MAURITANIA Country Economic Memorandum: Accelerating Growth Through Diversification and Productive Cities © 2020 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because the World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Attribution—Please cite the work as follows: “World Bank. 2020. Mauritania Country Economic Memorandum: Accelerating Growth Through Diversification and Productive Cities © World Bank.” All queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. MAURITANIA Country Economic Memorandum: Accelerating Growth Through Diversification and Productive Cities May 2020 Contents Abbreviations vii Acknowledgements ix Executive summary xi 1. Introduction 1 2. Understanding Mauritania’s growth story 5 2.1. Growth history 5 2.2. Weak foundations for growth and structural transformation 7 2.2.1. Over-reliance on extractives 8 2.2.2. A missing link between urbanization and growth 11 3. The need to diversify the Mauritanian economy 15 3.1. Why diversification matters to Mauritania? 15 3.1.1. Diversification is a top priority for Mauritania’s development process 15 3.1.2. Mauritania has struggled to diversify exports away from extractives 17 3.2. What are the opportunities for diversification? 20 3.2.1. Focus on products with emerging comparative advantage 20 3.2.2. Export quality upgrading 22 3.2.3. New export opportunities based on established patterns 23 3.2.4. Further develop exports of transport services 24 3.3. Constraints to agricultural productivity 25 3.3.1. Human capital 25 3.3.2. Access to Finance 26 3.3.3. Value chains and Markets 27 3.3.4. Public spending 29 3.3.5. Governance 29 3.3.6. Land 30 3.4. Is Mauritania’s current diversification ecosystem adequate? 31 3.4.1. Rigid exchange-rate policy and underdeveloped banking sector 31 3.4.2. Despite recent improvements, the business environment remains challenging 31 ii MAURITANIA: Country Economic Memorandum 3.4.3. High tariffs and trade restrictions compound a challenging business environment 35 3.4.4. Absence of preferential trade agreements 36 3.4.5. Poor infrastructure and connectivity increase trade costs 37 3.4.6. Weak human capital 39 4. The missing link between urbanization and growth 41 4.1. Introduction 41 4.2. Understanding the urbanization landscape in Mauritania 42 4.2.1. Urbanization and its Drivers 42 4.2.2. Spatial Inequality in Welfare and Access to Services: a Driver for Migration? 46 4.3. Unpacking the linkages between urbanization and growth 47 4.4. Is Nouakchott lifting its weight as an urban agglomeration? 52 4.4.1. Absence of effective land management and urban planning has resulted in urban sprawl 55 4.4.2. Low population densities, disconnected neighborhoods, and financing constraints make infrastructure and services costly 56 4.4.3. Inadequate institutional capacities also hamper other urban services 58 4.4.4. Nouakchott’s low wage premium 59 4.4.5. Low education 60 4.4.6. Climate change challenges 60 5. The way forward for a more sustainable and resilient growth path 63 5.1. Promote a more market-oriented economy 63 5.1.1. Adopt an export-prone trade policy 63 5.1.2. Improve the business environment and promote local entrepreneurship 65 5.2. Enhance production factors 65 5.2.1. Boost education and skills 65 5.2.2. Improve infrastructure and connect cities 67 5.2.3. Make land use more efficient 68 5.3. Strengthen governance and improve urban planning 69 5.4. Better manage natural resources and adopt a more market-based exchange rate 70 Appendices 73 I. Data limitations 74 II. Growth accounting: production function 75 III. The diversification-growth nexus: evidence from the literature 76 IV. Definitions of export/trade concepts 77 V. Wage premium analysis 78 VI. Oaxaca Decomposition Analysis 79 VII. Lessons from Peru’s successful growth experience 80 References 82 MAURITANIA: Country Economic Memorandum iii List of Figures Figure 1: The poverty rate declined rapidly over time in Mauritania… 2 Figure 2: …, but the country’s development level did not improve relative to other countries 2 Figure 3: Between 1992 and 2018, GDP growth in Mauritania was almost equal to the SSA average, … 6 Figure 4: … but it was very volatile with a standard deviation of 4.5 percent 6 Figure 5: Mauritania’s growth path can be decomposed into three main periods that were characterized by natural resources, climatic hazards, and political instability 6 Figure 6: Extractives, transport and communication, and agriculture were the main drivers of growth 7 Figure 7: The product space in Mauritania remained almost the same between 2000 (left) and 2017 (right) 8 Figure 8: Mauritania lags its peers on economic complexity 8 Figure 9: The standard Solow decomposition shows that physical capital was the driver of growth… 9 Figure 10: …, but this masks the major growth effect of natural resource extraction in the past two decades 9 Figure 11: About 80 percent of per capita wealth growth in Mauritania was driven by natural capital 10 Figure 12: In contrast, Mauritania suffered from limited human capital accumulation 10 Figure 13: Agricultural growth in Mauritania stemmed from labor and livestock accumulation 10 Figure 14: Despite some improvement in recent years, Mauritania still lag its peers on agricultural TFP 10 Figure 15: The rapid urbanization in Mauritania was not accompanied by parallel increases in GDP per capita, in contrast to the relationship in its peers 11 Figure 16: The percentage of urban population living in slums is very high in Mauritania 11 Figure 17: Between 2004 and 2014, labor moved from agriculture to sectors with low and declining productivity 12 Figure 18: Despite the oil and mining boom, Mauritania did not experience a structural transformation 12 Figure 19: The share of firms operating in non-traded sectors in Nouakchott is high 13 Figure 20: Mauritania remains highly dependent on extractives 16 Figure 21: GDP growth more than halved after 2014, positioning Mauritania as a backslider in SSA 16 Figure 22: Economic diversification is clearly highlighted in the SCAPP as a key driver for growth 17 Figure 23: Wilayas with more natural resources are more economically complex in terms of labor force 17 Figure 24: Mauritania’s export structure remains largely dependent on extractives and fish 18 Figure 25: Although export destinations are more diversified overall, … 18 Figure 26: … exports of main products are concentrated in few destinations 18 Figure 27: Mauritania’s export growth was largely driven by the “intensive margin” 19 Figure 28: FDI inflows in Mauritania are very high, … 19 Figure 29: … but are destined to extractives 19 Figure 30: In Mauritania, the number of products with an RCA is small … 20 Figure 31: … and did not increase over time 20 Figure 32: Fish products offer more opportunities for quality upgrading, … 22 Figure 33: …especially high value-added products like fresh/chilled fish, fish fillets, and dried fish 22 Figure 34: More than half of Mauritanians working in the agriculture sector are illiterate… 26 Figure 35: … and the ratio of workers who receive agricultural payment with limited schooling is high 26 Figure 36: Public spending on agricultural research… 26 Figure 37: … and the skill level of researchers have dropped in Mauritania compared to comparators 26 Figure 38: Access to finance in rural areas declined in Mauritania, in contrast to the rising trend in peer countries 27 Figure 39: Most Mauritanians still rely on cash to receive agricultural payments 27 Figure 40: Mauritania exports lower added-value hides and skins’ products than Senegal and Cote d’Ivoire 28 Figure 41: Public spending on agriculture in Mauritania is very low and declined in recent years… 29 Figure 42: … due to the large cut in subsidies 29 iv MAURITANIA: Country Economic Memorandum Figure 43: The REER was on an appreciating trend 32 Figure 44: NPLs in Mauritania are very high compared to SSA 32 Figure 45: The business environment in Mauritania improved compared to its peers in recent years 34 Figure 46: However, it remains below the country’s income potential because of … 34 Figure 47: … financing constraints, … 34 Figure 48: … limited competition, … 34 Figure 49: … poor electricity infrastructure, … 35 Figure 50: … and lack of skilled labor 35 Figure 51: Mauritania’s import tariffs are high 37 Figure 52: Mauritania is second to last in the world on the prevalence of NTMs 37 Figure 53: Mauritania performs poorly in terms of trade logistics 38 Figure 54: Despite declining over time, trade costs in Mauritania remain elevated 38 Figure 55: Mauritania’s territory is characterized by low population density 42 Figure 56: Half of the urban population in Mauritania resides in the capital Nouakchott … 43 Figure 57: … while 37 percent reside in towns below 10 thousand inhabitants 43 Figure 58: Nouakchott’s population nearly doubled over the past two decades, driven mostly by migration 43 Figure 59: The main cities to which individuals migrated are Nouakchott and Nouadhibou and the mining areas 44 Figure 60: Young males are the most likely to migrate... 