October 26, 2012 / 10:14 AM / 5 years ago

Madagascar economy to grow as huge nickel project starts: World Bank

ANTANANARIVO (Reuters) - Madagascar's crisis-hit economy could grow 2.6 percent next year as inflation slows and it begins work on one of the largest nickel mining projects in the world, the World Bank said.

The Indian Ocean island's economy has been hobbled since a coup in 2009 that drove away tourists and foreign companies that might have invested in its oil, gold, chrome and nickel reserves.

The political crisis has cost the island $6.3 billion since 2009, the World Bank said, based on an assumption that the economy would have grown 5 percent a year had there been political stability.

It said in an economic update that Madagascar's economy is likely to have grown 2.7 percent this year thanks to an improved harvest and a recovery in tourism. Growth could accelerate to 4.3 percent in 2014, the bank said.

In the coup, opposition leader Andry Rajoelina ousted President Marc Ravalomanana with the support of the army. Ravalomanana has since been sentenced in absentia to life in prison over the killings of demonstrators during the struggle.

Last September, the main political parties signed a political "road map" aimed at ending the unrest, and Rajoelina was confirmed as president. This August, the government said fresh presidential elections will be held next May.

"(Growth) could accelerate from 2014 after the political transition even though the outlook will remain marred by political uncertainties surrounding the policies of a new government and over the international economic climate from 2013," the World Bank said.

Next year's growth could be higher once the $5.5 billion Ambatovy nickel mine goes into production, it said.

Canada's Sherritt International Corp and its partners received permission in September to begin output at what will be one of the world's biggest nickel mines, with a production capacity of 60,000 tonnes of refined nickel annually for the next three decades.

The gradual return of donors would increase activity, while inflation was expected to slow to an average 5-7 percent between 2012-2014 from 8-10 percent in 2009-2011, the Bank said.

The bank said Madagascar could also be hurt by a slowing world economy, which would hurt exports, especially by developments in the euro zone, which accounts for 80 percent of its tourist arrivals and 50 percent of exports.

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