The Effects of Globalization on Africa, specifically Madagascar:

How globalization affects small countries varies depending on several attributes. Before proceeding, I would like to briefly define globalization. It is a process of advancement and increase of interaction and integration among the people, companies, and governments of different nations. I chose Madagascar, a small country that is situated East by Southeast of Africa. After continuous reading and studying, it was clear that globalization was at the source of the development gap between the Northern and Southern region of the country. Madagascar historically has remained outside the mainstream of African affairs, although it is a member of the Indian Ocean Commission, the Organization of African Unity (now renamed the AU) and the Non-Aligned Movement. Madagascar was admitted to the Southern African Development Community in 2004. Madagascar is comprised of 48 cities; it is considered a Developing Country (DC). Globalization can have a positive effect on small developing countries.

Globalization and employment

Globalization is essential to a developing country such as Madagascans employment opportunities. However, according to some theory of the relative comparative advantages, both trade and FDI should take advantage of the abundance of labour in this DC. This should trigger a trend of specialization in domestic labour activities and involve an expansion in local employment. During Dr. Chowdhury class, we discussed Heckscher-Ohlin (HO). The Factor endowment theory suggests that a country will develop comparative advantages based on their locally abundant factors. This prediction, the analysis of the recent supports hypothesis the conclusion that the

employment impact of increasing trade is not necessarily positive for a developing country. If we focus on Madagascar Foreign Direct Investment (FDI) last years they grew. Although, in 2008, Madagascar instituted a new law (Loi No 2007-036 of January 14, 2008 about investments in Madagascar) it simplified access to land for foreign investors. Their Economic Development Board Madagascar (EDBM) was setup to establish to facilitate and support foreign investors throughout the administrative processes. This new legislation was introduced to make the process of investment in Madagascar easier. From what I gathered, these new measures were taken to attract FDI. This compelled foreign investors to create a company in Madagascar according to the Malagasy law. It is interesting that these Malagasy companies, although regularly dominated by foreigners, have the right to lease and to buy land. Whereas if you study their constitution of 1992, it clearly states that it is forbidden for foreigners to buy land. I read and article that Madagascar, approved their new constitution on November 27, 2010 (http://www.lasvegassun.com/news/2010/nov/27/af-madagascar/). Overview of FDI in land, demanded areas, 2009 FDI in land (in total) FDI in land for food production FDI in land for agro-fuel production FDI in land for cash crop production FDI for other purposes Others Source: Own Research Area, in ha 3,020,300 1,446,500 1,531,700 9,100 33,000 530

The world trade in manufacturing goods increased sharply during the past decade; conversely trades in raw materials more or less became stagnated. Madagascar, diversification into manufactured exports highly probable to create growth and jobs in Africa/Madagascar. Despite some changes towards manufactures in both exports and

FDI, Africa will benefit from globalization only if its manufacturing sector becomes more competitive.

Madagascar: Imports and Exports

Due to an underdeveloped industrial sector, Madagascar trade figures depend highly on its agricultural productivity. Studies show prior the 1990s, this country had strong trade relations with the western nations. As the year to come they developed strong relationship with the emerging economies of Asia. In 2009, Madagascar was estimated to $1.04 billion of total export worth, which is approximately $0.25 billion less then in 2008. This developing country is predominantly agrarian economy; cash crops dominate the countrys export list. Some of their major export crops are coffee, sugar and vanilla. Apart from agricultural products, Madagascar exports petroleum products and chromite ore. However, according to 2008 data available with the CIA World Factbook, France is the largest export partner of Madagascar. It accounts or a share of approximately 39% of the total export volume. Madagascar has had healthy trade relations with France since during the colonial era. Other major export partners are the US and Germany, which represent shares of 20.3% and 5%, respectively. (Source: Internet reading) The 2009 trade imports stand at $1.836 billion (estimated). This small country ranks 153 in the world in terms of total import volumes. Madagascar has an literally have not industrial sector. They have to import a large portion of the manufactured products it consumes. Some of the major items of import for Madagascar are consumer goods, heavy machinery, capital goods and food (source: import & export obtained from various reading).

