The Madagascan 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 as well as its recurrent political turmoil, the most recent turn of which ended last January with the election of a new president.

But there is another striking feature about Madagascar that barely goes noticed even by its professional watchers: the relations between its political crises and its business cycles. Economic growth and politics apparently operate at cross purposes. Growth spurts generate political crises in cyclical fashion. Economic prosperity in Madagascar displays a destructive impulse: elites fight over its spoils in a way that ends up sinking the whole country into periodic political turmoil and recessions. 

As the country slowly recovers from one of its most damaging political crises, which started in 2009, the newly-elected president, Hery Rajaonarimampianina seems to want do the right things. Sustained economic growth remains a centerpiece 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 that have marked politics in the country (1972, 1991, 2002 and 2009) seem to immediately precede periods of relatively strong economic growth.

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 destabilising role of elites in a business cycle – a conflict-vicious system. In good times, some people, interests and sectors are left out of ‘the party’. Others fight back in a way that spoils the party for everyone.

According to the Mo Ibrahim Governance Index, the rule of law score dropped substantially over the growth period of 2006-2008 from 58.1 to 51.4. During the 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 and 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 Corruption Index.

The footprints of elites 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-Presidents Ravalomanana and Rajoelina, were both elites from the highland 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 was the worst since the coming of democracy to the country, marked by a five-year-long sanctions by the international community. The previous crisis had lasted only 14 months. 

While it is difficult to put an exact figure on the total cost of the recurrent crises, the World Bank estimates that the just ended crisis cost the government almost US$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 US$1.25 poverty line. And in 2010 it had barely changed, with 81.2 percent poverty.

With more than 92 percent of the population living under US$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 classified as middle class against an African average of 33 percent, the staying power of the recurrent conflicts is very high.

Despite conflicts, Madagascar’s natural resource base remains rich and diverse with considerable 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 — amplified by the recent discovery of nickel deposits whose processing and expected step-up in production in 2014 will make it one of the world’s largest lateritic mines.

Development of the Malagasy oil industry is still in its early stages. The country has no proven offshore reserves of light crude at present. However, according to The Economist Intelligence Unit (EIU), its location in the highly prospective East African region has prompted a new surge of interest, with Total and ExxonMobil among the 17 or so oil companies operating in the country. Tourism and textile manufacturing are also important growth drivers.

The challenge is translating the country’s abundant resources into sustained generation of wealth to reduce poverty. The consistently poor economic performance is at the root of structural violence. The economy is struggling to rebound 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, worst of all, is moving in the opposite direction of population growth (per capita GDP growth in 2013 was -0.17 percent). 

A significant percentage of elites have made it a culture to grab the country’s wealth illegally for themselves. According to the new prime minister, almost 40 per cent of the budget is lost to corruption. While the full extent of graft during the political crises remains unknown, the destabilising effect on the country’s ecological stability and insecurity has raised alarm bells on a global scale. The trafficking of the critically-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 US$460 000 a day, which averages over US$167 million a year, a very significant sum that disappears into private pockets. Shockingly, this is more than the budgets of the ministries of defense, education and health together. In fact, almost 100 000 of the 8.5 million hectares of pristine forest are lost yearly. 

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 polarised and corrupt context of economic and business rivalries. Business relations have been reopened with the French and the 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 mineral wealth and new discoveries will be subjected to full competitive bidding processes remains unclear. Even more so, whether the new government will renege on the opaque contracts that were signed during the crisis is uncertain, too. For example, the license for exploring the Soalala iron deposit was alleged to be under-priced to WISCO, a Chinese company, in a deal in which it paid a US$100 million signing bonus. 

Madagascar turns on its head the standard economic wisdom that a rising tide of economic growth would lift everyone. In fact, without clear rules or people-centred institutions to ensure that the whole boat of prosperity lifts all passengers, the haves will leverage their greed fighting over its spoils in a way that will 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. – Pambazuka News

September 2014
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