Resource information
Despite fiscal and administrative
reforms pursued by the Government of Madagascar since the
mid 1980s, to prod economic and financial liberalization,
contributing to steady GDP growth rates, manufacturing
production however, still represents a relatively small
share of value added. And, the development of
import-substituting (IS) firms has been considerably slower,
showing stagnating signs as these firms are unprepared for
competition from imports unleashed by recent liberalization.
The note looks at the present market structure which has
created distortions, identifying several incentives by the
Government, to firms located in the Export Processing Zones
(EPZs), including a grace period on corporate taxes for the
first 2-15 years of operations, exemption from customs
duties and taxes on imported equipment; taxation of
dividends at only 10 percent, and, 99-year leases for
investment in land. The note further looks at the Common Law
sector, i.e., those firms operating outside of EPZs, namely
the IS firms, and the non-tradables sector, since most of
the recent growth in the country's economy has come
from non-tradables (construction, transport, beverages, and
tobacco). Cross-cutting issues are identified by a survey of
representative industries, showing a variety of factors
affecting productivity, and reducing competitiveness.
Recommendations include lower protection to make markets
more contestable, but within lower, and more uniform
taxation, to ease the fiscal burden on imported inputs, in
an effort to encourage entry into the banking system, and
improve the regulatory framework.
