The World Bank has cut Madagascar's growth forecast for 2015 to 3.5 percent from 4 percent due to poor weather and a mining slowdown, and said the longer term outlook could be affected if a political row persists. Tensions on the aid-reliant Indian Ocean island have escalated since lawmakers voted to impeach President Hery Rajaonarimampianina last month. He has challenged the move, saying it is hurting a fragile recovery that started last year, after a 2009 coup that scared off investors and donors.
Keiko Kubota, the World Bank's lead economist for Madagascar, told Reuters a major factor hurting growth this year was cyclones that killed scores of people and hit farming. "It's been raining in the northern parts and there has been absolute drought in the south. The combined effected have been horrible on agriculture," she said, estimating that bad weather had knocked 0.2-0.3 percentage points off growth.
A slowdown in the vital mining industry was also expected to cut into economic activity, Kubota said, with falling commodity prices forcing firms to reduce production and lay off staff. Head count at the vast Ambatovy nickel-cobalt mine, operated by Sherritt in a joint venture with Sumitomo Corp , Korea Resources KOREC.UL and SNC Lavalin Group has been reduced by about 12 percent, or some 1,100 employees and contractors, due to persistently low metal prices.
Madagascar boasts deposits of nickel, titanium, cobalt, iron, coal and uranium but foreigners have been deterred by years of instability. A new mining law has been bogged down in parliament and it is not clear when it will be passed. Kubota said the bank had not yet completed a full forecast for 2016 but said it was likely to be lowered from the previous estimate of 5 percent, possibly by 50 basis points.
Kubota said the latest political turmoil was unlikely to have a big impact on growth this year, but could deter more foreign investors and crimp the longer term outlook. "If there is no investment, then the economy doesn't grow. There is not much else that can ignite growth," she said.
Western donors have urged politicians to resolve their differences and focus on rebuilding the economy. The World Bank and other donors have called for reforms to spur growth in a nation where the government does not have enough cash to pay for fuel to run power stations because of a hefty subsidy system, leading to frequent blackouts.
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