Prior to landing in Madagascar’s capital, our curiosity about a place had never been higher. We anticipated lack of infrastructure and extreme poverty, but we weren’t sure how it would feel and look on the ground. We wondered if there were any brave souls attempting to invest in this beyond challenging nation.
Upon arriving, we were met with horrific traffic, taxi cabs that have been driving since the Eisenhower administration, livestock milling through the busy roads, trash fires spewing fumes through the cityscape… and some of the sharpest investors we had spoken with to date. Amidst the chaos in Antananarivo (nicknamed Tana), there are a few funds laboring to invest capital in promising companies to develop their nation and generate returns along the way. Despite the MANY factors working against this nation (including the WORST government we have seen to date), there are men and women in offices meeting with entrepreneurs, building models, hosting board meetings… trying to make it happen. It’s not easy, it’s not at a large scale, but it IS possible to pull off an impactful, profitable investment in Madagascar.
Below we describe the active players and takeaways / learnings from meetings with Tana's most active investors:
What PE funds exist in Madagascar?
Adenia Partners (“Adenia”), a pan-African buyout fund, was founded by one of Madagascar’s most successful entrepreneurs, Antoine Delaporte, in 2002 and has been deploying capital in the nation for about two decades. Adenia has made eight investments in Madagascar and has exited 6 of them. Adenia takes majority stakes in quality, middle-market businesses across industries. In 2024, Adenia completed fundraising for Fund V, a €470m fund focused on Africa. The fund is headquartered in Mauritius.
In addition to Adenia, there are six other funds active in Madagascar: Miarakap, Investisseurs & Partenaires (“I&P”), Madagascar Development Partners, Inside Capital (which was founded by a former Adenia Partners investor), and two state-owned funds. There are also ~20 families which make up the informal investor community.
Funds are based in the capital city of Antananarivo.
What are key learnings from being an investor in Madagascar?
Resiliency is a must. There are many factors outside your control and it is important to stay the course through those events and focus on execution of the strategy.
Control stakes can serve as a hedge against instability. Some investors view control stakes as a vital hedge to the unstable political environment in Madagascar (and greater Africa for that matter). Determining the course of action following a destabilizing event like a coup will make or break a company. Investors will want to be able to control their company’s destiny.
We questioned – what’s an example of actions taken post-coup to help a company stay the course? Investors were eager to revisit tactics used during the 2009 coup, the most recent to plague Madagascar. The subsequent crash in tourism led hospitality investors to take advantage of downtime by renovating properties. This created higher revenue generating assets for when times stabilized and tourism returned.
Ability to determine exit timing is also pivotal. Often, minority stake investors are cornered into selling ASAP post-destabilizing event which often coincides with the least opportune exit conditions.
During more stable times, majority ownership is also particularly helpful in markets like Madagascar. Investors want the ability to transform companies by replacing members of management, instituting proper standards / licensing, and enhancing governance.
Investing in companies with limited exposure to government end markets helps to alleviate the impacts of a challenging political landscape and abundant corruption.
You can’t think about investing based on macro factors in Madagascar, you must mainly focus on identifying a quality company. There are too many unknowns and uncontrollable factors in this market. You need to focus solely on finding a leading company in a growing sector with some level of pricing power. This formula can lead to a winning investment.
There are few assets for sale that fit this description, therefore investors here must remain extremely opportunistic and sector agnostic.
Inventory management is key for certain businesses given very long lead times, challenging geographic location, and weak infrastructure.
The positive impact makes it all worth it.
What sectors are attractive here?
Investors view healthcare, FMCG (fast-moving consumer goods), and education as promising investment sectors. Financial services and fintech are also starting to become interesting as mobile money accounts take hold in the nation. At ~10 million mobile money accounts (~1/3rd of the population), mobile money accounts have outstripped traditional bank accounts and growth is continuing. Since Madagascar is earlier in the adoption curve for mobile money than most other African nations, significant white space still exists for mobile money providers and the peripheral opportunities that come along with adoption of mobile payment. However, it is important to highlight ~50% of the population is not connected to mobile networks.
As the business universe is very limited, investors are sector agnostic. Investors look for good businesses and then diligence the growth outlook of the sector versus utilizing a sector-oriented approach.
