MADAGASCAR ADOPTS NEW INVESTMENT LAW

UNCLAS ANTANANARIVO 000084

SIPDIS

SENSITIVE
SIPDIS

STATE FOR AF/E, AF/FO, AND F
STATE PASS TO USAID

E.O. 12958: N/A
TAGS: EINV ECON EFIN PGOV MA
SUBJECT: MADAGASCAR ADOPTS NEW INVESTMENT LAW


1. (U) SUMMARY: In thorough consultation with Malagasy and
international private sector, and with donors, the GOM drafted and
adopted a new Investment Law to facilitate business entry into
Madagascar. The law is a significant improvement in facilitating
investment and makes the Economic Development Board - Madagascar
(EDB-M) the focal point for new investors. END SUMMARY.

Investment Law Improves Access
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2. (U) At the end of December, the National Assembly adopted a new
Investment Law to improve the climate for investors. This cable
provides highlights and private sector reaction; complete details
will soon be available in Post's Investment Climate Statement and
Country Commercial Guide.


3. (U) The dominant feature of the new investment law is to codify
the role of the Economic Development Board - Madagascar (EDB-M).
The agency serves as both "one stop shop" for business approval and
as promoter of new trade and investment. The EDB-M will coordinate
all relevant Ministries to ensure proposals are vetted and answered
expeditiously. The EDB-M will facilitate visas, authorizations,
permits, company registration, tax ID numbers, and licenses within
20 days. Business visas are extended from one to three years in
duration. The EDB-M will have particular responsibility and
authority for facilitating foreign investment in the tourism
industry.


4. (U) Land ownership is now permitted for foreign interests
without the necessity of a Malagasy partner. EDB-M will authorize
foreign land acquisitions on behalf of the Ministry of Public Lands.
Foreign and Malagasy investors will receive equal treatment, each
being allowed to control 100 percent of company equity. The Law
also provides for patent protection consistent with international
norms.


5. (U) International financial transfers are now guaranteed, so
investors' profits and income can be transferred out of Madagascar
after full payment of taxes. "Industrial enterprises" receive a
five-year tax exemption and "services enterprises" receive a
two-year exemption. The Value-Added Tax on imports is eliminated
and the profits tax is fixed at 10 percent.


6. (U) The Investment Law also alters the status of Export
Processing Zone (EPZ) investments, simplifying procedures to a
declaration by EDB-M once files are deposited. Approved EPZ
companies have a 15-year tax exemption. It is noteworthy that
agricultural exporters will not be eligible for EPZ privileges.

Operators Pleased, But Hoped For More Incentives
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7. (U) Malagasy operators and their associations generally praised
the new Investment Law. They expressed concern that operators
producing for the domestic market do not enjoy the same benefits as
exporters. The mostly foreign-owned EPZ factories find the new law
will facilitate their expansion. The Investment Law simplifies
procedures and provides a more predictable environment for
businesspeople. Despite relatively weak infrastructure, energy
production, and port services, the Law will facilitate new and
existing investments which seek to take advantage of Madagascar's
abundant and cheap labor supply.

"Guarantee" Against Expropriation?
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8. (SBU) The new Investment Law provides that foreign investors are
"guarded against any privatization, expropriation, or requisition
measures," with the vague exception for "cases in the public
interest." Since President Ravalomanana came to power, the GOM has
not nationalized any investments. Still, operators in direct
competition with his TIKO company, like the American Seaboard
Corporation, would challenge the notion that investors can operate
in Madagascar unimpeded.


9. (SBU) COMMENT: The EDB-M, financed by the World Bank, has yet
to score any major accomplishments during its year in existence. It
remains to be seen whether the new law will stimulate an improvement
in this track record. In June, 2008, EDB-M CEO Prega Ramsamy plans
a "Road Show" to the United States to meet with potential investors.
In addition to the guarantees and improved climate in the new law,
the Ambassador is advising Ramsamy to come with specific investment
opportunities in targeted sectors like agribusiness, tourism, and
energy. END COMMENT.

SIBLEY