In October, Madagascar’s armed forces overthrew the government led by President Andry Rajoelina after weeks of popular protests centred on low standards of living, allegations of corruption and lack of economic opportunities.

Upon taking control of the presidential palace in Antananarivo, the authorities discovered 300 kg of emerald rock which they alleged had been hidden by the previous government. The government announced shortly afterwards that the emeralds would be sold on international markets, where at current prices they sell for around $80 a gram.

Newly installed President Michael Randrianirina, a senior military leader, said: “we discovered this national treasure… we don’t know why it was hidden here, but we are simply glad to show that we are ready to live with transparency.”

The symbolic gesture was meant to show that the government is making a decisive break from the previous administration – particularly when it comes to the management of extractive resources – but it is unclear whether things will change substantively.

Madagascar’s mining industry has come under increased attention from international investors in recent years, given the country’s rich reserves of industrial minerals such as graphite, copper and nickel, as well as gemstones like sapphire and ruby.

The country has at least 26m tonnes of graphite reserves, produces around 7,000 tonnes of rare earths annually – making it an increasingly important global player in this strategically important sector – and is one of Africa’s largest graphite exporters. The East African nation is also home to lucrative gold reserves, although most exports of the precious metal currently pass through informal channels.

Seeking to capitalise on these opportunities, international miners are already active. The Ambatovy nickel-cobalt mine, jointly owned by Japan’s Sumitomo Corporation and South Korea’s Mine Rehabilitation and Mineral Resources Corporation (KOMIR), and the Soalala iron ore mine, owned by China’s Wuhan Iron and Steel Corporation, are just two of the biggest foreign-led projects.

Other multinationals have also invested considerable amounts into Madagascar’s mining industry: Rio Tinto has put over $1bn into its QIT Madagascar Minerals project to develop a mineral sand mine and related infrastructure, for example.

Longstanding industry concerns

But operating in Madagascar and exploiting the full economic potential of the country’s resources, has often proved difficult, particularly for smaller players. Michael Randrianavony, co-founder of the GEMVVS mining group based in Antananarivo, tells African Business that “many of the mining concessions are owned by foreign companies but they are not operating because there are a variety of laws that still make it difficult for them to jump in.”

Mining companies have reported facing a slow and complicated process for obtaining licences, with regulators also prone to unpredictable moves such as imposing periodic embargoes on new mining permits. Issues affecting all businesses – such as poor infrastructure and extremely low electricity access – further complicate the picture. Transparency International, an anti-corruption NGO based in Berlin, has noted that “the procedures for granting mining titles became arbitrary and discretionary, raising suspicions of corruption and discouraging investors.”

The Extractive Industries Transparency Initiative (EITI) has similarly noted that “resource constraints” have made it more difficult for Madagascar to implement anti-corruption measures, such as “transparency of contracts and beneficial owners”.

They also argue that this, along with the regulator’s unpredictable licencing process, has dented the growth of Madagascar’s mining industry. “Despite hosting valuable mineral resources, including one of the world’s largest nickel mines, Madagascar’s extractive exports and activities have been in decline, partly due to moratoriums on mining licences and oil and gas exploration.”

Will reform efforts endure?

Prior to the military coup, the previous administration had brought in new laws that sought to standardise procedures and help attract more foreign investment into Madagascar’s mining industry. The 2023 Mining Code sought to reassure investors on the safety of their investment by providing “stability guarantees” for mining permit holders. The law also offered more clarity on how permits are granted, renewed and managed, reducing ambiguity and, at least in theory, making the process less arbitrary.

The Code was accompanied by fiscal incentives aimed at facilitating investment, with corporations committing more than $50m in Madagascar benefiting from exemptions on income tax, custom duties and value-added tax on locally purchased equipment.

The move was largely welcomed as a step in the right direction by international organisations such as the World Bank – which predicted that mining projects investments would “ramp up” following the passing of the Code – but it is too early to tell whether the new government intends to continue with these efforts.

Resource nationalism or technocracy?

October’s military coup initially raised fears that mining operations could be significantly disrupted as a result of the political instability, with the American Enterprise Institute Critical Threats project even drawing parallels with the coups in the Sahel, which have led to significant complications for foreign extractive firms.

Critical Threats  argued that “political or military instability could affect critical mineral mining on the island… the pro-sovereigntist juntas that rose to power in former French colonies in West Africa have aggressively targeted foreign mining companies to renegotiate lopsided deals.” So far, such action has not come to pass. Next Source Materials, a Canadian battery materials development company, said in a press release that their operations in the Molo graphite mine had continued under normal conditions and their exports from the Tulear port had similarly proceeded as usual.

Military coups rarely, if ever, lead to political and economic transparency. But some mining executives hope that the new administration could build on the principles behind the 2023 Mining Code. Ivan Murphy, Madagascar country manager at rare earths company Harena Resources, has argued that the recent protests which brought the military government to power had focused on economic pressures. Murphy posited that this would potentially lead to a government focused on economic stability and foreign direct investment.

The new prime minister, Herintsalama Rajaonarivelo, is a businessman and economist who has previously worked for international organisations including the World Bank, European Union and the African Development Bank. The credit insurance group Credendo has argued that the military’s move in appointing Rajaonarivelo could “indicate that the junta wants to prioritise tackling the socioeconomic grievances that fed the protests in the first place, realising that without improved conditions Gen Z protests could easily rekindle.

“This might also indicate a more technocratic and business-friendly approach, compared to the highly authoritarian juntas of the Sahel, where nationalisation measures are frequent.”

But most mining investors will be keeping their powder dry pending more certainty from the new administration. “International companies are ready to get involved but they need some more mature legislation to open up the industry before they put down any further major investments,” Randrianavony says.