Mauritania - ECONOMY

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Mauritania - The Economy

AT INDEPENDENCE IN 1960, Mauritania embarked on an ambitious but ill-conceived development plan to construct large-scale industrial projects in the mining, energy, and manufacturing sectors. The failure of many of these projects left the nation saddled with one of the largest foreign debt burdens in the world in proportion to the size of its economy. In the late 1980s, Mauritania's economy continued to rely heavily on the earnings derived from the export of iron ore and fish. The economy also remained seriously hampered by a structural inability to feed the country's population. Even in nondrought years, large amounts of food aid were needed to supplement domestic production and commercial food imports.

Until the mid-1980s, iron ore mining was the motor of economic development in Mauritania. Exploitation of rich, highgrade iron ore deposits began in 1963. In the 1960s, mining directly provided almost one-third of the gross domestic product (GDP) and contributed more than 80 percent of the country's export earnings. Mauritania also began mining copper deposits in 1973; the mine closed in 1975, however, because of falling world copper prices. The worldwide recession that caused a fall in demand for copper also affected iron exports. Iron mining stagnated during the later 1970s. By the mid-1980s, the mining sector had lost its predominance in the economy, accounting for between 10 and 11 percent of GDP in fiscal year (FY) 1984, and by 1985 export earnings from mining had fallen to around 40 percent.

The waters off the coast of Mauritania are among the richest fishing grounds in the world. Before 1979, however, the government exercised little control over foreign fishing operations, and Mauritanians took little part in fishing. Fishing and fish processing accounted for less than 5 percent of GDP in 1975, and virtually the only revenues obtained were in the form of royalties on fishing licenses paid by foreign fishing companies to the government. In 1979 Mauritania established its New Fisheries Policy and a 200-nautical-mile exclusive economic zone (EEZ). The industry underwent rapid growth under the new policy, which required foreign operators to form joint ventures with Mauritanian companies and resulted in the development of a national fishing fleet.

Although in 1984 fishing contributed less than 10 percent to GDP at current market prices, the volume of reported fish exports rose rapidly. In 1983 fishing became the number one foreign exchange earner with some 54 percent of export revenues. Fishing, together with mining, employed about 9 percent of the economically active population.

Through the 1970s, agriculture, including herding, continued to deteriorate. Serious droughts combined with economic neglect to cause a severe decline in farm production. Both herding and agriculture were hard hit by the droughts: their combined contributions to GDP dropped from about 40 percent in the 1960s to about 25 percent in 1986.

In the early 1960s, Mauritania produced about half of its grain needs. After dropping to an all-time low of about 3 to 5 percent of its grain needs during the drought years of 1983-85, production rebounded somewhat to about one-third of need in 1986. Although the vast majority of the people remained attached to the traditional agro-pastoral life of the countryside, this life was becoming extremely difficult. Desertification advanced in some areas at a rate of six kilometers per year. Increasingly, refugees from the countryside began to migrate to urban centers such as Nouakchott. With the exception of a few scattered oases, farming was limited to the narrow band along the Senegal River.

As recently as the mid-1970s, only 20 percent of Mauritania's total population were sedentary farmers. Between 1975 and 1980, their contribution to GDP averaged 3 to 5 percent. During the same period, the pastoral herding sector of the economy constituted about 20 percent of GDP and engaged 60 to 70 percent of the total population. Of the states in West Africa, Mauritania had the highest ratio of cattle to people, a ratio of three to one. The livestock-to-crop ratio of GDP also was the highest for West Africa, as animal husbandry contributed four times as much to GDP as did farming.

The cumulative effects of drought and weak demand for Mauritania's iron exports, along with the heavy expenses of the war in the Western Sahara during the mid-1970s, curtailed the rapid growth of the 1960s that had been marked by an average rise in GDP of 8 percent a year. During the late 1970s and the 1980s, the economy stagnated, and financial instability supplanted an earlier ability to meet foreign debt obligations. From 1974 to 1984, GDP growth averaged 2.3 percent, barely keeping pace with population growth. In 1986 GDP per capita income was estimated at US$410, no higher in real terms than a decade earlier, placing Mauritania at the lower end of low- to middle-income developing countries. Real per capita income for the vast majority of the population outside the small modern sector was much lower, estimated in the range of US$100 to US$150 per year.

<>ROLE OF THE GOVERNMENT
<>FISHING
<>MINING
<>THE RURAL ECONOMY
<>INDUSTRY
<>BANKING

Mauritania

Mauritania - The Economy - ROLE OF THE GOVERNMENT

Since independence in 1960, the government has played the central role in development planning and economic management. In 1963 the government inaugurated the first of a series of fourand five-year development plans. Covering the period 1963-67, the first plan had two primary goals: reducing Mauritania's dependence on external finances (principally French) and foreign personnel and laying the foundation for economic development through a series of basic studies of the country's resources. The plan gave investment priority to processing facilities in the mining industry (30 percent of total programmed financing), urban development (15 percent), and transportation and communications (12 percent). The plan neglected the rural sector, however; only 9 percent of programmed financing was earmarked for agriculture and livestock, nearly all of which went for construction and maintenance of small dams and wells and for meat packing and storage plants. Virtually no money was allocated for improving agriculture and livestock production techniques. In 1963, in pursuit of the plan's first objective, the government requested a halt to French subsidies to the current operating budget. Nevertheless, French development assistance continued and was critical to investment plans that favored the partly French-owned iron mines that opened in 1963.

In the second (1970-74) and third (1976-80) development plans, Mauritania asserted an independent national economic identity and established the framework of the public sector. In 1973 Mauritania withdrew from the French-backed West African Monetary Union (Union Mon�taire Ouest Africaine--UMOA) and created an independent central bank and national currency, the ouguiya. In 1974 the government nationalized the mining sector, and enterprises engaged in basic public services and "mauritanized" staff positions throughout the newly expanded public sector. Planners continued to focus on investment in mining and infrastructure (roads in particular). Between 1970 and 1975, mining received 39 percent of a planned total expenditure of UM8.9 billion, and roads received 20 percent. The rural sector continued to lag, as the government allocated to it only 7 percent of total development spending.