44 Figure 61: … with Nouakchott being the main migration destination 44 Figure 62: A continuation of previous migration patterns will heavily influence the regional composition population 45 Figure 63: The difference between rural and urban welfare is sizeable ... 46 Figure 64: … and is more pronounced in the South that has the largest headcount poverty ratio 46 Figure 65: Urbanized communes have better access to… 47 Figure 66: … electricity… 47 Figure 67: … piped water… 47 Figure 68:… and sanitation systems 47 Figure 69: Communes in the south of Mauritania are largely dependant on framing and herding 48 Figure 70: Regions in the South of Mauritania were affected by a food crisis in 2018 48 Figure 71: Urban agglomerations in Mauritania are among the least dense in Africa 49 Figure 72: Many localities, especially in the South, show low economic activity and do not emit light 49 Figure 73: Urban agglomerations in Mauritania are very distant from each other 49 Figure 74: About half of Mauritania’s territory has no or limited connections to within country market towns 49 Figure 75: The spatial price variation for Charcoal (panel A) and Milk concentrate (panel B) points to high transport costs 50 Figure 76: The quantity and … 51 Figure 77: … quality of roads in Mauritania are poor 51 Figure 78: Social cohesion in Mauritania is very low when compared to other countries in the world 52 Figure 79: Between 1977 and 2018, Nouakchott’s population grew by a factor of ten 53 Figure 80: Nouakchott’s contribution to the economy is lower than what is expected given its population 53 Figure 81: Nouakchott’s urban footprint expanded 30-fold between 1964 and 2016 54 Figure 82: Leapfrogging in Nouakchott increased dramatically since 2000 55 Figure 83: Low-rise buildings dominate the housing structure in Nouakchott 55 Figure 84: Nouakchott has a very low and flat population density gradient compared to Dakar 57 Figure 85: Access to piped water is low declines with distance to the CBD … 57 Figure 86: … as does access to the internet within household 57 MAURITANIA: Country Economic Memorandum v Figure 87: The cost of financing in Mauritania is the highest compared to peer countries 58 Figure 88: Nouakchott has an advantage in wage differentials over other Mauritanian regions, except with Tiris Zemmour, Inchiri, and Nouaddhbiou 59 Figure 89: While access to schools seems spatially secured, it is low in Nouakchott 60 Figure 90: In Nouakchott, emigrants are better educated than those that they leave behind, but immigrants seem less educated compared to the original population 61 Figure 91: Boosting human capital would yield economic gains … 66 Figure 92: … and reduce the percentage of Mauritanians living under 1.9$ per day 66 List of Tables Table 1: Summary of recommendations that could help Mauritania achieve a sustainable growth path xv Table 2: Mauritania has a consolidated revealed comparative advantage in mineral and fish products and a strong potential for creating a consolidated comparative advantage in some animal and mineral related products 21 Table 3: Industries in the nearby product space of Mauritania’s current capabilities include animal, vegetable, fish and copper-related products 23 Table 4: Mauritania has an increasing (decreasing) RCA in sea transport (travel and ICT) services 24 Table 5: Among major cities, Rosso is the city where cars roll at the slowest pace when travelling from/to Nouakchott 39 Table 6: Administratively, Mauritania is divided into 13 regions, each with its own capital 42 Table 7: In 2015, 90 percent of the urban population (other than Noukachott and Nouadhibou) lived in cities that were more than 200 km away from the next larger city 51 Table 8: Younger migrants to Nouakchott are less educated than older cohorts 61 Table 9: Wage gap estimation between Nouakchott and other urban areas. 78 List of Boxes Box 1: Description of CEM 2.0 analytical framework 3 Box 2: Few large firms dominate key markets 33 Box 3: Future population will grow rapidly and be largely concentrated in Nouakchott if past migration trends continue 45 Box 4: One-stop shops facilitated trade in Laos and Zambia 64 Box 5: Successful experiences of land management in SSA countries 68 vi MAURITANIA: Country Economic Memorandum Abbreviations ACFTA African Continental Free Trade Area ONS National Office of Statistics AMU Arab Maghreb Union NFHR National Fund for Hydrocarbon Revenues BCM Banque Centrale de la Mauritanie NQI National Quality Infrastructure CBD Center of Business District NTMs Non-Tariff Measures CBM Central Bank of Mauritania ONS Office National de la Statistique CAGR Compound Annual Growth Rate OECD Organisation for Economic Co-operation CEM Country Economic Memorandum and Development CPF Country Partnership Framework PIP Public Investment Program DB Doing Business RGPH Recensement Général de la Population et ECOWAS Economic Community of West African de l’Habitat States RCA Revealed Comparative Advantage ECI Economic Complexity Index RUN Urban Region of Nouakchott EPCV Enquête Permanente sur les Conditions SMCP Société Mauritanienne de de Vie des Ménages Commercialisation du Poisson EU European Union SCAPP Strategie Nationale De Croissance Aceleree FDI Foreign Direct Investment et de Prosperite Partage GCI Global Competitiveness Index SSA Sub-Saharan Africa GoM Government of Mauritania ToT Terms of Trade GTA Grant Tortue Ahmenyim TFP Total Factor Productivity GDP Gross Domestic Product USDA United States Department of Agriculture IMF International Monetary Fund WBL Women, Business and the Law JICA Japan International Cooperation Agency WB World Bank LFS Labor Force Survey WDI World Development Indicators LCSI Liner Connectivity Shipping Index WTO World Trade Organization LPI Logistics Performance Index CNERV National Livestock and Veterinary Research Centre MAURITANIA: Country Economic Memorandum vii Acknowledgements This Country Economic Memorandum (CEM) was prepared by a multisectoral World Bank team led by Samer Matta (Economist) based on three background papers prepared as part of the CEM 2.0 process. Chapters 1 and 2 were written by Samer Matta, with contributions from Fiseha Haile Gebregziabher (Economist). Chapter 3 was prepared by Guillermo Arenas (Trade Economist), with contributions from Samer Matta, Nabil Chaherli (Lead Agriculture Economist), Hadramy Oubeid (Public Sector Specialist), Brahim Sall (Senior Rural Development Specialist), Daniel Gerber (Senior Agriculture Economist), and Lilian Yves Yvon Puech (Senior Livestock Specialist). Chapter 4 was written by Kirsten Hommann (Senior Urban Economist) and Moritz Meyer (Poverty Economist), with contributions from Farouk Banna (Senior Urban Sanitation Specialist), Thomas Gertin (Consultant), Alexandra Le Courtois (Urban Specialist), Katie McWilliams (Geographer), Anirudh Rajashkar (Consultant), and Benjamin Stewart (Geographer). All the above team members contributed to chapter 5. Isolina Rossi (Consultant), and Melanie Laloum (Consultant) conducted various analyses in different parts of the report. The team also acknowledges overall contributions from Cristina Navarrete Moreno (Private Sector Specialist) and Andre Teyssier (Senior Land Administration Specialist). The report was prepared under the overall guidance of Nathan Belete (Country Director), Laurent Msellati (Country Manager), and Lars Christian Moller (Practice Manager). Administrative support from Micky Ananth, Theresa Bampoe, and Maimouna Toure is greatly acknowledged. The report greatly benefited from two workshops (in October 2018 and February 2019) and interactions with Mauritanian stakeholders, including management and staff of: Ministère de l’Economie et de l’Industrie (MEI), Banque Central de Mauritanie (BCM), Centre Mauritanien d’Analyse de Politiques (CMAP), Office National de la Statistique (ONS), Ministère de l’Habitat, de l’Urbanisme et de l’Aménagement du Territoire (MHUAT), la Région de Nouakchott, l’Union Nationale du Patronat Mauritanien (UNPM), Féderation Mauritanienne de l’Agriculture (FMA), and la Fédération Mauritanienne de l’Élevage (FME), among others. The team would also like to thank Johan Mistiaen (Program Leader), Christine Richaud (Lead Economist), Aghassi Mkrtchyan (Senior Economist), Somik Lall (Lead Urban Economist), and Jose Reyes (Senior Economist) for their helpful comments. The analysis is based on information and data available as of December 2019. This report would not have been finalized without the generous financial assistance from the Umbrella Facility for Trade Trust Fund. MAURITANIA: Country Economic Memorandum ix Executive Summary T he Mauritanian economy is at an important what are the opportunities to do so in the future? (ii) What crossroad. Despite significant increases in its are the reasons behind the weak link between urbanization natural resource wealth, economic development and growth, and is Nouakchott lifting its