickel deposits whose processing and expected step-up in production this 2014 will make it one of the world’s largest lateritic mines (Economic Inteligence Unit, 2014). Development of the Malagasy oil industry is still at its early stage. The country has no proven offshore reserves of light crude at present. However, according to EIU, its location in the highly prospective East African region has prompted a new surge of interest, with Total, ExxonMobil among the 17 or so oil companies operating in the country. Tourism and textile manufacturing are also important growth drivers.

How to translate the country’s abundant resources into sustained generation of wealth in way that significantly reduces massive poverty and deprivation remains a key challenge. The consistently poor economic performance is at the root of structural violence. The economy is struggling to jump start from a negative trend that marked the crisis. The share of the ‘’national cake’’ available to each citizen has been declining in absolute terms and worse of all in opposite direction to population growth (per capita GDP growth in 2013 was -0.17%). 

In periods of turmoil, elites show their true colors even more. A significant percentage of them have made it a culture to grab the country’s wealth illegally. According to the new Prime Minister, almost 40 percent of the budget was lost to corruption. While the full extent of graft during the political crises remains unknown, the destabilizing effect on the country’s ecological stability and insecurity has raised alarm bells on a global scale. The trafficking of the critical endangered rosewood, has been qualified as a ‘’massacre’’. According to Global Witness, an international environmental NGO, the illegal trade of the country’s timber alone is worth over $460000 a day, which average over $167 million a year, very significant sum which disappears into private pockets. Shockingly, this is more than the budgets of the ministry of defense, education and health together. In fact, almost 100 thousand of the 8.5 million hectares of pristine forest are lost yearly. 

Too little encouraging steps

While the new Government has adopted a liberal approach with economic partners, it remains to be seen how this is going to play out in the polarized and corrupt context of economic and business rivalries. Business relations have reopened with the French and Americans. China’s business engagement which stayed even during the period of sanctions has grown significantly since 2000 when it was encouraged by Ravalomanana.  

Whether the country’s substantial minerals wealth and new discoveries would be subjected to full competitive bidding processes remain unclear. Even more so, whether the new Government will renege on the opaque contracts which were signed during the crisis is uncertain, too.  For example,  the license for exploring the Soalala iron deposit was alleged to be underpriced to WISCO, a Chinese company, in a deal which its paid a $100 million for signature bonus (Cathan House, 2013). Meanwhile, unscrupulous Chinese businessmen together with some Madagascar elites have been held responsible for the illegal trade of the countries endangered wildlife, such as the tropical rosewood, which has been decried internationally as an ‘’ecological massacre’’ of extinction scale (Global Witness , 2009).

Madagascar turns on the head, the standard economic wisdom that a rising tide of economic growth would lift everyone. The new Government in Antanarivo needs more than hercules to break the Madagascar cycle. In fact, without putting in place clear rules and building people-centered institutions to ensure that the whole boat of prosperity lifts all occupants, the haves would leverage their greed by fighting over its spoils in way that would only end up sinking the whole boat, and harming everyone in particular the have-nots.    Plainly speaking, more of the same economic growth is bad for Madagascar’s long-term stability and peace.

Works Cited

Cathan House . (2013). Madagascar: Time to Make a Fresh Start. London: Cathan House.

Economic Inteligence Unit. (2014). Madagascar Country Report Second Quater. The Economist .

Global Witness . (2009). Illegal Malagasy Trade. Global Witness .
Jutersonke O and Kartas M (2010) Peace and Conflict Impact Assessment (PCIA) Madagascar.
The Graduate Institute Geneva.

Transparency International Initiative Madagascar . (2013). RAPPORT D’ACTIVITES 2012. Antanarivo: Transparency International.

World Bank. (2014). Countries Economic Database. World Bank.