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Country Commercial Guides for FY 2000: Mauritania Report prepared by U.S. Embassy Nouakchott, released July 1999   Note*

II. ECONOMIC TRENDS AND OUTLOOK

Major Trends and Outlook

While Mauritania's resource base of fish, iron ore, agriculture, and livestock is rather narrow, the country has some of the world's richest fishing grounds. In addition, Mauritania possesses significant mineral resources of iron, copper, and gypsum. Phosphate deposits have also been discovered but have not yet been exploited. Prospecting is underway to discover other resources, including oil and gold. Severe droughts periodically devastate agriculture and livestock and have caused massive migration from the interior to urban centers.

The outlook for 1999 and 2000 is continued improvement. In 1998, the GIRM pursued an economic reform program supported by the WB and IMF and consequently has liberalized the exchange system, restrained government spending, and revised the tax system. These reforms resulted in an average increase in real GDP (in local currency) of 5% from 1993 to 1998, compared to 2% in 1992. This increase, in turn, led to a rise in per capita income of 8.5% (in local currency) and a reduced current account deficit. In 1998 and 1999, the GIRM introduced measures aiming to improve project management and reduce the resources wasted as required by the development partners. The WB and IMF noted the improvement realized in these two years and encouraged the GIRM to pursue its economic policies with perseverance and determination in order to reach a targeted 7% of economic growth in the coming years.

American cigarettes imported directly have taken much of the market share held previously by French brands. The GIRM is also seeking foreign (particularly American and Canadian) partners for gold and oil prospecting and involvement in newly privatized telecommunications, electricity, and transport companies. Projects funded by international financial institutions (IFIs) also offer opportunities for U.S. investment to provide goods and services in the areas of road construction, irrigation, energy production, and communications. U.S. businesses may also find opportunities to participate as consultants for major projects financed by IFIs.

The following development priorities enjoy significant funding from donors and lenders:

- Infrastructure (road reinforcement and extension, communications, conversion to arable land)
- Agriculture (irrigation, equipment, machinery, quality improvement)
- Drinking water supply
- Reforestation
- Fishing sector restructuring and maritime surveillance
- Mineral resources prospecting
- Health and education development

Principal Growth Sectors

There is no growth index by sector in Mauritania. However, the following sectors played and continue to play a key role in the country's economic growth in 1998 and 1999.

Mines/Industry: Mauritania's mineral deposits are estimated at 180M metric tons of rich mineral and billions of metric tons of impoverished mineral. In 1998, SNIM exported 39.5B ouguiyas (USD 214M), accounting for 56% of total exports; i.e., a 23% increase in relation to year 1997, making the mining sector Mauritania's largest foreign exchange generator. The new reorganization of SNIM, combined with the diversification of its activities and improved management, boosted both iron ore production and exports in 1998 and in the first quarter of 1999. SNIM purchased $17M in equipment and spare parts in 1998 and anticipated purchases of at least $23M in 1999. Thirty-eight US firms have business dealings with SNIM. Mining is now considered the sector of greatest potential interest to foreign investors, particularly suppliers of mining equipment, machinery and services.

Mauritania has few natural resources other than iron ore and fish, which are the country's top two exports. The small-scale industrial sector (or modern sector) is limited to small and medium industries operating in fish processing, chemicals and plastics, food and beverages, metal products, building materials, and cookie factories. The industrial sector is faced with serious problems, including high energy costs, high taxes on imported raw materials, limited bank credit, and aggressive competition with similar imported goods. Most other economic activity is in the traditional sector, which is dominated by agriculture and livestock. Mauritania is trying to develop its modern sector through the exploration of new natural resources, such as gold and oil. Prospecting is underway; in 1998 and 1999, the GIRM signed research contracts with several foreign firms, including the Canadian firm Rex Diamond Mining Corp., and the Australian firm Ashton West Africa Property Ltd. Several researchers confirmed the presence of gold, oil, phosphate, aluminum, and copper in some regions of the country.

