Mauritania

Mauritania had a tough time in 2009 after several years of growth. Gross domestic product (GDP) shrank 1.2% (compared with a 3.7% rise in 2008) due to a national political crisis and the world economic recession, which hit demand for the country’s raw materials, chiefly minerals, which generate most of its income. The world price of iron fell 36% and that of copper by 28% between 2008 and 2009. Food shortages in 2008 left deep economic scars and the government set up a 42 billion Mauritanian ougiya (MRO) special intervention programme (SIP) to help the poor cope with high food prices.

The government expects 3.7% growth in 2010 and 5.5% in 2011 if iron and copper prices hold up, tax collection improves and foreign aid increases. This optimistic forecast is also strenghtened by the gradual return to constitutional rule after the July 2009 presidential election and on good performances by the construction, fisheries and the tertiary sectors.

Mining (iron, gold and copper) showed satisfactory results in 2009 despite fluctuating world prices and accounted for 36.5% of GDP. Expansion prospects are very good but offset by volatile world prices. 

The state-owned mining firm SNIM, which dominates the sector, achieved some of its iron production targets in 2009, with an output of 10 million tonnes. Substantial investment by the MCM (Mines de cuivre de Mauritanie) consortium, mainly in Akjoujt, led to annual targets of 120 000 tonnes of 25% copper concentrate and gold at 12 grammes/tonne. An 80 million US dollar (USD) investment in gold mining is expected to produce 120 000 ounces a year, and another USD 50 million plus will be invested in gold output around El Ghaicha.

Fisheries have a bright future despite poor infrastructure, old boats, the industry’s informal nature and a non-transparent system of licence-issuing. The sector contributes nearly 6% of GDP but this could be greater as Mauritania has some of the world’s richest fishing grounds. The aim is to modernise the fleet and improve sector organisation by 2012.

The current account deficit remains stubborn and worsened to 14.9% of GDP in 2009 due to increased imports, a worse performance by the service sector and a bigger trade deficit. The current account deficit is expected to increase over the next few years, to 16.7% of GDP in 2010 and 17.4% in 2011. The budget deficit is 6.9% of GDP due to shrinking foreign aid and higher government spending. The deficit will persist without stricter budget procedures and reduced imports and is expected to be 6.5% of GDP in 2010 and 5.5% in 2011. A conservative monetary policy and better control of public spending would help to halt the worsening of the current account and balance of payments deficits.

The legal and regulatory framework of the development of the financial sector was changed in 2009 to modernise and stabilise it, with a new deposit guarantee fund to protect customers better, boost public confidence in the banking system, attract more users and encourage savings.

Inflation was brought under control in 2009 at 2.2% (according to the central bank), down from 7.4% in 2008, thanks to lower world food prices and the bank’s cautious monetary policy. But it is expected to rise once more, to 4.8% in 2010 and 5.3% in 2011, if food prices go up again with the gradual ending of subsidies for staple items.

The government began improving the tax system through identifying taxpayers, streamlining VAT collection and reforming income tax.  This involved setting up a database of single-identity taxpayers in Nouakchott and Nouadhibou; establishing a system to refund Value Addded Tax (VAT); lowering the minimum corporate tax rate to 3%; reducing VAT exemptions; and harmonising taxation of goods by using West African Economic and Monetary Union (WAEMU) classifications.

Constitutional rule was restored in August 2009 after the leader of the 2008 military coup, Mohamed Ould Abdelaziz, was elected president in July. Extremist threats to foreign nationals made the government a strategic partner in the fight against terrorism and boosted Western support for it, especially after attacks in the summer of 2009.

Mauritania ranks only 154^th out of 182 countries in the UN Human Development Index.  Out of the 11 targets associated with the MDGs analysed by the UNDP in 2008, only six seem to be achievable by 2015, i.e. those related to poverty, hunger, universal primary education, gender equality, access to safe drinking water and living conditions. The other five (concerning child mortality, maternal health, HIV/AIDS, malaria and other diseases and sustainable development), seem to be out of the running for the time being because of the dire state of the country’s public health, clean water supply and sanitation.

