MADAGASCAR

Overview

Notwithstanding its vast natural resources, Madagascar has been classified as one of the poorest countries in Africa by the World Bank, with an extreme poverty rate of 75.2 percent,1 largely due to political instability.2 This resulted in stagnated economic growth until the peaceful change of power in 2019 and the election of President Andry Rajoelina.

The population of Madagascar is mainly rural (65 percent). This rural population is estimated to be growing at a rate of 1.8 percent annually,3 which is almost three times lower than the urban population growth rate (4.6 percent). The urban population growth is estimated to reach 50 percent in 2036.4 Youth represent 75.2 percent of the population and are moving to the cities in the hope of accessing job opportunities and better living conditions. In 2020, an estimated 85 percent of the total population live in informal settlements.5 In Antananarivo, the capital city, 72 percent of people live in informal settlements.6 The demand for housing is estimated by the government at 1 730 000 units7 with the shortages resulting in the soaring price of the current housing stock. Unfortunately, these trends are likely to continue unless the sector is regulated to curb excessive speculation, the scarcity of land for housing is solved, corruption in construction permit agencies is stopped and innovative financial instruments are developed so that poor households are able to access decent housing.

Prior to COVID-19, the economic growth rate was estimated to reach five percent by the Central Bank of Madagascar (Banky Foiben’i Madagasikara).8 The central bank has recently slashed the economic growth forecast, which is now estimated at 1.2 percent while the International Monetary Fund (IMF) estimates it to be 0.4 percent.9 To mitigate the effects of the pandemic, the government has launched a national recovery plan with a budget of Ar1 051 270 869 673 (US$270 million). The Central Bank has also provided Ar473 733 055 306 (US$122 million) at a rate of 5.47 percent10 to support small and medium enterprises and has set up credit facilities for banks equivalent to Ar50 billion (US$12 953 994.56) a day.11 The government has also taken measures to relieve companies and tenants of paying rents and from being evicted from their homes and commercial buildings.12

Access to finance

The Madagascar financial and banking sector grew by 4.2 percent in 2019.13 From 2018 to 2019, real estate credit increased by Ar79.7 billion

KEY FIGURES

Main urban centres

Antananarivo

Exchange rate (1 July 2020): 1 USD = [a]

3 859.81 Malagasy Ariary (MGA) 1 059.05 Malagasy Ariary (MGA)

1 PPP$ = [b]

Total population [b] | Urban population [b]

Population growth rate [b] | Urbanisation rate [b]

GDP per capita (Current US$) [b]

Percentage of population below national poverty line [b]

Unemployment rate (% of total labour force, national estimate) (2017) [b]

Proportion of adult population that borrowed formally (2017) [b]

Gini coefficient (2017) [b]

HDI country ranking (2018) [c] | HDI country score (2018) [c]

26 969 307 | 10 210 849

2.66% | 4.44%

US$522

n/a

1.8%

3.6%

44.3

162 | 0.52

GDP (Current US$) [b]

Inflation rate (2019) [b]

GDP growth rate [b]Yield on 10-year government bonds

Lending interest rate(2019) [b]

US$14 084 million

4.80%

5.63%

n/a

49%

Number of mortgages outstanding (2019)

Value of residential mortgages (Current US$)

Ratio of mortgages to GDP

Typical mortgage rate | Term | Deposit(2019)

Number of mortgage providers

Number of microfinance loans outstanding

Value of microfinance loans in local currency units\

Number of microfinance providers

n/a

US$129.13 million

17% | 8 years | 20%

0.92%

261 002

890 000 000 000 MGA

576 740 000 ETB

Total number of formal residential dwellings in the country

Total number of residential properties with a title deed (2019) [g]

Number of formal housing units built in this year(2019)

Price of the cheapest, newly built house by a formal developer or contractor in an urban area in local currency units (2019)[h]

Size of cheapest, newly built house by a formal developer or contractor in an urban area(2019) [h]

Typical monthly rental for the cheapest, newly built house(2019) [F]

Time to register property [h]
Cost of standard 50kg bag of cement in local currency units (2019)[h]
Type of deeds registry: digital, scanned or paper [h]
World Bank Ease of Doing Business index rank [h]
Number of procedures to register property [h]
Cost to register property as share of property price [h]

