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The World Bank Group in Madagascar

Chapter 1 | Background and Country Context

This Country Program Evaluation assesses the development effectiveness of the World Bank Group’s engagement in Madagascar between fiscal years (FY)07 and FY21. More specifically, it seeks to assess the extent to which the Bank Group’s engagement in Madagascar was relevant to the country’s development needs, evolved appropriately to changing circumstances and experience gained, and contributed to addressing Madagascar’s main development challenges. The evaluation distills lessons from Bank Group experience to inform future engagement in Madagascar.

The evaluation drills down on two themes of particular relevance to Madagascar’s development: (i) weak governance (because of limited rule of law and the biased use of public resources for the benefit of a few high-status individuals [referred to in this report as “elite capture”1]) and (ii) limited development in rural areas. The two themes represent major binding constraints on Madagascar’s development and are similar to those identified in the Bank Group’s 2015 Systematic Country Diagnostic (SCD).2 In analyzing these themes, the evaluation answers the following questions: How successful was the Bank Group in improving governance in Madagascar? How successful was the Bank Group in fostering development in Madagascar’s rural areas?

Country Context

Despite Madagascar’s significant natural wealth, it is one of the poorest countries in Sub-Saharan Africa and one of only seven countries with lower real per capita income today than in 1960. Madagascar is an island rich with biodiversity and natural assets, including agricultural lands, forest areas, coastline, and precious minerals. Despite periods of economic growth, natural resource wealth, and relatively slow population growth, the average Malagasy is poorer today than in 2007: in 2019, about 78 percent of the population lived on less than $1.90 a day (at purchasing power parity; World Bank 2020b). Average annual gross domestic product (GDP) growth was 2.4 percent over the past decade, reaching 4.4 percent in 2019, before contracting by an estimated 6.1 percent in 2020 as a result of the coronavirus (COVID-19) pandemic.

Political crises have destabilized the country and reversed economic growth trends (figure 1.1). Since independence, the country has experienced four major political crises, with the last (2009–14) bringing about a 4 percent contraction in GDP, the temporary suspension of most donor assistance, and the deterioration of numerous development indicators (ICG 2014).3 Political instability from unconstitutional regime changes undermined investor confidence, limited access to finance, and curtailed tourism (one of the country’s main industries). During the 2009–14 political crisis, income per capita fell, the poverty rate increased by 10 points, public finances deteriorated, the number of out-of-school children increased by 53 percent, child malnutrition increased in some areas by 50 percent, and several health-care centers closed because of lack of funding (World Bank 2013a, 2021e). Foreign aid dropped by approximately 30 percent, as many donors looked to the World Bank for signals to reinstate development assistance (World Bank 2013a). Following the return to constitutional order in 2014, growth returned slowly. Madagascar has also experienced several other significant exogenous shocks, including droughts, cyclones, locusts, and the COVID-19 pandemic. These shocks also impacted Madagascar’s economic and social indicators (table 1.1).

Poverty is predominantly and increasingly a rural problem in Madagascar. Poverty is concentrated in rural areas, where about 80 percent of Madagascar’s population lives (figure 1.2). Urban poverty is decreasing, whereas rural poverty is increasing. Between 2005 and 2012, the urban poverty rate fell from 41 percent to 30 percent. Over the same period, the rural poverty rate increased from 77 percent to 80 percent (World Bank 2016d). Social indicators associated with poverty are also worse in rural areas: infant mortality rates are higher, life expectancy is shorter, illiteracy is more widespread, malnutrition is more prevalent, and access to services (such as clean water, improved sanitation services, and electricity) is disproportionately lower (World Bank 2014a, 2014c). Less than 1 percent of the rural population had access to electricity in 2018, compared with 70 percent of the urban population.

Figure 1.1. Impact of Political Instability on Economic Growth

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A bar chart showing that periods of GDP growth are often succeeded by political crises that trigger economic downturns

Figure 1.1. Impact of Political Instability on Economic Growth

Source: International Monetary Fund 2020a.