Poverty affects 46.7% of the population who cannot meet their basic daily needs.  This is worsened by increasing inequality, shown by the Gini coefficient as rising from 0.338 in 1996 to 0.396 in 2008.

Real growth was forecast as 3.4% for 2009 but in fact the economy shrank by 1.2% due to the world economic slump and the political crisis since the 6 August 2008 military coup. Mining drives Mauritania’s economy and iron ore, copper and gold exports boosted the sector as prospection expanded to cover 72% of the country, especially mineral-rich areas. 

Mining accounted for an estimated 36.5% of GDP in 2009, up from 34.2% in 2008. The state-owned mining firm SNIM produces 10-11 million tonnes of iron ore a year and its subsidiary SAMIA almost 30 000 tonnes of gypsum. The country’s biggest gold mine went into operation in mid-2007 with an investment of USD 80 million and an annual production target of 120 000 ounces (about four tonnes). This will rise to 275 000 ounces under a USD 50 million investment agreement in April 2009 between the government and the Swedish multinational Lundin after new discoveries around El Ghaicha.  

The Akjoujt copper mine reopened in early 2007 after investment of more than USD 104 million by the copper-mining consortium MCM (Mines de cuivre de Mauritanie) – led by Canada’s First Quantum Minerals and including the Gulf company Wadi El Rawda Industrial Investments and the Australian General Gold International – with a target of extracting 120 000 tonnes of 25% copper concentrate and gold at 12 grammes/tonne a year. MCM also began producing gold in March 2009 with an annual target of 60 000 ounces (about two tonnes).

Fisheries are a key industry for Mauritania, which has a 720 km coastline with a very suitable environment.  Catchable stocks are considerable and include seabed varieties (cephalopods, fish and crustaceans), small pelagic fish and molluscs. About 800 000 tonnes were caught in 2009, mainly for export, and the sector provides a quarter of government revenue and a fifth of the country’s export earnings. When other activity related to fishing is included, the sector’s GDP contribution is about 6%. The agro-pastoral sector, despite dependence on the weather, accounted for 13.6% of GDP in 2009 and grew at 6% a year (up from 4.5% in 2008).

Agricultural and livestock production varies greatly from year to year despite significantly improved methods (especially for growing rice) and a small degree of diversification into products with more added value. Irrigated farming gets most of the sector’s investment but does not produce the hoped-for results.  Irrigated land fell from 14 000 hectares in 2006/07 to 7 000 hectares in 2008/09 (18% of all arable land). Annual investment in rural development rose 7.9% to MRO 19.2 billion in 2009 (9.7% of all investment). The industrial sector, including SNIM, received 7.8% of the consolidated investment budget (MRO 15.4 billion), up 2.8%, most of it going to fisheries, continued mining prospection and development, and major energy projects. Industry contributed only  4.1% to GDP.

The tertiary (services) sector, especially telecommunications, grew moderately, about 4%, due to the limited local market but also to the increase to four in the number of mobile phone operators, including the state-owned Mauritel, which also operates the country’s fixed lines. Tourism has significantly grown in recent years despite political instability and lack of international-class hospitality infrastructure. The tertiary sector accounted for 28.8% of GDP in 2009.

Government investment fell three points from 2008 because fewer projects could be funded. The private sector suffered from lack of foreign investment and stagnated at its 2008 level. Private consumption continued its steady growth in 2009 despite the year’s problems and rose 2.4 points compared with only 0.2 points for public consumption.  Private consumption made a greater contribution (4%) to GDP than public (0.1%).

External demand declined, with exports down 18.1% and imports 2.1%, and made a negative external sector contribution to GDP of 4.7% in 2009, mainly because of lower demand for the country’s minerals (in particular iron and copper). Inflation was reduced to an estimated 2.2% in 2009 (7.4% in 2008) due to lower world food prices and the central bank’s conservative monetary policy.

Tax revenue increased in 2009 as collection improved.  With grants, it contributed 20.8% of GDP, 62.2% of that from taxes.

