Madagascar’s exports have had a slower growth since the recovery from the shock caused by the COVID-19 pandemic. The country’s total merchandise exports had a slower growth to USD 2.6 billion in 2021. Madagascar has a relatively diversified export profile and earnings from spices have continued increasing to USD 820.6 million (approx. 31.1% of total exports) in 2021. Other top exports from Madagascar include nickel and clothing and textiles. These exports contributed USD 628.5 million (approx. 23.8% of total exports). Madagascar’s export earnings from nickel have continued increasing to USD 460.2 million in 2021; and earnings from clothing and textiles have continued decreasing to USD 168.3 million in the same period. Madagascar’s trade deficit continued widening beyond the historical medium-term average of USD -1.1 billion for 2018 to 2020, to USD -2.3 billion in 2021.
Total merchandise export earnings have continued increasing relieved the pressure caused by the declining net FDI inflows (foreign capital being invested domestically). Madagascar’s FDI inflows have not recovered from COVID-19 and continued decreasing to USD 300.2 million in 2021. Madagascar’s FDI stock has continued increasing from an annual average of USD 7.9 billion for 2018 to 2020, to USD 8.6 billion in 2021. This does not bode well for Madagascar as a country that is aiming to attract more foreign investment to diversify its economy away from the reliance on vanilla exports. The transition will require further investment in human capital and development to enable domestic growth in Madagascar. The declining net FDI inflows could also signify the weaning interest of international investors due to severe droughts and famine affecting parts of Madagascar in recent years. Therefore, the process of economic reforms needs to happen in tandem with humanitarian and climate adaption and resilience reforms.
Remittances receipts have grown significantly over the period. Personal remittances received have been seemingly unaffected by COVID-19 and continued increasing from an annual average of USD 442.8 million for 2018 to 2020, to USD 614.6 million in 2021. Personal remittance payments to foreign nationals have begun increasing since the COVID-19 pandemic from an annual average of USD 60.2 million for 2018 to 2020, to USD 54.1 million in 2021. Madagascar has had net remittance inflows (net remittance receipts from the diaspora) which increased to USD 560.5 million in 2021. This has affected the current account balance and strength of the MGA over the period.
The MGA has continued depreciating. In nominal terms, the MGA depreciated by an annual average of -12.8% against the USD for 2018 to 2020. The MGA depreciated by -18.7% to an annual average of MGA 3,831.4 per USD in 2021. Madagascar’s current account deficit continued widening beyond the historical medium-term average. In 2022, Madagascar’s current account deficit continued widening further. In particular, Madagascar has been affected by the higher fuel and food prices which continued appreciating due to lower global supply following the sanctions against Russian exports after its military exercises in Ukraine. This is also reflected in the projections for Madagascar’s current account balance.
In 2023, Madagascar’s current account deficit is projected to continue widening in nominal terms to -USD 824.0 million (approx. -5.1% of GDP). In the medium-term from 2024 to 2026, Madagascar’s current account deficit is project to an annual average of -USD 778.3 million (approx. -4.2% of GDP). This illustrates a persistent deterioration in the current account balance due to the currently high fuel and food prices which is primarily driven by the impact of sanctions against Russia and the conflict with Ukraine. However, this could change in the medium-term due to the expected easing of geopolitical tensions. Therefore, Malagasy authorities are still faced with difficulties ahead unless they can take advantage of opportunities in mining to offset the cost of high fuel and food imports. The global price of nickel appreciated by 40.7% to USD 25,980.6 per MT in 2022 (2021: +33.9%; USD 18467.1 per MT).
The issue of developing and diversifying the Malagasy economy remains an elusive obstacle for the country. Madagascar has a significant potential to grow its exports from nickel and clothing and textiles. These represent the highest growth potential towards diversifying the Malagasy economy and export earnings. Apart from this, Madagascar needs to invest in further infrastructure and human development through programmes that focus on climate change adaption and resilience. Deepening integration in the SADC region and increase intra-regional trade goes without saying. This will provide an opportunity for Madagascar’s exports to compete against goods and services of comparable quality from the SADC region. Moreover, Madagascar can offset the risks with its traditional export markets by increasing its dependence on the SADC region for its exports.