Political Instability in Madagascar and Its Impact on Foreign Investment: Navigating Risk and Opportunity in an Emerging Market

Political instability in Madagascar has long cast a shadow over its economic potential, but recent developments from 2024 to 2025 have intensified concerns for foreign investors. Despite the country's strategic location between Asia and Africa and its rich natural resources-including vanilla, precious minerals, and arable land-Madagascar's governance challenges, corruption, and infrastructure deficits continue to deter sustainable investment. For investors, the question is no longer whether Madagascar is risky, but how to assess and mitigate those risks while identifying pockets of opportunity in a volatile environment.

The Escalation of Political Unrest

Madagascar's political instability has deep roots, dating back to the 2009 military coup that disrupted decades of democratic governance. However, the period from late 2024 to October 2025 has seen a dramatic escalation. Youth-led protests erupted in Antananarivo and surrounding areas, initially driven by electricity and water shortages but quickly expanding into broader grievances over corruption and poor governance, according to a New York Times account. These demonstrations, influenced by global protest movements in Kenya and Nepal, adopted a highly organized, digital-first approach, as noted in a CNN report.

In response, President Andry Rajoelina dissolved his government on September 29, 2025, following deadly clashes with protesters, a move that CNN framed as an attempt to initiate dialogue but which critics saw as a strategic maneuver to retain power. That skepticism was echoed in a Londoner Post analysis. The crisis deepened in October 2025 when a military unit defected to join the protesters, raising fears of a coup, according to a State Department report. The resulting violence between security forces and the breakaway unit further eroded public trust in institutions and highlighted the fragility of Madagascar's political system, the U.S. government noted.

The Toll on Foreign Direct Investment

Political instability has had a measurable impact on Madagascar's foreign direct investment (FDI) flows. According to the U.S. Department of State, FDI inflows declined from an all-time high of 22% of GDP in 2010 to 10% in 2020. While the government has introduced incentives-such as tax reductions for mining and energy sectors and the "Plan d'Emergence Madagascar" (PEM)-corruption, bureaucratic hurdles, and poor infrastructure remain significant barriers, the State Department reports.

Recent data underscores this trend. FDI inflows stood at USD 415 million in 2023, down from USD 468 million in 2022, according to Lloyds Bank Trade. By 2024, the figure had dipped further to USD 413 million, with the total stock of FDI reaching USD 4.948 billion, per Trading Economics. The decline reflects not only political uncertainty but also structural issues such as limited access to credit, weak property rights, and restrictions on foreign currency outflows, which have particularly affected the vanilla export sector, the State Department notes.

Risk Assessment: Volatility and Governance Challenges

For investors, Madagascar's political instability represents a dual risk: macroeconomic volatility and sector-specific vulnerabilities. The 2023 presidential election, in which Rajoelina secured a controversial third term, was marred by an opposition boycott and allegations of irregularities, as reported by Lloyds Bank Trade. This has deepened political polarization and weakened public confidence in democratic institutions, observers say.

The World Bank notes that Madagascar's economy is projected to grow at 4% in 2025, driven by tourism and infrastructure projects (the World Bank). However, high poverty rates, weak infrastructure, and governance failures continue to undermine this potential, the World Bank cautions. A ScienceDirect study further highlights the reciprocal relationship between political instability and FDI, noting that instability often acts as a barrier rather than a catalyst for investment.

Opportunistic Positioning: Sectors with Potential

Despite these challenges, Madagascar's natural resources and strategic location offer opportunities for investors willing to navigate the risks. Key sectors include:

1. Mining and Minerals: Madagascar is rich in ilmenite, tantalum, and other critical minerals. While regulatory uncertainty persists, companies with strong local partnerships and due diligence processes may find value in long-term projects, Lloyds Bank Trade observes.
2. Tourism: The country's biodiversity and cultural heritage remain underexploited. Post-pandemic recovery in global travel could benefit investors in eco-tourism and hospitality, provided security and infrastructure improve, the World Bank suggests.
3. Agriculture and Agri-business: Madagascar's fertile land and climate make it a potential hub for vanilla, rice, and cashew exports. However, logistical bottlenecks and currency restrictions require careful risk management, according to the State Department.

Investors must also consider the role of multilateral institutions. The World Bank and African Development Bank have supported infrastructure projects, which could mitigate some operational risks, the World Bank has documented.

Conclusion: Balancing Caution and Vision

Madagascar's political instability presents a complex risk profile for foreign investors. While governance challenges and volatility are undeniable, the country's natural endowments and strategic position offer long-term potential. Success will depend on a nuanced approach: engaging with local stakeholders, leveraging multilateral support, and prioritizing sectors with defensible value propositions. For those willing to navigate the turbulence, Madagascar's emerging market could yield rewards-but only for those who enter with eyes wide open.