The 2009 consolidated investment budget was 33.6% government-funded – MRO 60 billion, up 22.4% from MRO 49 billion in 2008 – according to the central bank.

Public spending was 40% of GDP in 2009 (38% in 2008), boosted by continued government subsidy of staple items in an effort to stabilise their prices and combat poverty.

Wages increased to 13.9% of GDP, squeezing the national budget, as the government aimed to improve the quality of public sector workers and public services.

Capital spending rose to 10.9% of GDP in 2009 due to government support for the economy despite poor capacity for raising money locally and abroad. The budget deficit widened further to 6.9% of GDP and was mostly financed with four- to 13-week treasury bonds. External funding was set to rise 22.2% in 2009 because of faster implementation of various projects, including the major Aftout-Essahli project to supply Nouakchott with water from the River Senegal, and road-building.  Grants totalled MRO 25.4 billion and were 13.1% of external funding. Loans (MRO 77.1 billion) accounted for 39.2%.

Government payments and fiscal monitoring have been highly centralised until recently, undermining efficiency and transparency goals in public spending. The government began improving the tax system in 2007, reforming income tax, creating a system to refund VAT, setting up a database of single-identity taxpayers in Nouakchott and Nouadhibou and expanding use of the trade register.

The monetary situation in 2009 reflected a low level of external funding and the launch of mining and oil projects, along with the effect of the political crisis. But the central bank’s cautious policy and tighter public spending control should halt the widening of the current account and balance of payments deficits.  The government also began monitoring monthly changes in sector indicators so as to locate any risks to the economy and prices.

Mopping up excess bank liquidity continued in 2009 with the issue of treasury bonds in co-ordination with the finance ministry.        

The legal and regulatory structure of the financial sector and banks was changed in 2009 to modernise and stabilise activities. Measures to reform credit bodies were drafted and enacted in 2008 and 2009, affecting registration, lending policy, deposit guarantee funds, minimum bank capital and risk division coefficients. The reforms were related to world conditions and drawn up with the banking sector.

The minimum bank capital requirement was raised to MRO 6 billion and previously registered banks will have to comply by 2010. The measure will strengthen banks and the financial sector as a whole.  A new deposit guarantee fund was set up in 2009 to protect customers better, boost public confidence in the banking system, attract more users and encourage savings.

The central bank’s efforts to upgrade the financial system were welcomed by its partners and it granted registration requests from four foreign banks in 2008.  But the banking system is still not strong or efficient enough to make it an effective partner in developing the country’s economy.

The banking regulatory council cut the central bank’s interest intervention rate from 12% to 9% to help reduce the banking market rates, since the overall ceiling rates for credit depend on the intervention rate plus a maximum bank mark-up.

The trade deficit soared to 39.7% in 2009 (up from 5.6% in 2008) because of a sharp drop in exports, especially oil products, which were not offset by a comparable fall in imports.

The current account still has a large deficit, of 14.9% of GDP in 2009 (down from 17.4% in 2008), mainly due to higher fuel costs and increased imports by extractive industries and other more costly import items.

The services account deficit also grew, to an estimated 25.1% of GDP, because of dearer external services, such as freight charges linked to increased machinery imports, and the higher cost of surveys for mining and oil firms. 

Most imports (54%) still come from the European Union, followed by Asia (18%), Africa and the United States (8% combined).

Central bank reserves fell to the equivalent of only 1.2 months of imports in 2008 but recovered slightly to 2.1 months in 2009, with a further increase to 2.3 months expected in 2010.

The country’s external debt increased slightly from around  2.6 billion US dollars (USD) (59.6% of GDP) in 2008 to USD 2.8 billion (59.9 %) in 2009, according to the central bank, due once again to greater disbursements for projects, including Aftout-Essahli, and to new arrears on the passive debt, since cancellation talks are under way with creditors.

 

Despite measures to encourage private enterprise, the investment climate is still unlikely to produce a competitive private sector. Mauritania is at the tail-end of the rankings in the World Bank’s 2010 Doing Business report, in 166^th place out of 183 countries in 2009, behind Senegal (157^th) and Burkina Faso (147^th), and down five places from 2008.

