Madagascar’s export processing zones (EPZ) are anexample o a successul strategy to develop a sustainablemanuacturing base in both an LDC and sub-SaharanArica.
Te Zone Franche Industrielle de Madagascar(ZFI), established in 1990, initially attracted Asianexporters through tax incentives, low labor costs, and theability to circumvent textile quotas under the MultiberArrangement and benet rom Madagascar’s duty-reeand quota-ree access (DFQF) to developed markets undermultilateral and bilateral preerence schemes. While theZFI grew through oreign corporate investments, it gaverise to a competitive, vertically integrated textile andclothing industry and helped establish Madagascar asa new exporter o manuactured goods in sub-SaharanArica. As a counterpoint to mostly declining traditionalexports (cofee, cloves, shrimp, and pepper), Madagascarbecame the region’s second-largest clothing exporterbehind Mauritius. Although the ZFI has courted contro- versy over issues o productivity gains and labor manage-ment, its growth and poverty efects have been maniestthrough the creation o an estimated 250,000 direct andindirect jobs in the capital region, Antananarivo, by 2005.
Groupe Socota, the largest clothing manuacturer andemployer in the country, was ounded in Madagascarin 1930 and has been active in the ZFI since 2003. Tecompany has a turbulent history that mirrors the nation’spolitical and regulatory shis described above. When the1990s liberalization process led to a surge in predatory imports, the group shielded itsel and its thousands o employees rom the governance decit at home and rede-ployed the production that had been aimed at supplyingthe domestic market to Western and regional markets.
More recently, Madagascar’s suspension rom AGOA hasorced a urther redeployment to regional markets, prin-cipally South Arica. It is projected that regional marketscould supplant the EU and the United States as the prin-cipal destination or Groupe Socota’s exports.
Other regional examples include Kenya, Mauritius, and Lesotho — the latter also clas-
sied as an LDC.
The ILO database on export processing zones estimates that direct employment in the ZFI was 115,000 in 2005/06, with over two-thirds of the workforce comprised of women. Madagascar’s suspension from AGOA has since led to a sizable loss in export-related employment, especially in textiles.
Fraudulent/predatory textiles imports were under-priced at the border to minimizecustoms duties, and then sold on the domestic market without an invoice to avoid VAT.These practices decimated local producers.
Socota sees the long-term competitiveness of Madagascar as a growth accelerator.The re-orientation of a proportion of Chinese textile exports to their domestic market has
created opportunities for countries like Madagascar that possess capacities to ll the
gap in global supply.
Challenges Discouraging the Involvement ofthe Private Sector in Initiatives for EconomicDevelopment in Madagascar
While large industrial players like Groupe Socota haveproven able to weather dicult political conditions, theweak governance and structural diculties aced by busi-nesses prevent would-be major employers rom reachingtheir ull potential, and prevent new investment romsettling in countries like Madagascar. Tis section builds onthe issues outlined above and discusses their ramicationsor three critical sectors o the Malagasy economy.Te deterioration o rural inrastructure and the erosion o local scientic research have led to the weakening o agri-cultural productivity and plummeting traditional cash cropcultivation (cofee and tobacco, although vanilla cultivationremains strong). Securing nance or agricultural devel-opment remains highly problematic.
Te upshot is thatdespite its vast endowment in arable land and the potentialor exports, the island imports staple ood or its rapidly growing population, which raises undamental and imme-diate concerns over ood security and price vulnerability.A harsh 1990s structural adjustment program, graedonto a patronage-based system o governance, generatedunemployment as local industries and SMEs that had beengeared towards the domestic market collapsed in the aceo cheap, oen predatory, imports and regulatory captureby political agents. Groupe Socota developed a strategy toully redirect its operations toward the export market, butmany other companies sufered in the absence o a plan orthe progressive opening and reorientation o production.Furthermore, the reorm process created distortions thatavored oligopolistic behavior detrimental to indigenousbusiness growth. As a result, market competition remainsthe exception rather than the rule.In addition to agriculture and textiles, mining is anotherimportant sector o the Malagasy and many other LDCeconomies. Over the coming decade, Madagascar couldevolve rom an artisanal mining nation — one o the largestsources o domestic employment — to a resource-heavy economy. In response to rising global demand and invest-ment or commodities, it is expected that the contribution
The share of FDI ows directed at agriculture slumped between 2005 and 2009 from
14.4 to 0.7 percent. A contentious agro-business corn and palm oil concession granted to Daewoo — which was Africa’s largest land lease, covering roughly half of Madagas-
car’s arable land — was suspended in 2009 following discontent over land rights that
helped fuel the overthrow of the Ravalomanana government.