Political Instability and Investment Risks in Madagascar: Navigating a Fragile Transition

Madagascar's political landscape has entered a volatile phase following the October 2025 appointment of Ruphin Fortunat Zafisambo, a military general, as Prime Minister. This move, triggered by widespread protests over power and water shortages, underscores the fragility of governance in a nation long plagued by military interventions in politics, according to a Reuters report. While President Andry Rajoelina framed the appointment as a step toward restoring order and public trust, the decision has reignited concerns about the militarization of political institutions and its implications for foreign investment and economic stability, as noted in a Yahoo News article.

Governance and Historical Precedents

Madagascar's history is marked by recurring cycles of military dominance, including the postcolonial era when army leaders ruled for over two decades, exemplified by General Richard Ravalomanana. The current transition echoes this pattern, with similar institutional consolidations described in the BTI 2024 report. The U.S. Department of State reports that Madagascar's political instability remains a critical barrier to sustainable governance, with corruption and inconsistent law enforcement further complicating reform efforts (U.S. Department of State).

The appointment of Zafisambo, while aimed at addressing immediate crises like electricity and water shortages, risks deepening public skepticism. Protests have already claimed 22 lives, and demonstrators continue to demand Rajoelina's resignation, AP News reported. This unrest highlights the fragility of public trust, a key determinant of long-term investment viability.

Foreign Investment: A Double-Edged Sword

Madagascar's investment climate has long been a mixed bag. While the government promotes the Plan d'Emergence Madagascar (PEM) as a roadmap for economic transformation, structural challenges persist. Foreign direct investment (FDI) inflows fell to 2.6121% of GDP in 2023, down from 4.68% in 2022, reflecting a global decline in risk appetite and domestic instability, according to Lloyds Bank Trade. The U.S. Commercial Service's Investment Climate Statement notes that bureaucratic hurdles, corruption, and regulatory unpredictability remain significant deterrents, despite legal frameworks allowing 100% foreign ownership of businesses.

The military's growing political influence adds another layer of uncertainty. Transparency International's CPI ranks Madagascar 145th out of 180 countries in its 2023 Corruption Perceptions Index, with mining and customs sectors particularly vulnerable to graft. For instance, the 2023 Mining Code reforms, intended to attract investment, have been criticized for lacking transparency in licensing processes, according to the U.S. Department of State.

Yet opportunities exist. Madagascar's natural resources-nickel, cobalt, and rare earth minerals-and untapped infrastructure projects in energy and agriculture present compelling long-term prospects. The government's collaboration with the UNDRR to stress-test critical infrastructure also signals a commitment to resilience-a key factor for investors wary of climate risks.

Economic Policy Shifts and Structural Reforms

Zafisambo's governance agenda emphasizes infrastructure resilience and disaster preparedness, aligning with PEM's vision of transforming Madagascar into an "emerging nation." However, the success of these initiatives hinges on political stability. The IMF's 2025 review of Madagascar's fiscal strategy highlights progress in anti-corruption measures but warns that uneven growth and power outages continue to stifle productivity.

Structural reforms in energy, mining, and digital sectors are critical. For example, the textile industry-a major employer-faces an existential threat from a 47% U.S. tariff on imports, which could exacerbate unemployment and poverty, according to a Madagascar.co.uk blog. Meanwhile, climate change and frequent cyclones pose risks to agriculture, which employs over 70% of the population, as noted in the Madagascar economic update.

Investor Confidence: A Delicate Balance

Investor confidence remains fragile. While Madagascar's strategic location and natural resources are attractive, the political climate demands a cautious approach. The World Bank update notes that growth is projected to rise to 4.7% in 2025, but this depends on sustained reforms and reduced political volatility.

Short-term risks include the potential for renewed protests, delayed project approvals, and inconsistent policy enforcement. However, sectors like renewable energy and agribusiness could benefit from international aid and private-sector partnerships, particularly if the government demonstrates a commitment to transparency.

Conclusion

Madagascar's political transition under a military-led government presents a paradox: a potential for stability amid deep-seated risks. For investors, the key lies in balancing short-term caution with long-term optimism. While the appointment of Zafisambo may stabilize immediate crises, the broader challenge of depoliticizing governance and enforcing anti-corruption measures remains. Those willing to navigate these complexities may find opportunities in sectors aligned with PEM's priorities, but success will depend on the government's ability to deliver on its promises without compromising democratic institutions.