Note: Orange bars denote negative real GDP growth; yellow bars denote positive real GDP growth. GDP = gross domestic product.

Subsistence farming and repeated natural disasters have both contributed to keeping rural poverty rates high. The agriculture sector is the main source of income in rural areas and employs an estimated 75 percent of the workforce, the majority of which is engaged in low-income subsistence farming. Agricultural productivity is low, with output per worker in the sector having declined by 33 percent between 1992 and 2015, in part due to low uptake of improved technologies and practices. Natural disasters are estimated to cost the economy 1 percent of GDP each year. These shocks are particularly damaging to rural and agriculture-based activities because of high dependence on rain-fed agriculture, chronic food insecurity, physical isolation, and the lack of access to social safety nets.

Table 1.1. Key Economic and Social Indicators, Madagascar, 2007–21

Indicator

2007

2009

2011

2013

2015

2017

2019

2021a

GNI per capita, Atlas method (current US$)

380

470

480

520

490

470

520

470

Net ODA received (percent of GNI)

10.6

4.6

3.9

4.1

6.2

6.1

5.6

Poverty headcount ratio at US$1.90 a day (2011 PPP; percentage of population)

71.7a

78.2a

78.8a

Population growth

2.9

2.8

2.8

2.7

2.7

2.7

2.7

2.6

Life expectancy at birth, total (years)

62.1

62.9

63.8

64.7

65.5

66.3

67.0

Mortality rate, infant (per 1,000 live births)

52.0

48.6

45.8

43.4

41.3

39.3

37.2

36.3

School enrollment, primary (percent, gross)

139.2

149.3

143.4

143.9

147.3

134.1

Prevalence of undernourishment (percent of population)

30.5

30.3

28.3

33.1

40.2

42.3

43.2

Source: World Development Indicators.

Note: GNI = gross national income; ODA = official development assistance; PPP = purchasing power parity; — = not available.a. Estimates.

Figure 1.2. Distribution of Poverty in Madagascar (Multidimensional Poverty Index)

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A map of subnational poverty rates in Madagascar demonstrating the higher incidence of poverty in the south.

Figure 1.2. Distribution of Poverty in Madagascar (Multidimensional Poverty Index)

Source: Multidimensional Poverty Index, Oxford Poverty and Human Development Initiative, University of Oxford.

Note: The poverty index rating is shown for each region in Madagascar. In general, rates of poverty are lower in the north and higher in the south. Breakpoints: equal count using six-class classification.

Madagascar’s Core Development Constraints

A review of analysis prepared by the World Bank and others points to four overarching development constraints affecting Madagascar over the evaluation period. These constraints are interrelated and, together, hamper economic development in Madagascar. Elite capture is both a cause and consequence of weak institutions and governance; limited provision of and access to services in rural areas limits the establishment of a social contract and the development of human capital, making rural Malagasy less inclined to trust the government and less capable of taking advantage of opportunities to improve their livelihoods.

Elite Capture of State Institutions

Intra-elite competition for control of rents has fueled cycles of instability that have weakened state institutions and, when alliances shift, triggered political coups. This has had long-lasting negative impacts on the country’s economic and social development. Elite capture in Madagascar takes many forms. According to the Bank Group (2021b, 7), it includes “privileged access to land and natural resources, public contracts and state-owned enterprises [SOEs], political immunity, and tax exemptions.” This phenomenon is fueled by a long list of factors that have been extensively studied: extreme horizontal and vertical social fragmentation, extreme inequality, weak civil society, massive concentration of economic power in the hands of a few extended families (“les grandes familles”), the financing of political careers by economic elites, politicization of the military, a concentration of power in the presidency, a weak legislature, lack of judicial independence, and limited rule of law (ICG 2014; Marcus 2016; Ramasy and Vallée 2014; Razafindrakoto, Roubaud, and Wachsberger 2020).