Like most countries, China is the main import partner for Madagascar with a share of more than 20% in terms of total volume. Other major import partners are Bahrain, France, South Africa, the US and India. During the 1980s, Madagascars government began economic reforms under pressure from the World Bank. These reforms were aimed at developing the industrial sector and increasing agricultural productivity. In 1993, the government initiated an overambitious program to create an export processing zone. As a result of these structural reforms, Madagascars economy enjoyed a high growth rate, coupled with a significant rise in export volume. However, after 2002, the economy has been recording retarded growth particularly due to political unrest. (Source: www.economywatch.com) To increase the benefits from high value agriculture, it is essential to link this developing countrys smallholders to the international markets. Because the horticultural sector, for example, is too diverse and fast-changing for the states direct involvement, governments should allow a variety of private institutions and marketing arrangements to develop. To help smallholder farmers participate in value chains for export production, governments should increase their support for producer groups. They could also facilitate the adoption of innovations by providing market information and extension services.

Globalization and Its effects

Globalization can and does effects developing country like Madagascar. Some effects are positive while others have an adverse effect. International development measures had sadly turned out to be too insignificant to reverse the widespread inequalities, like marginalization, exclusion and poverty. At the same time, globalization could have many positive effects on Madagascar economic and social development. It

had been encouraging that the Millennium Declaration and the 1995 Copenhagen Summit on Social Development had both aimed at promoting globalization with a human face and thus ensuring adequate employment, access to economic resources and world markets. (Source: Internet can remember the site) How globalization effect on the State in Africa is not only of an economic nature. The process and the outcome of globalization involve a lot more than economics. Globalization includes permeation of political ideas and practices across borders. It includes permeation of cultural and religious beliefs and practices, resulting in dilution of some cultures. It includes the permeation of administrative/managerial concepts and practices across boarders and organizations. I am reminded about chapter 4 in Leveraging Resource and Capabilities. The opening case was pertaining to Saturna Capital and how it was so successful in predominately Muslim clientele. They are aware of their clients cultural and practices.

Madagascar Gross Domestic Product (GDP) & Purchasing Power Parity (PPP)
While Madagascar understood that it was incumbent on national governments to promote development, international cooperation was also critical, Madagascans continued. Madagascar had instituted many policies aimed at reducing poverty, paying special attention to the situation of the poor in rural areas. Those policies also placed emphasis on priority sectors such as health, food and water security. Many policies aimed to improve the countrys economic performance by bringing the poor into common markets and encouraging their broad participation.

Although the agricultural sector contributes only 30% to the GDP, nearly 80% of the population makes a living with agricultural products. The Ministry of Agriculture undertook the last agricultural census in 2004/2005 showing that the agricultural population is estimated to be about 13.3 million people living in approximately 2.4 million households. Nearly half of them can be found in the provinces of Antananarivo and Fianarantsoa, both located on the high plateau. Land use in total, 2007 Country area Land area Forest area Total Agricultural area Permanent meadows and pastures Cultivated agricultural land Of which irrigated Other land Source: FAO Statistics 2007 and FAO GDP: $ 12.3 Mld (2000) GDP growth rate: 4.8% (2000) GDP per capita: $ 800 (2000) Annual rate of inflation: 10% (2000) Currency: franc of Madagascar (MGF Exports: $ 538 M (f.o.b., 1998) Imports: $ 693 M (f.o.b.; 1998)
30 Years 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 GDP, constant prices 0.788 -9.8 -1.9 0.9 1.76 1.156 1.96 1.175 3.407 4.075 -1,343.65 % -80.61 % -147.37 % 95.56 % -34.32 % 69.55 % -40.05 % 189.96 % 19.61 % Percent Change

Area, in ha 58.70 58.15 12.76 40.84 37.29 3.55 1.09 4.55

www.indexmundi.com/madagascar/gdp_real_growth_rate.html

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

3.129 -6.306 1.181 2.1 -0.042 1.679 2.154 3.693 3.917 4.699 4.457 5.98 -12.408 9.785 5.257 4.603 5.023 6.241 7.065 -0.422

-23.21 % -301.53 % -118.73 % 77.82 % -102.00 % -4,097.62 % 28.29 % 71.45 % 6.07 % 19.96 % -5.15 % 34.17 % -307.49 % -178.86 % -46.27 % -12.44 % 9.12 % 24.25 % 13.20 % -105.97 %

