Given the need to improve the overall investment climate in the Republic of Madagascar, an Indian Ocean island nation located off the east coast of Africa, this Investment Climate Assessment Update (ICAU) evaluates trends and characteristics associated with firm, growth, and performance. More specifically, the ICAU examines firm level growth and productivity, and how they are related to firm characteristics and to certain obstacles facing firms in manufacturing and services during the period 2004-2007. The scope of this report is narrower than that of typical investment climate assessment. This is a result of political situation in Madagascar and data availability. The current political crisis will likely have significant consequences for incentives to invest, and on firm growth and performance in both the domestic and export markets. However, these impacts are hard to identify while the crisis is ongoing. In addition, the enterprise survey data used in this report are entirely pre-crisis (covering the period 2004-2007). Therefore, with the exception of parts of chapter one on the macroeconomic and political background, this report will focus on the pre-crisis period. Nevertheless, the analysis will focus on trends that author expect to be structural rather than cyclical and which therefore will be informative in terms of setting the basis for policy dialogue with the government of Madagascar when the crisis recedes.