Trade Prospects Upbeat for Madagascar

This month the WTO issued a surprisingly positive trade review of South Africa’s SADC neighbour, the island of Madagascar. Madagascar is the fourth largest island in the world with an estimated population of about 18 million citizens. While the island has an immense wealth in natural endowment, it is a least developed country (LDC), with a low per capita income of around US$348. The Malagasy trade policy review is interesting in that its experiences are typical of several southern African countries.
In the WTO a trade policy review is a type of periodic trade audit conducted to see whether a country is on track with its WTO commitments. For each review there is a submission by the government of the member under review accompanied by a detailed report written independently by the WTO Secretariat. The reports are then scrutinized and questioned by the full WTO membership in the Trade Policy Review Body.
According to the WTO Secretariat, Madagascar has made good progress in liberalizing its trading regime. They find that positive results achieved by its trade reforms, as well as the performance of companies in the free-trade zone operating in a fairly liberal environment, underscore the need for Madagascar to continue with this liberalization, which should be backed up by continued structural reform and macroeconomic stabilization so as to enhance the business climate. Continued efforts towards good governance are needed and should help in this respect. Despite this finding the Malagasy government concedes that problems of access to financing and electrical energy supplies hamper their enterprise development, and difficulties inherent in the transport service create obstacles to trade.
One of the ways of addressing its problems is to foster strong regional trade agreements. In this regard Madagascar pursues a formal regional integration policy in order to forge closer ties with neighbouring countries. In this regard the intention is to exploit regional opportunities intensively by making use of its comparative advantage vis-à-vis the members of COMESA, the Indian Ocean Commission (COI) and the Southern African Development Community (SADC). In addition Madagascar is negotiating its Economic Partnership Agreement (EPA) with the European Union within the Eastern and Southern African Group (AFOA), and is thus one of the SADC member states outside of the SADC EPA configuration.
Madagascar is a founding member of the African Union, and it foresees that the African Union will be an economic and monetary union, but when remains an open question. More practically Madagascar became a member of COMESA in 1995 with a view to improve and broaden its regional integration process.

This is pursued through in COMESA with the adoption of comprehensive trade liberalization measures, such as the complete elimination of tariff and non-tariff barriers to trade and the adoption of a common external tariff (CET); the free movement of capital, labour and goods, and the right of establishment within COMESA; the adoption of a common set of technical standards and regulations, quality control procedures, certification schemes and sanitary and phytosanitary regulations; the harmonization of tax rates (particularly VAT and excise duties) and conditions for technical cooperation, particularly regarding company law, intellectual property rights, and investment legislation; and the establishment of a monetary union. Notably the COMESA common external tariff should be applied as from 2008 with zero per cent duty on raw materials and capital goods, 10 per cent on intermediary inputs and 25 per cent on finished goods.

Allied to and maybe in conflict with COMESA, Madagascar became a full member of the SADC in August 2005. Recall that the SADC Treaty was signed in 1992 with the objective of creating a development community that would achieve economic integration. Madagascar ratified the SADC Treaty in December 2004 and has acceded to the following protocols: the Protocol on Immunities and Privileges, the Protocol on Trade, the Tribunal Protocol, the Protocol on Health, and the Protocol on Education and Training. The Protocol on Tourism has already been adopted by Parliament. In 2006, Madagascar signed the Protocol on Finance and Investment. The most important action at present is that Madagascar is embarking on implementation of the SADC Trade Protocol.

Its tariff reduction plan, prepared jointly by the administration and the private sector, was adopted by the Extraordinary SADC Summit of Heads of State and Government, held at Midrand (South Africa) in 2006. Since 2008 Madagascar has enjoyed duty free access into the South African market under the SADC Trade Protocol.

These regional dynamics aside, the European Union remains Madagascar’s most important trading partner. Madagascar is one of the 79 African, Caribbean and Pacific (ACP) countries that have maintained close economic relations with the EU since 1975. The WTO waiver was granted for the implementation of this preferential scheme, which does not comply with Article I of the GATT 1994 relating to MFN treatment, expired on 31 December 2007.

The Cotonou Agreement provides for the establishment, as of 1 January 2008, of a new trade arrangement between the EU and various ACP regional groupings, in the form of an economic partnership agreement (EPA) consistent with WTO rules. Madagascar hopes that its interim EPA will improve trade flows to the EU and eventually reduce poverty. To this end Madagascar is taking part in the EPA negotiations as a member of the AFOA Group within COMESA.

As a least developed country, Madagascar benefits from the “Everything but Arms” initiative from the EU.
In closing the trade review hints that stronger multilateral commitments by Madagascar through extension of its tariff bindings to more non-agricultural products, lower bound rates and a stronger GATS commitment would reinforce its recent reforms and make its trading regime more transparent, more credible and more predictable. Such a climate would help Madagascar to attract the capital needed to exploit its vast potential and derive greater benefit from its participation in the multilateral trading system. Active participation in the trade reform programmes of COMESA and SADC will also support its reform efforts.