World Bank DBI Quality of Land Administration index score (0-30) [h]

n/a

142 000

762

90 000 000 MGA

75m2

633 927 MGA

24 000 MGA (US$6.22

Paper

140

100 days

9.0%

Percentage of women who own a house alone: Total |Urban [m]

Percentage of households with basic sanitation services:

Total |Urban (2016) [m]

Percentage of households with no electricity: Total | Urban Urban (2016) [m]

Percentage of households with 3+ persons per sleeping room:

Total | Urban(2016) [m]

Percentage of urban population living in slums (2018) [m]

n/a | n/a
5.2% | 11.8%

77.1% | 32.7%

60.4% | 48.5%

61.2%

NB: Figures are for 2020 unless stated otherwise.

[a] Xe.com

[b] World Bank World Development Indicators

[c] Human Development Reports, United Nations Development Programme

[d] ] Societe Generale Madagascar

[e]Central Bank of Madagascar

[f]Bank of Africa Madagasca

[g]Public Treasury Madagascr

[h]Jevendsmonterrain

[i] Numbeo

[j] Newsmada.com

[i]UWorld Bank Ease of Doing Business Indicators

[i]Demographic and Health Surveys, USAID

[n] United Nations Human Settlements Programme

(UN-HABITAT)

(US$20 648 667.33) to reach Ar498.4 billion (US$129 125 417.79).14 This could result in better access to financial services by the population. To achieve this, the government had launched the national strategy for financial inclusion 2018-2022.15 It aims to increase access to financial services from 29 percent in 2016 to 45 percent of the population in 2022.16

Société Générale, one of the biggest lenders in Madagascar offers three types of mortgages ranging from eight to 17 years in terms. The average mortgage rate at Société Générale is around 18 percent with a down payment of 20 percent for the land only. Other financial institutions such as BNI Madagascar, Bank of Africa Madagascar and Access Bank are involved in the same market segment.

Microfinance institutions serve as an alternative to conventional banks and are attracting more clients. Between 2008 and 2018, the microfinance penetration rate increased by 21 basis points to reach 35.2 percent in 2018.17 The level of savings also increased to Ar820 billion (US$212 445 510.81) and the total value of credit to clients in 2018 was Ar890 billion (US$230 581 103.2).18

Affordability

To cover household expenditure, statistics show that 76.5 percent of the population has a consumption pattern lower than the poverty line with 75 percent19 of the population earning less than Ar7 766 (US$2) a day. The monthly earnings of employees in 2020 are on average about Ar776 611 (US$200),20, 21 which is one of the lowest levels of remuneration on the African continent. People having access to formal jobs represent a small portion of the population22 and their level of income does not allow them to access decent housing in well-located areas that are equipped with good sanitation. Twenty-two percent of households23 are women-headed. In Madagascar women do not have the same access to land, jobs and other opportunities as men do. Women also have more limited access to credit24 than men.

A typical household in Madagascar spends 25.3 percent of its income on rent, with this being the second-largest expense after food expenses (29.7 percent).25 Renting or purchasing a decent house can be considered as elitist. The monthly rent for a one-bedroom apartment in the city centre is estimated to Ar960 000 (US$248.72) while a one-bedroom apartment outside the city centre is estimated at Ar343 563.50 (US$89.01).26 A three-bedroom apartment in the city centre is estimated at more than Ar3 million (US$777.24) while an apartment outside the city centre is estimated at Ar2 383 808 (US$617.6).27 The price per square meter to buy an apartment in the city centre is Ar4 million (US$1 036.32) while outside the city centre it costs Ar2 million (US$518.16).28 This is unaffordable for the average household in Madagascar and most people, specifically women-headed household, simply rent houses in slums and other affordable informal settlements.

For housing finance, medium- and long-term private credit grew by 20 percent in September 2019 for all loans including residential mortgages. The total value of real estate credit was Ar498 billion (US$129 021 785.83) in 2019 compared to Ar418.7 billion (US$108 476 750.46) in 2017.29 Interest rates vary from 10 percent to 18.5 percent a year depending on the mortgage duration, which is usually set between 10 and 20 years.30 What is considered affordable housing in Madagascar costs between Ar40 million (US$10 363.2) and Ar50 million (US$12 953.99).

