Mauritania: Risk Assessment
Country Risk Rating
|C||A very uncertain political and economic outlook and a business environment with many troublesome weaknesses can have a significant impact on corporate payment behavior. Corporate default probability is high.|
Business Climate Rating
|D||The business environment is very difficult. Corporate financial information is rarely available and when available usually unreliable. The legal system makes debt collection very unpredictable. The institutional framework has very serious weaknesses. Intercompany transactions can thus be very difficult to manage in the highly risky environments rated D.|
Dynamic growth based on natural resources
Following the dip in 2015, activity in Mauritania is expected to accelerate in 2016. Growth should be sustained by an increase in the fish haul that will partly offset the slowdown in the manufacturing and mining sectors. The primary sector, although a core element in the economy, is extremely vulnerable to rainfall fluctuations. Despite the decline in manufacturing output, the secondary sector is also central and is likely to be boosted by construction and civil engineering, as part of a structural investment plan. As for the tertiary sector (financial and retail), it should continue growing and become the leading contributor to GDP. Activity in the manufacturing sector is expected to slow, and the mining sector, dominated by copper and iron ore, will continue to suffer from weak external demand and the absence of any upturn in commodity prices after the fall in 2015, despite the expected growth in production due to the start of production of Guelb II mining complex. Growth should also be boosted by domestic consumption stimulated by extensive use of consumer credit. Investment on the other hand is likely to decline because of the slowdown in the mining sector. Mauritania suffers from a lack of competitiveness and a restricted and undiversified formal economy.
Inflation is expected to increase in 2016 under the effect of small rises in petrol and food prices.
Economy vulnerable to external shocks
Despite the continuation of strong growth, the Mauritanian economy remains vulnerable to external shocks. The reason is its extreme dependence on mining exports which have a major role in total exports. Its current account is likely to suffer as a result of worsening terms of trade, brought about by the decline in mineral prices and a drop in Chinese demand. The deterioration in the balance of trade and the financial accounts will not be covered by increased current transfers and revenues. Currency reserves should remain high at almost 7 months’ imports. The maintenance of this level of reserves can be attributed to a flexible orientation of exchange rates.
The country’s budget deficit, having improved in 2015 thanks to more effective management of tax collection, is expected to deepen in 2016 as a result of the collapse of non-tax revenues, mainly linked with a decline in revenue from the mining, oil and petrol sectors.
Finally, the level of public debt in Mauritania will remain high despite the debt relief the country has received. Mauritanian public debt is mainly external, contracted and guaranteed by the State. The country is heavily indebted to the Kuwaiti sovereign fund (Kuwait Investment Authority) and debt reduction talks are ongoing with Kuwait.
The political situation is calmer but the security situation remains precarious
On 21 June 2014, Mohamed Ould Abdel Aziz was re-elected President for five years, with 82% of the votes, in an election boycotted by the leading opposition parties. The Constitutional Council confirmed the result, which has allowed the President to consolidate his legitimacy after the 2008 coup d’état. The high levels of poverty (50% of the population lives below the poverty line) and unemployment (estimated at 31% in 2015) show that there remains a significant risk of social unrest, further fueled by an inequitable distribution of resources. Slavery is among the most serious challenges. In 2014 there were estimated to be at least 150,000 slaves, equal to 4% of the Mauritanian population. As of 13 August 2015, a new law increased the penalties for those involved in slavery. It includes courts to deal with crimes of enslavement.
Mauritania exists in a fragile geopolitical situation. Security remains a critical challenge for the country, given the presence of terrorists groups in the Sahara, such as Al-Qaida in the Islamic Maghreb (AQMI). These terrorist cells, active in Mauritanian territory, represent the greatest threat to the internal stability of the country. With the aim of preventing their return to its territory, at the beginning of 2014 Mauritania launched a security cooperation structure known as “G5 du Sahel”. The business climate in Mauritania has deteriorated in this context, as a result of inadequate financial and banking infrastructures and corruption. The Doing Business report places the country 168th out of 189 countries. There have however been some improvements, in particular in setting up a business.