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Madagascar: Debating the Worth of Foreign Direct Investment

While Madagascar attempts to find a way out of a prolonged political crisis, Malagasy bloggers are discussing the value of foreign direct investment (FDI). The worth of foreign investment came into sharp contrast when a land deal with Korean investor Daewoo came under criticism and partly triggered the current crisis.

Many Malagasy believe that Madagascar, like many other African countries is rich in natural resources but that the land has been plagued by poor governance and unfair trade deals. Ten years ago, The Economist labeled Africa “The Hopeless Continent”. Their most recent publication highlights the rapid growth of many African countries‘ GDP. Still, the growth is not equally felt throughout the continent. In fact, Madagascar is projected to have one of the lowest level of growth in all of Africa.

Additionally, the capital city Antananarivo and other cities are currently experiencing frequent running water and power outages that have provoked frustration and outrage [fr] among Malagasy citizens. The current situation is one of the reasons Antananarivo has been ranked as one of the cities with the lowest quality of life in the world by the Mercer’s 2011 quality of living survey.

Having been marred in a lengthy political quagmire, the Malagasy blogosphere is trying to steer the debate away from a political solution to an overall debate on how to re-ignite an economy that has faltered over the past three years.

Evaratra in Madagascar. Photo credit to Lalatiana on the Madagoravox blog

Evaratra in Madagascar. Photo credit to Lalatiana on the Madagoravox blog

Making  FDI work for Malagasy people

Land deals have been discussed at length in Madagascar as a way to get out of poverty;  the aborted Daewoo deal was the most publicized case but similar deals have been implemented without much hesitation or reaction.

The soundness of deals related to the mineral wealth of Madagascar has been recently debated by Malagasy experts.

Blaise Stephen is working at the International Chamber of Commerce and Industry of Madagascar. He voiced his frustration with the current status-quo in the Madagascar political system that according to him is the main roadblock preventing more bilateral cooperation with foreign investors [fr]:

Nous sommes actuellement en cours de création d'une relation commerciale sur le LONG TERME qui sera bénéfique pour les Entreprises de Madagascar entre notre pays Madagascar et le Koweït. L'objectif de cette coopération Étatique serait de mettre en place une ligne de trésorerie (emprunt) de 3 milliards de dollars (voire plus) sur 5 ans avec une mise a disposition immédiate de 1 millard de dollars (encaissement immédiat) que nous pourrions investir dans les activités a forte rentabilité de notre grand pays Madagascar (Activités d'INVESTISSEMENT et non de fonctionnement) [..] .La négociation concernant la mise en place de cette ligne de trésorerie serait la suivante : … 1) Un emprunt de notre État Madagascar a un taux de remboursement a 3,4 %…2) Pret aux Entreprises de Madagascar a un taux de 5,6% ce qui permet de casser le fonctionnement des banques de Madagascar qui prêtent a un taux de 18,20% sur des durées relativement courtes

We are currently in the process of building up a long term bilateral trading collaboration between Madagascar and Kuwait that would be beneficial for Malagasy companies. The goal is to set up a loan for three billion dollars over five years with one billion available right away that could be used for high return investment activities (investment and not operational funding). The negotiation is around the following line: 1) Madagascar will be borrowing at an interest rate of 3.4%… 2) the State could loan to Malagasy companies at 5.6% instead of the 18 or 20% rate currently proposed by the national banks on very short term periods.

In reaction to his post, Ndimby, asks in the comment section [fr]:

Pourriez-vous m'expliquer pourquoi vous rêvez devant un emprunt à 3,4% alors que vous n'arrêtez pas de critiquer les institutions de Bretton Woods qui prêtent pourtant à des “taux concessionnels” de 0,5% ?

Why are you dreaming of an interest rate at 3,4% when you always criticize the Bretton Woods institutions who loan at 0.5% ?

To which, Blaise Stephen replies [fr]:

La question n'est pas d'aimer ou de ne pas aimer les institutions de Bretton Woods mais de juger de leur efficacité dans le processus de développement économique et social pour un pays comme Madagascar…Il faut savoir que ces Institutions ont mis en faillite des pays comme la Russie ou l'Argentine. .et il faut se poser la question : Pourquoi une Institution sensée sortir les pays de la galère, les enfoncent encore un peu plus? [..] Non seulement elles ne te donnent pas la totalité de ton prêt en un seul versement mais se permettent d'apprécier la gestion des affaires courantes des Etats…En règle général, le rôle d'un préteur est de s assurer que son débiteur le rembourse correctement son prêt, il ne va pas s'immiscer dans la vie privée de son client…Ces institutions se permettent d'apprécier la politique générale des Etats et de donner des leçons quant a la gestion de leur affaires publiques avec une arme redoutable la SUPPRESSION DES VERSEMENTS ATTENDUS…Bizarrement cela fini toujours par la suppression des versements attendus : non seulement tu ne peux plus continuer tes travaux de développement, mais tu rembourses pour de l'argent que tu n'as pas reçu…C'est la raison pour laquelle je préfère emprunter a 3,4% en sachant que les liquidités sont directement disponibles