Housing supply

To provide housing, the government has funded a programme called Trano Mora,31 which means “affordable housing”. Through a series of partnerships with local stakeholders including banks, the government negotiated an easing of terms for accessing loans for low income households through this programme.

The National Housing Development Plan or Plan National de Logement (PNL) aims to build 50 000 houses a year for the next five years.32 Since the 1970s, the Société d’Équipement Immobilier de Madagascar and the Agence National d’Appui au Logement et à l’Habitat (ANALOGH) were responsible for developing social housing but they have failed due to rapid urbanisation and lack of involvement from strategic stakeholders (banks, private sector).33 In 2018, ANALOGH launched a construction programme of 762 houses in four regions in Madagascar

Fokontany (clans), are subdivisions of communes, and can also issue land titles. Unfortunately, Fokontany use what is known as “small papers” to transfer land property to buyers. These “small papers” are sometimes not registered officially in the deed registry. It is estimated that 75 percent of households use “small papers” to invoke their lands rights.37

In urban areas, 50 to 70 percent of private property is registered.38 The central deeds registry is archaic, still using paper for records and there is no electronic database for checking encumbrances. The same paper-based system is used for the land tenure and title records.39 There have been attempts to digitalise the deed registry system over the past 15 years, but all attempts thus far have failed.40

As of June 2020, between 60 percent and 70 percent of houses are rented11 with tenants unable to afford home ownership.12 The rental sector is disorganised and operates informally. This allows landlords to fix their prices regardless of the quality of the houses and regulations. The main criteria to determine the price level remains the location of the house.

There is a scarcity of land in cities such as Antananarivo as a result of the high demand, which also influences the price. The majority of land sales (95 percent) are done directly between relatives or friends41 and a minority are done between official agents. Due to inadequate land information, 17 percent of households occupying lands are afraid of being pushed off the land by owners’ families when the owners are deceased.42

Corruption is an issue which undermines access to property in Madagascar. A survey from the World Bank conducted in 2013 showed that more than 10 percent of firms had to give bribes in the form of “gifts” to authorities to get a construction permit.43 Madagascar has been recognised by the World Bank Doing Business 2019 report as among the toughest places in the world to obtain a construction permit and record the title of a property, ranking respectively at 177 and 153 in the two categories.44 The country overall index for obtaining a construction permit is six, which is lower than the Sub-Saharan average score 8.5.45 For the city of Antananarivo, the overall process for transferring a property requires six official steps, which can take up to 120 days at an average cost of

COVID-19 response

The government imposed a first lockdown,61 which lasted two-and-ahalf months until 20 April 2020. In March, the government placed the country under a state of emergency and took measures to relieve companies and tenants from paying rents and from being evicted from their homes and commercial buildings.62 A second lockdown was imposed in July.

A US$1.6 billion Multi-Sectoral Preparedness and Response Plan was prepared and allocated to the health sector, food distribution and provision of emergency shelter and non-food items. Furthermore, the IMF approved a Br14,8 billion (US$411 million) in emergency assistance to Ethiopia, as well as debt service relief. The central bank also injected Br15 billion (US$431 million) of liquidity to private banks to facilitate debt restructuring and prevent bankruptcies. The Commercial Bank of Ethiopia was provided with additional liquidity of Br33 billion (US$948 million).

In early March 2020, the central bank provided Ar473 733 055 306 (US$122 million) at a rate of 5.47 percent63 to support the small and medium enterprises.64 At the end of March 2020, the bank provided another Ar200 billion (US$51 million) to mitigate the effects of the pandemic.65 During April, the banks’ professional association introduced a moratorium of three months on loan repayments and interest, and provided overdrafts for clients with emergency needs.

The central bank also took measures to support the financial system by providing easy access to loans for banks. The daily amount banks could access was about Ar50billion (US$12 953 994.56).66 Another US$270 million was provided in June 2020 for the national economy recovery plan. One key aspect of this plan is the renovation of low-rent buildings.67 The government effort has been supported by the AfDB through the Multi-Country COVID-19 Response Support Program with a concessional loan of Ar159 205 371 045 (US$41 million).68

The government has not introduced any specific measures on evictions and informal settlements. However, the government and partners, such as the United Nations Children’s Fund (UNICEF), launched the Tosika Fameno programme, which provides cash transfers of Ar100 959 (US$26) a month to 189 400 poor households living in Antananarivo, Toamasina and Fianarantsoa.69