Fishing: Along its 754 km Atlantic coast, Mauritania enjoys a 200-mile Exclusive Economic Zone (EEZ) that contains some of the richest fishing grounds in the world. In 1998, the fishing sector was the country's second largest foreign exchange earner. However, the fishing sector was plagued by serious problems, including a lack of effective GIRM fisheries policy, mismanagement, and Mauritania's limited technical ability to monitor and control its EEZ. As a result, in 1997 and 1998, the GIRM undertook significant measures to reform this sector, including the reinforcement of surveillance capacity, the control of captured species, and the increase of areas reserved to the traditional fishery. In addition to these measures, the GIRM is encouraging joint ventures with technically advanced foreign firms in the fishing sector.

The fishing sector offers a variety of opportunities for U.S. sales and exports. As fishing companies expand and modernize their fleets, American boat construction companies may be able to break into what has traditionally been a European and Japanese market. U.S. companies may also become joint owners with Mauritanian partners in fishing ventures. Chinese participation in the Mauritanian fishery sector has fallen due to the age of its fleet and disputes over the terms of cooperation, so local companies are seeking new foreign partners to help them modernize and raise fish processing installations to international sanitary standards.

The GIRM is reforming the fisheries sector through research, resource monitoring and management, maritime surveillance, and major infrastructure development (port extension and warehouse development). The EU and African Development Bank (AFDB) are collaborating with private Mauritanians to develop Mauritania's traditional, or artisanal, fishing sub-sector. This sub-sector produces less revenue but generates more jobs than the industrial fishing sub-sector. Mauritania's national fisheries institute, the "Centre National des Recherches Océanographiques et des Pêches," and the "Direction de la Commande des Pêches" continue to intensify their efforts to protect and control the country's maritime resources.

The Government views fisheries as a major source of future employment and foreign currency earnings as well as a nutritional resource. Given this sector's central importance to the Mauritanian economy, the WB targeted it for reform under the umbrella of a new private sector development project. The 1998 and 1999 macroeconomic strategy includes measures to upgrade Mauritania's fishing fleet, reduce overfishing, and improve sector management.

Agriculture and Livestock: These two sectors play an important role in Mauritania's economy, generating 23% of GDP in 1998 and employing about 50% of the working population. However, Mauritania's cereal production continues to be insufficient to cover the total need of its population. In 1998, the total production was 185,266 metric tons; this production was able to cover only 35% of the country's needs (estimated at 527,297 metric tons). With 342,031 metric tons of deficit, the food situation continues to be worrying in 1998/99, calling for extra cereal imports and donor aid. The 1999 cereal imports are estimated at 261,402 metric tons, and the GIRM continues to seek food aid. The Senegal River Valley region offers opportunities to farmers and in recent years has attracted increasing numbers of local investors. American exporters of agricultural equipment could exploit this potential. Recent GIRM measures aim to stimulate, liberalize, and rationalize agricultural production. The GIRM asked donors to make agriculture their highest priority so that Mauritania could move rapidly toward its long-term goal of self-sufficiency in food grains. Projects target irrigated farming along the Senegal River Valley in conjunction with regional dam projects. Backed by foreign donors, the Organization to Develop the Senegal River involves Mauritania, Senegal, and Mali in navigation; production of electrical power generation and distribution systems; and construction of dams in Diama, Senegal and Manantali, Mali.

In November 1998, a WB delegation visited Mauritania and agreed to support the GIRM in its irrigated agriculture program for the next eleven years; this program aims to rehabilitate 11,000 hectares of cultivable areas along the Senegal River Valley and diversify the production species. In December 1998, the GIRM adopted a long-term development strategy for the agricultural sector, aiming to guarantee food security, improve farmers' incomes, protect and conserve natural resources, and increase the role of agriculture in the national economy. The GIRM views agriculture and livestock as priority sectors for further growth and reduced dependency on imports. The Government promotes private investment in the agricultural sector to modernize the production system, improve the quality of produced cereals (rice mainly), and substitute irrigation for the traditional system of agriculture.