weight as an in Mauritania remains weak. The over-reliance on natural urban agglomeration? (iii) Which policy actions could help resources has left the economy undiversified with growth, build those pathways? By answering these questions, exports, and fiscal revenues all dependent on extractives. the report aims to contribute to the economic discussion Responding to the 2015 commodity price shock, the and provide policy recommendations for the choices that authorities implemented a strong fiscal consolidation Mauritania is facing to accelerate growth and improve the program that restored macroeconomic stability and living standards of its population. steered the economy onto a recovery path. The new administration—appointed following the election in mid- The report is organized around five chapters. Chapter 1 2019—now has the challenge and opportunity to map starts with a brief introduction. Chapter 2 analyzes the key out a more sustainable development model and steer characteristics of Mauritania’s past growth performance. the economy onto a path of accelerated and equitable Chapter 3 evaluates the current and future potential for economic growth for the rapidly growing population. economic and export diversification. Chapter 4 examines the challenges that are preventing urbanization from The objective of this report is to support policy makers in contributing to growth, with a focus on Nouakchott. Mauritania in their reform efforts to accelerate growth Chapter 5 concludes by proposing a menu of policy as outlined in the National Development Plan (SCAPP). recommendations that could help Mauritania achieve It attempts to answer the following questions: (i) Why faster and more sustainable economic growth. The main Mauritania could not diversify its economy in the past and messages are summarized below. MAURITANIA: Country Economic Memorandum xi Weak foundations of past growth Another manifestation of Mauritania’s weak growth foundations is the missing link between urbanization Between 1992 and 2018, economic growth was and economic growth. Mauritania is one of the most moderate but highly cyclical. During this period, GDP urbanized countries in SSA as 52.8 percent of its 4.2 million growth in Mauritania averaged 4 percent, a rate almost population lived in urban areas in 2017, compared to a 39.5 equal to the SSA average. However, due to the rapid increase percent average in SSA. Urbanization has usually gone in population, growth was lower in per capita terms. As hand in hand with sustained GDP growth, but this was not a result, the gap in real GDP per capita between the SSA the case in Mauritania. This missing link manifests itself average and Mauritania has widened, reaching USD 306 in through the large percentage of individuals living in urban 2018. The growth path also displayed cyclical fluctuations, slums (about 80 percent in 2014). reflecting the country’s vulnerabilities to natural resource, climate, and political shocks. Given the importance of diversification and a well- managed urbanization to Mauritania’s development, Growth and wealth accumulation were largely driven by the rest of the report focuses on these two topics. natural resource extraction. The extractive sector made While acknowledging that Mauritania may face the biggest contribution to GDP growth, driven by the oil additional challenges to growth such as human capital discovery in mid-2000s and the onset of gold and copper and private sector development, this report is not extraction in the late 2000s and early 2010s. The surge in designed to be exhaustive. Rather it tries to provide policy natural resources was also behind the 64.7 percent rise in recommendations with a focused approach. real wealth per capita between 1995 to 2014. However, the extractive windfalls were not efficiently The need to diversify the invested to boost competitiveness in non-extractive Mauritanian economy sectors. Mauritania did not leverage its natural capital to invest in its weak human capital. With a Human Capital The lack of diversification hurts the Mauritanian Index of 0.35 (150 out of 157 countries) in 2017, the average economy. In 1997, mining and fish products accounted Mauritanian child born today will only reach 35 percent of for 97.6 percent of merchandise exports, with almost no his productivity potential endowment, thus hindering future manufacturing exports. Two decades later, this picture productivity and growth. Mauritania also suffers from large has not changed much as both sectors accounted for 98.1 infrastructure gaps that are inherited from colonial times, percent of total exports in 2017. The lack of diversification but also from mismanagement of large public investment not only resulted in limited job creation, but it also exposed projects that did not yield the expected returns. the economy to external vulnerabilities. This was evident after the fall in commodity prices in 2014 when GDP growth The Mauritanian economy suffers from an unchanged more than halved from 5.5 percent in 2011-2014 to 2.5 and unsophisticated export basket. The export structure percent in 2015-2018. has changed little between 2000 and 2017 and is still dominated by products requiring little complexity in Commodity-dependence and a small and disconnected processing, namely extractives and low value-added internal market are major reasons for product and fishing products. Not only Mauritania failed to diversify its market diversification. Extractive industries are unable exports, but its productive capabilities are weak compared to absorb the rapid demographic boom because they are to peer countries. This could slow long-term per capita highly capital-intensive. The Mauritanian economy also growth, particularly if the current population growth trend suffers from a small and disconnected domestic market continues. that limits its ability to attract private investments. Hence, unless the country diversifies its export basket and expand xii MAURITANIA: Country Economic Memorandum its market reach, strong reliance on commodity-based unit of production. Specialization occurs when workers exports will keep the economy underperforming, except for concentrate on doing a few narrowly defined tasks and in periods of booming commodity prices. that process accumulate specialized skills that increase productivity. Scale and specialization interact and are Agriculture (hereinafter defined as crops, fish, and stimulated by the proximity that successful cities provide livestock) is the only non-extractive sector in which to connect producers and consumers. Mauritania has a clear comparative advantage and has the potential to develop new export opportunities. The rapid population urban growth in Mauritania was At the same time, a significant percentage of households driven by migration and a high fertility rate. In 2017, in this sector are poor. Therefore, developing this sector the country’s urban population reached about 2.3 million could promote economic diversification and accelerate or about 52.8 percent of the total population. Mauritania’s poverty reduction. Yet, this goal would not be feasible with fertility rate is among the highest in the world at about a lackluster productivity that faces numerous challenges 5.1 births per woman. In addition to the high fertility including insufficient government spending, poor and even rate, migration drove population dynamics, particularly deteriorating human capital, land issues, and governance in Nouakchott which now accounts for half of the urban weaknesses. population. If past migration trends continue, Nouakchott’s population would grow disproportionally faster than the rest Structural constraints impair Mauritania from of the country, potentially leading to further congestion. expanding its production base and diversifying its economy away from natural resources. The real exchange Even though Mauritania has made positive strides in rate is overvalued due to limited exchange flexibility and reducing spatial inequality in the past, the welfare gap ineffective monetary policy. This is coupled by financial between rural and urban areas remains large. Between vulnerabilities that undermine economic diversification. 