• The economy expanded by 4.0% in 2016 with 4.5% predicted for 2017 after five years of sluggish growth.
  • This growth will depend on political stability and enactment of structural reforms.
  • To speed up industrialization and promote inclusive growth, the government must push ahead with creating special economic zones (SEZ) and helping micro enterprises to flourish via a financial sector adapted to the needs of start-ups.

Economic prospects are favorable with growth at 4.0% in 2016 and a projection of 4.5% in 2017 driven by timber, agro-industry, construction, tourism and agriculture.

Results will depend on macroeconomic stability efforts, an improved business climate to attract private investment and better governance, especially in the state water and electricity company Jirama (Jiro sy rano malagasy). Economic progress also depends on the ability of the government and others to create political stability. Medium-term risks include recurrent climate shocks (drought in the south, floods in the north). Annual inflation should remain steady at around 7.0% as long as world oil prices hold up and the central bank’s new statute helps it to be more independent in monetary policy and financial strategy.

Social conditions are still marred by poverty, malnutrition and growing inequality, stoked by an annual 2.8% population growth. The population is quite young, with 76.2% under 35. The labor market is characterized by under-employment and by precarious or low-paid jobs (four out of five workers). Some 400 000 youths join the labor market each year.

Industry provides 14.8% of GDP, much less than in many other African states, but the country is teeming with micro and small enterprises, mostly in the informal sector. To achieve the structural transformation required for more inclusive economic growth, the government needs to combine its policy of setting up special economic zones (SEZs) with encouraging entrepreneurs, especially young ones. This calls for an institutional and regulatory framework to support micro enterprises along with productivity incentives, especially appropriate and accessible financial services, as well as the encouragement of innovation to strengthen ties between firms and industrialization, especially through funding facilities adapted to the needs of start-ups.