Government Role in the Economy

The GIRM has played an important role in the economy and made economic growth and poverty reduction a key objective of its development strategy. These efforts have been supported by the WB, IMF, AFDB, and other partners. To this end, the GIRM has undertaken some important measures, including privatization and reform in the banking sector, liberalization of the exchange rate system, and reduction of trade and investment barriers. The GIRM has totally or partially privatized some state-owned companies (insurance, fish export marketing company, petroleum marketing company), and is encouraging private initiative.

The results have been modestly impressive. GDP growth (in local currency) rose from 2.6% in 1996 to 4.5% in 1997 and 4.2% in 1998, which was still lower than the targeted 7%. The state-owned companies accounted for approximately 20% of GDP at the end of 1997. Privatization, however, is reducing the economic dominance of state-owned companies. Mauritania's recent success with its IMF/WB structural adjustment program and negotiations with the Paris Club resulted in its being declared eligible for debt relief under the Heavy Indebted Poor Countries (HIPC) Initiative. Mauritania has renewed its Enhanced Structural Adjustment Facility (ESAF) agreement with the IMF and is establishing a good performance track record for the HIPC Initiative. In the fall, the WB and IMF will discuss Mauritania's treatment under the HIPC Initiative and determine decision and completion points along with levels of debt relief. The GIRM's main objectives still focus on increasing public revenues, reducing public expenditures, reducing the role of the public sector in the economy through privatization, and strengthening the financial performance of enterprises that remain public.

The 1999 Government investment budget lists the following development priorities, which donors and lenders have funded:

- Agricultural development;
- Drinking water supply;
- Environment protection;
- Infrastructure development ;
- Industrial sector development;
- Maritime surveillance reinforcement;
- Prospecting for mineral resources;
- Health and education development; and
- Poverty reduction.

Monetary and financial sector reform: The GIRM's monetary policy aims to use indirect controls to allow market forces to operate. Banking supervision has been strengthened to encourage development of an inter-bank market and to ensure bank solvency. Financial sector reform is implemented with the support of the WB and IMF. Fiscal and monetary restraints have been maintained and the stability of local currency restored.

The foreign exchange system has been liberalized, and foreign currencies can be obtained freely through commercial banks and exchange offices upon presentation of required documents: invoices for importers, and an airplane ticket with a valid passport for travelers. The Central Bank fixes the exchange rate for the ouguiya through a basket of currencies of its principal trading partners. Interest rates, which are high relative to economic activity, have discouraged private investment. The liberalization of lending and deposit rates at commercial banks, however, has boosted investment.

In 1998, the Central Bank of Mauritania introduced new incentives to encourage fish exporters to bring back their assets in foreign currency and change them for the local currency in commercial banks or exchange offices. This policy increased the availability of foreign currencies (mainly dollars and French francs) in the market and eased foreign transactions. For example, local companies may now pay foreign suppliers either in cash or by direct transfer through a commercial bank, without Central Bank involvement.

The GIRM's 1998-99 program includes maintenance of price stability through sustained implementation of fiscal and monetary restraint; promotion of private credit agencies; institutional reform of regulatory systems; encouragement of domestic and foreign investment; and poverty reduction through higher wages.

Foreign Trade: With the abolition of the import monopoly on essential goods (rice, wheat, flour, sugar, tea, and powdered milk), GIRM removed restrictions on importing foodstuffs. Private Mauritanians benefited from Government efforts to increase the importation of goods and their efficient distribution throughout the country. However, credit restrictions and high interest rates constitute serious handicaps to most importers. In spite of GIRM's efforts to reduce the import tax, the average rate (43%) is still high for the region. Furthermore, the taxation system is not standardized; taxes vary according to the importance attributed to the goods. For example, the tax on products considered essential varies between 9% and 18%. In the 1999 Fiscal Law, the Government introduced a new law for customs tax called "Droit Fiscal à l'Importation" (Fiscal Law on Importation) to replace the "Droit de Douane" (Customs Law) and "Droit Fiscal" (Fiscal Law). Accordingly, the average customs tax decreased from 32% to 22%. By these measures, the GIRM is seeking to encourage its international trade, particularly with Arab Maghreb Union countries. Meanwhile, Mauritanian businesspeople are looking for new suppliers in developed countries with a high technological level.