The government that came to power in 1978 adopted a fourth five-year development plan (1981-85) and a stabilization program that had International Monetary Fund (IMF) support. The stabilization program called for tighter controls on government spending, more stringent tax collection, and major debt rescheduling. The five-year plan had three objectives: the development of irrigated agriculture, the rehabilitation of the iron mining sector, and the construction of a national fishing industry.

Public enterprises emerged rapidly during the 1970s and by 1985 totaled more than 100 entities. Through these parastatal enterprises, the government brought under national control the exploitation of the country's natural resources and the provision of basic public services--functions that were still largely in foreign hands as late as the mid-1970s. By the mid-1980s, public enterprises generated about 20 percent of GDP and employed some 14,000 people, thus providing about 25 percent of recorded employment in the modern sector. By 1986 the parastatal companies included twenty-five largely government-owned industrial and commercial enterprises, twenty-seven joint ventures with the private sector, and fifty-six decentralized services in administration, research, and education. The largest public enterprise was the National Mining and Industrial Company (Soci�t� Nationale Industrielle et Mini�re--SNIM).

The majority of the larger, wholly government-owned enterprises operated in principle on a commercial basis. Nevertheless, since the late 1970s they have operated at a loss, and many have failed to provide the services for which they were responsible. Direct government operating subsidies to these public enterprises were modest, totaling only 3 percent of government expenditures in 1983. Their losses (in addition to undelivered services) reverted to the government, however, because they failed to pay tax liabilities and the government assumed their debts. In 1986 public enterprises owed 25 percent of Mauritania's total public external debt.

The poor performance of public enterprises had a variety of causes, including a paucity of technical and professional skills among increasingly "mauritanized" staffs, a poor definition of roles and responsibilities, inadequate pricing policies, weak accounting practices, and overstaffing. In 1983 the government launched a program to reform and rehabilitate the public sector, and this program continued under the 1985-88 Economic Recovery Program and the 1987 Structural Adjustment Program agreements with the World Bank. Under the original 1983 program, no new public enterprises were to be established unless they could be economically justified; public enterprises were to be reviewed and nominated for liquidation, privatization, or rehabilitation; subsidies were to be phased out; and pricing policies were to be revised to reflect economic costs. In addition, interlocking relationships between the central government and individual enterprises were to be more clearly defined and enterprise debt arrears settled; excess staff was to be trimmed, hiring of new unskilled staff was to be frozen, and a new salary scale was to be established. Finally, substantial improvements in budgeting, accounting, and auditing procedures were to be introduced.

By 1987 progress in achieving these goals was impressive. The government had implemented selective rehabilitation of five large public enterprises. It also had privatized three others and begun liquidating five more.

The government's plan included privatizing three of the country's eight public financial institutions. In 1984 it settled interlocking debts of fifteen important enterprises through compensation, cancellation, and refinancing. In 1985, under new pricing policies, regulated producer prices paid to farmers by the Commission for Food Security (Commissariat � la S�curit� Alimentaire--CSA) rose by 40 percent. At the same time, the CSA raised the price of subsidized food aid on sale by 50 percent. The National Import-Export Company (Soci�t� Nationale d'Importation et d'Exportation--SONIMEX) raised consumer prices for food and basic commodity goods by approximately 30 percent to reflect real costs and to achieve full import parity on grain prices at the Senegalese border. Water and electricity prices rose by 10 percent, and port services fees rose by 25 percent, in part to compensate for the 1985 currency devaluation. The government reduced labor costs at SNIM, where it cut the work force by 25 percent. By the end of 1987, public sector management, wage policies, training, accounting procedures, and policies governing relations between the public enterprises and the central government all were under intensive review by the World Bank and the international donor community.

Mauritania

Mauritania - FISHING

The waters off the 754-kilometer-long coast of Mauritania are among the richest fishing grounds in the world. In 1986 estimates of the country's potential annual marine resources ranged between 400,000 and 700,000 tons. Mauritanian officials estimated the potential annual catch at 525,000 tons, a level close to that of Senegal, which had the largest fishing industry in West Africa. The actual catch, however, could only be estimated on the basis of export figures from Mauritania, recorded catches of licensed operators, and estimates of unrecorded and unlicensed catches. Unrecorded and unlicensed fishing in Mauritania's waters were believed to be high, perhaps in excess of 100,000 tons annually. In 1983 recorded exports and declared licensed fishing catches were estimated at 450,000 tons. Combining these figures, experts believed Mauritania's waters were close to being overfished. Although these waters had long been commercially exploited by foreign fleets, Mauritanians historically had done little fishing. The majority Maure population consumed little fish, and only the small Imraguen ethnic group fished for subsistence.

Until 1979, Mauritania's efforts to exploit the economic benefits of its fishing grounds focused on licensing foreign operators in territorial waters (confined until 1980 to a thirty- nautical-mile limit). These efforts, coupled with some port and processing development designed to attract fleets to land their catches at Nouadhibou, were only partially successful. The principal benefit came in the form of licensing royalties, calculated on the basis of 10 percent of an operator's reported catch. Because Mauritania had no means of patrolling its waters, many foreign operators were never licensed, and licensed operators consistently underreported their catches. Nevertheless, revenues from fishing royalties were very important to the government and in 1977-78 accounted for almost 20 percent of total budget receipts. In addition, the port and processing facilities were underused. In 1967 only 35 percent of the 52,000- ton annual processing capacity was used. Foreign operators preferred to use the facilities at Las Palmas, in Spain's Canary Islands, where they could avoid the supply, handling, water, and electric power shortages prevalent at Nouadhibou.

In 1979 Mauritania initiated its New Fisheries Policy and established a 200-nautical-mile EEZ. The New Fisheries Policy had three objectives: the formation of Mauritanian-controlled joint ventures, the creation of a national fishing fleet, and the establishment of a Mauritanian-controlled fish processing industry at Nouadhibou.