2008 and 2014 rural poverty declined, driven by a robust In addition to large financial constraints, the business growth in median income of rural households. In contrast, environment is impaired by limited competition, low skilled urban areas registered fewer gains in poverty reduction labor, and poor electricity infrastructure. The challenging and Nouakchott witnessed an increase in poverty as it business environment is compounded by high import did not absorb poor migrants into high productive sectors. tariffs which shield domestic producers from international This led to some convergence between rural and urban competition and impede access to cheap imported inputs. poverty rates. Yet, welfare differences between rural and Beyond tariffs, the prevalence of non-tariff measures urban communes remain sizeable and poverty rates remain (NTMs) and the absence of clear procedures hinder trade. highest in the South where the population is highly reliant The lack of preferential trade agreements further reduces on agriculture. trade connectivity. Finally, large infrastructure and logistic gaps coupled with limited connectivity increase trade costs. Mauritania did not benefit from the economic dividends of urbanization due to low density, large distances, and acute divisions. Urban agglomerations in Mauritania The missing link between are among the least densely populated in Africa, meaning urbanization and growth that few cities are sufficiently large to create market potential or generate economies of scale. In addition, Productive cities could drive diversification through urban centers are distant from each other because of agglomeration effects, that is the clustering of firms geography and disconnected from other urban regions in and individuals in an environment that promotes scale neighboring countries due to hard borders. They also face and specialization. Scale can be achieved by producing a acute divisions due to inadequate infrastructure, low levels lot of the same product, thereby reducing the fix cost per of social cohesion, and limited trade linkages. These MAURITANIA: Country Economic Memorandum xiii challenges limit the benefits of agglomeration economies, • Improve the quality of high-value added fish products thus undermining long-term growth. like fish fillets, fresh/chilled fish, and dried fish. The financial gains of upgrading the quality and increasing Several factors have rendered Nouakchott a consumption the exported quantities of these products would be high city that is not serving as an engine of economic given that Mauritania is far behind on the corresponding growth. Nouakchott’s contribution to the economy is below quality frontier. its potential given its population size. This stems from the • Pilot and develop new products in which Mauritania can mismanagement of extractives which rendered Nouakchott gain a comparative advantage based on its existing a consumption city that urbanized without acquiring capabilities. These include sheep’s or lamb’s wool, live the industrial sectors that are typically associated with animals, copper alloys, and ores and concentrates. productive cities. Unplanned expansion, deficiencies in • Develop the North-South road corridor that is crucial to connectivity, weak governance, and financing constraints support diversification in primary sectors. have all undermined agglomeration economies and made • Expand its market reach by strengthening ties with it costly to connect workers and firms. Meanwhile, the low West African countries. skill base, owing to low educational outcomes of the city’s original population coupled with the influx of less educated A package of policies could help Mauritania achieve immigrants and the outflow of more educated emigrants the proposed diversification strategy and leverage the has failed to invigorate the private sector. urban dividends. In particular, this report proposes policy recommendations that can be implemented in the short, Like other capitals on the West African coastline, medium, and long-term. The policy agenda, summarized in Nouakchott is exposed to important climate risks Table 1, is anchored around four interlinked dimensions: that threaten its sustainability. Given that a large part of Nouakchott is located below sea level (42.9 percent), • Promote a more-market oriented economy; climate change places vulnerable communities at risk from • Enhance production factors; sea-level rise, more frequent and intense flooding, and • Improve planning and strengthen institutions; extreme weather events. These topographic challenges are • Better manage natural resources and adopt a more aggravated by uncontrolled infrastructure building and market-based exchange rate policy. inadequate drainage systems. The way forward for a more sustainable and resilient growth path While there is no universal recipe for success, Mauritania could orient its diversification strategy toward improving the quality of exported fish, exporting new products, and expanding its market reach: In particular, Mauritania should: • Export more volume of products in which it has a consolidated and emerging comparative advantage, including: fish products, leather and animal hides, Arabic gum, malt, and minerals products. xiv MAURITANIA: Country Economic Memorandum Table 1: Summary of recommendations that could help Mauritania achieve a sustainable growth path Objective Proposed recommendation(s) Time horizon* 1) Promote a more market-oriented economy Submit a “statement of implementation” to notify WTO members about ST relevant laws regarding trade procedures Appoint a trade facilitation enquiry point ST Agree on a common external tariff with ECOWAS ST Develop an export- oriented trade policy Submit a schedule of tariff concessions and negotiate tariff reductions for MT key export products under AfCTA Eliminate non-transparent import taxes MT Coordinate with Morocco and Senegal to further develop the Tangier- LT Nouakchott-Dakar trade corridor Implement the 2019-2020 reform program to strengthen access to finance ST and monetary policy mechanisms Improve the business Establish a well-coordinated institutional architecture for startup and ST environment and entrepreneurship promote local Remove anti-competitive procedures and policies MT entrepreneurship Advocate for legal reforms to encourage women’s participation MT Study the possibility of joining OHADA LT 2) Enhance production factors Strengthen teacher management and professional development of teachers MT Boost education and Review curricula of schools MT skills Develop a school-based management system MT Encourage education of girls LT Finalize the rehabilitation of the Nouakchott-Rosso road and enlarge it in a ST later stage Improve infrastructure Design a framework for prioritizing infrastructure and service development MT and connect cities based on demand Expand and improve road networks, sidewalks and pedestrian equipment in MT Nouakchott Develop a centralized and digitized land registry ST Maximize land use Streamline land registration procedures ST Strengthen and decentralize the public land administration MT MAURITANIA: Country Economic Memorandum xv Table 1: Continues Objective Proposed recommendation(s) Time horizon* 3) Strengthen governance and improve planning Develop a National Quality Infrastructure (NQI) MT Increase and re-orient Government spending in agriculture toward MT Strengthen governance productive factors Allocate appropriate finance on a population-based formula to local MT governments Develop and implement master plans for different urban cities ST In Nouakchott, introduce appropriate zoning laws that differentiate and ST connect residential, industrial and office zones Intensify efforts to build large-scale drainage facilities, particularly in ST Improve urban Nouakchott planning Protect the coastal dune of Nouakchott from illegal activities ST Study the possibility of prohibiting construction in areas at high risk of MT flooding and rising groundwater Impose a tax on land MT 4) Better manage natural resources and adopt a more market-based exchange rate policy Increase transparency by clarifying the operational rules of the NFHR and ST Strengthen conduct yearly audits management of Design an effective rule-based fiscal strategy to manage natural resources MT natural resources Strengthen capacity in the areas of medium-term budget planning, revenue LT forecasting and fiscal risk analysis Review the calculation of the daily reference exchange rate ST Adopt a more flexible Establish an FX auction budget and interbank market MT exchange rate Introduce FX auctions in a competitive official market LT Source: Authors’ elaboration. Note: * ST means short-term, MT means medium-term, and LT means long-term. xvi MAURITANIA: Country Economic Memorandum Chapter 1 Introduction M auritania is a sparsely populated and arid significant cut in public investment. This was coupled with country that is one of the least developed a severe contraction in the extractive sector (11.6 percent in the world. Geographically, Mauritania links in 2017-2018) stemming from mismanagement and the Arab Maghreb and western Sub-Saharan Africa (SSA). operational problems at the public mining utility.1 It is characterized by a very low population density of 4.3 people per square kilometers, which is significantly lower As macroeconomic stability was regained, the than the 44.9 average in SSA. While the poverty rate Mauritanian economy is today at a significant juncture declined over time (Figure 1), Mauritania remains one of the to shift to a more inclusive and sustainable growth least developed countries in the world (Figure 2), ranking path. The challenge for the new administration that took 159th