GDP - per capita (PPP): $1,000 (2009 est.) $1,000 (2008 est.) $1,000 (2007 est.)
30 Years GDP based on (PPP) per capita GDP www.indexmundi.com/madagascar/gdp_per_capita_(ppp).html 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 607.66 587.44 586.556 611.313 597.947 605.723 613.646 621.097 645.788 677.876 705.432 -3.33 % -0.15 % 4.22 % -2.19 % 1.30 % 1.31 % 1.21 % 3.98 % 4.97 % 4.07 % Percent Change

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

664.734 668.619 677.424 671.157 676.147 683.088 699.511 713.453 735.802 762.536 802.818 694.464 757.162 795.425 833.419 879.427 935.46 996.032 981.148

-5.77 % 0.58 % 1.32 % -0.93 % 0.74 % 1.03 % 2.40 % 1.99 % 3.13 % 3.63 % 5.28 % -13.50 % 9.03 % 5.05 % 4.78 % 5.52 % 6.37 % 6.48 % -1.49 %

Globalization in Africa: facts and figures

The current period of globalization is distinct from previous ones. At the beginning of the 21st century trade and financial services are far more developed and deeply integrated. More than ever, economic decisions are influenced by global conditions (Jenkins 2004), and production processes spread over several continents. Although Africas share in worldwide flows of trade, investment and remittances is low, globalization affects its economies substantially, because the shares in production and consumption are fairly high. In the past 30 years, dramatic changes in international markets have helped shape the current era of globalization. A complex process affecting many aspects of Madagascan lives, globalization is defined here as the growing international integration

of economies with regard to markets for goods and factors of production (Bigsten and Durevall 2003). My research paper analyses the integration of economies through trade, foreign direct investment (FDI) and to less extent the mobility of labour. Unlike the globalization witnessed in the 19th century, today, labour markets remain more closed than ever. Most industrial countries have restricted immigration, particularly that of low to no skilled workers. Moreover, after the September 11, 2001, the movement of people, not only into the United States but also into other countries of the world, has been restricted and controlled more and more. Despite these limitations, about 2 per cent of the worlds people live outside their countries of origin. This reality poses considerable challenges to the domestic labour markets of the African continent, a net labour exporter. Changes in remittance flows might also affect poor peoples consumption possibilities. Contrary to general perception, Africas markets are integrated considerably in the global economy. But, this integration is asymmetric. Africa depends on the rest of the world, whereas the rest of the world does not depend on Africa. Its shares in both world trade and FDI are only 2 per cent of the global total, a reflection of the continents low share in world GDP. When few goods are produced, there are fewer exports. When markets are small, the incentives for FDI are limited. Compared with countries that have similar characteristics, African countries trade and FDI flows are not exceptionalbut are determined by their small size, low incomes and geography. That is why policies to increase exports and FDI have to focus on improving productivity (Bigsten and Durevall 2003). In general, competitiveness in Africa is lower than in other regions, reducing the export sector and FDIs prospects of creating employment. The low efficiency of

production is due not only to the low skill levels but also to inadequate infrastructure, obstacles to the private sector and unfavorable economic policies. Competitiveness of production and attractiveness for investors are further hampered by the low labour productivity, which cannot be compensated for by low wage costs, and small markets. To increase African countries ability to harness the benefits of globalization, they should address these problems but also use industrial policy to boost labour-intensive export sectors, encouraging links between foreign and domestic firms (Wangwe and Rweyemamu 2002). I would like to conclude that globalization has posed enormous challenges for the African public administration systems. It has put demands on their capacities institutions, which, as everyone knows, have always been very weak, the systems themselves being still nascent. Managing globalization effectively to benefit the African people, especially the poor, calls for new attitudes and leadership. It requires vision, appropriate knowledge, skills and wisdom from Africas leaders. But it also requires sensitivity, willingness, a change of attitude and the right technical assistance from global actors such as the United Nations, especially in supporting the strengthening of Africas public administration capacity to deal with issues of globalization. In other words, a strategic attitude to be taken by African countries in light of the phenomenon of globalization should not be to seek apportioning blame between developed and developing countries. They should rather think in terms of strategic analysis to identify analyze, diagnose their strengths and weaknesses in light of the opportunities and challenges posed by globalization. Such an attitude would then create a mindset for self-assessment and appraisal to see how the weaknesses can be overcome. The cutting edge for African people to participate in and benefit from the game of

globalization lies within the internal force, and the internal force lies within the capacity of its people. African countries themselves and those that hope to assist them must first and foremost recognize this fact and commit resources and energies to harnessing the capacity of the African poor for their development.