The Economy of MADAGASCAR, 1994

The following is excerped from the Country Studies--Area Handbook program of the U.S. Department of the Army. The original version of this text is available at the Library of Congress.
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Madagascar

THE ECONOMY

Government Policy and Intervention

Over the years, successive French colonial and independenceera governments have sought to modernize Madagascar's economy. Despite such efforts, the majority of Malagasy in 1994 continued to earn their livelihoods in ways fundamentally unchanged from those of their ancestors--small-scale farms supporting traditional irrigated rice cultivation, dryland farming of cassava and other foods, zebu cattle herding, or the raising of cash crops.

The first modern land use projects were established by French settlers or Creole immigrants from the Mascarene Islands in the nineteenth and twentieth centuries. They introduced cash crops such as coffee, sugarcane, vanilla, cloves, and sisal for export. They also built small-scale mines to exploit the island's graphite, chromite, and uranium resources. To facilitate the processing and marketing of these commodities, the immigrants established a number of financial and commercial enterprises and built a small, modern railroad system. They then brought some Malagasy into this modern sector of the economy, either as wage laborers and sharecroppers on the foreign-owned plantations, or as low-level employees in the civil service or business enterprises. The foreign owners and managers, however, retained almost all of the benefits from these operations.

After independence the Tsiranana regime did little to change the French domination of the modern sector of the economy, despite increasing outrage at this continued economic dependence. This anger, together with growing concern over an unequal distribution of wealth that left the southern and western parts of the island in relative poverty, caused the ouster of Tsiranana in 1972 and a shift in economic policy. The new military regime led by Ramanantsoa cut most ties with France and began to Malagachize the economy. Slow progress toward this goal, however, helped to precipitate the end of the Ramanantsoa regime in mid1975 . Only with the rise of Ratsiraka to the presidency later that year did the takeover of formerly French-dominated enterprises begin in earnest.

Ratsiraka's policy of "revolution from above" went beyond confiscating or buying out foreign firms and turning them over to Malagasy ownership; he intended to socialize the economy by nationalizing major enterprises. The state acquired majority or minority ownership in nearly all large financial, transportation, marketing, mining, and manufacturing enterprises. Firms left under private control were required to buy and sell at statecontrolled prices, and the state closely monitored the repatriation of profits. In the rural sector, Ratsiraka aimed to establish local farming cooperatives. Almost as important as this institutional reform was the regime's intention, announced in an economic plan for the 1978-80 period, to increase dramatically the level of government capital investment in all sectors of the economy in order to improve the availability of goods and services to all.

By the start of the 1980s, however, Ratsiraka's attempt to fashion viable socialist institutions and to stimulate the economy through increased investment had failed to improve economic production and welfare. Economic growth throughout the 1970s had not kept pace with the expanding population. Despite the availability of significant agricultural and mineral resources, the economy was less productive than at the start of the decade when the average per capita income was already among the lowest in the world. The only apparent effect of the enhanced level of investment, which reached all-time highs in the 1978-80 period, was to put the country deeply in debt to foreign creditors and, therefore, pave the way for a series of structural adjustment agreements signed with the IMF and the World Bank during the 1980s and the early 1990s. Such agreements were necessary because as a 1993 World Bank study pointed out, between 1971 and 1991 the per capita income of Malagasy dropped 40 percent; to return to its 1971 level by 2003, Madagascar would require a 6 percent annual growth rate.

Eventually admitting that adoption of the socialist model of economic centralization and state control was a mistake, the Ratsiraka regime in 1980 initiated a return to a more classic liberal economic model that the Zafy regime wholeheartedly adopted following its inauguration in 1993. The post-1980 Ratsiraka and Zafy regimes have overseen the privatization of parastatals (see Glossary), the disbanding of agricultural marketing boards, the ratification of more liberal investment codes favoring foreign investment, the privatization of the banking industry, diversification of traditional, primary-product exports, and greater investment in food production. The Zafy regime has made reinvigoration of the Malagasy economy its priority.

The major aims of the Zafy regime's agricultural policy are fivefold. The government seeks to make the country selfsufficient with regard to rice by expanding production through such measures as increased irrigation. It is also attempting to improve the quality of the major export crops--cloves, coffee, and vanilla--but to limit their quantities because of restrictions on world demand. The regime is trying to develop new export crops such as cashews, palm oil, shellfish, and soybeans and to diversify consumer food products through introducing rainfed crops such as corn and sorghum. In addition, the government is endeavoring to improve agricultural research and breeding facilities.

Data as of August 1994

This is excerped from the Country Studies--Area Handbook program of the U.S. Department of the Army. The original version of this text is available at the Library of Congress.
Full index of Country Studies-Madagascar