Why is it exciting to be an investor in Madagascar?
There is limited to no competition in “processes” which sets the stage for bargain pricing
Lots of low-hanging fruit around operational improvements and professionalization
Ability to make a good financial investment while also making a strong positive social impact through:
Quality job creation and training of local professionals
Introduction of new goods and services to the market
For example, Opham, previously an Adenia portfolio company, improved pharmaceutical supply distribution during COVID and widened access to life-saving generic prescriptions. A high-level case study of Opham is below.
Business advisory and mentorship supporting stronger companies and the development of the local economy
Improved governance
Are there any cultural attributes to note about Madagascar?
First, it is difficult for people to admit that they are selling a business as they view a sale as “giving up”. This creates hesitancy and increased secrecy around sale processes. At the end of the day though, everything is for sale at the right price.
Second, many businesses in the country are or were recently “informal” and the ones that are more formal may still be rather unsophisticated. Financials and other corporate information is often not in "sale ready" form. Building relationships and trust also takes time. These factors make diligence and negotiations last extremely long.
Third, Madagascar is a former French colony and ~25% of the population speaks French. This translates to ease of doing business with French companies. This also creates a more natural buyer universe for portfolio companies as French business leaders and investors are more familiar with the nation. Additionally, management team members for portfolio companies are often recruited from France.
Note that Anglophones don't engage much with Madagascar investments and the Francophone countries in Africa more generally. The differences in language, culture, and legal system act as meaningful hurdles.
French colonial architecture in Antsirabe.
What does the buyer universe look like in Madagascar?
Sale processes are the only exit path as there is no stock market in Madagascar. The buyer universe includes strategics, formal and informal domestic investors, and other funds based in Africa or France.
Investors work from the outset to make portfolio companies sale-ready through institutionalizing the companies (acquiring licenses and certifications, streamlining financial reporting, etc.).
What do leverage levels look like in Madagascar?
Given banks are pretty risk averse, 2-3x is where leverage maxes out.
What is an example of a private equity buyout in Madagascar?
Transaction: Adenia Partners' acquisition of Opham, the leading wholesaler and marketer of pharmaceutical products in Madagascar
Entry: January 2016
Exit: December 2021 to consortium of private investors
Value Creation Levers:
Hired a new CEO
Improved governance including fortifying the board with an experienced independent director
Increased relationships with blue chip laboratories
Built a new warehouse according to international best practices that nearly doubled capacity and increased productivity and efficiency
Impact: For every euro Adenia invested, €5.5 of social value was created largely driven by the development of generic medicines distributed by Opham
What are the core challenges?
"Between 1960 (its year of independence) and 2020, Madagascar’s per capita income declined by 45%. Remarkably, this occurred in an environment largely free of violent conflict, perhaps the only such instance in the world... The World Bank’s Systematic Country Diagnostic indicates that elite capture and the lack of competition and transparency at the core of the state have hampered Madagascar’s growth performance." (WorldBank)
Car ferry with armed guards; candles are provided in hotel rooms as power is restricted.
High poverty rate: 81%
Low GDP per Capita: $529 (top 10 lowest in the world)
Lack of infrastructure: 36% of population have access to electricity, roads are in terrible condition, and national airline is nicknamed "Air Maybe"
We were told that businesses have to stay small because they are often required to generate their own power and cannot do so past a certain scale
Low human capital development creates talent deficit among other problems (one manager cited this as the largest problem, even more impactful than infrastructure)
High rates of malnutrition and disease
Madagascar is one of the few places on earth that faces bubonic plague outbreaks
Enrollment in tertiary education is 6%
For executives, recruiting outside talent (often from France) is almost always necessary
Foreign talent is prone to flee in times of national turmoil
Banditry / lawlessness: portions of the island are not under control of the police and banditry is common
High levels of corruption at all levels of government: Madagascar ranks 145 out of 180 on Transperancy.org's Corruption Perceptions Index
Political instability: there have been 2 coups in the 21st century
The most recent coup occurred in 2009 - GDP per capita contracted by 13% in 2009
So what does this all mean? Madagascar is not an investment environment for everyone... in fact, it is not an investment environment for most. However, if you are looking to make an impact (and potentially financial returns along the way), there are capable and experienced partners here making a difference.
Comments