The first of these objectives led to the replacement of licensing and royalties agreements with foreign operators by newly formed Mauritanian-controlled joint ventures. In principle, such joint ventures implied a 43 percent government share, an 8 percent local private sector share, and a 49 percent foreign share. In practice, Mauritanian control of these ventures was nominal. The foreign partner provided all the capital and equipment and controlled all operations. Government and private shares were to be purchased out of venture profits over periods as long as twenty years. By 1986 the most important of the joint venture agreements that had been established was the Mauritanian- Soviet Maritime Resources Company (Mauritanienne-Sovi�tique des Ressources Maritimes--MAUSSOV). Between 1985 and 1987, MAUSSOV accounted for about 55 percent of total export tonnage and 20 to 30 percent of the total value of fish exports. The next most important joint venture was the Mauritanian-Romanian Fishing Company (Soci�t� Mauritano-Roumaine de P�che--SIMAR). Between 1985 and 1987, SIMAR accounted for 16 to 18 percent of total export tonnage and 7 to 10 percent of the total value of fish exports. Other significant joint ventures were established with Algeria, Iraq, and the Republic of Korea (South Korea).

The development of a national fishing fleet and processing industry led to the creation in the early 1980s of two public enterprises. The government also participated in and lent support to several privately owned Mauritanian fishing and processing companies. The most important of these was the Mauritanian Commercial Fish Company (Soci�t� Mauritanienne de Commercialisation du Poisson--SMCP). Owning no boats or facilities, the SMCP was a marketing board that bought all fish landed at Nouadhibou. By the terms of their agreements, joint ventures were required to land a portion of their catches--in practice, only the more valuable demersal (sea-bottom) fish--for local processing. The SMCP arranged processing and cold storage at port facilities before resale and export. Between 1985 and 1987, the SMCP exported 14 to 17 percent of the total catch and accounted for 71 to 82 percent of the demersal catch, which translated into 75 to 88 percent of the value of demersal exports and 43 to 60 percent of the value of total fish exports. Another public enterprise, the Mauritanian Refrigeration Company (Soci�t� des Frigorifiques Mauritaniens--SOFRIMA), operated processing facilities as well as a fleet of fishing boats. Several small privately owned Mauritanian companies also operated facilities or fleets of fishing boats.

Between 1968 and 1974, processing capacity at Nouadhibou rose by 22 percent per year until it reached an annual capacity of around 140,000 tons. Between 1970 and 1979, however, companies landed between 50,000 and 80,000 tons of fish annually for processing at Nouadhibou--far below the port's capacity. During the first years of the New Fisheries Policy (1979 to 1982), tonnage landed dropped to under 10,000 tons. Once joint venture agreements were signed, however, average annual tonnage landed began to rise, reaching about 58,500 tons annually between 1984 and 1986. Joint venture companies built additional processing capacity, and by 1985 the port had an annual processing capacity of some 200,000 tons. Despite government policy requiring certain landings, however, at the rates companies were landing their catches, only 30 percent of the port's capacity was in use.

Because of poor services and high costs, Nouadhibou was unattractive to fishing fleets. Its principle problem was lack of handling equipment for quickly unloading frozen or iced fish from vessels to cold storage. In addition, fish spoiled quickly in the desert heat, and the high cost of electrical power for processing and cold storage (three times the cost at Las Palmas) made landing of any but the most valuable fish varieties uneconomical. In addition, supplies and equipment were not readily available. Many items had to be brought in on an emergency basis by air, further inflating the cost of operations. Local banking facilities were limited, and international communications were difficult and often unavailable. Finally, Nouadhibou--with only two small hotels and scant recreational opportunities--offered little attraction to crews of vessels calling at the port. For the most part, crews who used the port either stayed on ship, went directly to chartered flights home, or took commercial flights to recreational ports such as Las Palmas or Dakar. Thus, the local economy benefited little from their presence.

Compounding these problems, the types of fishing vessels in use and the economics of the international market in fish varieties also made Nouadhibou unattractive for fish processing. The most economical types of vessels in use in the mid-1980s were large trawlers capable of freezing, processing, and transshipping catches independently of any port. The largest were Atlantic- and Super Atlantic-class factory trawlers, built for the most part in the German Democratic Republic (East Germany) and operated by the Soviets and Romanians. In the mid-1980s, these ships accounted for the bulk of Mauritania's reported catch, including 85 percent of pelagic (open-sea) fish. Between 1985 and 1987, pelagic fish represented about 79 percent of the total catch. The pelagic catch included sardines, herring, tuna, and anchovies. Although it represented the bulk of tonnage caught, the pelagic catch included the least valuable of fish varieties in Mauritania's waters and was fished almost entirely by the Soviet and Romanian joint ventures. From 1985 to 1987, MAUSSOV and SIMAR accounted for 90 percent of the pelagic catch. Because of their size and draft, the Atlantic- and Super Atlantic-class pelagic freezer- factory trawlers could not enter Nouadhibou, and they transshipped their catches to refrigerated carrier vessels anchored outside the port.

The most valuable varieties of seafood in Mauritania's waters were demersals, including cod, sole, octopus, squid, lobster, and shrimp. For these varieties, joint ventures and local operators used demersal freezers and demersal ice boats. The ice boats had to unload their catches for processing at port before export, but the freezers were somewhat less dependent on port processing. In 1983 the government began requiring the landing and processing of all demersal catches at Nouadhibou under the SMCP monopoly. Between 1985 and 1987, the demersal catch was estimated at about 21 percent of the total catch, with the SMCP accounting for 71 to 81 percent of the demersal exports, representing as much as 60 percent of the total value of fish exports in those years.

Despite difficulties, the New Fisheries Policy was partially successful. Its adoption led to the formation of important joint venture operations and the growth of locally owned fishing fleets. Efforts to encourage local fishing brought some opportunity for sales to processors and exporters, estimated at 10,000 tons per year. In the 1983-85 period, 70 percent of the total estimated catch in Mauritanian waters was brought in by joint ventures and ships flying the Mauritanian flag. This activity generated approximately US$150 million in gross export receipts and made fishing the country's most important source of foreign exchange. The remaining 30 percent of the reported catch continued to be fished by companies under older licensing agreements. These older agreements were due to expire by 1988 and included, in particular, operations of the Spanish and Portuguese fleets. A comprehensive fishing agreement covering the operations of these and other European operators that mainly fished for demersals was under negotiation with the European Community (EC) in 1987. To better control the estimated 100,000 tons of fish taken by unlicensed trawlers, the government, the World Bank, and the donor community were considering measures to increase surveillance and reporting. In late 1987, studies sponsored by the World Bank and donor community were under way to determine ways to increase the value-added portion of the industry to GDP.

