Economics

Analytical Topic
The country that is experiencing slow growth in sub-Saharan Africa for much of its post-independence history and which is the subject of this paper is Madagascar. During the colonial period Madagascars development agenda centered on the production of agricultural cash crops mainly for export. However on the attainment of independence, Madagascar started to industrialize as was the case of most of the newly independent countries. While some of the countries that became independent in 1960s such as Singapore, Mauritius, Malaysia, Botswana and many others have made commendable economic progress Madagascar has not achieved much. The question being asked is why is Madagascar lagging behind in its economic development and what are the basic elements that a country must adhere to in order to stimulate economic growth

Before embarking to analyze some of these issues behind Madagascars underdevelopment, an overview of the country is herby presented.

Introduction
The Asian Development bank, as indeed is the case for many economic development scholars,  is of the view that poor governance holds back and distorts the process of development, and has a disproportionate impact on the poor and weaker sections of the society (Article on Governance, published by Asian Development Bank 2010 pp1). The Bank has identified four key interrelated elements that are considered necessary to sustain development efforts and ensure results these are accountability, predictability, participation and transparency. The Bank considers these four elements to be the cornerstone of the economic development of a country.

According to NationMaster.com the most recent per capita income of Madagascar is USD 232, Mauritius USD 3730, Singapore USD 20066, Malaysia USD 3311 and Botswana USD 3201,
and the 2008 World Bank report contained in the BBC News article published on December 26, 2009, it is estimated that 70 of Malagasy live on less than USD 1 per day.

This leads to the question that the paper will address - Why is it that the gross national income per capita of Madagascar is only USD 232 fifty years after independence and 70 of her population leave on less than USD 1 per day. This question can also reframed as follows can the slow pace of economic development of Madagascar be attributed to none adherence to the proper application of these four elements as stated by Asian Development Bank

Background
Madagascar is an island in the Indian Ocean along the eastern coast of the continent of Africa and the fourth largest island in the world. Madagascar which was a French colony gained independence in 1960 but according to the article on BBC News article published on December 26, 2009, the military seized power in the early 1970s with the aim of achieving a socialist paradise, which never materialized. They continue to state that the the economy went into decline and in 1982 the authorities were forced to adopt a structural adjustment Programme imposed by the International Monetary Fund (BBC News 2009 pp1).

Madagascar being a former French colony is said to have strong economic and cultural ties with French speaking West-Africa.

The constitution under which Madagascar is governed was proclaimed in 1992, with amendments and the president is head of state elected after every five. It has a senate and lower house.
Madagascar is a member of African Union and Southern Africa Development Community.

The population of Madagascar is 19.6 million with an area of 587041 sq km. Life expectancy is 59 years for men and 62 years for women and according to the 2008 World Bank report and quoted in the BBC News article Madagascar country profile.

Political history
Madagascar became independent on June 26, 1960 under Tsiranana who was elected president and was subsequently reelected in 1965 and 1972. The infoplease encyclopedia states that in 1972, following the students and workers protest, Tsiranana handed over power to Gen. Gabriel Ramanantsoa, who became prime minister. Thereafter, in October 1972, a referendum was held that approved Ramanantsoas plan to rule without parliament for five years. In 1975 a new constitution was approved and the government instituted some economic policies that were unpopular. This led to the military unrest and internal disagreements regarding those economic policies that culminated in the assumption of power by Col. Ratsimandrava. The new leader was assassinated shortly after taking over and Lt. Commander Didier Ratsiraka was elected president. Ratsirakas Marxist government borrowed widely which drove Madagascar into a crippling debt crisis thereby causing social unrest. There were demonstrations and length strikes in 1991 that pushed Ratsiraka to share power with the opposition leader Albert Zafy. When the presidential elections were held in 1993, Zafy became the president of Madagascar. Zafy did not rule for long as he was defeated by Ratsiraka during the subsequent presidential elections that were held in 1996. During the subsequent presidential elections in 2001, opposition leader Marc Ravalomanana claimed victory despite the government stating that he only secured 46 of the votes. A run off was conducted but whose results Ravalomanana denounced and proclaimed himself president. The protracted uncertainty as to the leadership of Madagascar ended when Ratsiraka fled the country in July 2002. Ravalomanana was replaced by Andry Rajoelina in 2009 through as a result of street protests.

