Madagascar - Investment climate assessment

35196 AFRICA PRIVATE SECTOR GROUP MADAGASCAR INVESTMENT CLIMATE ASSESSMENT TECHNICAL REPORT JUNE 2005 MANJU KEDIA SHAH JAMES HABYARIMANA LINDA COTTON IVAN ROSSIGNOL  Contents ACKNOWLEDGEMENTS......................................................................................................................... 2 LIST OF ACRONYMS................................................................................................................................ 3 EXECUTIVE SUMMARY.......................................................................................................................... 4 1. INTRODUCTION................................................................................................................................. 12 BACKGROUND .......................................................................................................................................... 12 STRUCTURE OF THE ECONOMY................................................................................................................. 14 ECONOMIC MANAGEMENT ....................................................................................................................... 14 2. ENTERPRISE PERFORMANCE IN MADAGASCAR.................................................................... 22 MALAGASY LABOR PRODUCTIVITY.......................................................................................................... 23 PRODUCTIVITY OF CAPITAL...................................................................................................................... 27 PRODUCTIVITY DIFFERENTIALS WITHIN MADAGASCAR ........................................................................... 29 TOTAL FACTOR PRODUCTIVITY RESULTS................................................................................................. 31 MADAGASCAR'S PERFORMANCE: DIFFERENCES ACROSS COUNTRIES ...................................................... 34 CONCLUSION............................................................................................................................................ 36 3. BUSINESS ENVIRONMENT.............................................................................................................. 38 INDIRECT COSTS OF DOING BUSINESS...................................................................................................... 38 BUSINESS ENVIRONMENT IN INTERNATIONAL PERSPECTIVE .................................................................... 45 4. FACTOR MARKETS: THE FINANCIAL MARKET AND THE LABOR MARKET................. 59 FINANCE SECTOR ..................................................................................................................................... 59 LABOR MARKET....................................................................................................................................... 70 CHAPTER 5: POLICY RECOMMENDATIONS.................................................................................. 80 POLICY MATRIX....................................................................................................................................... 82 ANNEX A. SAMPLING METHODOLOGY........................................................................................... 84 ANNEX B. TOURISM IN MADAGASCAR........................................................................................... 87 ANNEX C. FISHERIES IN MADAGASCAR ........................................................................................ 93 ANNEX D. STANDARD INVESTMENT CLIMATE TABLES........................................................... 99 REFERENCES......................................................................................................................................... 109 1  Acknowledgements The Investment Climate Assessment (ICA) is based on an analysis of investment climate survey data gathered by ATW Consultants Madagascar with technical assistance from Synovate and the Regional Program on Enterprise Development in the Africa Region Private Sector Group at the World Bank. Jean-Michel Marchat, Josiane Raveloarison, and the Madagascar Country Office provided critical input for the survey fieldwork. Jessica Boccardo and Mike Ingram provided valuable research assistance. We are grateful for comments from James Bond, Iain Christie, Alvaro Gonzalez, Gaiv Tata, and Willem van Eeghen, as well as participants at the review meeting held on June 23, 2005. We would particularly like to thank all of the private sector enterprises who contributed their time to participate in the survey. 2  List of Acronyms AFD Agence Fran