November 23, 2010 - (Reuters) - Madagascar expects its economy to grow 2.8 percent in 2011 after lower-than-forecast 0.6 percent growth this year, helped by new nickel and cobalt exports, according to its budget.
In the budget presented to parliament late on Monday, the Indian Ocean island's transitional government said it had been expecting growth of 2.6 percent in 2010 but continued political instability had undermined that prediction.
Madagascar has been mired in political uncertainty for most of the past two years. At the start of 2009, then-opposition leader Andry Rajoelina spearheaded often violent street protests against increasingly unpopular President Marc Ravalomanana.
Rajoelina eventually seized power in March 2009 with the help of dissident army officers but Africa's youngest president has since remained isolated diplomatically after many donors branded his power-grab a coup and froze non-emergency aid.
Last week, a group of rebel army officers tried to overthrow Rajoelina the same day the country was voting on a new constitution, but the mutiny was later quashed.
The tourism industry in the world's fourth largest island has taken a beating from the political unrest and its textile exports have also suffered after Washington ended preferential trade deals under its AGOA initiative.
The economic morass has left the government short of the finances it needs to fulfil pledges Rajoelina made during his campaigning to cut poverty and improve social services, and this has in turn eroded his popularity.
NICKEL, COBALT AND ILMENITE
But the world's largest vanilla producer has been banking on a mining boom to return its economy to the 7.1 percent growth seen in 2008 and a major nickel and cobalt project is scheduled for completion in January 2011.
According to the budget, the government expects extractive industries to grow 228.2 percent in 2011 after 121.3 percent in expansion in 2010 -- thanks to the Ambatovy project.
The mine in Ambatovy is about 80 km (50 miles) east of the capital Antananarivo and is projected to produce 60,000 tonnes of nickel and 5,600 tonnes of cobalt annually for 27 years.
The project is a joint venture between Canada's Sherritt International, Sumitomo Corp, Korea Resources and SNC-Lavalin.
A subsidiary of UK-based multinational Rio Tinto Plc has also been producing and and exporting high-quality ilmenite, which is used to make titanium dioxide, since 2009.
Companies are also looking for gold, coal, chromium, platinum and uranium while oil majors Total and Exxon Mobile have invested in the country's offshore oil potential.
According to the budget, the government is expecting to spend 2,889 billion ariary ($1.45 billion) in 2011, although that is still below 2008 spending of 3,482 billion. It is forecasting revenue of 2,472 billion ariary.
It said budgetary aid would only be about $27 million and the outlook for external funding remained uncertain. However, the government said external borrowing was expected to rise.
Inflation was expected to remain under control thanks to prudent monetary and fiscal policies. According to the budget the rate was expected to be 7.6 percent at the end of 2011.