Economy overview of Madagascar
According to WildMadagascar.org the modern land use projects were established by French settlers in the nineteenth and twentieth centuries. Cash crops introduced were coffee, sugarcane, vanilla, cloves and sisal which were mainly for export. Also established were small-scale mines to exploit the islands graphite, chromite, and uranium resources.

The estimated gross domestic product   (GDP) in 2008 was USD 9.729 billion as contained in the U.S State Department country economic reports. Natural resources include graphite, chrome, coal, bauxite ilmenite, nickel, gold oil, tar sands, precious and semi-precious stones, and hardwoods.

Agriculture, including fishing and forestry, is the main stay of the Madagascar economy and as per the estimates of 2008, and it contributed 26 per cent of GDP and 70 per cent of export earnings and the main products include, rice, livestock, seafood, coffee, vanilla, sugar, cloves, cotton, sisal, peanuts and tobacco.

Industry contributed 15.9 per cent of GDP according to 2008 estimates and the goods produced include processed food, clothing, textiles, mining, paper, refined petroleum products, glassware, construction, soap, cement and tanning.

In regard to Investment climate Wikipedia observes that the government of Ravalomanana had embarked on seeking foreign investment  and planned to tackle obstacles to investment, including combating corruption, reforming land-ownership laws, encouraging study of American and European business techniques, and active pursuit of foreign investors. According to this article,
Madagascars appeal to investors stems from its competitive, trainable workforce.

More than 200 investors, particularly garment manufacturers, were organized under the EPZ system since its establishment in1989. The absence of quota limits on textile imports to the European market under the Lome Convention helped to stimulate this growth.

International Trade
Exports from Madagascar in 2007 were estimated at USD 989 million when valued at free on Board (F.O.B) basis and consisted of apparel, shrimp, vanilla, coffee, cloves, graphite, essential oils, industrial minerals and gemstones. Apparently, Madagascar is the worlds leading producer of vanilla and accounts for about half the worlds export market. Madagascar is the worlds leading producer of vanilla and accounts for about half the worlds export market. The major Madagascars export markets are France which in accounted 39 per cent in 2002, U.S. nearly 20 per cent, Germany 5.5 per cent. Lesser trade partners include Japan and Singapore, Italy and United Kingdom.

Imports in the same year, also valued on F.O.B basis were USD 1.933 billion and the major imports were foodstuffs, fuel and energy, capital goods, vehicles, consumer goods and electronics. Major supplies were France, China, Iran, Mauritius and Hong Kong.

Trade between U.S and Madagascar is bound to be affected following the suspension of Madagascar. According to U.S foreign policy in regard to operations of the African Growth and Opportunities Act (AGOA), Countries that experience an undemocratic change of government typically have their benefits suspended the following year, (AGOA.info of 2009-08-08 pp1). As there were no elections in Madagascar last year when there was a change of leadership, the suspension of Madagascar became effective in the year 2010. With the suspension of Madagascar, orders for apparel exports have dried up and factories that manufacture apparel for export to U.S are likely to close down.

According to the article in the AGOA.info, Madagascar exported roughly USD 280 million in textiles and apparel in 2008 to U.S, of that about USD 123 million in cotton trousers and about USD 58 million in knit shirts were exported duty free to U.S. With the suspension of AGOA then Madagascar will have to pay a 16 per cent duty on cotton trousers and a 20 per cent duty on knit shirts.
Exports from the EPZs, located around Antananarivo and Antisirabe, and consist the most part of garment manufacture, targeting the US market under AGOA and the European markets under Everything But Arms (EBA) agreement are likely to be affected most.

Tourism
According to the article in Tourism Roi, the contribution of travel and tourism to GDP is expected to rise from 10.4 per cent that is USD 1,089 million in 2009 to11.2 per cent that is USD 1,652.8 million by 2019. Real GDP growth for travel and tourism is expected to be 0.7 per cent in 2009 and to average 4.9 per cent per annum over the coming ten years. Export earnings from international visitors and tourism goods are expected to generate 28.1per cent of total exports in 2009 that USD 592.9 million to USD 1051.8 million in that is 22.3 per cent of total exports in 2019.

