Interview : Dr Hery Ramiarison

Interview with : Dr Hery Ramiarison, teacher-researcher, economist and member of CREM « From subsistence economy to market economy thanks to access to electrical energy

From subsistence economy to market economy: access to electricity is one of the pillars.

For more than fifteen years, Madagascar has been going through a huge and persistent energy crisis, impacting not only its economy but also its social well-being in all its multiple dimensions.
Several reports have shown that national poverty is stagnating. In 2022, the World Bank published a report on the assessment of poverty in Madagascar in the two decades that followed, 75.2% of the national population was poor: 79.9% in rural areas and 55.5% in urban areas.

From poor governance to low production and a lack of economic infrastructure, Madagascar’s situation has unfortunately become a benchmark in terms of poverty, despite the fact that it has never experienced a critical natural disaster or war on a par with certain countries in the same ranking.
My Hydro spoke to Dr Hery Ramiarison, a lecturer and researcher at the University of Antananarivo, an economist and member of CREM, to find out his views on how to change this paradigm, which is possible with all the potential and resources available in a world where uncertainty and volatility have become the new rules.

My Hydro: How do you see the economic situation in Madagascar in relation to our commitments to the 2030 SDGs?

Dr Hery R. Unfortunately, Madagascar is a poor country, and one of the poorest on the planet, with a poverty rate of 79.7% in 2024. According to the World Bank’s latest report on Poverty, Prosperity and the Planet 2024, our country has the highest rate of extreme poverty in Africa. This situation of persistent poverty over several years is indicative of very low wealth creation. Indeed, the deterioration in living standards has accelerated over the last 16 years (from 2008 to 2023), reflecting chronically low economic growth, which averaged 2.2% per year over the period 2009-2023. With population growth averaging 3% per annum, per capita income shows an average negative real growth rate of -0.66% per annum, a sharp decline. This trend persists in 2024, and the country stands out for its high vulnerability to exogenous shocks. Low growth means low wealth creation (and therefore no redistribution), very few productive jobs (salaried jobs represent only 11% of total jobs), further marginalising a large part of the working population, 85% of whom are currently in precarious (or vulnerable) jobs, i.e. very poorly paid and with no social protection. This high prevalence of insecure employment condemns workers and their families to poverty and vulnerability. Added to this is the level of productivity (measured by value added per worker), which is already very low and has been falling since 2009. The decline in productivity is greatest in the manufacturing sector, where it will fall by 39.67% between 2009 and 2022. In that year, it stood at $1,682, five times lower than the average for the Sub-Saharan Africa (SSA) region.

In agriculture, the situation is even worse, with $295 of added value produced per worker in 2022 (compared with $1,510 in SSA), down 27% on 2009, indicating subsistence farming. This situation of low productivity is closely linked to the low level of employability of the population, particularly young people. Low employability is characterised by a very low level of education among the working population, a clear deficiency in the quantity and quality of the education system, widespread school drop-out rates, and the almost total absence of training opportunities tailored to the primary sector, which is the biggest source of jobs. It is unpleasantly surprising to note that after 64 years of independence, ¾ of the population have a level of education below primary school, while only 3.1% have a higher level of education. The low-growth situation also means that Madagascar is struggling to revive investment, which has fallen from 37.15% of GDP in 2009 to 19.5% of GDP in 2022. Private investment has fallen significantly, from 33.2% of GDP in 2009 to 13.3% of GDP in 2022, due to low domestic savings, lack of access to appropriate and affordable financing, and other structural constraints. The low level of investment is also reflected in credit to the private sector, which stands at around 17% of GDP for 2020, 2021 and 2022. Net foreign direct investment (FDI) flows are also on a downward trend, falling from USD 612 million in 2018 to USD 468 million in 2022, a decline of 42%. Investors and banks are becoming more cautious in a hostile business environment. Weak wealth creation of this kind reduces our chances of achieving our SDGs in 2030.

My Hydro: What are the blocking factors that prevent us from being attractive and competitive? Does our island status penalise us?

