Figure 1: Merchandise Trade Balance in Madagascar (2015-2018)
Source: UNCTAD 2019, UNCTADStat Database.
Total merchandise imports to Madagascar have increased to USD 4.0 billion in 2018, from an annual average of USD 3.2 billion from 2015 to 2017[1]. Exports have also increased to USD 3.0 billion in 2018, from an annual average of USD 2.4 billion from 2015 to 2017[2]. The growth in imports exceeded the growth in exports and worsened Madagascar’s merchandise trade balance which deteriorated to a deficit of -USD 963.7 million in 2018 from a trade deficit averaging -USD 771.4 million from 2015 to 2017[3]. The slower growth in export earnings has not led a deterioration in gross official reserves in spite of the deteriorating merchandise trade balance due to the depreciation of the MGA until 2017.
Figure 2: Gross Official Reserves in Madagascar (2016-2024)
Sources: IMF 2019a, Madagascar Fifth Review Under the Extended Credit Facility Agreement; IMF 2017, Madagascar Second Review Under the Extended Credit Facility Agreement. Note: (*) Figures from 2019 onwards are projections from the IMF, 2019.
Gross official foreign exchange reserves increased to SDR 1.2 billion (approx. USD 1.7 billion) in 2018 from an annual average of SDR 840.0 million (approx. USD 1.2 billion) from 2015 to 2017[4]. During this period, the MGA depreciated by -4.4% in 2018 to MGA 4812.0 per USD (2017: -2.2%)[5]. Imports have grown due to the slower depreciation of the MGA following more significant depreciation in 2015 and 2016. The MGA depreciated by an annual average of -24.0% in 2015 and 2016 from MGA 2587.5 per USD in 2014 to MGA 4501.0 per USD in 2016[6]. Gross official reserves are projected to increase to SDR 1.4 billion in 2019, which is equivalent to 4.5 months’ import cover[7]. In the forward-looking medium-term from 2020 to 2024, gross official reserves are projected to increase to an annual average of SDR 1.7 billion (approx. 4.6 months’ import cover)[8]. The slower growth in exports and growing imports has not affected Madagascar’s current account balance in 2018 but in the forward-looking medium-term the current account balance is projected to return to its persistent current account deficit.
Madagascar’s current account balance improved to a surplus of SDR 68.9 million (approx. USD 95.6 million) in 2018, from a deficit averaging -SDR 43.5 million (approx. USD 60.3 million) from 2015 to 2017[9]. In addition to the growth in merchandise imports, which deteriorated the current account balance, demand for services imports also increased to deteriorate the current account balance. Services imports increased to SDR 911.4 million (approx. USD 1.3 billion) in 2017 from SDR 777.0 million (approx. USD 1.1 billion) in 2015[10]. The current account balance is projected to deteriorate to a deficit of -SDR 172.3 million (approx. -1.9% of GDP) in 2019[11]. In the forward-looking medium-term from 2020 to 2024, the current account balance is projected to deteriorate further to annual average deficit of -SDR 491.2 million (approx. -4.4% of GDP)[12].
Figure 3: Current Account Balance in Madagascar (2016-2024)
Sources: IMF 2019a, Madagascar Fifth Review Under the Extended Credit Facility Agreement; IMF 2017, Madagascar Second Review Under the Extended Credit Facility Agreement. Note: (*) Figures from 2019 onwards are projections from the IMF, 2019.
However, Madagascar is still dependent on agricultural exports, particularly spices and vegetables which have made exports earnings volatile due to exports being vulnerable to the adverse impact of climate change. For example, Madagascar is still battling with severe drought conditions affecting the southern parts since November 2017 which nearly resulted in dry dams in many parts affecting livestock access to water and pastures, and crop production[13]. Damages caused by the armyworm and irregular rainfall have affect crop production in 2018/19 leaving more than 730,000 people (approx. 21.0% of the population) in crisis-level food insecurity, which is projected to increase to over 900,000 people (approx. 26.0% of the population)[14]. In addition, raw mineral commodities like nickel and metallic ores which are vulnerable to commodity price fluctuations contribute a significant proportion of exports which undermines stability of Madagascar’s external sector. Nickel prices declined by an annual average of -12.2% from USD 15,030.0 per MT in 2014 to USD 9,595.2 per MT in 2016, before recovering to USD 10,409.6 per MT in 2017[15]. The spot price of iron ore also declined by an annual average of -22.0% from USD 97.4 per MT in 2014 to USD 58.6 per MT in 2016, before recovering to USD 71.1 per MT in 2017[16]. The top agricultural and mining exports constituted 44.5% of Madagascar’s total export earnings in 2018 which has decreased slightly from the average of 52.8% from 2015 to 2017 (2014: 46.3% of exports)[17]. In spite of this concentration of exports, Madagascar is well integrated in terms of regional trade with neighbouring countries in COMESA and the SADC but its trade is unbalanced.