The World Economic Forum’s 2008/09 competitiveness index ranked it 131^st for business out of 134 countries, far behind Senegal (96^th), and also Mali (117^th) and Burkina Faso (127^th).

Business people complain about poor conditions, including limited credit access, often too-high bank guarantees required, over-costly financing for firms in the formal sector, unsuitable taxation and weak government tax policy, inadequate infrastructure (especially electricity supply) and corruption.

The entire economy is undermined by bad infrastructure and expensive water and electricity.  The only paved roads are the two major north-south corridors of Nouakchott-Nouadhibou and Nouakchott-Rosso. The ports in Nouakchott and Nouadhibou are expensive and do not have enough capacity and equipment.

The low level of foreign direct investment (FDI) illustrates the lack of business opportunities apart from raw materials production.  FDI was below the regional average in 2006/07, at about USD 154 million – less than Burkina Faso (USD 317 million), Côte d’Ivoire (USD 319 million) and Mali (USD 222 million). Apart from oil, FDI goes to the financial sector, air transport and telecommunications. Other sectors get little or nothing.

Competition in the communications sector is starting to grow but lack of transparency in granting franchises discourages firms from being competitive. The monopoly of the Mauritel phone company has ended and the granting of three licences opened up the mobile phone market. But privatisation of the state electricity firm Somelec failed despite initial steps in 2002. The vagueness and centralisation of government procurement, which is not computerised, allows private deals between bidders.

An investment promotion body, CPI (Commissariat à la Promotion des Investissements), has been set up to overcome these restrictions, encourage a competitive private sector and improve the business climate.  It is preparing a development strategy to boost growth and competitiveness, notably by helping small and medium-sized enterprises (SMEs).

The predominance of the informal sector, which includes most SMEs, also delays private sector growth. Informal activity is the biggest source of jobs and provides for most of the population.  It is part of the shift from a traditional agricultural and livestock-based economy operating on well-established but narrowly-based mutual trust, to a more diverse and market-oriented activity.

Governance in state-run bodies, especially those with a big impact on the economy and the private sector, is to be assessed to streamline their basic infrastructure and management.  Programme contracts, with targets and results-based management, are planned for the SNDE water company, Somelec, the postal body Mauripost, the gas company Somagaz and the port of Nouakchott.

Mauritania has also begun streamlining its customs department, harmonising tariffs with West African Economic and Monetary Union (WAEMU) classifications by reducing the minimum duty from 3.5% to 3%. Upgrading management software and putting it on line (the ASYCUDA system) improves procedures. Clearing goods in warehouses and private zones inside and outside entry/exit points is also being considered, along with reorganisation of the central customs office (Direction générale des douanes).

Lack of reliable data prevents an accurate picture of the informal sector, which is thought to contribute a third of GDP and include 15 000 unofficial land titles nationwide. Informal enterprises have smaller wage bills because they escape regulation and pay no taxes on profits and inputs. Tax evasion allows these small and inefficient producers to compete with bigger and more productive ones.  The growth of the informal sector also pushes firms in the formal sector to get round the rules too.

The government has begun reforming public finance management by simplifying and decentralising budget execution and computerising spending procedure using the Rachad system, installed in October 2006 and containing all budget execution data, with a finance ministry-controlled allocation component and one for expenditure. Ministries can keep track of their commitments and payment orders until the treasury is informed and then monitor the different phases of treasury handling of them. Budget discipline will be tighter, through a medium-term budget framework (MTBF)  that will clearly link different sectors to a national strategy and improve allocation of money between sectors in line with the national poverty reduction strategy framework (PRSF) and sector programmes.

New regulations set out the different roles of public procurement, inspection and regulation currently lumped together under the central procurement body (CCM). The changes will be implemented by a public procurement regulatory body, and a commission to monitor procurement by departmental committees will be set up that answers to the prime minister. The regulatory body will invite competitive bids and announce the results.  Other methods, such as limited bidding and private contracts, will be defined under the new regulations, which remain to be verified for compliance with international norms.