Mauritania

Mauritania - MINING

Mauritania's mineral wealth has been exploited since Neolithic times. Archeological evidence of a copper mining and refining site near Akjoujt in west-central Mauritania dates from 500 to 1000 B.C. Modern exploitation of copper at Akjoujt and the more important iron ore deposits between Fd�rik and Zou�r�t began after independence.

Iron

Plans to exploit the high-grade iron ore deposits at Kedia, near Zou�r�t, began in 1952 with the formation of the privately owned Mauritanian Iron Mines Company (Soci�t� Anonyme des Mines de Fer de Mauritanie--MIFERMA). With support from the World Bank, the French government, and the Mauritanian government, MIFERMA (owned by French, British, Italian, and West German steel interests) began operations in 1963. By 1966 MIFERMA had invested the equivalent of some US$200 million in mining facilities at Kedia, port facilities at Nouadhibou, and a rail line to carry the ore to port for export.

Iron mining quickly dominated Mauritania's economy. In 1966, after only three years of operations, iron mining contributed 28 percent to GDP and accounted for 92 percent of the value of all exports. The three surface mines at Kedia had a rich ore content of 65 percent. Mined by explosives from the sides of tall rock formations, the ore was loaded on 100-ton trucks for transport to the railhead. There, the ore was also crushed and sorted. The ore was then loaded on the world's heaviest trains (200 cars carrying a total of 20,000 tons, pulled by four locomotives, and averaging two kilometers in length) for transport to Nouadhibou for export. Normally, there was one trip daily in each direction along the 650- kilometer line.

Iron mining provided the income for Mauritania's economic development during the first two decades of independence. Construction of the mine, rail, and port facilities provided wages to thousands of laborers. By the late 1970s and early 1980s, the industry employed some 6,000 workers and accounted for about 10 percent of the jobs in the modern sector. Development of the mines and their associated infrastructure took the bulk of investment funds allocated under the first three national development plans. The iron mining industry had a substantial direct and indirect impact on the economy, and many industrial and construction enterprises worked primarily or exclusively for the iron company. By the mid- 1970s, iron operations consumed about 40 percent of the country's imports of fuel oil. At the same time, mining was responsible indirectly for about 25 percent of GDP because of its high consumption of public utilities (power and water), commerce, transportation, and services. Iron also provided nearly 30 percent of all government revenues, thereby making an important contribution to all public sector investment and current expenditures. By the early 1970s, the cumulative effects of the growth of iron mining on national accounts, along with rising demand and good world commodity prices, enabled Mauritania to be recategorized by the World Bank and United Nations (UN) from a "least developed country" to a "moderate-income developing country." This reclassification increased Mauritania's ability to borrow on the international market to finance its ambitious development plans.

The development of the iron mines also contributed directly to the country's rapid urbanization. At independence, the populations of Nouadhibou and Zou�r�t were estimated at less than 5,000 each. By the mid-1970s, these two towns had more than quadrupled in size to around 20,000 to 30,000 people each. Mining revenues to the government also helped spur the growth of the administrative capital at Nouakchott, which grew from around 5,000 people in 1960 to over 125,000 people in the mid-1970s.

In 1974 Mauritania nationalized the mining industry as a part of its effort to establish economic independence under the second development plan. With substantial assistance from Arab members of the Organization of Petroleum Exporting Countries (OPEC), Mauritania bought out the European owners of MIFERMA. Transfer of ownership to the newly formed SNIM was smooth; the terms of the transfer kept the foreign expert personnel and managers on the job and maintained the commercial relationship with the former owners of MIFERMA.

The mid-1970s marked a turning point for Mauritania's economy. Two events adversely affected the mining sector. The first was the onset of the world recession in 1974 and 1975, caused by the sharp rise of world oil prices; the second was Mauritania's costly involvement in the Western Sahara conflict between 1976 and 1978. These events, along with a prolonged drought that began in the late 1960s, reversed Mauritania's iron- based economic growth.

From the beginning of mining operations in 1963, Mauritania's production and export of iron ore rose constantly for a decade. In 1974 ore exports reached their all-time high of 11.7 million tons. In the following year, with falling demand for steel in Western Europe, Mauritania's exports of iron ore declined by more than 25 percent, to 8.7 million tons. Between 1975 and 1987, iron ore exports averaged 8.5 million tons annually. Between 1976 and 1978, attacks on the rail line by the Polisario exacerbated the situation. In 1978 ore exports had fallen to 6.2 million tons. Mauritania's withdrawal from the war in mid-1978 allowed some recovery but did not affect the trend based on continued weak demand for iron ore on world markets.

By the late 1970s, the worsening economic situation created the first in a series of financial crises for the state, whose revenues fell with declining iron ore exports. This decline affected the government's ability to meet increasing foreign debt obligations. An immediate result of this financial crisis was the government's decision to reorganize the nationalized mining sector as a part of an IMF-supported stabilization program. Following nationalization in 1974, SNIM controlled not only iron mining but also copper and gypsum mining, as well as other industries and trading activities related to mining. The most important benefits of this arrangement for SNIM were control over the national distribution of petroleum products through the Petroleum Products Commercial Union (Union Commerciale des Produits P�troliers--UCPP); control of the explosives industry (with factories in Nouadhibou and Nouakchott); and participation in the Arab Metal Industries Company (Soci�t� Arabe des Industries Metallurgiques--SAMIA), which planned and later operated a steel rolling mill at Nouadhibou. Until 1978 SNIM's operations were the direct responsibility of the president of the republic and were administered by a board of supervisors composed of twelve members from the various ministries under the chairmanship of the minister of planning and mines.

