Investor interest in Madagascar picked up when companies were attracted by the island state’s potential for power sector developments, as former president Hery Rajaonarimampianina hosted an influential donor and investor conference in 2016.The going has since proven tough for many investors, as early movers have run into payment issues with malfunctioning state utility Jiro sy Rany Malagasy (Jirama) and the administration has proved unpredictable in renegotiating power purchase agreements (PPAs).

The renegotiation process began under Rajaonarimampianina to bring down the high cost of thermal power and has continued under Andry Rajoelina, president since January 2019. Apparent deterioration in energy sector governance has been reflected in controversies involving several power plants. UK ambassador Phil Boyle protested at an October 2019 requisition order for Jirama to take over rental power provider Aggreko’s 29MW Noor II project. The order, signed by energy minister Christian Ramarolahy, was only lifted in mid-April this year following the threat of legal action and Boyle’s intervention. Aggreko intends to dismantle and remove the plant; it has not recovered arrears owed by Jirama. 
An economy where three-quarters of the estimated 27.5m population live in extreme poverty has come under extreme pressure from coronavirus. Madagascar depends on maintaining a substantial flow of external support – underlined when US President Donald Trump’s candidate for World Bank president, David Malpass, included it (along with Ethiopia and Mozambique) in his first Africa visit last year. Jirama continues to attract World Bank and other funds (AE 372/6); a new medium-term recovery plan is under preparation.

Rajoelina’s international credibility has been strained after the populist president promoted an unproven herbal tonic to treat Covid-19.The disease is raising pressure at home, where it has been most severe in Antananarivo, traditionally the fief of Rajoelina’s great rival Marc Ravalomanana and the hub of mass protests. Ravalomanana was removed in the 2009 military coup that first put Rajoelina in power, but remains influential.

Rajoelina knows the problems faced by administrations vulnerable to external pressure: after he was appointed president by the military in 2009, Madagascar was removed from the US’ African Growth and Opportunity Act, which became a key pillar of the Power Africa and Prosper Africa initiatives. A key growth sector, manufacturing, suffered particularly until those US sanctions were lifted in 2013. It is under extreme pressure again, as key markets go into coronavirus recession, which in turn threatens urban jobs.

In April, the International Monetary Fund (IMF) provided emergency support and included Madagascar as one of 25 least-developed countries needing urgent debt relief. Presenting the IMF’s latest Article IV report in March, deputy managing director Mitsuhiro Furusawa said that while the extended credit facility-supported programme “has been broadly satisfactory... a commitment to strong policies and an ambitious agenda to complete outstanding structural reforms remains crucial”. Among critical issues were reducing fiscal risks from Jirama’s financial situation and containing fuel distributors’ liabilities.

Arrears on repayments to Jirama’s suppliers were equivalent to about 1% of GDP, the IMF said. The African Development Bank says the government provided direct budget transfers to Jirama worth more than $580m in 2008- 18. Meanwhile, the IMF observed that “delays in governance and corruption-related reforms could harm confidence” in an economy that “remains highly vulnerable to terms-of-trade shocks... and to natural disasters”.

Renewables projects offer huge potential in a country whose unique environment is a global-scale concern but whose economy depends on diesel and other dirty fuels. Four new hydro plants are planned, of which the most advanced are the 120MWVolobe and 200MW Sahofika schemes, awarded in 2016 and expected to start up by 2023-25.Volobe was awarded to Jovena and Bouygues subsidiary Colas; SN Power and Africa50 joined in 2019.The Nouvelle Energie Hydroeĺectrique del’ Onive group selected for Sahofika includes Eranove and Themis.