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Madagascar’s economy reels as EU also mulls sanctions

Published date:
Monday, 08 February 2010

Madagascar’s economy, already reeling from the effects of a yearlong political crisis, faces a new threat this week when European Union officials meet to discuss possible sanctions against the Indian Ocean island nation.

What measures the EU should take against the government of Andry Rajoelina, a 35-year-old former disc-jockey who seized power with the help of the army last year, will be on the agenda when the EU’s Africa Working Group gathers in Brussels on Feb. 10, Maria Becerril-Perez, chargé d’affaires of the EU delegation in Madagascar, said in an interview in Antananarivo, the Malagasy capital, on Feb. 5.

At risk is Madagascar’s privileged access to the world’s biggest trade bloc under the Cotonou Agreement, a 2000 deal that provides the framework for European aid to African, Caribbean and Pacific nations. Under the accord, Madagascar is to receive assistance amounting to 600 million euros ($820 million) between 2008 and 2013. Any further withdrawal of aid may threaten Rajoelina’s grip on power.

“If the international community passes sanctions that have an effect on the Cotonou Agreement, the impact will be devastating,” Jessie Andriamampianina, a director of the Antananarivo-based Association of Free Trade Businesses said in an interview.

Madagascar’s economy is estimated to have grown just 0.6 percent in 2009, compared with 7 percent in 2008 as a result of domestic political instability and the global economic crisis, the World Bank said on Feb. 1. Tourist arrivals, which are the second-biggest foreign-exchange earner after fishing, more than halved in December from a year earlier. Exports by the textile industry, where 100,000 people are employed, fell two-thirds to 3,000 metric tons by August, according to the bank.

U.S. Aid

Madagascar is the world’s largest vanilla grower and one of the biggest producers of sapphires. Its oil and mineral wealth have attracted investors including Rio Tinto Plc, the third- largest mining company, Frances’s Total SA and Canada’s Sherritt International Corp.

The U.S. in December suspended Madagascar from the African Growth and Opportunities Act, a trade agreement known as AGOA that allows African states to export some goods to the U.S. duty free. The U.S.’s suspension of trade privileges threatens 50,000 jobs in the textiles industry alone, Andriamampianina said.

“A similar move by the EU would be a severe blow to the Rajoelina government,” said Philippe de Pontet, an analyst for Eurasia Group.

Job Losses

One in four salaried workers in Madagascar has a job because of AGOA, according to Robert Strauss, the head of the American Chamber of Commerce in Madagascar. The reinstated import duties of as much as 34 percent “far exceed most people’s profit margins,” he said in an interview. “I expect to see many of those people losing their jobs over the next few weeks.”

Rajoelina ousted former President Marc Ravalomanana in March after two months of street protests in which more than 100 opposition supporters were killed. His takeover led Western countries to freeze aid and resulted in Madagascar’s suspension from the African Union and the Southern African Development Community.

Last year, the International Monetary Fund estimated that donor assistance accounted for about 50 percent of Madagascar’s budget and 75 percent of government investment.

Madagascar’s exports, which also include coffee, shellfish, sugar and cotton, totaled $1.04 billion last year, according to the CIA World Factbook.

Human Rights

Under terms of the Cotonou Agreement, countries must adhere to principles such as respect for human rights, democracy and the rule of law, in order to maintain ties and continue to receive assistance. In July, the EU described the “forcible transfer of power” in Madagascar as a “flagrant violation” of the Cotonou deal.

Rajoelina has refused to bow to international pressure to implement a series of power-sharing accords agreed with opponents last year. He has made some concessions, including last month when he said he may postpone elections planned for March after a demand from the opposition.

Any plans by the EU to impose sanctions will hinge on the strength of opposition from France, Madagascar’s former colonial ruler, Eurasia’s De Pontet said. Among the EU’s members, France is one of the country’s biggest trading partners, receiving 44 percent of its exports in 2007, according to the United Nations Statistics Division.

“They have longstanding links, commercial links, historical links, living links,” he said. “A decision like this would impact France more than the other EU states.”

Time Running Out

Lydie Boka, founder of StrategiCo., a Lille-based political and economic analysis group, said pressure is growing on Rajoelina to make some concessions in talks with his opponents because shortfalls in state finances has placed the loyalty of government officials in jeopardy.

“He doesn’t have a lot of time, because the finances are very bad,” Boka said in a phone interview. “When he can’t pay officials anymore, there’ll be trouble. Especially when you can’t pay the army, you’ll have serious problems.”

“ Latest AGOA Trade Data currently available on

Click here to view a sector profile of Madagascar's bilateral trade with the United States, disaggregated by total exports and imports, AGOA exports and GSP exports.

Other regularly updated trade statistics on include: (click each link to view)

  • AGOA-Beneficiary Countries’ AGOA and GSP Trade Aggregates

  • AGOA Trade by Industry Sector

  • Apparel Trade under AGOA’s Wearing Apparel Provisions

  • Latest Apparel Quotas under AGOA

  • Bilateral Trade Data for all AGOA-eligible countries individually.

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