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Madagascar Systematic Country Diagnostic

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Madagascar Systematic Country Diagnostic Public Disclosure Authorized Madagascar Systematic Country Diagnostic August 25, 2015 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized The World Bank Group Acknowledgements This Systematic Country Diagnostic was led by Keiko Kubota (Lead Economist, IBRD) with a core team comprising of Satyam Ramnauth (IFC), Southwest Indian Ocean Program Leaders (Julio Revilla, Cristina Santos and Mark Austin), Coralie Gevers (Country Manager for Madagascar). The table below lists those who made written contributions by GP/CCSA. Others have played an important role in providing expert input throughout the SCD process. Global Practice/ CCSA/Unit Contributors IFC Magdi Amin and Frank Douamba Energy Isabel Neto and Vonjy Rakotondramanana Extractives Remi Pelon Environment and Natural Resources Giovanni Ruta and Maminiaina Rasamoelina Disaster Risk Management and Climate Doekle Geert Wielinga Change Transport Noro Rabefaniraka ICT Charles Hurpy Urban Salim Rouhana Agriculture Jan Nijhoff, Ziva Razafintsalama and David Treguer Land André Teyssier Fisheries Xavier Vincent and Benjamin Garnaud PPP Jeffrey Delmon Gender Daniel Kirkwood Education Harisoa Rasolonjatovo Health, Nutrition, and Population Jumana Qamruddin and Voahirana Rajoela Social Protection and Labor Andrea Vermehren Fragility Catalina Quintero and Radhika Srinivasan Macro-Fiscal Enrique Blanco Armas, Faniry Razafimanantsoa, Abdoulaye Sy and Quentin Gouzien Poverty Theresa Osborne and Patrick Randriankolona Governance Anne-Lucie Lefevbre, Hugues Agossou, Sarah Lavin, Joel Turkewitz, Hajarivony Andriamarofara and Rado Razafimandimby Finance and Markets Francesco Strobbe and Noro Andriamihaja Trade and Competitiveness Michael Engman, Johanne Buba, Mombert Hoppe, Eneida Fernandes and Clive Harris The team is grateful to the peer reviewers Raju Singh (Program Leader, LCC8C) and Lars Sondergaard (Program Leader, EACTF) for their insightful and constructive comments, and to Rondro Rajaobelison and Madeleine Chungkong who ably assisted the team. Finally, the team thanks Mark Lundell (Country Director, World Bank), Oumar Seydi (Director, IFC), Mark Thomas (Practice Manager) for their guidance, support, and comments throughout the SCD process. The preparation of the report and the upstream analytical work benefited from the close collaboration with the government, development partners and other stakeholders. ii Table of Contents Table of Contents ........................................................................................................................... iii List of figures ................................................................................................................................. iii List of tables .....................................................................................................................................v ABBREVIATIONS ....................................................................................................................... vi OVERVIEW ....................................................................................................................................1 Chapter 1. A Nation of many opportunities, unrealized ..................................................................4 Chapter 2. Governance challenges .................................................................................................24 Chapter 3. Public finance issues ....................................................................................................32 Chapter 4. Private sector ................................................................................................................47 Chapter 5. Aiming for higher human capital .................................................................................64 Chapter 6. Tackling poverty – improving the lives of the rural poor ............................................79 Chapter 7. Summary of Challenges .............................................................................................103 Annex 1. Reference ......................................................................................................................114 Annex 2. Data limitations ............................................................................................................121 Annex 3. Knowledge gaps to be filled in the CPF period ...........................................................123 List of figures Figure 1: Total wealth and its components ......................................................................................4 Figure 2: Growth in Consumption by Expenditure Percentile .........................................................7 Figure 3: Inequality diminished strongly between 2000 and 2005 before falling back slightly ......8 Figure 4: Poverty and Inequality in Madagascar, 2010 ...................................................................9 Figure 5: Sector of Main Employment of Household Head by Quintile and Year (percent) ........10 Figure 6: Education attainment and poverty, 2001 and 2010 ........................................................12 Figure 7: Age-gender pyramid and absolute and extreme poverty ................................................13 Figure 8: Composition and change in natural capital in Madagascar ............................................15 Figure 9: Do growth spurts trigger political crises? .......................................................................17 Figure 10: Growth decomposition by demand ...............................................................................18 Figure 11: Growth decomposition by sector ..................................................................................18 Figure 12: Countries with lower real GDP per capita in 2010 than 1960 ......................................20 Figure 13: Evolution of the World Governance Indicators 2003-2013 .........................................22 Figure 14: Proportion of roads in good, average or poor condition (2012) ...................................26 iii Figure 15: Time Spent to Urban Center in Dry Season (Hours) by Household Consumption Quintile ..........................................................................................................................................26 Figure 16: Progress in access to electricity in Africa ....................................................................26 Figure 17: Evolution of the number of subscribers to the services of fixed and mobile telephony and of the penetration (in % of the population) .............................................................................26 Figure 18: Investment-to-GDP ratio in Madagascar is lower than those of its peers in Africa (2010-13 average)… ......................................................................................................................28 Figure 19: … even more so, had there not been large mining investments in recent years ..........28 Figure 20: Tax revenue as a share of GDP, SSA countries ...........................................................33 Figure 21: Decomposition of tax revenues ...................................................................................33 Figure 22: Madagascar’s ODA per capita is the second lowest among countries with CPIA around 3 in 2013* ..........................................................................................................................38 Figure 23: Overall, lower development indicators than countries with similar CPIA, but lower ODA per capita in Madagascar ......................................................................................................39 Figure 24: Expenditure breakdown (% of GDP) ...........................................................................39 Figure 25: Breakdown of domestically-financed expenditure (period average) ...........................40 Figure 26: PEFA scores in SSA 2012-14 ......................................................................................42 Figure 27: Main constraints to operation and growth as identified by formal firms .....................49 Figure 28: New firms created* (2012) selected comparators ........................................................50 Figure 29: Micro firms dominate the informal sector even among old firms ................................50 Figure 30: Electricity Service Delivery is Poor and Undermines Firm Performance ....................52 Figure 31: Labor productivity is lower in Madagascar than in comparator countries ...................64 Figure 32: Madagascar has low wages but productivity offsets advantage in labor-intensive activities .........................................................................................................................................65 Figure 33: Educational attainment of the labor force ....................................................................66 Figure 34: Learning Scores in 1998, 2005 and 2012 .....................................................................66 Figure 35: Enrolment by education level, 2006/07-2013/14 .........................................................67 Figure 36: School Situation of Children and Youth Aged 6 to 25 years .......................................67 Figure 37: Lorenz Curves for Utilization of Public Education, 2005-2010, 2010-2012 and 2005- 2012................................................................................................................................................68 Figure 38: Teachers by status
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