Incentives for rent seeking are heightened by Madagascar’s abundance of natural resources (both land and extractives)—including precious woods, gold, gemstones, and livestock. Coupled with the limited rule of law, an ineffective court system and a patchwork of overlapping anticorruption institutions at the central and local level have contributed to a “crisis-fragility” trap characterized by high levels of corruption, a decline in rule-based governance, and generalized institutional decay (Demetriou 2019). The ineffectiveness of the courts is a result of corruption and the lack of judicial independence (itself due to an ineffective separation of powers, allowing the executive branch to control the other two; Rahman 2021; Schatz 2019). Perceptions of corruption deteriorated over the evaluation period (figure 1.3); as a result, investor confidence and the business climate were undermined, limiting competition and allowing unfair business practices to flourish.

Figure 1.3. Madagascar Governance Indicators: Perceptions of Corruption

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A line graph showing the decline in Madagascar’s perception of corruption score from 2012 to 2019, with a slight uptick by 2021

Figure 1.3. Madagascar Governance Indicators: Perceptions of Corruption

Source: Corruption Perceptions Index, Transparency International.

Note: The Corruption Perceptions Index measures how corrupt each country’s public sector is perceived to be, according to experts and businesspeople. Each country’s score is a combination of at least three data sources drawn from 13 different corruption surveys and assessments. A country’s score is the perceived level of public sector corruption on a scale of 0–100, where 0 means highly corrupt and 100 means very clean.

Weak Governance, Including Public Financial Management

Captured by elites and personal networks, and without lines of accountability, Madagascar’s formal institutions remain weak. The overall quality of governance declined over the evaluation period (table 1.2). The Malagasy institutions weakened, and government effectiveness declined, particularly around the 2009 political crisis, and have yet to return to precrisis levels. The same is true for rule-based governance and property rights. The executive branch exercises significant control over the parliament and judiciary, which limits checks on executive power and undermines the legitimacy and independence of the justice system, contributing to widespread impunity among elites. Corruption is high—the country ranks 147th of 180 countries on Transparency International’s Corruption Perceptions Index—and 76 percent of Malagasy surveyed thought that corruption had increased in the past 12 months (Transparency International 2019). Transparency and accountability remain low; according to the latest Open Budget Index ratings (2019), Madagascar’s fiscal transparency is limited—with a score of 40 out of 100—and public participation in the national budget process is minimal (with a score of 6 out of 100). Elites have captured public procurement and, due to the blurring between political and economic interests as well as the phenomenon whereby economic elites “sponsor” politicians (political financing remains highly opaque in Madagascar), are able to operate above the law. As an example, the arrest in 2020 of several former top Jiro sy Rano Malagasy (JIRAMA) managers is the latest in a series of scandals that have plagued the state-owned industry, which has seen the diversion of so much of its funds that Economist Intelligence (2015) called it, “a cash cow for many players in the political elite” (Transparency International—Initiative Madagascar 2021c).

Table 1.2. Key Governance Indicators, 2007–21

Indicator

2007

2009

2011

2013

2015

2017

2019

2021a

Institutions and government effectiveness

WGI—Government effectiveness

−0.46

−0.80

−1.03

−1.13

−1.29

−1.14

−1.14

−1.00

CPIA—Quality of public administration

3.5

3.5

2.5

2.5

2.5

2.5

2.5

2.5

CPIA—Quality of budgetary and financial management

3.5

3

2.5

2

2.5

3

2.5

2.5

CPIA—Efficiency of revenue mobilization

3.5

4

3.5

3.5

3.5

3.5

3.5

3.5

Property rights and rule of law

Ibrahim Index of African Governance—Rule of law and justice

44.3

44.0

45.6

46.2

45.2

Ibrahim Index of African Governance—Business and competition regulation

50.6

51.6

50.7

49.9

50.8

WGI—Rule of law

−0.38

−0.73

−0.89

−0.91

−0.69

−0.86

−1.01

−0.88

CPIA—Property rights and rule-based governance

3.5

3.5

3.0

2.5

2.5

2.5

2.5

2.5

Corruption

Ibrahim Index of African Governance—Anticorruption

37.6

37.5

38.0

38.7

38.8

WGI—Control of corruption

−0.19

−0.34

−0.48

−0.75

−0.85

−1.05

−1.01

−0.97

Corruption Perceptions Index

28

28

24

24

26

Transparency and accountability

Ibrahim Index of African Governance—Accountability and transparency

37.1

38.1

38.1

37.4

38.1

Sources: Corruption Perceptions Index, Transparency International; Ibrahim Index of African Governance; Worldwide Governance Indicators.

