CONTENTS | ANB-BIA HOMEPAGE | WEEKLY NEWS
by M. C. Ramasiarisolo, Madagascar, March 1999
THEME = ECONOMY
After years of state control of the finances and the failure of
nationalisation,
Madagascar is confronted with globalisation and free market enterprise
and so must put its economic policy on a new course
Madagascar's industries are today in a predicament when faced with free market principles, and are confronted especially with massive, almost illegal importing of goods from abroad. Complaints against government policy come from a good number of captains of industry, who consider the government to be acting against the interests of local businesses, by refusing to grant them any kind of protection against foreign imports.
Mr Rakotoasimbola, is manager of the Robert Chocolate Factory. He puts it this way: «At present, the kind of industry we're engaged in and the way we run our business, are far outstripped by our running costs. For many years now, we've tried to improve the quality of our products and the management of our business. Every year, we buy 300 tons of cocoa from our farmers in the north and locally-produced sugar; we permanently employ 150 workers. In short, we try to keep up with today's conditions and we even pay our taxes. But the State doesn't want to acknowledge this. Nor does the State even care to protect those industries, which endeavour to convey a quality image of our country. Our country's authorities simply don't understand the true meaning of what is meant by opening up the economy to free market enterprise. Protecting the economy is in no way opposed to a free market system, whatever others may think about it. Try, for instance, to export to South Africa, goods that are already produced in that country! It's true, imported goods are cheaper to buy in our markets but don't be fooled! Have a good look at the quality of goods marked «Made in China», or «Made in Indonesia»! And look at what the two, three or at the most, five importers of these goods earn, while simply killing off our own industries? And how much do they pay the State?
«Chocolate is one of the local industries that keeps going in spite of all obstacles. But if the government doesn't soon take concrete measures to protect our industries, we'll all have to close down before long. Every week, now, two or three businesses have to lay-off personnel; others are already doomed and 10,000 jobs are said to be at stake. PapMad, a paper mill in Madagascar, the only one in the whole Indian Ocean region, appears to be for the chopping block some time in the future. The State, which is supposed to control the market, is talking only about free market enterprise, and this at a time when unlimited competition is badly hitting the local industry».
Who would ever have imagined, at the end of the 20th Century, that bananas would unleash a commercial war between the United States of America and the European Union? And yet, there it is. Which means that the United States protects their own producers, both at home, and abroad in the multinationals, and the USA doesn't hesitate to adopt what amounts to protectionist practices. Industrialised countries act that way throughout the world.
In Madagascar, however, as soon as Malagasy manufacturers complain about unauthorized free market practices, others shout about: «Outdated protectionism!» One wonders whether our country's present leaders would prefer that Madagascar should one day import everything from abroad, including what is presently being produced at home. This, in spite of the fact that goods «Made in Madagascar» are as good if not better than those imported from abroad. Perhaps the powers-that-be are looking for a return to the 1939- 1940 situation when all goods came from abroad. Worse, the State's taxing policy towards these companies is incomprehensible.
Not every company can lay the blame for present difficulties at the door of Madagascar's present fiscal policies. Reasons given by the manufacturers for why things are going badly, are not always the same. Nevertheless, Labour Ministry officials tend to simplify the situation, no matter whether it concerns structural adjustment problems within these firms or a strategy for a more even distribution of taxation.
In its fiscal policy, the 1999 Finance Act specifies ways and means of achieving equal taxation right across the board, with the intention of, so the authorities say, of «developing» the private sector. Yet, there's no way the different taxation measures can be considered as being incentives for local industries when faced with unauthorized imports.
In addition to the 20% Valued Added Tax (VAT), the State now intends to impose a new way to raise additional revenue from local industries. This is the 20% excise tax, which not only targets imported raw materials, but also goods manufactured at home. «The way things are», say some operators, «we might just as well import everything». But that would purely and simply mean local factories would have to close down. And then, what?
Everybody, manufacturers and ordinary citizens alike, wonder about this excise tax. Why are certain goods hit by this tax and not others (imported goods, for instance)? Have political decision- makers weighed the consequences these taxes will have on the national economy?
The fact is, nobody understands what's the government about. Government says it wants to reduce the negative effects of the informal sector of business because not much money comes into the Treasury from here! But the imposition of the excise tax will surely favour the informal sector. The State, therefore, is likely to register losses in VAT.
In 1998, the total income from taxes amounted to 1,688 billion Malagasy Francs; there was a 64% loss of tax income because of low receipts from the informal sector. Had the income from this sector been recuperated, the total income from taxation would have passed from 9.3% to 15.3% of the Gross Domestic Product (GDP).
Responding to the manufacturers' incomprehension, the Industry and Crafts Minister, Mamy Ratovomalala, offered some explanations to the National Council For Industry. The Government had discussed the matter in every detail. This year, the government intends to increase its income from taxation to arrive at 11.4% of the GNP. However, the government must keep in mind agreements signed with the donor agencies which cannot be ignored. Extending «excise duty» to local goods is part of the strategy to achieve this objective. That's why, this year, the government hopes to generate income from «excise duty» amounting to 200 billion, of which 82 billion will come from locally produced goods. The Minister, however, hasn't excluded that negotiations will have to take place with the manufacturers.
It's not only the burden of taxation that's strangling local industry. There's also what's happening vis ŕ vis the Customs Service. Imported goods benefit from extensive favours, and exemptions from Customs Duty are still granted to importers, whether they be foreign or Malagasy.
In its 4 March 1999 issue, the Madagascar Express took to task one businessman who imported 200 tons of goods from Indonesia, declaring them to be «raw material» needed for making soap. Yet, everybody knows that this businessman only imports manufactured goods. In this way, instead of paying 25% taxes for manufactured goods, he only pays 5% (if he in fact pays even this amount!).
How many importers do the same kind of thing (i.e. giving false declarations, under-invoicing for Customs), and this under the very eyes of senior officials...even right up to the presidency? According to a customs officer who prefers to remain anonymous, tax frauds at the Customs are one source for providing political parties in Madagascar with potential financing. Such practices have also been used already under previous governments.
What's happening in the Customs Service in Madagascar is worsening the position of local industry. This clearly explains why imported goods are cheaper than those manufactured on the spot. Consequently, many factories have to lay off personnel. Because usual commercial practices are being ignored, the State seems to be doing its best to kill any spirit of initiative and competitiveness among Madagascar's business community.
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