| Malagasy people have a poor standard of living. Madagascar's per capital GDP was average for a developing country in the late 1970s, but three decades of steady economic decline since then have reduced it to about half that. The country's stock of human resources is now quite small. Average annual GDP growth has been only 0.5 per cent during that period, while the population has increased by an average of 2.8 per cent a year which declined the living standard. This decline in living standards is mainly due to persistently bad government policies that have held back economic activity. The country experimented for many years with socialism, which substantially changed resource allocation and lessened the role of the private sector in creating value added. Madagascar has also had many political crises since independence. The most recent followed the presidential elections of December 2001: the result was contested, plunging the country into a major political crisis that cut it in two and set off an economic slump from which it is still struggling to emerge.However, Madagascar, through its adhesion with the UN Millennium Development Goals, launched the challenge to decrease by half the population living in extreme poverty. To this end, a constant economic growth is one of the primordial conditions. A medium term growth superior or equal 8%, accompanied by macro-economic and financial stability, would reduce by half the rate of poverty to 2015. But linear projections show that Madagascar is not making enough progress toward meeting the targets of the Millennium Development Goals (MDGs). To meeting that end, in an increasingly open and integrated world economy, competitiveness has become a central preoccupation of Madagascar. Since the ordinary line of cross-causality relationships between competitiveness and growth indicate that, improving competitiveness will improve productivity, and will improve economic growth and then standard of living.The purpose of this study is to analyze competitive advantage of Madagascar and then suggest strategies and policy implications to improve that competitiveness. The present study is considered as an evaluation research since it is concerned with analyzing the levels of competitiveness in Madagascar, analyzing the problems that matter Madagascar competitiveness and thereby ways of deepening that process. The defining research questions and research parameters denotes a deductive approach, with respect the view of national competitiveness as the set of factors, policies and institutions that determine the level of productivity of a country. Thus, along of our competitiveness analysis, we analyzed both productivity and business environment include both microeconomic and macroeconomic business environment.Large amount cross-sectional data was collected, analyzed and an interpretation of results was reported to show the impact of productivity and business environment competitiveness to business and the economy as a whole. A comparative research design is found more suitable in order to tease out significant contrasts permitting a reasonable understanding and a fair evaluation of the competitiveness of Madagascar, and to assess a comparative competitiveness in international perspective, thus comparator countries will be added to the analysis too. And then relevant data was analyzed using both quantitative and qualitative methods. Quantitative analysis was made using regression and projection, and least square estimation model as reviewed in econometrics overview in chapter 2; computed using SPSS version 12.0; and an interpretation of results are expected to support the evidence of our analysis. Qualitative analysis was made using the theoretical reflections outlined from the national competitive advantage theory and others theory with respect of view of national competitiveness as the set of factors, policies and institutions that determine the level of productivity of a country. The analysis of Madagascar current competitiveness indicates that the political crisis of 2002 dealt a significant blow to the economy. Relative to their 2001 levels, all economic aggregates fell. Inflation rose from roughly 6 percent in 2001 to 15 percent in 2002 and exports fell by half. The secondary and tertiary sectors were affected more than agriculture by the crisis, and contracted by 25 percent and 12.5 percent, respectively. These contractions caused a significant decline in GDP in 2002 down by nearly 12 percent for the year. Recovery was rapid though, with GDP growth of almost 9 percent in 2003. Despite the detrimental impact of two cyclones and a sharp depreciation of the currency on major export crops, growth for the year 2004 remained high at 5.3 percent. Nevertheless, uncertainty over the future of AGOA and the impact of the dismantling of the Multi-Fibre Agreement quotas is likely to affect investment and relocation decisions in Madagascar, and thus negatively impact growth. Madagascar has also been quite dependent on foreign aid which is likely to be creating distortions. An analysis of the competitiveness diamond in Madagascar reveals a number of deficiencies. These conditions suggest the difficulties that face businesses as they try to operate in Madagascar, helping to explain the poor economic performance in recent decades. Moreover, several of the plusses in the diamond are recent developments: the reformist government only came to power in 2002. Cluster analysis reveal that agricultural products, textile and apparel, fishing and fishing products and tourism cluster were the four largest sources of export receipts in 2004. But as is often the case with clusters in developing countries (Porter, 1998, 230 ff), the Malagasy clusters are both shallow and narrow compared to clusters in developed countries. Despite of the efforts of the active institutions for collaboration, those clusters remain in its early stages of development. Unfortunately, the recent improvements to the business environment have yet to shift the country's overall competitiveness rating. In recent years progress has been made in relation to the factor conditions and the context for firm strategy and rivalry of the Global Competitiveness Report's Business Competitiveness. In the World Bank's Doing Business survey, Madagascar is considerably better than the averages for sub-Saharan Africa for starting a business and protecting investor, and for enforcing contracts. In the Index of Economic Freedom's assessment of government intervention (in which a lower scores indicates less government intervention), Madagascar scores an impressive 1.5, ahead even of the U.S. (2.0). However, the private sector has yet to take advantage of these conditions. The Global Competitiveness Report micro-variables on related and supporting industries and demand conditions are particularly discouraging. Therefore, the Malagasy economy is, very vulnerable to shocks. Periods of high growth have been mitigated by external and internal shocks, (the 2002 crisis, cyclones, and changes in trade preferences).Our analysis of Madagascar economic and competitiveness problems reported explanations of those problems. Our results indicate that EPZ firms in Madagascar, on average, are very competitive regionally, and significantly more efficient than non-EPZ firms, though there are large dispersions within this group. Non-EPZ Malagasy firms have much lower productivity compared to firms in all other Sub-Saharan countries except Zambia. The dualism in the industrial sector reflects the poor backward linkages of EPZ firms, the poorer business environment faced by non-EPZ firms and the high costs of infrastructure and regulations faced by both groups compared to most other countries regionally. For Malagasy firms to become internationally competitive, policy focus needs to shift towards augmenting productivity in the non-EPZ sector.For Madagascar, to achieve national competitiveness; further improvement in the set of factors, policies and institutions that determine the level of productivity of the country is needed. Thus the following strategies and policy implications are suggested: improve business environment, foster cluster development, shift roles of government and business in economic development, integrate social and economic policies, and lead a cross-national economic strategy. |
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