Note: The Worldwide Governance Indicators (WGI) are a research data set summarizing views on the quality of governance, provided by a large number of enterprises, citizens, and expert survey respondents in industrial and developing countries. These data are gathered from a number of survey institutes, think tanks, nongovernmental organizations, international organizations, and private sector firms. The WGI do not reflect the official views of the World Bank, its Executive Directors, or the countries they represent. The WGI are not used by the World Bank Group to allocate resources. WGI range from –2.5 (low) to 2.5 (high). Country Policy and Institutional Assessment (CPIA) scores range from 1 (low) to 6 (high); Ibrahim Index of African Governance indicators range from 0 (low) to 100 (high); Corruption Perceptions Index scores range from 0 (highly corrupt) to 100 (very clean). — = data not available.a. Latest data available.

Weak institutions prevent the state from mobilizing sufficient revenue to deliver basic public services, while expenditure is absorbed by the public sector wage bill and regressive subsidies, including to SOEs. The country’s tax-to-GDP ratio, at 10.5 percent (2019), is among the lowest in the region. Its limited fiscal space is further constrained by inefficient expenditure. In 2020, the wage bill consumed approximately 5.5 percent of GDP, whereas a significant portion of discretionary spending went to regressive fuel and electricity subsidies (IMF 2021). This, coupled with inefficient fuel subsidies and transfers to JIRAMA and enduring tax expenditures to well-connected elites, crowds out potentially growth-enabling public investment and social sector spending. Deficient budget execution—a result of unpredictable revenue and budget transfers, as well as weak cash and budget management—further undermines the effectiveness of the state (IMF 2020a; OECD, ATAF, and AUC 2019). Extreme centralization of power in the central government—a by-product of the country’s stalled decentralization agenda, uneven presence of the state in the territory, inadequate fiscal transfers, and limited subnational competencies and capacities—limits the quality and quantity of service delivery, hampering the development of human capital (see the “Inadequate Human Capital” section).4

Limited Access to Basic Infrastructure and Services, Particularly in Rural Areas

Inadequate infrastructure and lack of basic services are major impediments to rural development. A marked decline in public investment has contributed to significant deficits in infrastructure; public investment as a percentage of GDP has declined from double digits at the beginning of the evaluation period (almost 39 percent in 2008) to 5 percent in 2010. Madagascar has one of the lowest rates of electrification in the world, with three out of four households having no access to electricity (driven in part by the high cost and low quality of electricity services supplied by state-owned JIRAMA).5 The country was 38th out of 45 ranked Sub-Saharan African countries on the latest Africa Infrastructure Development Index (2018).6 A survey by the World Economic Forum scored the country’s infrastructure quality 2.7 out of 7, below the average for low-income and Sub-Saharan African countries (3.0 and 3.2, respectively; IMF 2020a). The inadequate and deteriorating state of rural roads has led to high transport costs, limited access to services, and further isolation of rural areas. Almost half of the rural population lack access to financial services or a bank, compared with 31 percent of the urban population.

Inadequate Human Capital

Human capital is low, particularly in rural areas. Madagascar’s Human Capital Index is 0.39, meaning that a child born in Madagascar in 2020 will reach 39 percent of their potential, given current rates of chronic malnutrition in children, bad health, and low quality of education. The disparity between advantaged and disadvantaged Malagasy was greater than in any other country: the productivity of future Malagasy workers was 58 percent for the most advantaged and 41 percent for the most disadvantaged.