The top-five exports from Madagascar to COMESA are petroleum, food, spices, paper and sugarcane products which constituted 4.0% of total exports in 2018 (2015-‘17: 1.9% of total exports)[18]. The value of the top-five exports from Madagascar to COMESA increased to USD 120.6 million in 2018 from an annual average of USD 46.8 million from 2015 to 2017[19].
The value of total exports from Madagascar to COMESA increased to USD 242.0 million (approx. 7.9% of total exports) in 2018 from an average of USD 80.8 million (approx. 3.3% of total exports)[20]. These are poor or below-average levels of intra-regional trade given that the COMESA average intra-regional exports level was 11.9% of total exports in 2018. The COMESA intra-regional exports, meaning total exports amongst COMESA countries, as a share of total exports to the world increased from an average of 10.5% from 2015 to 2017[21]. Hence, there is room for Madagascar to increase its exports to COMESA countries.
Figure 4: Nominal Exchange Rate in Madagascar (2015-2018)
Source: BFM 2019, Currency Rate 2005-July 2019.
Madagascar’s top-five imports from COMESA are flour, cereal, woollen fabrics, vegetable oil and cotton fabrics. Although these imports are diversified they constituted only 2.8% of total imports to Madagascar in 2018 (2015-‘17: 2.8% of total imports)[22]. The value of the top-five imports from COMESA to Madagascar increased to USD 111.9 million in 2018 from an annual average of USD 89.2 million from 2015 to 2017[23]. Although the top-five imports from COMESA to Madagascar have remained stable, the total imports from COMESA have declined slightly in relative terms in spite of the nominal increase in total value.
The value of Madagascar’s total imports from COMESA increased to USD 240 million (approx. 6.0% of total imports) in 2018 from an annual average of USD 213.4 million (approx. 6.6% of total exports) from 2015 to 2017[24]. These are poor or below-average levels of intra-regional trade given that the COMESA average intra-regional imports level was 6.5% of total imports in 2018[25]. The COMESA intra-regional imports, meaning total imports amongst COMESA countries, as a share of total imports from the world increased only slightly from an average of 5.5% from 2015 to 2017[26].
Table 1: COMESA Regional Trade for Madagascar (2015-2018)
Source: UNCTAD 2019, UNCTADStat Database.
Madagascar maintains a persistent merchandise trade deficit in COMESA which turned to a small surplus of USD 1.8 million in 2018 (2015-’17: -USD 729.9 million). Hence, there is room to increase Madagascar’s exports to COMESA countries. This would make Madagascar’s intra-regional trade balance in COMESA more equitable.
The top exports from Madagascar to the SADC are petroleum, spices, clothing and textiles, paper and fertilizers, which constituted 3.3% of total exports in 2018 (2015-‘17: 3.2% of total exports)[27]. The value of the top-five exports from Madagascar to SADC increased slightly to USD 99.4 million in 2018 from an annual average of USD 78.3 million from 2015 to 2017[28].
The value of total exports from Madagascar to the SADC increased to USD 245.3 million (approx. 8.0% of total exports) in 2018 from an average of USD 163.6 million (approx. 6.7% of total exports)[29]. These are very poor levels of intra-regional trade given that the SADC average intra-regional exports level was 17.9% of total exports in 2018. The SADC intra-regional exports, meaning total exports amongst SADC countries, as a share of total exports to the world decreased from an average of 20.8% from 2015 to 2017[30].
Table 2: SADC Regional Trade for Madagascar (2015-2018)
Source: UNCTAD 2019, UNCTADStat Database.
Madagascar’s top-five imports from SADC are coal, petroleum, alcoholic chemicals, woollen fabrics and motor vehicles. Although these imports are diversified they constituted only 3.6% of total imports to Madagascar in 2018 (2015-‘17: 3.2% of total imports)[31]. The value of the top-five imports from SADC to Madagascar increased to USD 145.0 million in 2018 from an annual average of USD 103.4 million from 2015 to 2017[32].
The value of Madagascar’s total imports from SADC increased to USD 369.9 million (approx. 9.2% of total imports) in 2018 from an annual average of USD 313.0 million (approx. 9.8% of total exports) from 2015 to 2017[33]. These are very poor levels of intra-regional trade given that the SADC average intra-regional imports level was 20.9% of total imports in 2018[34]. The SADC intra-regional imports, meaning total imports amongst SADC countries, as a share of total imports from the world increased only slightly from an average of 20.7% from 2015 to 2017[35].