The reorganization carried out between 1978 and 1979 led to SNIM's divestiture of many of these operations, particularly those related to copper and gypsum mining and petroleum products distribution. The financial reorganization of SNIM resulted in the sale of about 30 percent of the company's shares to new foreign investors, including the Arab Mining Company, the Islamic Development Bank, the government of Morocco, the government of Iraq, and the Kuwait Foreign Trading, Contracting, and Investment Company.

The critical importance of iron ore mining to the economy was underscored in the late 1970s by the ripple effects its decline had on the country's ability to meet its debt obligations. Prospects that the industry would continue to decline throughout the 1980s as the older Kedia deposits were exhausted led the government, with World Bank support, to embark on the US$500 million Guelbs Iron Ore Project in 1979. The sale of US$120 million worth of SNIM shares to Arab investors was one means of raising the capital for this massive project. Further support was guaranteed by large loans from the World Bank, the Saudi Fund, France's Central Fund for Economic Cooperation (Caisse Centrale de Coop�ration Economique--CCCE), the Kuwait Fund, the Arab Fund for Economic and Social Development, the Abu Dhabi Fund, and the European Investment Bank. Smaller loans were secured from the Japan Overseas Economic Cooperation Fund, the African Development Bank, and the OPEC Special Fund.

In late 1984, the first phase of the Guelbs project went into operation with the opening of new surface mines at El Rheins, located in the Zou�r�t district, about twenty-two kilometers from the Kedia deposits. Because the ore from the new deposits was not as rich as the Kedia ore (38 percent pure iron content as compared with Kedia ore's 65 percent iron content), the project required the construction of concentration and beneficiation facilities to raise the ore content to competitive marketing levels before export. Transportation, water, power, housing, and port facilities were also upgraded at Zou�r�t and Nouadhibou to handle what was expected to be increasing ore exports. By 1987, however, world demand for iron ore had not risen as expected, and the 1986 opening of new Brazilian mines increased overproduction worldwide. The Guelbs project was not expected to be cost effective for some time, if ever. Plans for a second-phase expansion were postponed in 1987; the Kedia deposits were still in operation in late 1987 and were expected to continue production into the 1990s.

Since 1975 the decline of the iron mining industry, as represented by its direct contribution to GDP, has been constant. During the 1960s, mining directly accounted for no less than 25 percent and as much as 33 percent of GDP at current market prices. If indirect contributions to related industries are factored in, these proportions rise. By the mid-1970s, with its direct contribution to GDP around 20 percent, mining's total contribution to GDP was still above 30 percent. After 1976 mining's direct contribution to GDP fell, so that between 1980 and 1985 it averaged 10 percent; by 1987 it was only 8.6 percent.

Iron ore was the nation's most important source of foreign exchange for twenty years; the value of iron ore exports relative to other exports fell below 50 percent for the first time in 1983. In that year, exports of fish overtook iron ore exports as Mauritania's most important foreign exchange earner. In 1985 iron ore represented 40 percent of total export earnings, down from an average of 80 percent between 1963 and 1980.

Despite these relative declines, iron mining remained a key factor in the overall economy. In terms of relative export percentages, mining's decline had little effect on day-to-day operations. In the 1984-86 period, levels of tons of iron ore shipped from Nouadhibou were actually higher than in the 1982-83 period. In 1985 SNIM was the country's largest employer after the government and accounted for over 40 percent of the jobs in public sector enterprises. In the 1970s, iron ore contributions to government revenues were estimated at around 30 percent of all government revenues. This percentage probably declined during the 1980s, but in late 1987 statistics were unavailable. Between 1981 and 1986, mining royalties contributed about 5 percent to government tax revenues. The industry's actual contributions were much higher, however, when taxes paid on business profits and wages and salaries, employers payroll taxes, turnover taxes, export taxes, and nontax revenues from public enterprises are taken into account.

Copper, Gypsym, Phosphates, and Oil

In 1967 the Mauritanian government formed a joint venture company with French and other interests to create the Mining Company of Mauritania (Soci�t� des Mines de Mauritanie--SOMINA). SOMINA was created to exploit copper deposits at Akjoujt. Operations began in 1973 but closed in 1975 because of the combination of high operating costs (particularly for fuel) and falling world commodity prices for SOMINA's low-grade ore. In 1975 the company was sold to SNIM. SNIM reopened the mine and continued to operate it at a loss until 1978, when the government separated SOMINA from SNIM and closed the mine. In the early 1980s, plans were laid to reopen the mines with backing from the Jordan-based Arab Mining Company of Inchiri (Soci�t� Arabe des Mines de l'Inchiri--SAMIN). By 1987, however, SAMIN had abandoned plans to operate the copper mine because of continued low world commodity prices and the high costs of processing the low-grade ore with its high arsenic content. In a related development, SAMIN planned to open a plant at Akjoujt to process copper tailings for gold content. Operations were scheduled to begin in 1988.

In 1973 SNIM began exploitation of large deposits of gypsum located about fifty kilometers northeast of Nouakchott. Total reserves of 98 percent pure gypsum were estimated at 1 billion tons. SNIM's operations during the 1970s entailed the export by road of roughly 17,000 tons per year to cement factories in Senegal. Senegal in turn sold cement to Mauritania on a rebate basis. Rising transportation costs forced a halt to operations in 1981. In 1984 production of gypsum resumed under the newly created SAMIA. SNIM held equal shares in SAMIA with the Kuwait Foreign Trading, Contracting, and Investment Company. Output in 1985 was 5,470 tons, which were consumed locally in a crushing and bagging operation that imported clinker from Senegal to make cement. Plans in 1987 called for resuming exports of gypsum to Senegal by sea once the new Chinese-built Friendship Port at Nouakchott became operational.

In 1984 a consortium discovered large deposits of phosphates near the Senegalese border. Nonetheless, by 1987 no plans existed to exploit these deposits (estimated at 95 million tons of rock, averaging approximately 20 percent of phosphate pentoxide). The high cost of building the infrastructure and facilities needed to exploit the deposits, estimated in 1984 at US$400 million, made exploitation unlikely for the foreseeable future.

