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MADAGASCAR Economic Freedom Score 25 World Rank: 79 Regional Rank: 7 Least free 0 adagascar’s economic freedom score is 61.7, making its M economy the 79th freest in the 2015 Index. Its score is unchanged from last year, with improvements in six of the 50 75 Most 100 free 61.7 Freedom Trend 64 10 economic freedoms, including property rights, the control of government spending, and monetary freedom, offset by significant deteriorations in trade freedom and investment freedom. Madagascar is ranked 7th out of 46 countries in the Sub-Saharan Africa region, and its overall score is above the world and regional averages. Over the past five years, Madagascar’s economic freedom has advanced by 0.6 point. Although the country remains in the ranks of the “moderately free,” the absence of committed reforms has undermined overall competitiveness, turned away investors, and eroded the rule of law. Corruption is pervasive and has contributed to political unrest and a general distrust of the ruling elite. Economic losses from corruption inhibit the development of a strong entrepreneurial environment, a situation that is compounded by inefficient business and labor regulations. Because financial services have not proliferated, the expansion of small businesses and entrepreneurs is stunted. BACKGROUND: The former French colony of Madagascar has endured decades of military coups, political violence, and corruption but has stabilized in recent years. Following four years of political stalemate and a mediation process led by the Southern African Development Community, Hery Rajaonarimampianina was elected president in January 2014. In April, Roger Kolo was appointed prime minister, and a new government was established. Following a coup in 2009, international organizations and foreign donors severed ties with Madagascar, but in light of the last election, many have expressed their willingness to normalize economic relations. Madagascar’s economy is largely agricultural. Sitting just off the east coast of Africa, it is highly vulnerable to natural disasters and weather shocks. The World Bank estimates that 92 percent of Malagasy live on less than $2 a day. How Do We Measure Economic Freedom? See page 475 for an explanation of the methodology or visit the Index Web site at heritage.org/index. 63 62 61 60 2011 2012 2013 2014 2015 Country Comparisons Country 61.7 World Average 60.4 Regional Average 54.9 Free Economies 84.6 0 20 40 60 80 100 Quick Facts Population: 23.0 million GDP (PPP): $22.3 billion 2.4% growth in 2013 5-year compound annual growth 0.6% $970 per capita Unemployment: 3.8% Inflation (CPI): 5.8% FDI Inflow: $837.5 million Public Debt: 38.4% of GDP 2013 data unless otherwise noted. Data compiled as of September 2014. 301 MADAGASCAR (continued) THE TEN ECONOMIC FREEDOMS Score RULE OF LAW Country World Average Property Rights 45.0 Freedom from Corruption 28.0 0 20 40 60 80 Rank 1–Year Change 66th 132nd +5.0 +0.7 100 After a democratically elected government took office in 2014, the prime minister announced that 40 percent of his country’s budget is lost to graft and pledged to fight it. In June 2014, the Extractive Industries Transparency Initiative reinstated Madagascar’s membership, which had been suspended in the wake of a coup in 2009. The judiciary remains susceptible to corruption and executive influence. Fiscal Freedom 90.9 GOVERNMENT Government Spending 94.7 SIZE 28th 1st 0 20 40 60 80 +0.1 +2.4 100 Madagascar’s individual and corporate income tax rates are 20 percent. Other taxes include a value-added tax and a capital gains tax. The overall tax burden is 10.3 percent of domestic output. Government expenditures are equivalent to 13.3 percent of domestic production. Public debt is equal to about 39 percent of gross domestic product. REGULATORY EFFICIENCY Business Freedom 62.3 Labor Freedom 45.1 Monetary Freedom 79.2 99th 153rd 61st 0 20 40 60 80 –0.5 +1.2 +1.6 100 Previous reforms have reduced the number of days and procedures required to launch a new business, but completing licensing requirements still takes over four months on average. Much of the workforce is employed in the informal sector. In a 2014 IMF agreement, the government pledged to maintain fiscal and monetary discipline and reduce costly fuel price subsidies with better-targeted anti-poverty programs. OPEN MARKETS Trade Freedom 71.8 Investment Freedom 50.0 Financial Freedom 50.0 123rd 109th 70th 0 20 40 60 80 –6.0 –5.0 0 100 Madagascar’s average tariff rate is 9.1 percent. The government relies on tariffs for revenue but maintains few non-tariff barriers. Investors face an unsettled political environment. The financial system includes over 40 credit institutions and 11 banks. There is no stock exchange, and financing for new businesses is not readily available. State-issued treasury bills are used to bridge budget deficits. Long-Term Score Change (since 1995) RULE OF LAW Property Rights Freedom from Corruption 302 +15.0 +18.0 GOVERNMENT SIZE Fiscal Freedom Government Spending +16.2 +6.8 REGULATORY EFFICIENCY Business Freedom Labor Freedom Monetary Freedom 2015 Index of Economic Freedom OPEN MARKETS –7.7 –3.8 +5.2 Trade Freedom +34.2 Investment Freedom 0 Financial Freedom +20.0