The question is not to like or dislike the Bretton Woods institutions, but to judge their effectiveness in the process of economic and social development for a country like Madagascar … Remember that these institutions have pushed countries like Russia or Argentina towards bankruptcy… so one has to ask: Why an institution supposed to help the countries out of the crisis is actually helping it to sink a little more? [...] They not only do not give you all of your loan in a lump sum but they also dare to weigh into the way we handle our national affairs… As a general rule, the role of a lender is to ensure that the debtor repays his loan properly and not to interfere in the private business of his client … These institutions not only evaluate the general policy of the States but they also give lessons in managing national affairs with a formidable weapon: the threat of of cancelling the expected payments … Strangely it always ends by the cancellation of the expected payments: so not only one cannot continue the development work, but you have to reimburse money you did not receive… This is the reason why I prefer to take a 3.4% rate knowing that the cash is readily available

Ndimby concludes the exchange on where the money comes from [fr]:

Ce que vous dites à la fin de votre démonstration me semble être résumable en un point : l'argent n'a pas d'odeur. Peu importe d'où il vient, à quoi il sert et le contexte dans lequel vous l'utilisez, pourvu que “vous le remboursiez en temps et en heure” [..] sans conditionnalités apparentes telles que vous le souhaitez. Mais je doute que finalement ces prêts soient innocents et effectués pour “l'amour de l'humanité”

What you say can be summed up thus: money is odorless. Who cares where it comes from, for what purpose or in what context it is used as long as you pay it back “on time” without the apparent conditionalities that you seem to dread. Still, I doubt that those loans are made out of love for humanity and are without hidden agenda.

A land rich in natural resources and rife with corruption

What Ndimby hints at is the risk of loan without conditionalities or lack of transparency on the use of investment funds.
Perspectives économiques en Afrique sums up the current economic situation [fr]:

L’environnement politique demeure instable. Dans ce contexte, les partenaires émergents représentent une opportunité pour Madagascar. La Chine n’a pas reconnu le gouvernement malgache actuel, mais plusieurs de ses entreprises continuent de signer des contrats avec lui. En 2010, le groupe chinois Wuhan Iron and Steel Co (WISCO) a versé une avance de 100 millions USD pour une concession portant sur l’extraction de minerai de fer. Si les gisements se révèlent aussi vastes qu’il l’espère, il pourrait y investir 8 milliards USD, ce qui serait, de loin, le plus gros investissement direct étranger (IDE) effectué à ce jour à Madagascar. Ce pays, où la corruption est omniprésente, devra réussir à transformer cette opportunité en développement.

The political environment is still unstable. In this context, the emerging countries represent an opportunity for Madagascar. China has not officially recognized the current government but many Chinese companies have contracted deals with the State. In 2010, Chinese group Wuhan Iron and Steel Co (WISCO) loaned $100 million USD to exploit iron mines. If the mines are as vast as projected, they could invest for more than $8 billion USD which would be the largest foreign investment ever in Madagascar. In a country rife with corruption, they will have to show that they can transform this opportunity into development.

As mentioned earlier, the lack of clear rules and structure during the current transitional period is already very conducive to all kind of corruption. In this article, Franck R. highlights recent instances of corruption [fr]:

A Madagascar, notamment sous ce régime transitoire, on aime trop prendre son temps. Et on aime aussi s’enrichir… rapidement. [..] ces véhicules de l’UNICEF confisqués par des politiques, la scandaleuse richesse, en l’espace de quelques mois, d’un célèbre affairiste de la place qui a acquis un immeuble sis à Antanimena, un gros paquet d’actions de Madarail,[..] Il n’est pas le seul à profiter de la transition pour se faire du fric. Ainsi va la transition.

In Madagascar, notably under the current transition government, we like to take our time except when it comes to getting richer [...] the UNICEF cars that were confiscated, the outrageous sudden wealth of a businessman who acquired it in a few months, a building in Antanimena, major stock options in Madarail [...] and he is not the only one to make money. And so goes the transition.

Ndimby concludes on the link between corruption and the political crisis [fr]:

C’est ce genre de mentalité, qui tente systématiquement de cacher la réalité et de détourner l’attention des insuffisances du clapier en matière de gestion publique qui fait que la crise perdure. A force de se complaire dans le subterfuge et la superficialité ; à force de prétendre qu’un coup d’État est une oeuvre de salut public ; à force d’insinuer qu’un régime qui ne tient que par la répression et la corruption est soutenu par l’ensemble du peuple ; il ne faut pas s’étonner que la reconnaissance internationale ait patiné pendant plus de deux ans et que la réconciliation nationale dérape périodiquement.

It's because of such mentality that systematically tries to hide the reality and distract the attention from the sheer incompetence of the public funds that the crisis lingers on. It's because they always encourage superficiality and flashy announcements, because they always try to convince that a coup is for the betterment of the general population, and because they try to convince others that the government is supported by the people when it holds power only thanks to repression and corruption. We should not be surprised that international recognition is so hard to achieve after two years and that national unity keeps slipping away.

Malagasy bloggers seem to come to a consensus that foreign direct investment can only be as good as the transparency that accompanies its implementation. Otherwise, it's just another all too common story of wasted money that will benefit corrupt African leaders.

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