Madagascar’s president says illegal power grab by military is under way

Madagascar is experiencing escalating political instability as the elite Capsat military unit, which previously brought President Rajoelina to power, announced it is taking control of the army amidst ongoing youth-led protests against corruption and public service failures. President Rajoelina denounced this as an illegal power seizure, introducing significant uncertainty regarding the broader military's allegiance. This development poses substantial political risk for the resource-rich but economically vulnerable nation, potentially impacting its stability and investment outlook.

Analysis

Madagascar is experiencing a severe escalation of political instability following the elite Capsat military unit's announcement of taking control of the army. This move comes amidst weeks of youth-led protests, which began on September 25 over water and electricity shortages and expanded to calls for President Andry Rajoelina's resignation and an end to corruption. President Rajoelina has publicly denounced this as an "attempt to seize power illegally and by force," highlighting the contested nature of the situation.

Significant uncertainty persists regarding the broader military's submission to Capsat's command, creating a highly volatile political landscape. The protests, initially driven by public service failures, have evolved into demands for a radical overhaul of the political system, including the resignation of key government figures. This reflects deep-seated societal discontent beyond initial grievances.

The ongoing political turmoil poses substantial risks to Madagascar's economic stability and investment outlook. As one of the world's poorest countries with a GDP per capita of just $545 last year and a high corruption ranking (140 out of 180), prolonged instability could further deter foreign direct investment. The nation's resource-rich sectors, particularly precious gems and vanilla, are particularly vulnerable to operational disruptions and policy uncertainty stemming from the current crisis.

Key Decisions for Investors

• Investors with exposure to Madagascar or similar emerging markets should closely monitor the evolving political situation, particularly the military's allegiance and the resolution of the power struggle.
• Assess existing asset holdings for direct or indirect exposure to the region, considering potential impacts on operational stability, supply chains, and sovereign risk premiums.
• Given the "extremely negative" sentiment and high market impact, it may be prudent to consider hedging strategies or a reduction in exposure to assets highly correlated with Madagascar's political stability.