MADAGASCAR

Annual income profile for rural and urban households based on consumption (PPP$), 2019

PPP$40 001 – PPP$10 000 000

PPP$23 001 – PPP$40 000

PPP$12 001 – PPP$23 000

PPP$8 001 – PPP$12 000

PPP$5 001 – PPP$8 000

PPP$3 601 – PPP$5 000

PPP$2 401 – PPP$3 600

PPP$1 601 – PPP$2 400

PPP$801 – PPP$1 600

<PPP$800

Population:

26 969 307

Urbanisation rate:

4.44%

Cost of cheapest newly built house:

90 000 000 MGA

House price PPP$:

PPP$84 982

No. of households (thousands)

Urban households that could afford this house with finance:

1.70%

1 PPP$:

1 059.05 Malagasy ariary

Ar6 229 753 (US$1 600).46 This cost represents around nine percent of the value of the land compared to an average of 7.6 percent in Sub-Saharan Africa.47 The average delay to obtain these documents is twice as long as the average of any other African country (54 days).48

There is strong urbanisation growth of the Nosy Be island, which grew from 30 000 inhabitants in 1993 to 100 000 inhabitants in 2019.49 The same trend is observable on the Siramamy Malagasy sugar company (Sirama) land, which represents 40 percent of Nosy Be Island, and has also had a rapid expansion of informal settlements.50

Policy and legislation

Madagascar inherited the French land management system after colonisation. This was not adapted to the local land inheritance system, which allows the transfer of property via informal methods with a few written certificates known as “small papers”. This dual system has caused several disputes.

The constitution of Madagascar states that all citizens must have access to decent housing, and as such the government has attempted to build affordable houses between 1970 and 2000.51 Unfortunately, rapid urbanisation has made it impossible for public authorities to keep up with the demand. Thus, Madagascar has chosen a different strategy, which consists of setting up the right environment to enable the private sector, specifically the real estate developers to provide solutions to the housing problems. This strategy is backed by international institutions such as the World Bank and the International Monetary Fund. The following policies have been implemented:

Urban land governance reform (2005)52 which focused on the decentralisation of land management in the rural areas and the establishment of security procedures for land tenure;

The Politique National de l’Habitat53 (2006) is the national policy for housing to promote access to social housing for the low-income population; and

The reform of the housing and urbanisation code (2015), which led to planning and urbanisation laws called respectively Loi d’orientation de l’Aménagement du Territoire and Loi de l’Urbanisme et de l’Habitat. The latter imposes a minimum area54 of 150m2 for land parcels while most houses are built on smaller size land parcels.

To update land information via a systematic assessment and the development of urban Local Land Occupancy Plans;56

To formalise and secure occupancy on a large scale using innovative tools57; and

Create a dedicated agency responsible for the co-ordination and implementation of urban land operations.58

In light of the World Bank recommendations, the government developed the PNL. In this strategic plan, the government calls for a guarantee fund59 in partnership with the private sector, specifically the banks, to implement policies around60:

Creating housing governing bodies that are sustainable and assigned with clear roles and objectives;

Creating the right legal framework to optimise the production of housings and access to them in the long run;

Promoting research technologies and techniques to allow the sustainability of housing development projects;

Setting the right framework to enable the real estate sector to easily have access to long-term funding; and

Creating and realising social housing project developments to grant access to decent housing for every layer of society.

To achieve this vision, the PNL’s key initiatives include encouraging public-private partnerships, promoting leasing systems and offering tax incentives to real estate developers.

Opportunities

As the country is among the poorest in the world, developing innovative and affordable ways to build houses is needed. Solutions involving recycling materials, reducing the construction time and renewable energies should be considered.

Working with the financial sector and the government, real estate developers and investors should create financial instruments with fewer barriers so that most households can access decent housing. Microfinance institutions can help achieve this because they are more flexible than banks in their operations and more people trust these institutions.

Importantly, more attention needs to be paid to climate change and methods of building housing and planning areas for housing development in the future so that they can better resist some of the natural disasters hitting Madagascar such as heavy rains, floods and droughts

There is an opportunity for companies to undertake mapping or land management to help the government achieve its goal of collecting information about land occupancy, providing better services for land tenure and deed delivery, and finally securing land transactions for property owners and buyers.