The tax system comprises several kinds of taxes in two major categories. The first includes income taxes, including tax on individuals’ income (IGR), commercial and industrial income (BIC), non-commercial income (BNC), financial income (IRF), salaries and pensions (ITS) and income from movable assets (IRCM). The second includes tax on company income (industrial, commercial, craft or agricultural activity), the apprenticeship tax, property tax and VAT.

Individual income tax is a graduated levy declared by the head of a household each year based on its total income, excluding salaries only subject to a special tax. The burden has been greatly reduced, with the top bracket of 60% cut to 33% and the allowance of MRO 120 000 increased to MRO 280 000.

The tax on non-commercial income is based on annual net profits by those in professions or non-commercial activity (lawyers, solicitors, bailiffs) and is levied at 35% on an established list of taxpayers who must also pay a minimum 4% of their bill on 30 March and 30 June each year. The payment, of at least MRO 120 000, is deductible from the tax due, collected at source by the government and state bodies and refunded by the beneficiaries of these activities.

Property tax is levied on building rental (houses, apartments and factories), farmland and sites, and is 10% of the gross income over the previous year and payable by 1 February.

Taxpayers must file a declaration of all their household income with their local tax office. The minimum taxable property income has been raised to MRO  60 000.

The tax on salaries and pensions concerns government or private sector income from work and pensions (including life annuities) paid in Mauritania and is deducted at source throughout the year at the official rate.

VAT is the main tax in the second category and is collected (except on exports) at a standard rate of 14%.

The government wants (in the medium term) to abolish the direct tax on microfinance institutions and replace it with a quarterly fixed payment on earnings. The tax has already been reduced, in 2009, from 3% to 1%, and is deductible from the total tax due on earnings. Other direct taxation changes include raising the direct tax threshold from MRO 6 million to MRO 30 million, replacing the microfinance tax instalments with advance payments on current income, creating a national census of taxpayers, and cutting the tax on non-commercial income to 30%. Further reduction in tax on salaries is being considered as part of efforts to make the tax system fairer.

The tax reforms also involve reducing company tax (IRE) from 40% to 25%, setting up a special office for major taxpayers and taxing people according to the extent of their activity. The government has once more cut the threshold for turnover tax, from 3% to 1%, consolidated other financial instruments and introduced a new flat-rate regime for small taxpayers. However the system overall is still largely based on collecting minimal taxes and customs duty from a very small number of big firms.

Despite the reforms, the country’s tax system remains complex and costly for the formal sector and still fails to include informal activity.  New upgrading and streamlining is needed to improve very weak collection and combat fraud and evasion.

Indirect taxation continues to be reformed to make the system simpler, fairer and more transparent so as to boost collection and enlarge the tax base. Changes include gradual abolition of VAT exemptions on industrial inputs and staple items, abolition of pay-as-you-go VAT for large firms, considering abolition of pay-as-you-go VAT on government revenue and perfecting the method of reimbursement.

The government wants to make customs duty fairer and more effective, and streamline procedure (simplifying it and cutting delays), making trade easier and improving inspection. Reforms needed include completing the link between the Sydonia computerised customs system and the government treasury, tax office and statistics department, connecting customs headquarters with all regional and other customs offices, and upgrading customs regulations. This requires training inspectors in data management and modern techniques.

Successful tax reform requires a modernised, more efficient administration able to act and monitor. The current system is not very computerised, which hampers efforts to manage data, charge and collect taxes and operate in the provinces. Oil industry taxes are also hard to collect. A fairer and more effective tax system requires computerisation, a databank of all taxpayers (landowners and those in the formal and informal sectors), a staff trained in tax collection, and courses in the taxation of individual sectors (oil, mining, telecommunications, banks and e-business).

The new VAT threshold puts firms either under the office for major taxpayers (IRE) (more than MRO 30 million turnover) or the one for small and medium-sized companies (with an intermediate, declarable system). 

Establishment of a state property body (Direction générale du patrimoine de l’État) shows the government the importance of properly managing the country’s tangible assets.

Public debt management is badly flawed and the government has said it will bring the system into line with international standards.