out 189 countries on the HDI index in 2017. office in mid-2019 is to lay the foundations for a new growth model that promotes economic diversification through In 2015-2018, economic activity receded as the policies that boost productivity in non-extractive sectors authorities addressed the underlying macro-economic and improve the management of current and expected imbalances resulting from the over-reliance on natural resources. The structural transformation to a less extractives. Rather than leveraging the potential of the resource-dependent and state-driven economy would not extractive boom for productive investment and fiscal be possible without well-functioning and interconnected resilience, ineffective management of extractive revenues cities that cater to the needs of a young and rapidly has left Mauritania vulnerable to Terms of Trade (ToT) growing population. shocks. As the commodity-price shock in 2014-2015 negatively impacted domestic resources, the Government This Country Economic Memorandum (CEM) examines embarked on a fiscal consolidation program, including a Mauritania’s principal challenges and opportunities 1  Société Nationale Industrielle et Minière (SNIM). MAURITANIA: Country Economic Memorandum 1 Figure 1: The poverty rate declined rapidly over time Figure 2: …, but the country’s development level did in Mauritania… not improve relative to other countries Offici l pov rt r t s (n tion l pov rt lin ) HDI r nk: 2005−2017 55 25 50 75 100 125 150 175 200 51 50 46,7 44,5 45 Percent (%) 40 Rank 35 33 30 25 0 20 2000 2004 2008 2014 2005 2006 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2007 M urit ni ’s r nk Tot l numb r of countri s Dist nc to l st Source: World Bank (2017b). Source: Human Development Reports. Note: Distance to last represents how far Mauritania’s ranking is from the worst ranking. to achieve a more balanced and sustainable growth then used to identify structural and aspirational peers.4 through economic diversification and sustained Structural peers are defined as countries that currently have urbanization. This choice has been motivated by the similar structural characteristics and economic features results of the country scan diagnostic which is an integral as Mauritania, while aspirational peers are countries that part of the new CEM 2.0 analytical framework (Box 1). In were able to grow much faster than Mauritania over time, addition, the Government’s development plan (SCAPP, despite having had similar initial economic and structural 2016-2030)2 and the World Bank’s Country Partnership conditions. In sum, this methodology results in the selection Framework (CPF, 2018) both stressed the importance of 3 of Benin, Nicaragua, and Senegal as structural peers, and diversifying the economy and developing growth-enhancing Laos, Moldova, and Zambia as aspirational peers. cities. The CEM format is not designed to be exhaustive, and Mauritania may face additional challenges to growth The remainder of this study is organized as follows. which are outside of the scope of the report. It should be Chapter 2 describes the main macro-economic trends also noted that several empirical questions pertaining to and analyzes the key characteristics of Mauritania’s past urbanization and diversification were not tackled due to growth performance. Chapter 3 evaluates Mauritania’s data scarcity (appendix I). current and future potential for economic and export diversification, while chapter 4 examines the challenges Across this study, the performance of Mauritania on that are preventing urbanization from contributing to different economic aspects will be benchmarked to three national economic growth, with a focus on Nouakchott. groups of countries. The first group, referred to as regional Finally, chapter 5 concludes by proposing a set of policy peers, includes the Sub-Saharan African (SSA) average and recommendations which could help Mauritania achieve a Algeria, Tunisia, and Morocco as neighboring Arab countries. more resilient and sustainable growth path. These have been used as comparators in recent studies (World Bank, 2017b, 2018b). A data-driven approach is 2  The National Development Plan of Mauritania is called: Strategie Nationale De Croissance Aceleree et de Prosperite Partage (SCAPP): 2016-2030. 3  World Bank 2018. “Mauritania - Country partnership framework for the period of FY18-FY23 (English)”, Washington D.C. 4  See World Bank (2019f) for details about the methodology. 2 MAURITANIA: Country Economic Memorandum Box 1: Description of CEM 2.0 analytical framework The CEM 2.0 approach proposes innovations in the process and substance of growth analyses. In terms of substance, the CEM 2.0 proposes a simple analytical framework organized around 20 guiding questions: 10 questions at the macro level and 10 questions at the micro level. This is combined with 2 overall questions regarding the choice of period of analysis and peer countries. The macro questions are designed to encourage the employment of the most common growth diagnostic tools and decomposition techniques. The micro questions are designed around the framework proposed by Syverson (2011). In terms of process, a key innovation is the close involvement of national counterparts (government and private sector) in the design stage and the identification of modules. In the Mauritanian content, this CEM 2.0 approach was adopted to conduct consultations with various Mauritanian stakeholders. The workshop was held at the World Bank office in Nouakchott on October 11, 2018 with representatives from key Mauritanian stakeholders. These included the Ministry of Economy and Finance (MEF), the Ministry of Habitat, Urbanism and Landscape Planning (MHUAT), the Ministry of Commerce, Industry and Tourism (MCIT), the Central Bank of Mauritania (BCM), the Office of National Statistics (ONS), the Federation Mauritanienne de l’agriculture, the Centre Mauritanien d’Analyse de Politiques (CMAP), and the Union Nationale du Patronat. Based on the country scan presentation, participants agreed that urbanization and diversification – with a focus on agriculture – merit in-depth analysis as part of this study. The workshop was structured into three main parts. First, the team introduced the overall objective of this study and explained the procedure that will be adopted to complete it. Second, it presented the country scan and engaged in fruitful discussions with the participants about the data sources used, the methodologies adopted, and the interpretation of results. Third, the workshop concluded with a consensus among participants that a more structured urbanization and a diversified economy (with a focus on agriculture) are key to achieve a sustainable growth in Mauritania. MAURITANIA: Country Economic Memorandum 3 Chapter 2 Understanding Mauritania’s growth story 2.1. Growth history 2003, at par with SSA’s average. Despite relative political stability, droughts during this first period depressed B etween 1992-2018, economic growth was growth. The second period, from 2004 to 2014, was moderate, but highly cyclical. 5 GDP growth characterized by an initial major positive shock represented averaged 4 percent during this period, a rate by the onset of oil production in 2006 with a brief peak of almost equal to the SSA average (Figure 3). However, due 75,000 barrels of oil per day (bpd) during that year. This to the rapid increase in population, growth was lower in per growth acceleration was, however, not sustained due to capita terms and, as a result, the gap in real GDP per capita technical difficulties in oil extraction,7 political instability between the SSA average and Mauritania has widened from and internal conflicts, and the severe drought in 2011 that USD 227 in 1992 to USD 306 in 2018. The growth path also largely impacted the primary sector. Yet, this period ended displayed cyclical fluctuations (Figure 4), largely reflecting on a high, with growth averaging about 5.8 percent in 2012- peaks (related to natural resource discoveries) and troughs 2014, owing to the mining boom and the commodity super- (related to weather and political instability). cycle. In the third period, spanning 2015 to the present, economic activity receded as it endured the fiscal and Structural break analysis suggests that Mauritania’s economic effects of low commodity prices, aggravated by growth history can be divided into three periods (Figure droughts and regional insecurity. Although it remains below 5).6 Following the conflict with Senegal in 1989, output grew the pre-2014 shock levels, GDP growth started to recover by an average of 2.9 percent per year between 1992 and in 2018. 5  We start from 1992 because Mauritania had a conflict with Senegal in 1989-1991. 6  Econometric tests identified 2004 as a structural break, which represents the onset of investment in the oil industry. The year 2015 marks the end of the commodity super cycle and was identified through visual inspection as econometric tests could not be applied due to the small number of observations. 