Tourism targets the niche eco-tourism market, capitalizing on Madagascars unique biodiversity, unspoiled natural habitats, national parks and lemur species.

Economy growth
In its country reports, the U.S State Department states that Madagascars structural reforms began in 1980s under pressure from international financial institutions (U.S. State Department 2010 pp1). The reforms commenced with initial programs on privatization during the period 1988-1993 and the development of the export processing zones regime in the early 1990s. As these reforms were being implemented, Madagascar experienced economic stagnation from 1991 to 1996 that was followed by 5 years of solid economic growth and accelerated foreign investment, driven by a second wave of privatization and EPZ development.

A six-month crisis that was precipitated by the disputed presidential election in 2001 halted much of the economic activity in Madagascar in the first half of 2002. When the crisis was resolved, the economy rebounded with GDP growth of over 9 per cent in 2003. During the period 2004-2005
currency depreciation and rising inflation hampered economic performance however by 2006 inflation had abated somewhat to 11per cent   but growth remained Sluggish at about 4.7per cent.
The Madagascar economy continued to improve by registering a GDP growth rate of 5 per cent in 2006, 6.2 per cent in 2007 and 7 per cent in 2008.

Madagascars sources of growth are tourism, textile and light manufacturing exports notably through the EPZ agricultural products and mining. Considerable obstacles stand in the way of Madagascars realization of its growth potential namely the extent of government reforms, outside financial aid, and foreign investment, will be key determinants.

Balance of Payments
Economy of Madagascar, an article in Wikipedia the free encyclopedia regarding the economy of Madagascar states that since the mid-1980s, the country has run a sizeable balance-of-payments deficits. The current account deficits as a per cent of GDP averaged in excess of 6 per cent during much of the 1990s and registered nearly 4. 5 per cent in 1999. Madagascars debt ratio, which had reached 46 per cent in 1996, was estimated at 15.4 per cent in 2000. Within an overall framework of poverty reduction, the Heavily Indebted Poor Countries (HPIC) Initiative was expected to enable the country reduce its debt service ratio to 5.5 per cent in 2003, and remain at around 5 per cent throughout the projection period 2000-19.

Inflation
The estimated inflation rate for consumer goods in 2007 was 10.3 per cent and 9.2 per cent in 2008. This was a drop from 18.4 per cent, in 2005 as per the International Monetary Fund 2009 report on the World Economic Outlook.

Per Capita income
According to NationMaster.com the most recent per capita income of Madagascar is USD 232, which is very poor when compared to some countries that attained independence in 1960s and were or less at par economically. These are Mauritius USD 3730, Singapore USD 20066, Malaysia USD 3311 and Botswana USD 3201

Trade Unions
In the report in the Encyclopedia of the Nations both public and private sector workers have the right to establish and join labor unions of their choice. However, only 5 per cent of the total workforce was unionized in2002. Unions are required to register with the government, but authorization is customarily given. The law provides for collective agreements between employers and the trade unions. The article concludes that strikes are legally permitted. (Encyclopedia of the Nations 2010 pp1).

Interpretation
The above information is an overview of Madagascar, a country in sub-Saharan Africa. As narrated, the economic development of Madagascar is nothing to talk about when compared to countries such as Singapore, Malaysia, or even with countries in sub-Saharan Africa that attained independence in 1960s that Mauritius and Botswana. The rest of this paper will interrogate why Madagascar economy has performed very poorly.

It has been observed that in order for such as Madagascar to economically develop, the government must carry out reforms, attract foreign direct investment and receive outside financial aid. A number of countries in Sub-Saharan Africa have to a certain degree carried out reforms received financial aid from development partners, and to a certain extent attracted foreign direct investment but have not achieved commendable economic growth.