Balance of Payments Situation

While the figures are not yet available, the balance of payments appears to have worsened in comparison to 1997. Contributing factors were the trade deficit (6.6B ouguiyas), increased debt repayments, and the diminution of workers' remittances. Mauritania imports almost all its needs: foodstuffs, fuel, vehicles and spare parts, building materials, clothes, etc. and exports mainly iron ore and fish. The debt service as a percentage of exports rose between 1997 (22%) and 1998 (27%). This increase is mainly attributable to increased debt service in 1998, up 38.5% since 1997.

Trade situation and trends: The creation of private exchange offices and the liberalization of exchange systems have facilitated an increase in external trade over these last two years. Total exports increased by 14% (in ouguiyas) despite a weak world market for iron ore and the collapse of the fishing sector in 1998. Total imports rose by 16% in the same period, despite an international climate that was made difficult by financial crises and collapses as well as a gradual depreciation of the ouguiya against hard currencies. Iron ore continued to be the pillar of Mauritania' exports, representing 56% of the total. However, fish exports continued to decrease, contributing only 37% of total exports. This trend is likely to continue in 1999 and 2000.

Foreign debt: Mauritania's outstanding foreign debt remains problematic. In December 1996, it was estimated at 226% of GDP. In spite of recent debt rescheduling, debt service payment increased 38.5% and became an even heavier drag on the budget. However, the GIRM's present negotiations with its creditors may result in partial debt cancellation, which will allow the economy a respite necessary for achieving its targets.

Foreign investment: Foreign investment, interrupted since the 1989-91 ethnic clashes, has resumed timidly in the past three years. Concerned about the importance of foreign investment to economic growth, the GIRM is introducing new measures to attract local private and foreign investors. The draft revision of the investment code is focused to this end. France and Arab Maghreb Union countries (mainly Algeria) are the largest source of foreign investment. The Saudi Al-Baraka firm is the major foreign investor in the banking sector, holding 85% of Al-Baraka Islamic Bank. The Belgium Belgolaise bank is the second largest foreign shareholder in local commercial banks. Private bank owners are seeking foreign partners. Already, two commercial banks are in negotiations with foreign investors for partnerships.

Infrastructure Situation for Distribution of Goods and Services

Mauritania's infrastructure for the distribution of goods and services continues to be poor in comparison with neighboring countries. Accordingly, the GIRM made infrastructure development (mainly land conversion and road construction and repair) a top priority in the 1998-99 public investment budget. The Government undertaking these infrastructure improvements with the understanding that light industry can only develop fully when it has an adequate transportation network to move raw materials and finished goods.

Air transport infrastructure: Mauritania has one air transport company, Air Mauritanie, which provides regular domestic and international flights between Nouakchott and Casablanca, Dakar, Las Palmas, Bamako, and Banjul. With three international airports, (Nouakchott, Nouadhibou, and Nema), Mauritania is served by Air France (twice a week) and Air Afrique (four times a week). The Nouakchott airport also receives regular flights weekly from Moroccan, Tunisian, Algerian, and Senegalese carriers. The improvement of air transport is one of GIRM's top priorities for 1999. To this end, GIRM is improving management of Air Mauritanie, developing the airports in the interior, and. partially privatizing the airlines. The company is now operating with two Fokker F-28 airplanes, one owned and one leased.

Infrastructure for roads: The state of the roads is generally very poor, particularly in the interior. The country's size and climatic conditions make infrastructure maintenance (and travel) particularly difficult. Mauritania possesses about 1,971 km of paved roads, 962 km of modern unsurfaced roads, 7,364 km of tracks, and 670 km of railroad line dedicated to carrying iron ore from Zouerate to Nouadhibou in the north. All other goods are distributed in country by trucks. Road improvement is necessary to incorporate and provide access to isolated localities, as well as facilitate the movement of people and goods.

