Development of a Special Economic Zone in Madagascar
Despite its wealth of resources, Madagascar remains one of the world’s poorest countries and still dependent on foreign aid. Situated off the southeast coast of Africa, Madagascar is the fourth largest island in the world, with a land mass of 587,000 square kilometers and 24.24 million inhabitants according to the 2016 census.
The Malagasy economy is primarily based on agriculture, particularly vanilla, coffee, rice and cloves, and a tourism industry. The political system has remained unstable and fragile since Madagascar gained independence from France in 1960. The outlook for the medium term is encouraging with an estimated growth rate of 4.2% in 2016, exceeding the average rate of 2.6% recorded over the past five years. As per IMF, economic growth is projected at 4.1% in 2017. The National Development Plan aims to improve the economy in the medium term in three key areas including improving governance, adopting economic recovery measures and improving access to basic social services.
Based on the experience of Mauritius in the successful establishment of the Export Processing Zone (EPZ) in the 1970’s and the creation of the Freeport in 1990’s, several African countries, namely Madagascar, Senegal, Côte d’Ivoire and Ghana have embarked upon similar paths of development and have solicited assistance from the Government of Mauritius for the conceptualisation, design and development of economic zones. The SEZ strategy will enable Mauritius to broaden its economy by expanding its economic space and further enhancing south-south cooperation.
The Malagasy Government has sought the assistance of the Government of Mauritius to develop an industrial park in the region of Fort Dauphin with a view to boosting economic activities in the south-eastern part of the country. Some 80 hectares of land in the vicinity of Port d’Ehoala has been identified for the development of the first phase of the project. A Memorandum of Understanding has thus been signed between the two governments on 11th March 2016. The Malagasy government has reiterated its support to the SEZ initiative by adopting the SEZ law in the national assembly in November 2017.
In line of the government’s vision to promote the Africa strategy, a high-level delegation from Pôle Intégré de Croissance (PIC) of Madagascar, World Bank and international consultants from BuroHappold and Eunomix visited Mauritius for a consultative workshop on the interest of Mauritian operators in the proposed Special Economic Zone in Ehoala Park in Fort Dauphin on 17th November 2017. The priority sectors identified for the SEZ are as follows: manufacturing; light engineering; tourism and hospitality; seafood processing; agro-processing; ship chandling and related activities. The Ehoala Port is a USD 260 million investment both in port infrastructure and public infrastructure via a public private partnership between Rio Tinto and the Malagasy government funded partly by World Bank.
The Board of Investment and the Mauritius Africa Fund jointly organised a consultative workshop with Mauritian operators considering to expand regionally and consultations were held on the adequacy of setting up an SEZ in Ehoala Park in Fort Dauphin. The event was attended by around 40 participants who gained a better understanding of the sectors and activities that can be located in Ehoala Park, markets that can be served and infrastructure requirements for specific sectors and industrial activities. The Malagasy side apprised the business operators of the latest developments related to the SEZ project in Ehoala. The adoption of the SEZ law by the Malagasy parliament and the potential of Ehoala port to become a major hub connecting to regional and transoceanic markets were highlighted. The Mauritian operators expressed their concerns on Ehoala region and discussions were around connectivity, existing infrastructure, availability of labour force and the existing concession on the port of Ehoala between Rio Tinto and the Government of Madagascar.
In addition, Mauritian operators requested for other potential sites for establishing an SEZ other than Fort Dauphin. Discussions revolved around Diego Suarez, Tuléar, Tamatave, among others. The linkages between an SEZ and the domestic economy were mentioned as key to the success of such development. Based on the response obtained from Mauritian operators, the consultants will perform a feasibility study to assess the characteristics of various regions mentioned so as to identify the best site to operate an SEZ. The preference of Mauritian operators was around Tamatave which regroups commercial activities and also offers good connectivity to the world due to its airport and port infrastructure. To facilitate investment in Madagascar, Mauritian operators enumerated the factors that influence their investment decision, namely access to markets, political stability, legal framework, infrastructure and access to land.
The consultative workshop was preceded by an institutional workshop with key institutions whereby the Mauritian side stated the Mauritian interest in setting up an SEZ in Madagascar as a growth strategy for local companies owing to geographical, demographical and natural resources limitations in Mauritius. The Malagasy side requested for the Mauritian expertise for identifying key partners to develop the SEZ in Ehoala as well as the marketing strategy to potential operators. The workshop was concluded by private sector consultations for companies who have shown interest to operate in Ehoala Park.
Madagascar is one of the major trading partners for Mauritius. Mauritius exports to Madagascar was USD 160.82 million during 2016, while Mauritius imports from Madagascar was USD 41.96 Million during 2016. Both Mauritius and Madagascar are members of regional organisations such as the Southern African Development Community (SADC), Common Market for Eastern and Southern Africa (COMESA), and the Indian Ocean Commission (IOC). The Gross Domestic Investment Flows Abroad to Madagascar was MUR 897 Million for 2013 and MUR 483 Million for 2014. There are over 25 Mauritian companies in Madagascar operating in the agri-business, banking, textile, ICT/BPO, seafood processing and tourism sectors, among others.
It is thus important for Mauritius to further consolidate its trade and investment flows with Madagascar and this SEZ project may be the ideal project to further encourage Mauritian entrepreneurs to use Madagascar as a key value-added center for entry into Africa. While Madagascar has the natural resources, Mauritius has the competencies to operate an SEZ and mobilise development funds while positioning the country as a financial hub for this initiative which will lead to a win-win situation for both countries in terms of returns.