The World Bank has released its Madagascar Economic Update, titled "Bridging the Productivity Divide," which provides an analysis of recent economic developments and a medium-term outlook for the country. The report draws on data from the 2022 World Bank Enterprise Survey to assess firm productivity performance, identify key drivers of productivity growth, and explore policy implications.
The report notes that Madagascar's economy is recovering after a severe contraction in 2020, with growth stabilizing at an estimated 4.2% in 2024. This recovery has been driven primarily by private investment and consumption, although net exports have not contributed significantly due to diminished global demand and falling prices for major exports. The government faces challenges in revenue collection, limiting its capacity for public investment and service delivery. Despite efforts to boost tax revenue, the tax-to-GDP ratio remains low at 10.8%. High inflation has prompted the central bank to tighten monetary policy.
Madagascar's current growth rate is insufficient to improve living standards significantly or reduce poverty levels effectively. Nearly 70% of the population lives below the international poverty line of $2.15 per capita per day, with over 70% experiencing multidimensional poverty characterized by deprivations in education, health, and living conditions. Employment rates are low; only 54.9% of the working-age population is employed, with a significant portion engaged in low-productivity agriculture.
Looking ahead, growth momentum depends on implementing critical structural reforms while facing downside risks such as frequent power outages and climate change impacts on manufacturing and agriculture sectors. Authorities may need to accelerate reforms in energy, mining, and digital sectors to sustain growth.
Creating conditions for more productive firms to enter the market is crucial for generating better jobs. In Madagascar, highly productive firms pay wages up to seven times higher than less productive ones but face challenges like limited access to finance (only 8% have bank loans), infrastructure issues (52% experience electrical outages), political instability (17%), and inadequately educated workforce (30%).
Male-managed and foreign firms often achieve higher productivity levels compared to female-owned and local firms due to various constraints such as limited access to finance or skilled workforce.
To enhance productivity further requires well-designed reforms aimed at strengthening business environments coupled with measures enhancing firm capabilities through entrepreneurship promotion initiatives like start-up acts or SME acceleration programs combined with worker training initiatives targeting technology adoption advancements across sectors within Madagascar’s economy today.