7  The Chinguetti oil field was decommissioned in early 2018 after production plummeted rapidly to about 3,000 bopd in 2017. MAURITANIA: Country Economic Memorandum 5 Figure 3: Between 1992 and 2018, GDP growth in Figure 4: … but it was very volatile with a standard Mauritania was almost equal to the SSA average, … deviation of 4.5 percent Av . GDP rowth in SSA: 1992-2018 Actu l vs. Pot nti l GDP rowth 7 20 6 SSA v r 5 15 Percent (%) 4 Percent (%) 10 3 2 5 1 0 0 Madagascar Malawi Burundi Zimbabwe Gabon Liberia Sierra Leone Swaziland Cameroon Lesotho Eritrea Namibia Benin Angola Sudan Ghana Burkina Faso Uganda Mozambique Mauritania Mauritius −5 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Actual GDP growth (%) Potential GDP growth (HP, %) Source: WDI and authors' calculations. Note(s): SSA excludes rich Source: WDI and authors’ calculations. countries: Botswana, Nigeria and South Africa. We start from 1992 to exclude the conflict with Senegal in 1989-1991. Figure 5: Mauritania’s growth path can be decomposed into three main periods that were characterized by natural resources, climatic hazards, and political instability GDP rowth: 1992-2018 30 P riod 1: 1992-2002 P riod 2: 2003-2014 P riod 3: 2015-2018 Ons t of oil production 25 Minin boom nd commodit -sup r c cl 20 Coup nd lob l D bt r li f P rc nt (%) Drou ht fin nci l crisis 15 Coup Drop in Drou ht commodit pric s 10 5.8 5 2.9 2.5 0 -5 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2007 Source: WDI, ONS and authors’ calculations. Aided by procyclical public investment during the boom from 3.8 percent of GDP in 2009 to 15 percent of GDP in period, private consumption was the main driver of 2015 during the commodity super-cycle, before dropping growth. Private consumption fueled growth as it grew by to 8.8 percent of GDP in 2018 as the Government cut an average of 4.4 percent between 2005 and 2018 thanks public investments to adjust for the decline in extractive- to the windfalls from the extractive boom and increased related revenues after 2015. Meanwhile, the contribution revenues from the primary and non-tradable sectors (see of net exports in 2005-2014 was negative as the pick- below). Public investment was procyclical. It increased 8 up in extractive exports was fully offset by the rise in 8  The Mauritanian authorities only publish national accounts from the supply side. Demand side estimations are only available from MFMod from 2005. 6 MAURITANIA: Country Economic Memorandum Figure 6: Extractives, transport and communication, and agriculture were the main drivers of growth D composition of GDP rowth (suppl sid ) 6 A ricultur nd H rdin 5 M nuf cturin Comm rc 4 N tT x s Fish ri s P rc nt (%) 3 Construction Oth r s rvic s 2 GDP Extr ctiv s 1 T nsport nd t l com Gov rnm nt 0 -1 1999-2003 2004-2014 2015-2018 Source: ONS, BCM, and authors’ calculations. Note: National Accounts are only available since 1998. infrastructure imports related to the Public Investment the export structure has changed little between 2000 Program (PIP) and the construction of new mining fields. It and 2017 and is still dominated by low complex products, turned slightly positive in 2015-2017 due to lower import- namely extractives and low-complex fishing products related investments and higher fishing exports. (Figure 8).9 Not only Mauritania failed to diversify its exports, but its productive capabilities, as proxied by the On the supply side, the traditional sectoral drivers of Economic Complexity Index (ECI), are weak compared to growth remained the same over the different periods. peer countries (Figure 9). This could hold back long-term The extractive sector made the biggest contribution to GDP growth, which according to the Hidalgo and Haussman growth due to oil discovery in mid-2000s and the onset of (2009) model, is projected at 2.8 percent per year up to gold and copper extraction in late 2000s and early 2010s, 2027, that is -0.1 percent per capita terms assuming the respectively (Figure 6). Driven by the production boom in current population growth trend continues. extractives, the commodity super-cycle, and the PIP, non- tradable sectors (construction, retail, and public services) grew by a combined 6 percent per year. The agro-pastoral 2.2. Weak foundations for growth sector (also referred to in this study as simply agriculture) and structural transformation remains a pillar of the Mauritanian economy as it accounts for about 30 percent of employment and a significant Mauritania’s growth model suffers from an overreliance percentage of its households are poor. However, the 3.3 and mismanagement of natural resources and an percent average growth of this sector in 1999-2018 was incomplete urbanization that have hindered structural very volatile with a standard deviation of 4 percent. This transformation. Rather than leveraging its natural high volatility was driven by climatic hazards as reflected resources in productive investments into physical and by the positive (0.4) correlation between rainfall variability human capital and fiscal resilience, ineffective management and agricultural GDP. of extractive revenues has left Mauritania vulnerable to commodity price shocks and ultimately contributed to The unchanged and unsophisticated structure of the economic deceleration post-2015. Meanwhile, rapid the Mauritanian economy is also reflected in the urban population growth without spatial densification of composition of exports. The product space shows that people and firms has deprived Mauritania of significant 9  Appendix III defines the Product Space concept. MAURITANIA: Country Economic Memorandum 7 Figure 7: The product space in Mauritania remained almost the same between 2000 (left) and 2017 (right) Source: Atlas of Economic Complexity; Center for Development of Harvard University. Figure 8: Mauritania lags its peers on economic complexity Economic compl xit 0.5 0 −0. 5 Ind x −1 −1.5 Al ri L os M urit ni Moldov Morocco Nic r u SSA S n l Tunisi Z mbi 1995−2003 2004−2014 2015−2017 Source: Atlas of Economic Complexity; Center for Development of Harvard University. benefits and growth dividends from economies of scale and improvements, was the major driver of past growth per structural transformation. worker (Figure 9). However, since Mauritania is abundant in natural resources, it is important to capture the 2.2.1. Over-reliance on extractives contribution of natural resources. When doing so using the model developed by Calderón and Cantú (2019),10 Growth in Mauritania was largely driven by natural natural capital becomes, by far, the major contributor to resource extraction. The standard Solow decomposition growth per worker (Figure 10). This reflects the onset of shows that capital accumulation, rather than productivity production in oil (in 2006), copper (in 2007), and gold (in 10  See appendix ‎II for details about the methodology of adding natural capital as an addition factor of production. 8 MAURITANIA: Country Economic Memorandum Figure 9: The standard Solow decomposition shows Figure 10: …, but this masks the major growth effect that physical capital was the driver of growth… of natural resource extraction in the past two decades D composition of rowth p r work r D composition of rowth p r work r (St nd rd Solow) (St nd rd Solow includin n tur l c pit l) 10 25 8 20 6 15 4 10 Percent (%) 5 Percent (%) 2 0 0 -5 -2 -10 -4 -15 -6 -20 -8 -25 1995-2017 1995-2003 2004-2014 2015-2017 1995-2017 1995-2003 2004-2014 2015-2017 Ph sic l c pit l Hum n c pit l Ph sic l c pit l Hum n c pit l Output p r l bor Tot l F ctor Productivit Output p r l bor N tur l r ssourc c pit l Tot l F ctor Productivit Source: PWT 9.1, the Changing Wealth of Nations (2018) and authors’ Source: PWT 9.1, the Changing Wealth of Nations (2018) and authors’ calculations. calculations. 