Dr Hery R: In my opinion, this has nothing to do with our island status. In fact, many island countries are in a much better situation. It’s the business environment, which is more hostile to productive investment, that is the main cause. And it has to do with the quality of public policies. Our public policies have always primarily targeted the symptoms rather than the underlying causes of underdevelopment, in this case the constraints on productive investment. Among these constraints, one of the most important is the lack of economic infrastructure such as roads, ports, energy, agricultural irrigation, etc. This poor choice stems from our usual vision of development, which sets ‘poverty reduction’, i.e. survival, as its ultimate goal, rather than ‘economic prosperity’. In this case, we may achieve positive results in the short term, but these are likely to disappear some time later, because the investment bottleneck remains intact. And we remain at the subsistence economy stage.

My Hydro : Having studied in Japan, you have a lot of experience of the emerging countries of East Asia, countries that were at the same level as Madagascar in the 1970s. What can we learn from their experiences?

DrHery.R : These Asian countries have a different vision from ours. Their priority was economic prosperity. Many of them performed less well economically than we did some thirty years ago, and most of them were cruelly lacking in natural resources, but they are now managing to rise to the rank of middle-income countries. This is the case of Vietnam, whose average per capita income has risen from $100 at the end of the 1990s to $4,164 in 2022, and whose poverty rate has fallen considerably, from 58.1% in 1993 to 4.2% in 2022. These countries are no longer at the stage of factor-driven growth, and are in the process of making a successful transition to a new stage of efficiency-driven growth. In their vision of development, these emerging Asian countries were not content simply to reduce poverty, but went further by seeking to achieve the economic prosperity and national pride that make a true market economy possible. Such a vision of development calls for priority to be given to the underlying factors of development (productive investment, economic infrastructure, skills, technology, trade, etc.); and where the key players are the strong state and the dynamic private sector, not the poor or NGOs.

My Hydro: Let’s talk about economic infrastructure.

DrHery.R: Building reliable economic infrastructure goes a long way to alleviating supply-side bottlenecks, i.e. productive investment. For example, having a stable and efficient source of energy is a prerequisite for sustained economic growth over a long period. Indeed, energy shortages are a major obstacle to the growth of private investment because of the increase in transaction costs. At the start of their development, these Asian countries felt the need to develop efficient energy, and this need was reinforced after the first oil crisis. Thus, the relatively large commitment of these countries to energy development, particularly power plant projects, was a considered response to the oil shock and has been of great help in alleviating the supply-side bottleneck, thereby stimulating private investment. A significant proportion of the ODA received by these countries went to the energy sector. For example, over 20% of Japanese ODA to these countries was used in this sector in the 1970s, and this represented almost 73% of total ODA allocated to economic infrastructure over the same period. Support for the energy sector continued throughout the 1980s and 1990s. In addition, several economic studies have demonstrated the positive link between economic growth and the stock of economic infrastructure, particularly roads, communications and power plants, suggesting that significant investment in infrastructure projects would have contributed significantly to the strong sustained economic growth experienced by these Asian countries since the mid-1970s. It should be noted that the internal rate of return (IRR) of Japanese ODA in sixty-seven projects between 1965 and 1982 was quite high, at 17.6%.

My Hydro: In Africa and around the world, the Malagasy population is among those with a low rate of access to electricity, a situation that doubly penalizes the different sectors (production and competitiveness in relation to the different existing markets at the regional and international level). What solutions do you propose to improve this?

Dr. Hery.R: The deficiency of Madagascar’s energy sector, particularly electricity, is no longer in doubt. The population and businesses experience it with great difficulty on a daily basis. The socio-economic consequences are disastrous. The experiences of Asian countries clearly demonstrate the importance of access to a stable and efficient energy source for their economic emergence. Madagascar is full of immense renewable energy potential. Exploiting this potential is the appropriate solution to our problems. A focus on our public policies that favors investment in this sector will be required if we want an emerging Madagascar.