Mauritania: Risk Assessment

Country Rating¹

Rating: C

Business Climate Rating¹

Rating: D

Risk Assessment²

Economic expansion driven by ore exports
As in 2010, GDP growth lived up to expectations this year. Mining activity (20% of GDP) has benefited from high world prices and strong demand from China, the primary market for Mauritanian exports. The National Industrial and Mining Company "SNIM", the main domestic player in the sector alongside foreign companies, is expected to achieve good financial performance. Agriculture, breeding, and fishing (also 20% of GDP) have moreover benefited from higher prices but their productivity leaves much to be desired. Foreign aid, largely frozen in the wake of the August 2008 coup, began to flow again after the elections held in August 2009: In June 2010, the international community promised to provide over $3 billion in aid (an amount greater than annual GDP)  with the 20% already paid covering a third of Mauritania's annual budget. Investment in health and education is expected to accelerate and contribute to reducing the poverty afflicting half the population. Infrastructure spending, above all on roads, port installations, and water treatment and conveyance, will moreover accelerate. Foreign investment, especially from China and Arab countries will continue to flow into the extractive and fishing sectors.
Inflation accelerated in 2010 and early this year, reaching 6% due to the increasing cost of imported food products and fuel and to the preponderant share of consumer spending devoted to those basic needs. The rise of prices will likely stabilize at 6% for the rest of the year. The subsidized daily food rations made available to families at 600 government shops set up across the country in the framework of the Solidarity programme launched in January this year will be of limited effectiveness: the shops carry little stock, they are absent in many rural areas, and the programme is scheduled to end too early (June 2011) to link up with the autumn harvest. Monetary policy is expected to remain relatively restrictive. The local currency, the ouguiya, subject to a managed floating-rate regime, will likely tend to appreciate with the resumption of foreign aid and investment and thereby ease the impact of increases in world prices on domestic price inflation.
The fiscal deficit has tended to stabilize. The increased revenues resulting from more effective tax collection has been offset by spending increases intended to combat poverty, raise farm productivity, and, via new subsidies, compensate for the increasing cost of imported food products. Thanks to foreign aid, however, the country has been able to reduce the ultimate size of the deficit.

The indispensable role of foreign aid
Despite a marked improvement, Mauritania continues to run a very large current account deficit: Ore exports tend to be offset by imports of food, fuel, and capital goods intended for mining operations. Revenues from fishing licenses, which incidentally seem disproportionately low in view of Mauritania's bountiful waters, are largely cancelled out by payroll costs for foreign personnel employed in the mines. Insecurity has had a dissuasive effect on Saharan tourism. The deficit has been covered by foreign aid, in the form of grants and multilateral or bilateral concessional loans, and, to a lesser extent, by foreign direct investment in mining and oil. A stimulation of loans has resulted in increased foreign debt to levels, which have nonetheless remains sustainable thanks to the easy terms granted by lenders and the on-going development of mining resources.

Political weakness and the terrorist threat
The resumption of the democratic process materialized by the elections held in 2009 paved the way for the resumption of bilateral aid and foreign investment. A portion of the opposition recognized the validity of the election of Mohamed Ould Abdel Aziz, even though he initially came to power by virtue of coup. Influenced by the Arab spring, however, demonstrations have taken place. The government responded to the popular discontent by launching the Solidarity programme (subsidized food prices, hiring of civil servants, construction of housing, aid programme for agriculture).
The geopolitical context remains difficult as a result of the sporadic terrorist attacks by Al Qaeda in Islamic North Africa.  The authorities have pursued twofold strategy: military operations carried out right to Mali's doorstep in cooperation with France, and campaigns of persuasion based on recruitment of moderate imams and ulemas.

Strengths

• Support of European and Arab financial backers
• New attractiveness for FDIs
• Encouraging prospects for oil and uraniuml
• Rich mineral and fishing resources

Weaknesses

• Persistent political instability: coups, Islamic terrorism
• Limited economic diversification: iron, copper, gold, breeding, fish
• Low productivity of agricultural sector; 80% of cereal needs are imported
• Permeable borders
• Underperforming agriculture and fishing
• High sensitivity to fluctuations in ore and foodstuff prices
• Poor management of fishing rights