Low human capital formation is due in part to a lack of public spending on health and education. The government of Madagascar’s spending on education as a share of total government spending is below the average for International Development Association (IDA) countries and Sub-Saharan African countries. Government spending was declining in the run-up to the political crisis in 2009. Although reported primary school enrollment rates are high, educational attainment is low. Malagasy children complete five years of schooling on average, two years less than the Sub-Saharan African average. Inadequate learning outcomes are driven in part by poorly trained and equipped teachers, with only 0.1 percent of teachers having the minimum knowledge to teach, compared with the average 14.6 percent in comparator countries.7 There are significant disparities in the coverage of health services and health outcomes between urban and rural areas, with only 48.6 percent of the total health workforce and 36.5 percent of doctors serving in rural areas, where 68 percent of the population lives. Madagascar has significantly higher rates of stunted growth of children (42 percent) and lower rates of access to basic sanitation (11 percent) than Sub-Saharan African averages (21 percent and 36 percent, respectively).

Scope and Methods

The evaluation, on the Bank Group’s lending and nonlending support to Madagascar over the evaluation period (FY07–21), employed a mixed method approach. The scope included an overall evaluation of the portfolio and a deeper dive into the specific interventions in relation to the report’s two special themes of weak governance and rural development. Methods used included (i) analysis of Bank Group strategies, (ii) portfolio review and analysis, (iii) data analysis, (iv) structured and semistructured interviews, (v) analysis of existing evaluative evidence, and (vi) template-based qualitative assessments of relevant sectoral and thematic topics. Appendix C presents more details on the report’s methodology.

  1. According to the World Bank (2015b), in Madagascar, the state and political system both serve the elites, which is a key constraint behind overcoming the country’s fragility. The International Finance Corporation (World Bank Group 2021a) also identifies elite capture (the “uneven playing field for the private sector”) as a core challenge preventing Madagascar from attracting new investors. Madagascar ranks 119th out of 151 countries on the 2022 Elite Quality Index, a political economy index that measures the ability of the elite business models in a country to create, rather than extract, value.
  2. Core development drivers identified in the Systematic Country Diagnostic included (i) improving governance, (ii) strengthening public finances, (iii) instituting policies that unleash private sector potential, (iv) aiming for higher human capital, and (v) tackling poverty and improving the lives of rural poor people.
  3. The political crisis was the culmination of a shift in the alignment of the political elite, coupled with broad opposition to government talks with a major multinational corporation over the leasing of 3 million acres (which fed the perception that the state was benefiting the domestic and international elite at the expense of the populace; Pellerin 2014).
  4. Although communes are decentralized entities with constitutionally enshrined responsibilities, human and financial resources are not decentralized, and competencies between the central and subnational level have yet to be clarified. There is no direct line of accountability between commune mayors and deconcentrated service agencies, which are responsible for delivering basic services. Intergovernmental fiscal transfers are inadequate and unpredictable, and regional budgets are not subject to external consultation or scrutiny. Limited competencies have been transferred to Madagascar’s rural communes—many of which have low capacity to mobilize revenue or deliver public services. Although local consultation structures that allow for participatory budgeting and citizen involvement in planning have shown promise—particularly in mining communes—greater monitoring and capacity building is needed to ensure that funds are being used appropriately and in the interest of beneficiaries.
  5. Jiro sy Rano Malagasy’s operating costs of power generation are among the highest in Africa, reaching over $0.30/kWh in 2017, approximately 230 percent above the weighted regional average (World Bank 2020a).
  6. The Africa Infrastructure Development Index provides comparative information on the status and progress of infrastructure development in African countries. The index is based on four major components: transport, electricity, information and communication technology, and water and sanitation.
  7. Service Delivery Indicators are a set of key health and education statistics on the resources, infrastructure, availability, quality, and perception of health and education services at national and subnational levels based on standardized questionnaires and data collection procedures. Comparator countries where a Service Delivery Indicators survey has been conducted in recent years are Kenya, Mozambique, Nigeria, Tanzania, Togo, and Uganda (World Bank 2020b).