 FINANCE |
Despite the reforms already undertaken, the Malagasy financial sector, dominated by banks, has not managed to get rid of the many constraints that still affect the performance of the private sector. Credits to the economy have dwindled in the past few years. If in 1997 they represented 10.3% of GDP, in 1998 they only represented 9.2% and 9% in 1999. Only 21% of the industries have access to bank credits. The procurement and banking charges remain a major setback for all businesses without exception. More than 50% of the companies that answered in August 1997 to an UNIDO/CNI survey about the industrial companies' needs in Madagascar, mentioned relationships with banks among their main difficulties, regardless of their size and branch of activities. The lack of credits restrains the expansion of the industrial network, mainly composed of small and medium enterprises and micro-businesses. The conditions required by the banks: average interest rate of 20%, guarantees above 100% and contributions of at least 30%, are far from being within the range of potential operators and investors. Banks argue that very few of the applications submitted to them could be bank guaranteed. Furthermore, banks are very suspicious because of a lack of transparency and reliability in the companies' financial statements. The present legislation demands that companies do submit their financial statements to the clerk's office of the tribunal of commerce, but they never comply with this obligation.
The financial sector, still at an early stage, favors short term financing, offering very little middle and long term financing. The main six banks in the market, all commercial banks, almost never commit on a long-term basis. Since 1993 long-term credits have never gone beyond 25% of total credits lines allocated to the economy. Loans in foreign currencies are available to local companies but only export-oriented companies might be interested in applying to. Companies that borrow directly in foreign currency must generate a cash flow in foreign currency in order to be able to pay back. If the company only targets at the local market, the fluctuation of the FMG (Malagasy Franc) could create some unexpected surprises and nuisances.
Until now the opportunities offered by the banking law do not seem to have encouraged other institutions to settle down in the Big Island. Out of the four French banks, the BMOI - considered the bridgehead of BNP-PARIBAS in the Big Island - with 12 years of existence, is the newest one. The other three have just changed their logo after privatization. BNI was taken over by Crédit Lyonnais, BFV by Société Générale and BTM by Bank of Africa. UCB and SBM settled in Madagascar mostly to support the many Mauritian companies that operate in the country, and particularly in the free trade zone. As the President of the Professional Banking Association, Mr. Paul Giblin of UCB explains: "UCB is involved in free trade zones for the simple reason that many companies established in Madagascar free trade zones are subsidiaries of companies established in Mauritius".
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Mr Paul Giblin, UCB
A survey on the Malagasy financial sector shows that among the 12 African countries with a population between 10-20 million, Madagascar has the lowest banking density. In 1998, the Big Island occupied the twentieth place for its ratio banking loans being allocated to private sector over GDP, with respect to other 32 African countries. If this ratio was below 0,17% in 1991, it had dropped to less than half this amount in 1998. The private sector is looking for major improvements in this particular area.
Some believe that Madagascar should have a national bank. This is how the Banque de Solidarité de Madagascar (BSM) was created, though its political involvement was highly criticized. For the time being the bank has not managed to attract a partner as requested by law. Likewise, despite the agreement signed in 1995 between the Malagasy government and Hong Kong's Far East group, the offshore bank - Madagascar International Bank for Development - never went through.
In the middle of the1980's important measures were implemented in order to restructure the financial system, and the banking system in particular. However, because of the low level of savings and the lack of capital in the market, many financial needs remain unsatisfied. Mr.Giblin from UCB, for whom the evolution of the banking sector relies on the evolution of the economy, points out the need for an adequate framework: "Madagascar has to undertakes legal reforms. All enterprises are at the mercy of a regulatory framework, which is incomplete and vague". |
Intro
