Off-farm activities in the rural areas would contribute to poverty reduction and could be stimulated by improved road connectivity and access to electricity.
Antananarivo, March 21, 2017 – Over the past fifteen years, Madagascar's population has faced two political crises that have slowed economic growth, suffered severe climate shocks, and withstood the global rise in food prices. As a result, 70.7 percent of the people of Madagascar were living in poverty in 2012 and had not seen any significant improvement in their welfare.
A new report – Shifting Fortunes and Enduring Poverty in Madagascar: Recent Findings analyzes the data of successive household surveys carried out by INSTAT and tries to reveal some of the dynamics that explains this lack of progress.
Madagascar’s economy faces an array of challenges in reducing poverty, including severe infrastructure deficits, severe climatic events, poor transport links, tenuous access to markets, and in some cases counter-productive policy responses to external shocks. The report notes that micro-enterprises are unable to increase their productivity and profits due to conditions related to generalized poverty, low demand for non-agricultural goods and services, and difficulties with performance of hired workers and repaying credit. These enterprises, which employ the vast majority of off-farm workers, therefore, cannot grow, create more jobs, and bid up wages. These and other constraints have forced Madagascar’s poverty rate to remain exceedingly high.
The report’s other key findings are as follows:
- Madagascar’s poorest people experienced a substantial welfare loss between 2005 and 2012, after gaining ground between 2001 and 2005. Between 2005 and 2010, consumption for the poorest households declined an average 3.1 percent.
- The depth of poverty in Madagascar is also of great concern. On average the poor consume only 70 percent of the national poverty line, and this gap has only widened since 2005 after falling between 2001 and 2005; the increase in incomes needed to bring over 70 percent of the population out of poverty remains enormous.
- Between 2001 and 2012, the population responded to economic fluctuations and climatic shocks by shifting more heavily into agriculture and then in 2012 into off-farm activities, with a significant increase in secondary employment in services that year. These strategies were only partially successful in offsetting adverse influences on the poor’s livelihoods. Demand for off farm labor remained weak, and business opportunities limited.
- One important driver of the post-2005 trend has been a decline in the profitability of agriculture. Despite having accumulated more “assets” – more education, means of transport, and having experienced fewer adverse climatic events – the poor rural population was unable to fully offset a decline in the profitability of cultivating land between 2005 and 2010 by pursuing off-farm work.
- Domestic policies to counter spikes in world rice price combined with deteriorating transport conditions reduced agricultural incomes in 2010. A series of government measures kept the price of rice relatively stable for consumers, yet producers’ profits fell as they faced higher input costs yet remained unable to benefit from rising world prices. The costs to transport a 50-kilogram bag of rice increased 42 percent and the time required to reach a main urban center doubled to almost 12 hours, while distances to markets, schools, and health centers became more strongly related to poverty.
- Improving road connectivity for the poor and providing electricity in those communities where it can help stimulate more productive off-farm enterprises are essential for poverty reduction. Shorter distances to markets and higher rates of local electrification are powerful predictors of higher welfare. In urban areas, the level of education is also an important determinant. In rural areas, a high rice price is also linked to a higher level of well-being.
- Men earn significantly higher wages and business profits than women. Although female-headed households are not consistently poorer than male-headed ones, men earned 37 percent more than women in the labor market in 2012 after taking into account education, age, region, and urban conditions. In addition, female entrepreneurs are less likely to own an enterprise operating at the scale and profitability level that males do. Thus, male-headed households were more successful in offsetting the losses resulting from more severe climatic shocks and adverse trends in agricultural profits in 2010 through off-farm employment than female-headed ones.
