Investment opportunities in Madagascar

Madagascar is a relatively untapped market for investment and business. The country has large mineral, agricultural and marine resources, and the Government of Madagascar (GOM) publicly welcomes foreign direct investment (FDI).

The Government of Madagascar is trying to make the country a more attractive destination for foreign direct investment through a number of initiatives and incentives. For example, companies operating in the renewable energy, tourism, industry, civil works and construction sectors can benefit from a tax incentive equal to a tax calculated on 50% of the amount of investments they have made during the relevant tax year. Similarly, the Petroleum Code provides for an exemption from customs and import duties for hydrocarbon exploration, exploration and exploitation. A mining company that commits to investing more than US$50 million can benefit from a minimum income tax exemption, a reduced corporate tax rate for the transforming entity, an exemption from customs and import duties and a VAT refund on locally acquired equipment and investments.

In addition, the Government of Madagascar has created export processing zones (EPZs). Export-oriented companies located in the EPZ can enjoy:

• tax incentives upon company registration;
• reduced tax rate on dividends of 10%;
• exemption from professional taxes;
• exemption from income tax for the first five years (then the tax is 10%);
• exemption from customs duties and taxes on imported equipment and materials;
• free transfer of funds upon termination of operations.

The government has also implemented various reforms to improve the business climate, including some related to company formation, construction permits and cross-border trade. The Emergence Madagascar (PEM) plan is intended to attract investment related to the construction of new road infrastructure, the development of water supply, and the energy and mining sectors.

Investment legislation

Madagascar's legal framework does not discriminate against foreign investors and does not prohibit, restrict or condition foreign direct investment. Any natural or legal person may freely invest in the country, and both national and foreign investors are treated equally in any sector of the economy.

In general, there are no restrictions on foreign ownership or control of a company in Madagascar. Both foreign and local investors are free to own up to 100% of the shares of the company in which they operate, as long as the business is officially registered and complies with the applicable regulations.

A new investment law was promulgated on July 27, 2023, which repeals the old law No. 2007-036.

Advantages of Madagascar

• Rich natural resources (precious stones, industrial and ornamental stones, oil and rare metals for mining; large and fertile land with a favorable climate).
• Low cost of local resources and labor.
• Strategic location between Asia and Africa.
• Improving business environment.
• Political stability.
• Development of tourism sectors.
• Incentives for export-oriented companies with export processing zone status.

Sectors for Investment

Energy Sector

Less than 30% of the population has access to electricity. The government’s goal is to double energy production within five years, expand access to electricity to at least 70% of the population by 2030, improve security of supply, and reduce energy prices. The World Bank estimates that the government will have to increase production fivefold to achieve this goal.

Opportunities

• Investing in hydroelectric power and other renewable energy projects.
• Establishing an independent power producer (IPP) through concessions or a build-operate-own-transfer arrangement (BOOT).
• Power equipment, hardware and software.
• Smart grids, including smart meters, smart appliances and energy efficiency devices.
• Off-grid and hybrid systems, including flexible fueling, diesel/heavy fuel oil.
• Renewable energy equipment, including solar and wind energy equipment.
• Electricity distribution systems and power loss reduction devices in power transmission.

Textiles and clothing

Madagascar is the largest textile exporter to the EU in sub-Saharan Africa. Although the textile sector was initially hit hard by the pandemic, it had almost recovered to pre-COVID-19 levels by the end of 2020. It remains the largest formal employer in Madagascar, providing almost 400,000 jobs, half of which are in the export processing zones (EPZ) around the cities of Antananarivo and Antsirabe. In recent years, manufacturers have moved some production from Asia to Madagascar to avoid restrictions on the origin of products and to take advantage of Madagascar’s cheap, skilled labour.

Opportunities

• Entering European Union markets.
• Regional markets Southern African Development Community (SADC), Common Market for Eastern and Southern Africa (COMESA) and Indian Ocean Commission (IOC).
• Investing in new production facilities or acquiring existing textile companies.

Engineering and construction services sector

Investing in modern infrastructure is another key factor in the Madagascar government’s efforts. The government is envisaging an ambitious series of infrastructure projects: roads connecting remote areas of the island with urban centres; replacing and building bridges and overpasses; strengthening public health and education systems; and developing business parks and a new satellite city near the capital, Antananarivo.

The construction sector is largely informal, and most of the country's small construction firms are unregistered. Many registered contractors partner with their unregistered counterparts, outsourcing the services of informal subcontractors for small projects and/or specific tasks. High-value projects are usually awarded to large foreign construction companies through their well-established local subsidiaries. Over the past five years, the construction industry has contributed an average of 9% to the country's GDP.

Opportunities

• Participation in major infrastructure projects such as roads, bridges, hospitals and schools.
• Investment in business and industrial parks.

Equipment and Machinery

The government's infrastructure development plan, if implemented, will also increase the importance of supporting industries such as the equipment and machinery sector. Foreign manufacturers of construction equipment, machinery and tools will have the opportunity to participate in strategic infrastructure development. Development of the sector could provide opportunities for exports of extractive industry goods, machinery and equipment from other countries, as Madagascar has commercially significant mineral resources.

Information and Telecommunications Technology (ICT)

Madagascar has a robust ICT sector, with established players dominating the provision of telecommunications services. Over the past decade, thanks to the availability of low-cost, quality labor and faster than average internet speeds, more and more call centers and business outsourcing companies have set up shop in Madagascar, while services have also diversified to keep up with the times.