Maritime transportation: Mauritania has two seaports. The Chinese-built deep-water port in Nouakchott has a capacity of about 1.5M metric tons a year. This "Port of Friendship" is the country's main commercial port and receives about 85% of imported goods. It frequently receives ships from France, Spain, Belgium, China, and Japan, and once in a while, the United States. The second seaport, situated in the northern economic center of Nouadhibou, is mostly dedicated to fish and iron exports.

Media: The broadcast media in Mauritania are characterized by limited channels of dissemination and the concentration of resources in Nouakchott. Mauritanian Television (TVM) has only one channel that can be easily received via satellite in all twelve of Mauritania's regional capitals. Radio Mauritanie (RDM) has three transmitters (FM, MW, and SW), and its broadcasts are received throughout the country. Both TVM and RDM transmit programs in Arabic. Emission in French is limited to news. The three other national languages (Pulaar, Soninke, and Wolof) are also broadcast. Independent newspapers of many stripes are proliferating in Nouakchott. Advertising may be done through the newspapers, radio and/or television.

Telecommunications: The telecommunications system has undergone considerable modernization and expansion in recent years. Thanks to GIRM efforts, it is now possible to place international calls from all thirteen regional capitals by dialing direct or using telex or fax. Both modernization and privatization of the telecommunications sector are underway.

Major Infrastructure Projects Underway

Road projects: The GIRM's 1999 objective is to improve roads and interior airports in order to facilitate the transport of people and goods, link the remote interior with urban areas, and increase internal trade. To this end, the GIRM contracted loans and has invested in highway construction and repair. Roads currently under construction include the Akjoujt-Atar road (76 km), the Sangarava-Tidjikja road (350 km), the Rosso-Boghe road (205 km), the Nouakchott-Nema road (1,150 km), and the Aioun, Mauritania-Nioro,Mali road.

Air transport projects: The GIRM is developing air transport infrastructure. It intends to improve the infrastructure of some interior airports and equip them with lights and fire extinguishing equipment.

Power Generation: Mauritania relies on imports to meet all commercial energy requirements. Alternative energy production, such as solar, is a limited but growing market. The completion of the hydroelectric power project included in the Senegal River Development Organization project will greatly increase Mauritania's power generation capacity.

The "Societe Nationale d'Eau et d'Electricite (SONELEC)," a State-owned company with a monopoly on the production and distribution of electrical energy and water, is improving the technical and financial performance levels of its management. Nonetheless, the GIRM has undertaken measures to privatize it on the advice of the WB, IMF and its development partners. The invitation to tenders to select the electricity partners will be published about mid-2000. Meanwhile, the director of the company is pursuing development strategies: ensuring reliable access to supplies of oil products; developing the supply of electrical power; and developing renewable energy sources. Power projects underway include extension by year 2000 of the Nouakchott electricity grid capacity by adding two motors of 7 MW each to the existing six motors.

Telecommunications: The postal and telecommunications sectors are being privatized in 2000 and the Government is seeking reliable partners to bid on taking over the work of OPT (the state postal and telecommunications company). In June, the WB approved a USD 10.8M credit to the GIRM for assistance in developing and executing a privatization strategy and expanding access to communications and information services.

The GIRM Committee for Year 2000 Issues is closely pursuing solutions to all expected problems, particularly in communications, power generation, water supply, and transport. OPT has already invited foreign engineers and experts to review the existing equipment of the company and recommend changes. The company is not expected to experience major Y2K distribution.

Hydraulic projects: The GIRM's main objective is to satisfy fully the demand for potable water in urban and rural areas by the end of 2000. To this end, projects have been implemented and planned to renovate and maintain the sanitation network, well drilling in the interior, and increase of Nouadhibou and Nouakchott's water storage capacity. An important water distribution project in Nouadhibou is in progress.