This piece highlights issues for consideration when starting a foreign business in Madagascar in four areas: 1) foreign business start-up, 2) access to industrial land, 3) Foreign ownership issues across sectors, and 4) commercial dispute arbitration.
Foreign Business Start-Up
It takes 3 procedures and 12 days to establish a foreign-owned limited liability company (LLC) in Madagascar (Antananarivo). This process is among the shortest in Sub-Saharan Africa and much faster than the IAB global average. An LLC can be entirely foreign-owned; investment authorizations are no longer required. However, at least one of its executives must reside in Madagascar. If a newly established company (domestic or foreign) wants to engage in international trade, it must register with the Ministry of Commerce and Trade. Companies can obtain their statistical card, tax registration confirmation, commercial registration number, and professional card at the one-stop shop. They must also register for social security and health insurance, which can be done through the Economic Development Board of Madagascar (EDBM)’s one-stop shop. Companies in Madagascar are free to open and maintain bank accounts in foreign currency. Minimum capital requirements have been abolished.
Access to Industrial Land
Foreign companies seeking to access land in Madagascar have the option to lease or buy land from both private and public owners. Foreign companies must have authorization from the Economic Development Board of Madagascar before buying land. Such authorization determines the amount of land that the purchaser is allowed to acquire. If the land exceeds 10,000 ha, further authorization is required from the relevant minister. Lease contracts can be of unlimited duration for privately held land. For publicly held land, lease contracts are limited to a renewable term of 50 years. Foreign companies may transfer the land, but will need authorization to transfer it to another foreign entity. Lease contracts can offer the lessee the right to sublease, subdivide, or mortgage the leased land or use it as collateral. Land-related information can be found in the registry and cadastre. However, these are not linked or coordinated to share data. Currently, there are efforts underway to modernize the land registry and cadastre.
Foreign Ownership Issues across Sectors
The majority of the sectors covered by the report are fully open to foreign equity ownership in Madagascar. However, the country imposes foreign ownership restrictions in a number of service sectors. Foreign ownership in the telecommunications infrastructure (both fixed-line and mobile/wireless), for example, is limited to a maximum of 66%. Furthermore, foreign capital participation in companies providing fixed-line telecommunication services is also limited to 66%. In addition to these restrictions, foreign equity ownership is limited in the electricity transmission sector as well as in the port and airport operation sectors. These industries are currently dominated by large publicly owned enterprises.
Commercial Dispute Arbitration
Act 98-019 of December 15, 1998, and Articles 439 to 464 of the Civil Procedure Code (2003) govern domestic and international arbitrations in Madagascar. The Arbitration Act is based on the UNCITRAL Model Law. Most commercial disputes may be submitted to arbitration. However, domestic disputes involving the state, public authorities, and public establishments cannot be submitted to arbitration. Arbitration agreements must be in writing. The parties are free to select arbitrators of any gender, nationality, or professional qualifications in both domestic and international arbitrations and foreign counsel may represent the parties in arbitration proceedings. Parties are also free to choose any arbitral institution of their choice, including the Arbitration and Mediation Center of Madagascar (CAMM). Arbitration practice is limited in Madagascar, and foreign investors do not appear to have confidence in CAMM. Domestic courts have the power to declare an arbitral tribunal incompetent to settle a dispute. Enforcement proceedings for domestic awards take place in the competent court of first instance, and for international awards, in the Court of Appeal of Antananarivo. On average, it takes around 10 weeks to enforce an arbitration award rendered in Madagascar, from filing an application to a writ of execution attaching assets (assuming there is no appeal), and 12 weeks for a foreign award.
Source: Investment Across Borders Report by The World Bank. The World Bank authorizes the use of this material subject to the terms and conditions on its website, http://www.worldbank.org/terms.”
