CHAPTER 2 BACKGROUND OF THE STUDY 2.1 General Socio-economic Condition Recently, the population of Madagascar has rapidly increased, and after a quarter century it is reported to become two to three times of the current population of 18.84 million in 2005. With such a background, the main targets in the framework of economic policy are in increases in the productivity of the agricultural sector, poverty alleviation and living circumstance improvements in rural areas, as well as decentralization and rationalization of local administration. The economic growth rate in 2004 reduced from 9.0% in 2003 to 5.3% due to damage by cyclones which occurred twice at the beginning of the year, in addition to the adverse effects of the international market price increases of crude oil and rice, as well as disturbances in monetary stability. In 2005, it was stagnant at 4.6% as economic growth was directly affected by a drastic price increase in the international crude oil market, although booms in construction, public works, export factories in tax-free industrial zones and tourism sectors were continuously sustained from the previous year, coupled with good harvest of rice. The economic development status of Madagascar is classified as Least Development Country (LDC) based on the World Bank’s standard and Heavily Indebted Poor Country (HIPC) according to the criteria of the Development Assistance Committee (DAC) under the Organization for Economic Co-operation and Development (OECD). Major economic indicators in 2005 are as shown in Table 2.1.1. Table 2.1.1 Major Economic Indicators in 2005 Indicator Value Indicator Value Country area (’000 km²) 587.0 Consumer price fluctuation rate (% based on 2004) 11.4 Population (million) 18.4 Export value (million USD) 1,127.7 Population growth rate (%/year) 2.7 Export volume (% based on 2004) 46.1 GNI* (nominal price, million USD) 5,685.6 Import value (million USD) 1.936.1 Per capita GNI (USD) 309 Import volume (% based on 2004) 2.9 GDP** (nominal price, million USD) 4,469.7 Trade balance (million USD) -808.4 GDP real growth rate (% based on 2004) 4.6 Current balance (million USD) -11.7 Revenue and grant aid (% of GDP) 18.8 Foreign currency reserves (% of monthly import value) 2.9 Expenditure and loan (% of GDP) 24.0 Foreign debt balance (% of GDP) 112.8 Financial balance (% of GDP) 4.3 Total receipt value (net expenditure million USD) 1,236.0 Note: *; Gross National Income **; Gross Domestic Product Source: JICA Study Team 2.2 Development Policy 2.2.1 Poverty Reduction Strategic Paper A Poverty Reduction Strategic Paper (PRSP) was prepared in May 2003, which illustrated development strategy and goals of the country for the target year of 2015. The basic target 2 - 1 was set to be the achievement of an annual growth rate of 8% and an investment share of 20% in GDP (12.7% in 2002), and to reduce the poverty rate by half in the next 10 years. Also, the PRSP emphasized capacity building, community participation, and public sector and private sector partnership. General strategy in the PRSP is summarized as follows: a. To give priority to regional and local integration, that is, to reinforce the regional and local economy, and strengthen economic relations among the regions; b. To allow the main sector (e.g. export industry) to operate with maximum efficiency in order to redistribute resources in the region; c. To emphasize the importance of economic and human environment in project impacts; d. To consider the regional characteristics and the participation of all related sectors to the projects, which requires the creation of public investment strategy; e. To find solutions to fight against environment damage by conducting an impact study prior to implementation of any project; f. To develop the technical capability of communes in order for them to participate in their own development, provide training, and provide equipment; g. To implement new mechanisms to allow concerned people to participate in the choice of investment to be realized in their area and to be responsible for implementation and operation and maintenance; h. To encourage private sector operations in the region; and i. To establish a partnership between the public sector and private sector. Sector development policy was based on the development strategy of the PRSP. Rural development is the responsibility of MAEP, promoting agricultural-based rural development programs; while watershed management is the responsibility of MINENVEF, promoting forestry-based watershed management. (1) Agriculture-based rural development In conformity with the PRSP, an action plan for the rural development (PADR), built upon a participative and evolving approach, was prepared. The PADR is composed of rural development programs and projects. It gives five directions that allow for goals of the rural development policy to be reached, including: a. Ensuring food security; b. Contributing to economic growth; 2 - 2 c. Reducing poverty and improving the conditions of life in rural areas; d. Promoting sustainable use of natural resources; and e. Promoting education and the spread of information to enhance production in rural areas. Based on the above directions for rural development, the MAEP was aimed at reducing poverty in rural area, ensuring food security, and optimizing resource use. Its main objectives included: a. Raising agricultural productivity and increasing the area farmed; b. Promoting small investments in rural areas and partnership between producers’ associations and private sector; c. Promoting agricultural and food product exports and enhancing their quality; d. Ensuring a clear and rational use of resources; e. Facilitating producers and investors access to land; and f. Promoting the development of producers’ organizations via Agricultural Chamber. The objectives of the MAEP coincided with the strategy for rural development in the PRSP. (2) Forestry based watershed management The overall goal of the forestry sector was to promote efficient utilization forestry resources including economical and tourism potential and to create an environment contributing to sustainable economic development. A basic policy of MINENVEF was as follows: a. Preventing forest deterioration; b. Improving forest management; c. Increasing forest area and potential of forest resources; and d. Improving forestry economy. Based on the Ministry’s policy, strategy of forestry sector was set as follows: a. Sustainable forestry resource management by considering conservation needs, production demand, and short term/long term needs; b. Establishment of new relationship among stakeholders (local government, private sector, and other organizations) to solve forestry problems; c. Administrative reform; d. Forestry activities at a regional level and decentralized management; e. Forestry resources managed by the local authority and by community participation; 2 - 3 f. Consistency of forestry policy and other related sector policy; and g. Creation of a mechanism for financial sustainability. Based on the PRSP proclaimed in July 2003, various programs were performed in the first year operation of PRSP. The actual results were indicated by the decreasing poverty ratio from 80.1% in 2003 to 73.5% in 2005. Taking into account the performance of each program and Madagascar Naturellement that was set up by the President in November 2004 as a national vision showing the super goal of development concept, PRSP was modified in June 2005 with the revised targets to reduce the number of poor people by half and to realize annual economic growth of between 8% and 10% by 2015 through promotion of agricultural development and privatization. To attain these targets, the following strategies in line with the partnership between government agencies and private sectors: a. Promotion of economic growth: To achieve an economic growth rate at 8% to 10% level and reduce the poor by accelerating economic growth through increase in domestic investment rate focusing on rural development and infrastructure improvement for road and transport as well as activation of private sector; b. Promotion of monocracy and sound governance: To attach importance to establishment of sound governance, eradication of corruption, acceleration of democratization paying attention to democracy and assurance of administrative transparency, and to put priority over promotion of decentralization in practicing poverty reduction programs; and c. Promotion of security network establishment for safe living circumstances: To upgrade basic social services such as education and medical care, and to provide the socially weak with nutrition improvements and rural micro credit services. It is required to jack up implementation of individual programs under the respective strategies of revised PRSP, because the progress in the initial stage from late 2005 to beginning 2006 was behind the originally planned schedule to some extent. 2.2.2 Madagascar Action Plan Citing the overall performance of programs of the PRSP in the initial stage from late 2005 to the beginning of 2006 and the extent of the achievements for the respective targets set up for the above three strategies, the GOM re-examined programs scheduled to be implemented from 2007 onward and transferred some of them in an expanded form to the newly drawn up Madagascar Action Plan (MAP). The vision of the MAP is that people equally make efforts toward prosperity of the nation and enjoy the fruits of their efforts. Challenging targets to realize the vision and approaches for the achievement