2012). Meanwhile, the TFP contribution is reduced sharply boost productivity. Human capital per capita grew by with the inclusion of natural capital, a result that is in line 2 percent per annum (CAGR) between 1995 and 2014, with the one found by Calderón and Cantú (2019) for other a rate lower than in most peer countries. With a Human SSA resource-rich countries. In simple terms, these findings Capital Index of 0.35 (150 out of 157 countries), the average imply that Mauritania mismanaged its resource discoveries. Mauritanian child born today will only reach 35 percent of his/her productivity potential. The weak human capital, Natural resources were also the major driver of wealth which hinders future productivity, reflects a general accumulation over the past two decades. Real wealth education system which is not providing foundational skills per capita rose nearly 64.7 percent from 1995 to 2014, for most children, with problems in low enrollment, weak increasing from US$ 17,843 to US$29,380. Mauritania’s retention and poor learning outcomes especially at the wealth accumulation was dominated by an increase in basic level (World Bank, 2019h). non-renewable natural resources (Figure 11). This stemmed from the onset of oil production in 2006 and the extraction The economywide lack of productivity growth is also of gold and iron mines in early 2010s. In fact, Mauritania observed in agriculture which is critical to reduce moved from being ranked as the 11th country in the world poverty.11 Using the growth-accounting methodology with the highest wealth stock of metals and minerals developed by the United States Department of Agriculture per capita in 1995 (2nd in SSA behind Zimbabwe) to the (USDA),12 we find that agricultural growth in Mauritania position 6th in 2014 (1st in SSA), only behind Australia, has been largely resource-led rather than productivity-led Chile, Suriname, Mongolia and Peru. between 1992 and 2015 (Figure 13). Over this period, more than 70 percent of agricultural growth stemmed from However, Mauritania did not leverage its natural capital intensive use of inputs (labor and livestock accumulation), to strengthen its weak human capital that is key to in contrast to only 20 percent from productivity 11  In this report, we use the broader definition of agriculture which includes fishing and livestock. 12  For more details about the USDA methodology, kindly refer to (Fuglie and Rada, 2013). The data can be accessed using the following link: https://www. ers.usda.gov/data-products/international-agricultural-productivity.aspx MAURITANIA: Country Economic Memorandum 9 Figure 11: About 80 percent of per capita wealth Figure 12: In contrast, Mauritania suffered growth in Mauritania was driven by natural capital from limited human capital accumulation D composition of w lth rowth P r c pit hum n c pit l rowth p r c pit : 1995-2014 p r r (1995-2014; CAGR) 160 5 120 4 Percent (%) 80 Percent (%) 40 3 0 2 -40 -80 1 Nicaragua Senegal Morocco Tunisia Laos Moldova Zambia Mauritania 0 Senegal Morocco Tunisia Nicaragua Moldova Laos Zambia Mauritania N tur l c pit l - r n w bl N tur l c pit l - nonr n w bl Hum n c pit l N t for i n ss ts Produc d c pit l Tot l w lth Source: The Changing Wealth of Nations (2018) and authors’ calculations. Source: The Changing Wealth of Nations (2018) and authors’ calculations. Figure 13: Agricultural growth in Mauritania Figure 14: Despite some improvement in recent years, stemmed from labor and livestock accumulation Mauritania still lag its peers on agricultural TFP D composition of ircultur l rowth A ricultur l TFP ind x 5 200 4 180 3 160 2 Percent (%) 1992=100 140 1 120 0 100 -1 -2 80 -3 60 1992 2015 1992 1995 1996 2000 2001 2005 2006 2010 2011 2015 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 TFP L nd xp nsion ( xt nsific tion) A ricultur l output M urit ni Nic r u L os Z mbi L bor C pit l input Int rm di t input Moldov B nin S n l SSA, S h l ( xcl. Mrt) Source: USDA ERS and authors’ calculations. Source: USDA ERS and authors’ calculations. improvements. Agricultural productivity in Mauritania was 2.2.1. A missing link between urbanization low compared to peer countries, even lagging behind the and growth Sahel average (Figure 14). However, this productivity gap has slightly narrowed since early 2010s thanks to public Mauritania has been urbanizing rapidly in the last subsidies for rice production and the launch of a large-scale decades, but the country failed to reap the benefits pro-poor irrigation program in the Senegal River Valley. usually associated with urban growth. Mauritania 10 MAURITANIA: Country Economic Memorandum Figure 15: The rapid urbanization in Mauritania was Figure 16: The percentage of urban population not accompanied by parallel increases in GDP per living in slums is very high in Mauritania capita, in contrast to the relationship in its peers Urb ni tion vs. r l GDP p r c pit : 2007−2017 Popul tion livin in slums (% of urb n popul tion): 2014 79.9 80 70 Urban population (% of total) 60.5 61.5 60 60 54.0 Percent (%) 39.4 50 40 31.4 40 20 13.1 8.0 30 0 1000 2000 3000 4000 5000 SSA Morocco L os l B nin Tunisi Z mbi M urit ni GDP p r c pit (const nt 2010 US$) S n B nin S n l Nic r u L os Z mbi Al ri Morocco Tunisi SSA M urit ni Aspir tion l p rs N i hborin Ar b countri s Structur l p rs Source: USDA ERS and authors’ calculations. Source: USDA ERS and authors’ calculations. was one of the most urbanized countries in SSA in 1990, Although the share of employment in the primary even more so nowadays as 52.8 percent of its 4.2 million sector has declined since the mid-2000s, labor has population lived in urban areas in 2017 compared to 39.5 been mostly absorbed by low productivity construction percent in SSA (WDI, 2019). 13 Urbanization has usually and services. Most West African countries experienced gone hand in hand with GDP growth and no country has some structural shift from low-productivity agriculture to reached middle income status without becoming at least higher productivity sectors including manufacturing and 50 percent urbanized (Spence et al, 2009). The power of services (Haile, 2018). This was not the case in Mauritania cities to drive growth stems from agglomeration effects ‒ as, between 2004 and 2014, labor shifted from agriculture the clustering of firms and individuals in an environment toward non-tradable sectors such as construction, retail, that promotes scale and specialization (Hommann and and government services in which productivity declined Lall, 2019). Population densities bring workers closer over time (Figure 17). These sectors have also been among to jobs, increasing workers’ opportunities and fueling the least productive, with even lower productivity than their productivity. However, cities in Mauritania did not agriculture. This result is corroborated by the Shapley generate agglomeration economies as evident by the rapid decomposition which shows that within sector gains urbanization that was not associated with parallel increases – largely reflecting the surge in the value added of the in GDP per capita, in contrast to the relationship in peer capital-intensive extractive sector – drove economic countries (Figure 15). Urbanization without commensurate growth, while inter-sectoral labor shifts reduced growth planning and regulation of investments in infrastructure (Figure 18). In sum, Mauritania urbanized without structural has resulted in almost 80 percent of the urban population transformation toward higher productivity sectors. residing in slums (Figure 16). 13  Noting that ONS estimates the urbanization rate to be 49.8 percent in 2016, this report relies on data from WDI to ensure consistency when comparing Mauritania with other countries in the world. In particular, WDI uses the UN methodology which defines urban centers as localities with 5,000 inhabitants or more and/or administrative centers of departments (moughataa). MAURITANIA: Country Economic Memorandum 11 Figure 17: Between 2004 and 2014, labor Figure 18: Despite the oil and mining boom, moved from agriculture to sectors with low Mauritania did not experience a structural and declining productivity transformation Corr l tion b tw n s ctor productivit nd ch n in Sh pl d composition (2004-2014) mplo m nt sh r s (2004-2014) Log (sectoral productivity/total productivity) 2,5 Minin Employment rate 2,0 1,5 M nuf cturin Oth r S rvic s Demographic effect 1,0 0,5 Tr nsp. & Within-sector Comm. 0,0 -15 -10 -5 Fish ri s 0 5 10 15 Structural change-Dynamic Public S ctor -0,5 Construction -1,0 Structural change-Static A ricultur -1,5 Comm rc -2 -1 0 1 2 3 4 Ch n in mplo m nt sh r (p rc nt points) p rc nt (%) Source: ONS and authors’ calculation. Note(s): The size of a circle represents the Source: ONS and authors’ calculation. relative labor size of each sector in 2004. The red line represents fitted values. Three factors explain the reverse structural the creation of a more complex and specialized transformation. First, the extractive boom fueled an economy. Driven by favorable terms of trade, domestic ambitious public investment program (PIP) that translated non-tradable sectors, such as construction, public into an increase in the share of employment in construction administration, utilities and transport, have expanded from 4 percent in 2004 to 5.9 percent in 2014. Second, the with a combined growth rate of almost 9.3 percent a Government used the oil-related revenues to significantly year in 1999-2018. Dependency on domestic demand – expand the public sector workforce which rose from 8.8 as non-tradable sectors are by definition – will cap the percent of total employment in 2004 to 11.6 percent in 2008. potential of economies of scale and therefore efficiency This was reflected by the 123 percent surge in the public sector improvements. Among the firms registered in Nouakchott, wage bill between 2006 and 2007. Third, labor moved from 44 percent are producing goods and services that are not rural-agriculture to the less productive urban-related sectors traded internationally (Figure 