Madagascar maintains a persistent merchandise trade deficit in SADC which decreased to -USD 124.6 million in 2018 (2015-’17: -USD 149.4 million). Madagascar is quite reliant on the SADC for its imports and there is significant room to increase its exports to SADC countries. This would make Madagascar’s intra-regional trade balance in SADC more equitable.
In addition, Madagascar might want to reassess the balance of benefits to its COMESA and SADC membership given that it received greater benefit from COMESA on the account of favourable merchandise trade balance. Therefore, there is room to rebalance the Madagascar’s exports towards COMESA and increase Madagascar’s exports to both regions. This would also make Madagascar’s intra-regional trade balance with COMESA and SADC more equitable.
[1] UNCTAD 2019. UNCTADStat Database, United Nations Conference on Trade and Development: Geneva. Available At: https://unctadstat.unctad.org/ [Last Accessed: 26 September 2019].
[2] UNCTAD 2019. UNCTADStat Database, ibid.
[3] UNCTAD 2019. UNCTADStat Database, ibid.
[4] IMF 2019a. Madagascar Fifth Review Under the Extended Credit Facility Agreement, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 13 October 2019]; IMF 2017. Madagascar Second Review Under the Extended Credit Facility Agreement, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 13 October 2019].
[5] BFM 2019. Currency Rate 2005-July 2019, Central Bank of Madagascar: Antananarivo. Available At: https://www.banky-foibe.mg/ [Last Accessed: 13 October 2019].
[6] BFM 2019. Currency Rate 2005-July 2019, ibid.
[7] IMF 2019a. Madagascar Fifth Review Under the Extended Credit Facility Agreement, ibid.
[8] IMF 2019a. Madagascar Fifth Review Under the Extended Credit Facility Agreement, ibid.
[9] IMF 2019a. Madagascar Fifth Review Under the Extended Credit Facility Agreement, ibid.; IMF 2017. Madagascar Second Review Under the Extended Credit Facility Agreement, ibid.
[10] IMF 2019a. Madagascar Fifth Review Under the Extended Credit Facility Agreement, ibid.; IMF 2017. Madagascar Second Review Under the Extended Credit Facility Agreement, ibid.
[11] IMF 2019a. Madagascar Fifth Review Under the Extended Credit Facility Agreement, ibid.
[12] IMF 2019a. Madagascar Fifth Review Under the Extended Credit Facility Agreement, ibid.
[13] RW n.d. Madagascar: Drought – Aug 2018, on the ReliefWeb Website, viewed on 10 October 2019, from https://reliefweb.int/.
[14] WFP 2019. Madagascar Country Brief: August 2019, World Food Programme: Rome. Available At: https://docs.wfp.org/ [Last Accessed: 10 October 2019]; RW 2019. Madagascar, ReliefWeb: New York. Available At: https://reliefweb.int/ [Last Accessed: 10 October 2019].
[15] IMF 2019b. IMF Primary Commodity Prices, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 4 October 2019].
[16] IMF 2019b. IMF Primary Commodity Prices, ibid.
[17] UNCTAD 2019. UNCTADStat Database, ibid.
[18] UNCTAD 2019. UNCTADStat Database, ibid.
[19] UNCTAD 2019. UNCTADStat Database, ibid.
[20] UNCTAD 2019. UNCTADStat Database, ibid.
[21] UNCTAD 2019. UNCTADStat Database, ibid.
[22] UNCTAD 2019. UNCTADStat Database, ibid.
[23] UNCTAD 2019. UNCTADStat Database, ibid.
[24] UNCTAD 2019. UNCTADStat Database, ibid.
[25] UNCTAD 2019. UNCTADStat Database, ibid.
[26] UNCTAD 2019. UNCTADStat Database, ibid.
[27] UNCTAD 2019. UNCTADStat Database, ibid.
[28] UNCTAD 2019. UNCTADStat Database, ibid.
[29] UNCTAD 2019. UNCTADStat Database, ibid.
[30] UNCTAD 2019. UNCTADStat Database, ibid.
[31] UNCTAD 2019. UNCTADStat Database, ibid.
[32] UNCTAD 2019. UNCTADStat Database, ibid.
[33] UNCTAD 2019. UNCTADStat Database, ibid.
[34] UNCTAD 2019. UNCTADStat Database, ibid.
[35] UNCTAD 2019. UNCTADStat Database, ibid.