In 1985 seismic surveys conducted jointly by Occidental Oil Company of the United States, the Chinese Petroleum Corporation of Taiwan, and Yukong Limited of South Korea indicated a high possibility of petroleum and natural gas reserves in Mauritanian waters. In 1987 the Amoco Oil Company signed an agreement with the government for a production-sharing contract to conduct offshore explorations in a 920,000-hectare tract west of Nouakchott. The company began seismic acquisition work in late 1987 and planned to drill exploratory wells in 1988.

Mauritania

Mauritania - THE RURAL ECONOMY

Located in the Sahelian and Saharan zones, Mauritania has one of the poorest agricultural bases in West Africa. Most important to the rural economy has been the livestock subsector. Between 1975 and 1980, herding engaged up to 70 percent of the population, and sedentary farmers constituted about 20 percent of the population. The vast majority of the population lived in the southern one-third of the country, where rainfall levels were high enough to sustain cattle herding. Farming was restricted to the narrow band along the Senegal River where rainfall of up to 600 millimeters per year and annual river flooding sustained crop production as well as large cattle herds. In the dry northern two-thirds of the country, herding was limited to widely scattered pastoral groups that raised camels, sheep, and goats, and farming was restricted to date palms and minuscule plots around oases.

A major reason for Mauritania's economic stagnation since the mid-1970s has been the decline of its rural sector. Government planners neglected both herding and farming until the 1980s, concentrating instead on development in the modern sector. The rural sector was severely affected by droughts from 1968 through 1973 and from 1983 through 1985, and it has suffered from sporadic dry spells in other years. In the 1960s, livestock and crop production together provided 35 to 45 percent of GDP (at constant 1982 prices). From 1970 to 1986, their contribution to GDP (at constant 1982 prices) averaged 28 percent, with herding accounting for about 20 percent of this figure and with crop production falling to as low as 3 to 5 percent in the worst drought years.

<>Herding
<>Farming

Mauritania

Mauritania - Herding

Historically, cattle herding was Mauritania's most important economic activity. In the 1980s, with a cattle-to-people ratio of three to one--the highest in West Africa--herding provided subsistence for up to 70 percent of the country's people. Herding has been dramatically affected by chronic drought and the attendant rapid advance of the desert. These events have forced shifts in patterns of movement, herd composition and ownership, and increased pressures on lands also occupied by sedentary farmers in the south.

Although sources disagree about herd size, it is clear that numbers have fallen since the 1960s. The decline in herd size probably did not reflect a widescale dyingoff of animals so much as an increasingly permanent shift of herds to better watered lands in Senegal and Mali.

The drought also caused shifts in the herding of camels (traditionally located in the drier north) and of sheep and goats (held by groups all across Mauritania). These changes were less dramatic than those for cattle, however, because camels, sheep, and goats are more resistant to drought. Although decreases in sheep, goat, and camel herd size in drought years could be significant, recovery was more rapid and sustained. In the years following the 1968-73 drought, camel, sheep, and goat herd sizes increased to predrought levels or higher. The same pattern seemed evident during the 1983-85 drought and the recovery years of the late 1980s. Indeed, the overall size of camel, sheep, and goat herds may have risen since the 1960s, as these hardier animals have moved into areas abandoned by cattle herds. This pattern seems to have been particularly true for the camel herds.

In the 1960s, cattle herds in Mauritania were composed of two basic types: the lighter, short-horned zebu, or "maure," which made up perhaps 85 percent of the national herd; and the heavier, long-horned zebu, or "peul." The smaller zebu ranged farther north and were owned by nomadic herders. The larger zebu stayed closer to the better watered riverine areas and were owned by sedentary groups who practiced agriculture in addition to livestock raising.

Although traditional herding patterns persist, considerable changes have taken place. Since the 1968-73 drought, precipitation has been below average. Between 1973 and 1984, as the 150-millimeter isohyet line moved south, livestock often were forced to stay year-round in dry season grazing areas nearer the Senegal River and across the border in Senegal and Mali. Thus, the herd populations were compressed into a smaller area, increasing pressure on land resources and heightening competition among herding groups and between herders and sedentary farmers. Overgrazing in increasingly crowded areas and the cutting of trees and shrubs for firewood and fodder (particularly for sheep and goats) contributed to accelerating desertification and posed a threat to crop production.

Patterns of herd ownership also changed with drought and the impoverishment of the rural sector. Increasingly, herds belonged to urban investors (mostly government officials and traders) and were cared for by hired personnel (drawn from the pool of destitute pastoralists who, having lost herds, migrated to urban areas). Herders began to take advantage of access to public wells to graze herds in areas traditionally controlled by tribal groups. The extent of this growing system of "absentee herding" was difficult to assess; but by the mid-1980s, as much as 40 percent of the national herd was thought to be involved.

The Ministry of Rural Development was responsible for livestock and natural resource conservation. The ministry's National Livestock Department (Direction Nationale d'Elevage-- DNE) was responsible for field services and for the annual rinderpest vaccination campaign. Headquartered in Nouakchott, in the mid-1980s the DNE operated eleven field centers in regional capitals and nineteen veterinary field stations, mostly located in the southern third of the country. Used principally in the annual vaccination campaigns, these field stations offered few other veterinary and extension services. The ministry also operated the National School for Training and Rural Extension (Ecole Nationale de Formation et Vulgarisation Rurale--ENFVR) at Ka�di, which since 1968 has trained veterinary field staff.

In 1981 the government established an autonomous state marketing enterprise, the Mauritanian Livestock Marketing Company (Soci�t� Mauritanienne de la Commercialisation du Betail-- SOMECOB). This agency had an official, but unenforceable, monopoly over livestock exports and the authority to intervene in market operations to stabilize domestic livestock prices. SOMECOB was also responsible for the Ka�di Abattoir, constructed in 1975 as an export slaughterhouse. By 1986 it functioned for local municipal consumption only, far below capacity, and SOMECOB's exports were negligible. Private exports of live cattle took place without obstruction from SOMECOB. This trade consisted mostly of unrecorded movements into Senegal, Mali, and countries farther south. In the mid-1980s, the most important market for Mauritanian cattle was domestic, centered on Nouakchott, Nouadhibou, and the mining centers.