Opportunities

• Cloud computing: access to databases and general-purpose services.
• Application software for enterprise risk management (ERM), supply chain management (SCM), customer relationship management (CRM), and collaboration applications.
• Computer systems and software: desktops, laptops, netbooks, peripherals, and servers.
• Telecommunications equipment and infrastructure, including 5G infrastructure.
• Electronic commerce.
• Call centers and outsourcing platforms.
• Technology parks.
• Factories for the production and assembly of electronic components.
• Assembly units of computing and telecommunications equipment.
• Development of mobile applications with high added value.
• Companies providing teleservices (call centers, telemarketing, remote data entry, outsourcing).
• Consulting companies, subsidiaries of the world's leading transnational corporations.
• Training centers offering certification in technologies and international standards in the field of application development, information systems audit, security audit and project management.

Healthcare

The government's public health policy aims to establish universal health coverage for children under 5, pregnant women and people over 65. It prioritises the provision of adequate and modern equipment and identifies the need to increase the public health budget. In addition, the government is creating mobile units to provide assistance and medical services in remote areas.

Opportunities

• Leasing of modern medical equipment.
• Investment in opening modern medical institutions to provide quality services.
• Planned public procurement through sporadic tenders.
• Pharmaceutical industry.
• Information technology in health care: modern use of drones, digitalization of medical records, telemedicine.
• Equipment for health care institutions, including diagnostic laboratory, X-ray, dental, orthopedic, surgical equipment, medical scanners and therapeutic equipment.

Financial services sector

Currently, there are 11 commercial banks operating in Madagascar, 9 of which are subsidiaries foreign bank enterprises. The banking sector is highly concentrated, with 4 major banks holding 86% of loans. Banking penetration (i.e. access to a bank account or mobile money service) is around 18%. In July 2020, Parliament passed new banking and insurance laws. These laws aim to provide greater customer protection by increasing the transparency of services offered, requiring companies to secure their IT systems, and providing tools to detect money laundering and terrorist financing.

Opportunities

• A more clearly defined legal framework for banking and insurance opens up investment opportunities.
• Entering the market for remittance technologies for the informal sector.

Travel and Tourism

The Government of Madagascar sees the untapped potential of the tourism sector as a key component of future growth. It has set a target of attracting 500,000 foreign tourists a year, which will see tourism generate employment, private sector growth and foreign exchange earnings. The Madagascar government wants to leverage Madagascar’s renowned biodiversity and unique flora and fauna to attract foreign and domestic travel and investment across the country through partnerships with leading hotel chains, tour operators and cruise lines. The ministries of tourism and transport are welcoming more private foreign airlines and tourism organizations.

Resort and hotel development is a lucrative area for investors looking to capitalize on the country’s natural beauty and tourist attractions. In addition, the promotion of ecotourism sites is gaining momentum, with the government emphasizing sustainable practices and environmental conservation to attract eco-conscious travelers.

Mining and Extractive Industries

Mining exploration and extraction represent significant investment opportunities in Madagascar. The country is rich in minerals such as coal, graphite, precious and base metals, gemstones and industrial minerals.

Madagascar is believed to hold 50% of the world's sapphires, as well as other semi-precious stones such as amethyst and beryl.

Madagascar also has deposits of iron, nickel, graphite, bauxite and uranium. The country has deposits of lesser-known minerals such as vanadium, a metal used in high-strength steels and titanium alloys, and ilmenite, used in pigments and whiteners from toothpaste to paint. Madagascar boasts an abundance of untapped mineral deposits.

Mining in the country is regulated by the Ministry of Mines and Strategic Resources, which ensures transparent and investor-friendly policies.

Investing in the mining sector provides lucrative opportunities for value addition. This includes processing and transforming extracted minerals into refined products, increasing their market value and profitability. Madagascar encourages investment in mineral processing plants and smelters, allowing the country to diversify its exports and reduce its dependence on raw materials.

Agriculture and Agribusiness

Madagascar offers investment opportunities in the cultivation and export of vanilla, cloves and cocoa. These high-value crops are in high demand on international markets. The country's rich agricultural resources make it an ideal location for investment in food processing and packaging. With the growing global demand for organic and processed food, investing in this sector has the potential for significant returns.

Transport

Road transport remains one of the main modes of transport, as about 90% of the nation's transport of people and goods depends on it.

Madagascar's rail network is 895 km long and consists of two networks. Firstly, the 732 km Antsirabe-Antananarivo-Toamasina North network and secondly, the 163 km Fianarantsoa-Manakara South network.

The country has 55 airports, two of which are accessible to large jet aircraft (Ivato and Nosy Be). Air traffic covers the entire territory of Madagascar. The country has 5 companies operating international flights: Air Madagascar, Air France, Air Mauritius, Corsair and South Africa Airlines. Since 2005, the Government of Madagascar has adopted an open skies policy to further develop this sector.

Madagascar also offers a wide range of ports for both international and national navigation. There are 17 ports on the island, of which Toamasina is the main one for international traffic. It is expected that another international port will be opened in Tualanyaro within the next year. The expansion of the Toamasina port to export cobalt and nickel is underway.

The concession of the main airports for reconstruction, as well as the privatization of the management of the 400-km Pangalane channel along the east coast, will create huge opportunities for investors.

Food and Beverage Processing Sector

The food and beverage processing sector covers the production, processing and preservation of meat, fish, fruits, vegetables, oils and fats; the production of dairy products, the production of flour products, starches and starch products, prepared animal feeds, the production of other food products (e.g. bread, sugar, chocolate, pasta, coffee, nuts and spices), and the production of bottled and canned soft drinks, fruit juices, beer, wine, etc.

Companies in Madagascar currently import less than in other parts of the country south of the Sahara. Packaging materials are generally locally sourced.

As the 4th largest island in the world, Madagascar has potentially great access to available seafood. Consequently, there are many investment opportunities in Madagascar's high-quality and world-renowned shrimp and seaweed industry. Incentives from industrial free zones (EPZ) create a number of advantages for investors, and many foreign companies have already relocated production here from Asian regions.