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Doing Business in Madagascar

Doing business in Madagascar presents unique opportunities and challenges. Madagascar, an island nation off the southeast coast of Africa, boasts varying climates and ecosystems contributing to its diverse range of products, such as vanilla, precious stones, and textile goods. The United States is one of Madagascar’s principal export destinations, reflecting the country’s growing economic ties with international markets.

Key Takeaways

  • Doing business in Madagascar’s diverse economy offers various trade opportunities.
  • An understanding of Madagascar’s legal procedures for businesses is crucial.
  • Market challenges include dealing with informal transactions and low purchasing power.

Madagascar Business Guides

Legal Framework for Doing Business in Madagascar

Madagascar’s legal framework for business is structured to facilitate investment and commercial activities within the country. Government officials have worked hard to improve the business environment in major cities and rural areas, and deliberate policies have been enacted around economic development (some modifying existing laws) to attract foreign investors and enhance the business friendly nature of the central government and the private sector. Within the judicial system, there are business friendly procedures for business registration, tax obligations (including foreign exchange and customs duties matters), partnerships with local companies, fair competition, property rights, and employment regulations, among other areas.

Business Registration Procedures

In Madagascar, business registration involves several steps, including obtaining necessary approvals, registering with the appropriate authorities, and fulfilling sector-specific requirements. The Economic Development Board of Madagascar (EDBM) provides comprehensive guides to assist investors and entrepreneurs in navigating these procedures.

Taxation System

Madagascar’s taxation system includes corporate taxes, value-added taxes (VAT), and other business-related taxes. Business entities must familiarize themselves with tax laws and regulations to ensure compliance. The World Bank’s profile on Madagascar provides indicators of tax payment processes and durations.

Employment Law

Employment law in Madagascar covers various aspects, including contracts, working hours, and termination procedures. Employers must adhere to these regulations to protect workers’ rights while maintaining a balanced business environment. Flexible employment regulation and redundancy costs are detailed in the Doing Business indicators.

Market Overview

In Madagascar, economic challenges such as poverty and low purchasing power provide a unique landscape for business operations. Investigating consumer behavior, identifying key industries, and understanding trade agreements are fundamental in navigating this market.

Consumer Market Insights

Madagascar’s market has potential for growth despite endemic poverty influencing consumer dynamics. Purchasing power remains low, making affordability a critical factor for successful consumer product entry. Businesses are often urged to tailor their strategies to the population’s economic realities.

Key Industries

The country’s economy encompasses several vital industries, including agriculture, textiles, and mining. This is one of the things that makes doing business in Madagascar so exciting. Agriculture remains the backbone, with significant exports including coffee, vanilla, and other spices. The textile industry also provides critical employment and export revenue, while mining offers untapped wealth, with resources like nickel and ilmenite.

Agriculture (including fishing & forestry)
Dominant industry, employing 82% of workforce
Growing industry, contributing 12.7% of GDP
Abundant mineral resources (nickel, gold, titanium)
Established industry, processing fabrics & footwear
Important export industry, diverse marine life
Unique artisanal industry, specializing in decorative items
Production for domestic consumption and export
Growing industry, supporting infrastructure development
Automobile manufacturing
Smallscale assembly industry
Production for domestic use and export

Trade Agreements

Madagascar benefits from various trade agreements that facilitate market access. Notably, it benefits from the United States’ African Growth and Opportunity Act (AGOA), which enhances its export capabilities to U.S. markets. Moreover, involvement in regional trade blocs like the Southern African Development Community (SADC) bolsters Madagascar’s ties with neighboring economies.

Investment Opportunities

Many companies consider doing business in Madagascar because there are ample investment opportunities across various industries. Madagascar offers a range of investment opportunities catalyzed by its unique position as a biodiversity hotspot with untapped natural resources and a growing, diverse economy. Tourism may be a huge industry, but there are others to explore, too.

tourism remains a key sector for companies doing business in Madagascar

Investment Incentives

The Malagasy government provides numerous incentives for investors, including tax breaks, duty-free access to import-specific equipment, and streamlined procedures for business setup. These efforts aim to bolster economic growth and attract foreign capital, focusing mainly on sectors leveraging Madagascar’s rich natural and human resources.

Growth Sectors

Investors can capitalize on several sectors poised for growth, such as mining, where Madagascar is renowned for its gemstones and nickel; renewable energy, which explores the island’s significant solar and biomass potential; and agribusiness, which leverages the diverse range of crops that can be grown in Madagascar’s various microclimates. The textile, tourism, and ICT sectors also present promising opportunities due to increasing global demand and Madagascar’s competitive labor costs. More about sector opportunities.

Foreign Investment Policies

Madagascar has formulated policies to safeguard and encourage foreign investments. These include allowing 100% foreign ownership in most sectors, offering property protection rights, and ensuring free funds transfer. Despite these measures, investors must be familiar with the local legal framework and engage in due diligence when considering investments in Madagascar.

Business Challenges

When engaging with the commercial landscape of Madagascar, businesses encounter several notable impediments that can affect profitability and operational efficiency.

Economic Barriers

Madagascar’s economy is challenging, with opportunities often marred by economic instability. According to the International Trade Administration, the country offers potential benefits such as low-cost skilled labor and tax concessions. However, issues like rising extreme poverty, highlighted in the wake of the COVID-19 outbreak, often overshadow these benefits. Despite these challenges, businesses may find viable partnerships and investment opportunities in this market.

Infrastructure Limitations

Inadequate infrastructure remains a significant obstacle for businesses in Madagascar. The World Bank reports that dilapidated transportation and communication networks severely impact market entry and operations. The lack of reliable roads, ports, and telecommunications systems can increase costs and delays for businesses looking to tap into the Malagasy market.

Bureaucratic Hurdles

The regulatory framework and bureaucratic processes in Madagascar can be difficult to navigate. Complex administrative procedures contribute to a challenging business environment, where companies must be prepared to face potential delays and additional costs. For instance, the Doing Business project by the World Bank highlights reforms aimed at facilitating business but also points out regulatory changes that have made business more difficult in the country.

At RemotePad, Lech draws on his professional experience to write about employment taxes and payroll (both remote, and in-office). Lech holds a Bachelors’ degree from the University of Kent, a Master of Arts (MA) from Kings College London, and professional payroll and tax qualifications. He has 20 years experience advising on all manner of tax and business planning matters.