Mauritania

Mauritania - Farming

Although it is a large country, most of Mauritania is desert. In the late 1980s, arable land was scarce, and, except for some oases, crop production was limited to a narrow band along the southern borders with Senegal and Mali. Farmers practiced four types of agriculture: rain-fed dryland cropping, called dieri; flood recession cropping along the Senegal River and its seasonal tributaries, called oualo; oasis cultivation, the least important; and modern irrigated agriculture.

The most important methods, dieri and oualo, were entirely dependent on limited and erratic rainfall and on the annual flooding of the Senegal River and its only perennial tributary in Mauritania, the Gorgol River. Dieri cultivation occurred during the rainy season, from June-July to September-October, in areas receiving sufficient precipitation (400 to 450 millimeters annually) to grow millet and peas. Oualo plantings occurred during the cold dry season from November to March, to take advantage of ground moisture as the flood waters of the Senegal and Gorgol rivers receded. Sorghum was the major crop for this season. Oasis cultivation drew its water from subterranean sources and so was not dependent on rains. Indeed, areas where oases were located might not experience any significant rainfall for years. Modern irrigated agriculture was only partially dependent on annual rainfall. It depended primarily on dams to retain water from the annual rise on the rivers resulting from rains falling upriver. For the Senegal River, these rains fell principally in the headwaters in eastern Mali and Guinea.

The two major droughts of the African Sahel were prolonged in Mauritania by intermittent dry spells. The result was a serious decline in overall agricultural production. In the 1960s, Mauritania had produced about one-half of its grain needs. By the 1983-85 period, grain harvests had fallen to a level that met only about 3 to 8 percent of the country's grain needs. The cereal deficits have been filled through a combination of commercial imports and international food aid, of which the United States has been the principal donor. During the most serious drought years, from 1983 to 1985, food aid accounted for over 61 percent of Mauritania's available supply of grain, commercial imports of rice by the government covered approximately 20 percent, and imports of flour by private traders provided another 13 percent. Local production was able to cover only 5 percent of need. In the following three years, local production recovered sufficiently to meet about one-third of the annual grain need, estimated in 1986 at 260,000 tons. In that year, local production covered 35 percent of need, government imports supplied 30 percent, and food aid met 35 percent.

Although accurate data were lacking, production of all grains in the recovery years from 1985 to 1987 rose to between 68,000 and 120,000 tons, a large increase over the record low of approximately 20,000 tons in 1984. Thus, gross production between 1985 and 1987 attained levels not matched since the mid-1960s. Rising population in the interim meant that, despite this significant recovery, the country remained dependent on imported grains to satisfy its needs.

Crops

Millet and sorghum were Mauritania's principal crops, followed by rice and corn. Before the 1980s, millet and sorghum accounted for 70 to 80 percent or more of total grain production. Rice production in the 1970s averaged 5 to 10 percent, and corn made up 10 to 25 percent. In the 1980s, rice production grew in importance, as national planning emphasized irrigated agriculture (which favored rice) and a change in dietary habits.

A few other crops were cultivated. Around 10,000 to 15,000 tons of dates were produced annually in the country's oases, mostly for local consumption. During the 1960s, the traditional production of gum arabic rose to some 5,000 tons a year. By the 1980s, however, production of gum arabic had disappeared. The ill-considered cutting of trees to increase short-term production combined with drought to destroy virtually all of Mauritania's gum-producing acacia trees.

By 1986 farmers working irrigated lands produced about 35 percent of the country's grain crops. Of a potentially irrigable area estimated at 135,000 hectares, only some 13,700 hectares were in production in 1985-86. Most of the irrigated land (about 65 percent) was in large-scale developments (500 hectares or more) centered in Bogu� and Ka�di, which were controlled by the government through the National Corporation for Rural Development (Soci�t� Nationale pour le D�veloppement Rural--SONADER). The remainder were small-scale operations (less than fifty hectares), developed by a newly active private sector centered mainly in Rosso.

In the 1980s, the government put increased emphasis on developing the rural sector. Government planning strategy under the 1985-88 Economic Recovery Program placed the highest priority on rural development (35 percent of planned investments). Particular attention was to be paid to upgrading existing land and developing new irrigated farming and flood recession agriculture. There were also plans involving Mauritania, Mali, and Senegal to integrate rural development and water and flood control through the Senegal River Development Office (Organisation pour la Mise en Valeur du Fleuve S�n�gal--OMVS) as the massive Diama and Manantali dams became fully operational.

State Control Mechanisms

In 1986 the government agencies involved in agricultural production, marketing, and food distribution were SONADER, CSA, and SONIMEX. Created in 1975, SONADER was a public agency under the control of the Ministry of Rural Development. Its general responsibilities focused on planning rural agricultural programs, including building and operating irrigation projects, training farmers in new techniques required for improved irrigation cropping, and providing credit and such inputs as fertilizers and pumping equipment. Organized in 1982 from two other agencies, CSA became responsible for stabilizing grain prices, maintaining a security food stock through market intervention, monitoring production and food deficits, and distributing food aid. SONIMEX began operations in 1966 as a government-controlled joint venture. The company held a monopoly on the imports of basic commodities (principally rice, tea, sugar, and tomato paste), which it resold to private interests for the retail trade. The private sector's role in cereal imports was legally restricted to wheat and flour. Numerous private traders in the marketing chain, however, were not covered (or were covered only partially) by CSA and SONIMEX. There were no precise data on the extent of domestic production marketed by private traders compared with CSA or on the extent of the grain trade across the Senegal River that was outside the control of SONIMEX.

Land Tenure

The system of land tenure was in transition in the 1980s. Factors contributing to this transition included government abolition of centuries-old slavery practices involving tribal and ethnic relations between various herding and sedentary communities; government development policies, particularly with regard to land reform and large-scale irrigation schemes; and tremendous shifts in land settlement and herding patterns because of drought.