The authorities have improved public finance management since 2005, though some changes are still ongoing. Those already implemented include adapting budget classifications and improving budget presentation, curbing extra-budgetary income and spending, decentralising payments and monitoring, introducing an integrated payments system (Rachad), and drawing up a monthly statement of government finances (TOFE) based on treasury figures.

Despite visible progress, the reforms have not yet been entirely felt. The budget process is still very centralised with large sums allotted to ministries instead of decentralised bodies. A thorough review of the public finance structure is needed to reach agreement about the changes needed.

General Mohamed Ould Abdelaziz won presidential elections on 18 July 2009 in the first round of voting and took office on 5 August, a year after he and the army overthrew elected President Mohamed Ould Abdallahi.

The divided opposition refused to accept the result, saying it was fraudulent, but also faced the need to fight extremism, which emerged in June 2005 with a large-scale attack on a military fort and included a suicide attack in front of the French embassy on 8 August 2009.

Extremist attacks and threats have increased in recent years, rapidly turning the country into a key partner in the fight against international terrorism and boosting Western support for the regime, notably by the United States, whatever its criticisms of it.

The opposition has strongly criticised amendments to the anti-terrorist law presented to parliament, saying they legalise human rights violations and that some are against Islamic law.

Mauritania ranked 154^th out of 182 countries in the 2009 UN Human Development Index and only 6 of 11 targets of the Millennium Development Goals (MDGs) seem to be achievable by 2015.

Poverty affects 46.7% of the population, meaning half of them cannot meet their basic daily needs. The poverty rate fell from 56.6% in 1990 to 54.3% (1996) and 51% (2000), but inequality has increased, with the Gini coefficient rising from 0.338 in 1996 to 0.396 in 2008.

However, good progress has been made in education (the second MDG) and net primary school enrolment was around 82% in 2008, according to the education ministry. This was helped by the PNDSE national education development system, which is in line with the aims of the poverty reduction strategy framework (PRSF) and the MDGs and has set a target of universal basic education enrolment and gender equality. The retention rate has risen significantly, to 49.3%, but still falls well short of expectations.

Health conditions are still worrying, with poor medical coverage and quality of service, and government spending is not very effective.

A multi-indicator cluster survey (MICS) showed infant mortality improved slightly to 122 per thousand live births in 2008 and maternal mortality was down to 686 per 100 000 live births (from 747 in 2004). The expanded vaccination programme (EVP) stagnated at 69% coverage against diphtheria, tetanus and whooping cough (DTC3) in 2003-06, but overall vaccination coverage increased sharply in 2007 to 75% due to a revival of the EVP and more effective antigens. HIV/AIDS prevalence was low, at less than 1% in 2008.

The government allotted a new medium-term budget framework (MTBF) to the health sector for 2008-10 (as part of the PRSF), to build 13 clinics nationwide, rehabilitate three others and provide more equipment for major hospitals and four regional centres. Mauritanian doctors abroad were urged to return home to strengthen the health system, with a promise that they would enjoy the same conditions as they had outside the country. 

Since 2006, Mauritania has been a member of the EITI (Extractive Industries Transparency Initiative) and has monitored the use of the country’s oil and mineral resources. It also began a campaign against corruption in 2007.

Employment is sluggish because the economic growth of recent years has not created enough jobs. A 2004 household living conditions survey showed the labour supply had grown because of a rising population but the workforce had remained small. The population grew from 2.6 million in 2001 to 3.1 million in 2007, while the dependence ratio (over-60-year-olds to those of working age) fell slightly, from 82% to 77%. Female unemployment rose to 47.3% (25.2% for men) in 2007, from 46.9% in 2004 and 33.9% in 2000. Two-thirds of jobless people are under 25 and 80% of them are looking for their first job. Most of the unemployed are illiterate, unqualified and without professional experience.

The economy cannot create enough jobs to meet the demand arising from the arrival of an estimated 30 000 more job-seekers on the labour market each year, with only 16 000 jobs created. The formal sector is not very diverse and provides few jobs while the informal economy employs nearly 80% of the active population.