As stated above, the Asian Development Bank has identified four key interrelated elements that it considers necessary to sustain development efforts and ensure results these are accountability, predictability, participation and transparency. The Bank takes these four elements to be the guiding factors if a country has to economically develop or in order to sustain its development efforts. These must be adhered to whether one is talking of the developed countries such as the United States of America or a developing country such as Madagascar. None adherence to these elements could be the reason as to why Madagascar is underdeveloped and will continue to be in that state until it changes and begin to adhere to the said elements.

At this stage an understanding of these elements and their influence on economic growth of Madagascar is appropriate-
Accountability- in this context the government of Madagascar is expected to be responsible to the citizens of Madagascar for all the activities it undertakes. This requires those in authority to regularly seek a fresh mandate from the electorate, an act that will require them to account to the people the activities they undertook during the period they exercising power. The people are then at liberty to renew their mandate or replace them if not satisfied. Unfortunately there have been changes in leadership in Madagascar without seeking peoples mandate and this includes the current president.
In the absence of accountability governance is weakened as observed the State Department,  Although structural reforms advanced, governance remained weak and perceived corruption  in Madagascar was extremely high U.S State Department.pp1.

Lack of accountability breeds the ground for corruption and bribe taking as observed by USAID, It is standard practice to pay bribes for the transport of goods, a new permit, traffic violations, and even a high school diploma USAID Telling Our Story, August 14, 2009

Predictability- This refers to something that happens in manner that can be expected, anticipated, forecast or foretold.  It is the government that prepares economic development plans that spells out the development agenda that indicates projections on the economic growth and the vision. The period under which theses plans are expected to be implemented must have time lines and are expected to be carried out without interruption. In this context, those changed with governance should have a fixed and predictable duration or period so as to enable them see their programs through. Change of leadership through military takeovers or revolutions as it has been happening in Madagascar make the country politically unstable and hence unpredictable. A serious investor will invest his money where heshe can predict with a high degree of certainty that those in authority will see through the development plans or change of leadership will be orderly and drastic changes will not occur that may derail their investment.

Participation- In the Madagascars context, participation entails taking part in the election of the political representation and the countrys leadership that is the presidency. When people are engaged in decision making be it, electing the president or other political representatives or voting for a particular program, they feel satisfied, they own the process and they will associate themselves with the success or failure of the process. Madagascar has been ruled by people who have assumed power through military coups or street protests. Citizens are never given the opportunity to hear from the coup leaders what their agenda is in order to support that agenda or reject it besides the followers of the leadership that has been ejected develop a feeling of being oppressed and in the process they try to resist any changes the new leadership may come up with. They are unlikely to disown the development agenda as promulgated by the coup leaders. This has been one of the reasons for the slow development of Madagascar. Protests started in Madagascar as early as 1972 and have intermitted occurred since then, the latest being in 2009 meaning citizens participation in electing their leaders is quite often derailed thereby affecting the ownership of the development programs.
Transparency- Transparency International defines transparency as a principal that allows those affected by administrative decisions, business transactions or charitable work to know not only the basic facts and figures but also the mechanism and processes. It concludes the definition by stating that it is the duty of civil servants, managers and trustees to act visibly, predictably and understandably. One of the things that has caused problems in Madagascar is the conducting the elections in a transparent manner. Lack of transparency in conducting elections has often precipitated crisis after crisis which have affected the economic growth of Madagascar as observed by AGOA.info Africa Growth and Opportunity Act, a six-month political crisis triggered by a dispute over the outcome of the presidential elections held in December 2001 virtually halted economic activity in much of the country in the first half of 2002. Real GDP dropped 12.7 for the year 2002, inflows of foreign investment dropped sharply, and the crisis tarnished Madagascars budding reputation as an African Growth and Opportunity Act (AGOA) standout and a promising place to invest. Political crisis that is ongoing continues to negatively impact key macroeconomic indicators and the business sector in Madagascar.  No meaningful development will take place under such circumstances.

Conclusion
Madagascar has failed to adhere to the four elements, that is accountability, predictability, participation and transparency, considered necessary for the economic development of a country and that is why it will continue to be underdeveloped. It is hence difficult to see how this country will improve the lives of its impoverished citizens if the crisis does not end soon and the future leadership changes tact and observes the said development elements.