Historically, landownership and range management were based on tribal relations and ethnic settlement patterns. Rangeland for herding was controlled through tribal ownership of wells; around oases, slave groups worked cultivable plots, although traditional noble clans held ownership of the land. In more southerly settled agricultural areas, ownership varied from region to region and village to village, depending on ethnic settlement patterns. Landownership might be vested in the clan or village chief as representative of the group and land distributed in perpetuity to family units having usufruct. Elsewhere, traditional nobilities might hold ownership of lands worked by formerly enslaved groups, who held traditional usufruct. Although a village chief could not sell land belonging to the clan (which would alienate family groups from the land), traditional noble clans could more easily sell property and effectively displace or disinherit slave groups. By the late 1980s, it was not known to what extent the formal abolition of slavery had affected traditional land relationships among noble and former slave groups. Also unknown was the impact of the government's stated policy of giving priority to former slave groups when lands that might be claimed under eminent domain were redistributed. Of potentially far greater importance in land tenancy was the 1983 Land Reform Act. The underlying first cause of the act was the state's inherent and overriding interest in land development. According to the act, the government could grant title for parcels of undeveloped land-- which apparently included fallow land--to whoever pledged to improve it and at the same time possessed requisite resources. Although the economic necessity of the act was beyond question, the social costs of appropriating valuable Senegal River Basin land hypothetically controlled by blacks and redistributing it to wealthy Maures from farther north could prove unacceptable. It was evident, however, that the situation was in considerable flux.

Large-scale government irrigation projects and plans for integrated development based on regional water management created another set of variables for traditional patterns of land use and ownership. Groups located in areas behind dams or in areas to be either permanently flooded or deprived of annual floods with increased control over flow levels in the Senegal River were undergoing a process of controlled resettlement. The formation of cooperative production groups that were to be settled on the land--often on a first-come, first-served basis--was essential to project implementation.

Mauritania

Mauritania - INDUSTRY

The bulk of Mauritania's industry was in mining or miningrelated activities. Industry, including fish processing but excluding mining, contributed only 5.3 percent to GDP in 1984. Industrial development was hampered by a limited infrastructure, a small local market with limited purchasing power, and a lack of skilled labor. In the mid-1980s, the labor force engaged in industrial activities numbered about 16,000 to 18,000 workers, of which 10,000 were employed in construction and an additional 4,000 to 6,000 were employed by SNIM. Most construction was related to the activities of foreign-financed projects, including mining. Some workers were employed in road and port construction. Within the small manufacturing sector were two main industries: an oil refinery and a steel mill. The rest consisted of small enterprises such as cement bagging, a perfume manufacturer, blanket fabrication facility, and an American-built sugar mill in Nouakchott that had never used its refining capacity and was limited to packaging imported refined sugar. In 1986 about thirty small enterprises were in operation.

Built in 1976 with West German, World Bank, and government financing, the steel rolling mill had an annual production capacity of 36,000 tons of reinforcing bars and rods. Operated originally by SNIM, the mill, which was located at Nouadhibou, operated intermittently and unsuccessfully before it was closed and sold in 1984 to the Arab Iron and Steel Company (Soci�t� Arabe du Fer et de l'Acier--SAFA). Reopened in 1985, the mill continued to be plagued by technical and economic problems; output in 1986 was only 5,300 tons.

Mauritania

Mauritania - BANKING

At independence, Mauritania became a member of the West African Monetary Union (Union Mon�taire Ouest Africaine--UMOA) but withdrew in 1973 to demonstrate its independent economic identity. When it withdrew, the government also relinquished membership in the African Financial Community (Communaut� Financi�re Africaine--CFA), whose currency--the CFA franc--was freely convertible to French francs. Mauritania then created its own currency, the ouguiya, and an independent central bank.

Banking

In the mid-1980s, Mauritania's monetary and banking structure consisted of the Central Bank of Mauritania (Banque Centrale de Mauritanie--BCM) and six commercial banks established with the participation of the government or of the BCM. Other major shareholders included various Arab interests, which included Saudi and Libyan participation.

By the early 1980s, Mauritania's banking sector was deteriorating, chiefly because of an accumulation of nonperforming loans that constituted some 50 percent of commercial bank assets. Between 1981 and 1983, government borrowing from the BCM and commercial banks rose to statutory limits. The private sector and public enterprises were thus forced to borrow increasingly from foreign banks to cover their severe liquidity problems.

As a result of this spiral of debt, in 1985 the government, with IMF and World Bank support, undertook measures to restructure the banking system. Measures taken under the 1985-88 Economic Recovery Program instituted a monetary and credit policy favoring the private sector and an austerity program for the public sector. Furthermore, in 1987 the government, in cooperation with the World Bank, adopted a reform program that focused on three areas: reforming credit policies and banking regulations, strengthening the BCM, and restructuring four of the six commercial banks, including the International Bank of Mauritania (Banque Internationale pour la Mauritanie--BIMA), of which the BCM held 91 percent.

Government Finances

In 1986, with IMF and World Bank support, the government prepared its first consolidated budget. Before this, budgetary procedures covered only expenditures financed through domestic resources. The new procedures covered all financing sources used by the government in a budget encompassing both internally and externally financed current and capital expenditures.

Between 1979 and 1984, expenditures on current operations averaged UM10.5 billion. Typically, domestic revenues covered about two-thirds of this amount; the balance was financed by direct external budgetary support. Between 1978 and 1983, the government wage bill (including military salaries) constituted the largest line item of current expenditures. The second largest expenditure was for equipment and supplies.

In addition to current expenditures, the central government budget allocated smaller amounts for capital expenditures, which amounted to the government's contribution to the public investment program. Capital expenditures accounted for only between 8 and 11 percent of the total budget in the period 1979- 83, far less than current expenditures.

Mauritania's domestic revenue base was very narrow and depended on the iron and fishing export industries and the service sector. Total government revenues were derived from taxes and nontax revenues. Between 1981 and 1986, nontax revenues accounted for from 11 to 20 percent of the total and consisted of fish royalties, penalties, and revenue transfers from public enterprises. Tax revenues were derived mainly from taxes on international trade and on income and profits. Between 1981 and 1986, taxes on international trade (of which import taxes were the most important) averaged 41 percent of all revenues, and taxes on income and profits represented 26 percent. Taxes on wages and salaries averaged more than 14 percent of all government revenues for this period.

Mauritania