Madagascar country risk assessment

04 July 2019

Madagascar country risk assessment Political and social instability risks have decreased in Madagascar given the first successful handover of power between elected administrations in January 2019. The newly inaugurated government of Andry Rajoelina will remain committed to Madagascar’s structural reform agenda agreed upon with the International Monetary Fund (IMF). Under the US$305 million Extended Credit Facility (ECF), economic growth has rebounded and will exceed 5% in 2019 and 2020.

Security Environment

Madagascar remains in a fragile transition following a 2009 coup d’état and four years of subsequent instability and uncertainty. The transition of political power to Rajoelina in January 2019 has eased short-term instability risks but structural weaknesses in the political system will present downside risks to the long-term outlook.

Thousands of protestors loyal to former President Marc Ravalomanana gathered in the May 13 Square in central Antananarivo to protest the legitimacy of Rajoelina’s electoral victory in December 2018. Demonstrators were dispersed by riot police using tear gas and batons. This follows political violence in April 2018, during which one protester was killed and a further 16 were injured in clashes with police.

Madagascar country risk assessment The legitimately installed government of Rajoelina will prove more attractive to foreign investment and accelerate hydroelectric project approval over the next twelve months. However, sporadic, violent political protests and labour strikes hold property damage risks. Risks are elevated in the mining and infrastructure sectors, where the failing state owned electricity utility company has frequently been targeted by vigilantes.

Trading Environment

Real GDP growth of 5.4% in 2019 and 5.3% in 2020 is forecasted, up from an estimated 5.2% in 2018. Growth will continue to benefit from the government’s flagship National Development Plan (NDP), which will drive investment in infrastructure projects.

In addition to the Sahofika hydroelectric project, the Volobe hydroelectric project, located in the Toamasina region of eastern Madagascar will be commissioned in 2022.

The plant will supply an additional 120 MW of electricity to the Madagascan national grid. Growth will also be supported by an increase in global nickel prices. Nickel price forecasts will remain bullish over the next 24 months, averaging US$14,500/tonne in 2019 and US$15,500/tonne in 2020, up from US$13,186/tonne in 2018.

Against this favourable backdrop, Madagascar's nickel mines will look to ramp up production and bolster export growth in the coming years.

Madagascar’s external position will remain relatively stable over the coming years. Exports of goods and services will grow gradually owing to rising nickel prices, increased tourism receipts and increased textiles production.

Inflows from multinational and bilateral partners and from foreign investors will provide coverage for the current account deficit. The current account deficit deteriorated to an estimated 2.9% of GDP in 2018, due to a 19% rise in the value of oil imports and 13% rise in the value of capital goods. Inflation is projected to level off at 7.1% in 2019 and 6.1% in 2020. In December 2018, foreign exchange reserves rose to US$1.18 billion providing four months of import cover.

However, downside risks to the growth outlook remain significant given the country’s high dependence on commodity exports.

Approximately 50% of Madagascar’s export earnings stem from three commodities - nickel, vanilla and cloves. Global commodity price shocks and/or adverse weather conditions would create a significant drag on the medium-term growth outlook.

Madagascar frequently witnesses extreme weather events such as cyclones, flooding and drought. Given that more than 50% of the electricity on the island is generated by hydroelectic plants, this also leaves industries such as manufacturing and telecoms vulnerable to power outages and general business disruption.

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Investment Environment

Pricing Outlook MadagascarCorruption risks are likely to fall over the short-term as Rajoelina takes immediate action to demonstrate his legitimacy and attract foreign investment back to Madagascar. In February 2019, several high-profile arrests were announced by the government’s new anti-corruption unit – Pôle Anti-Corruption (PAC).

The PAC has its own court in Antananarivo with plans to expand to the country’s five provincial capitals in 2019. The PAC(s) will be stand-alone units in the judicial system and possess exclusive jurisdiction for corruption and money-laundering offences.

In February 2019 PAC arrested and detained two senior advisors to former President Hery Rajaonarimampianina on corruption charges.

This was followed by the high-profile arrest of Jean Eddy Maminirina, the ringleader of an illicit rosewood smuggling gang, who had been sought by police since 2017.

The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

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5 Key Takeaways

  • The legitimately installed government of Rajoelina will prove more attractive to foreign investment and accelerate hydroelectic project approval over the next twelve months
  • Real GDP growth of 5.4% in 2019 and 5.3% in 2020 is forecasted, up from an estimated 5.2% in 2018
  • Growth will be supported by bullish nickel prices, which will average US$14,500/tonne in 2019 and US$15,500/tonne in 2020
  • In December 2018, foreign exchange reserves rose to US$1.18 billion, providing for four months of import cover
  • The new anti-corruption unit (PAC) has exclusive jurisdiction for corruption and money-laundering offences. In 2019 it will expand to Madagascar’s five provincial capitals.

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Gulf of Oman, Hong Kong, Bangladesh and Kenya all of which have been the subject of recent enquiries from our client base.



  • Eleanor SmithEleanor Smith

    Eleanor Smith is a Senior Political Risk Analyst within Marsh JLT Specialty’s Credit Specialties team. At Marsh JLT Specialty, Eleanor analyses developments in political risks, and advises clients on their effect in a range of sectors. Eleanor is also responsible for delivery of World Risk Review, JLT’s country risk ratings platform, to clients and prospects.

    Eleanor has a first-class degree in History with Spanish from UCL, and a Masters in International Public Policy from the same institution. With experience in a range of sectors, including diplomatic missions and not-for-profit, Eleanor can help clients understand their risk exposure.

    If you would like to talk about any of the issues raised in this article, please contact Eleanor Smith, Senior Political Risk Analyst on
    +44 (0)121 626 7837.

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