19). While Nouakchott is that are dominated by informality and limited value added. no different from other African cities, the proportion of non-tradable goods and services is still much higher in The reallocation of labor to lower productivity sectors Nouakchott than in cities of all East and South Asia and reflects spatial poverty dynamics. The poverty rate in the most of those sampled in Latin America. agriculture and livestock sectors in rural areas decreased by respectively 13.5 and 13.2 percentage points (pp) between Given the importance of diversification and a well- 2008 and 2014. In contrast, in urban centers the poverty managed urbanization to Mauritania’s development, the rate in the retail sector decreased by only 3 pp and even rest of the report focuses on these two topics. While increased by 4 pp in the construction sector. These trends acknowledging that productivity growth within sectors indicate that urban centers were not able to absorb poor (particularly agriculture) and structural transformation households into high productive sectors, rendering living across sectors requires a number of important ingredients, conditions in cities, particularly Nouakchott, worse off. the remainder of this report focuses on the underpinnings of economic diversification and a well-managed urbanization. The absence of a structural change and the movement Maintaining a clear focus and depth of analysis on these of workers into non-tradable sectors prevents areas is a core value added of this report. 12 MAURITANIA: Country Economic Memorandum Figure 19: The share of firms operating in non-traded sectors in Nouakchott is high Sh r of firms in int rn tion ll tr d d nd non-tr d d s ctors 100 80 60 40 P rc nt (%) 20 0 r D k r M d llin Nou kchott B n kok D lhi Y n on Bu nos Air s Asuncion C iro Amm n B irut Tunis os N irobi B m ko li m H r r G boron Accr Sh n h n Cit Zh n hou Cit Dh k on Lim Cordob Kinsh s Addis Ab b K mp l Lu nd Momb s Bo ot Lus k L P Ni Ki D r Es S l L Chitt EAP & SA LAC MNA AFR Tr d bl s Non-tr d bl s Source: Adapted from Lall and Venables (2018). MAURITANIA: Country Economic Memorandum 13 Chapter 3 The need to diversify the Mauritanian economy T his chapter explores the opportunities for management of extractive rents did little to encourage Mauritania to diversify its economy. It is organized economic diversification and support private sector-led as follows. Section 3.1 explains why diversification job creation (World Bank, 2019c). The country’s policy matters for Mauritania. Section 3.2 examines what are framework was not supportive of growth in competitive the opportunities for economic and export diversification. labor-intensive sectors, while natural resources were not Section 3.3 analyses the key constraints preventing used to invest in productive sectors (see chapter 2). The lack agriculture from playing its strategic role in enabling of diversification not only resulted in limited job creation, a dynamic growth environment. Section 3.4 concludes but it also exposed the economy to external vulnerability. by evaluating the diversification ecosystem. Policy This manifested itself after the end of the commodity recommendations are presented in chapter 5. super cycle in 2014 when GDP growth more than halved from 5.5 percent in 2011-2014 to 2.5 percent in 2015-2018, positioning Mauritania as a backslider in SSA (Figure 21). 3.1. Why diversification matters to Mauritania? As a result, diversifying the economy is a key strategic area of the country’s development plan. The SCAPP for 3.1.1. Diversification is a top priority for the period 2016-2030, is articulated around three strategic Mauritania’s development process levers: (i) promoting robust, sustainable and inclusive growth; (ii) developing human capital and access to basic The lack of diversification hurts the Mauritanian social services; and (iii) strengthening governance in all economy. The country ranked 8th in the world in terms of sectors. Economic diversification is clearly highlighted as a natural resource dependence, outclassing all of its peers, key channel through which Mauritania can support the first many of which are resource-rich (Figure 20). However, the pillar (Figure 22). MAURITANIA: Country Economic Memorandum 15 Figure 20: Mauritania remains highly dependent Figure 21: GDP growth more than halved after 2014, on extractives positioning Mauritania as a backslider in SSA Tot l n tur l r sourc s r nts (% of GDP): 2010−2017 GDP Growth in SSA: 2011−2014 vs. 2015−2018 40 ERI Rising stars Solid performers 10 RWA 30 Average 2015−2018 (%) CIV ETH 8 GMB SEN BENBFA TZA NER KEN Percent (%) UGA GHA GIN COD CPV MDG 6 MLI TGO 20 SYC BWA GNB MUS CMR MRT MOZ ZWE COM MWI 4 LSO ZMB SWZ STP TCD COG NGA 2 ZAF GAB 10 BDI NAM 0 AGO Weak performers Backsliders −2 0 0 1 2 3 4 5 6 7 8 9 10 SSA Moldova Morocco Nicaragua Senegal Tunisia Benin Laos Zambia Algeria Mauritania Average 2011−2014 (%) Aspirational peers Neighboring Arab countries Structural peers Non−metal exporters Metal exporters Source: WDI and authors’ calculations. Source: WDI and authors’ calculations. Economic diversification is critical for long-term A well-thought diversification strategy could also help development in Mauritania. The literature provides reduce spatial inequalities. As shown in chapter 4 below, various narratives and evidence regarding the economic Mauritania suffers from large regional disparities in terms benefits of diversification (appendix III). In the case of of access to public service and access to opportunities. In Mauritania, diversification is critical to achieve sustainable particular, resource-rich wilayas – Tiris Zemmour (home growth for the following reasons. First, it would reduce the to iron mines), Inchiri (home to the main gold and copper country’s reliance on the extractive sector and help create mines), and Nouadhibou (home to main fishing stock) – buffers against commodity price shocks and attenuate are much more economically complex (Figure 23) than the effect of procyclical fiscal policies on growth. Second, communes in the south and southeast, with the latter growth decompositions in chapter 2 show that past being one of Mauritania’s most isolated and disadvantaged growth was driven by resource accumulation rather than regions (Melly, 2019).14 This suggests that natural resource productivity enhancements. This growth model is not dividends were distributed unequally across regions sustainable as natural resources are finite and their growth as poverty rates are the highest in non-resource rich impetus could not last indefinitely. Third and last, more communities of the South (Figure 62). diversified countries are characterized by more productive cities that enable specialization and have more workers in The need for a more diversified production and export manufacturing and tradable. Productive cities tend to have base is made even more critical after the recent lower poverty rates and shares of population in slums, in discoveries of hydrocarbon wealth in the Grant Tortue contrast to consumption cities in resource-rich countries Ahmenyim (GTA) field to avoid Dutch Disease effects. (such as Mauritania) with a large share of non-tradable jobs The ultra-deep offshore gas field straddling the maritime (Gollin et al., 2016). borders between Mauritania and Senegal is estimated 14  This concept is based on the notion that the most “complex” regions have many different capabilities, whereby they have more diverse economic activities and specialize in the least ubiquitous and rare economic activities. Using the 2017 LFS, a complexity score for each Wilaya was estimated in two steps: first, we recorded the revealed comparative advantage of a region based on the number of economic activities conducted by the employed population in that region, and second we used the "method of reflections" algorithm introduced by Hausmann, Hidalgo (2009). The complexity score rewards locations that (i) are involved in many different activities (the more diverse an economy, the higher the score), (ii) and are involved in highly specialized activities. 16 MAURITANIA: Country Economic Memorandum Figure 22: Economic diversification is clearly highlighted in the SCAPP as a key driver for growth A. Promot robust, sust in bl B. D v lop hum n c pit l nd C. Str n th n ll dim nsions L v rs nd inclusiv rowth cc ss to b sic soci l s rvic s of ov rn nc 1. Promot mor div rsifi d 1. Incr sin cc ss to nd r isin 1. Politic l ov rn nc , soci l rowth of l d s ctors th qu lit of duc tion nd coh sion, p c nd s curit 2. Promotion of th priv t s ctor voc tion l tr inin 2. Consolid tion of th rul of l w, Str t ic nd improv m nt of busin ss 2. Improvin cc ss to h lth c r hum n ri hts nd justic r s pr ctic s 3. Emplo m nt for ll nd promotion 3. M kin th most of th 3. Str n th nin of infr structur of outh, cultur nd sport d mo r phic divid nd to support rowth 4. Incr sin r sili nc of th most vuln r bl Source: Authors’ based on SCAPP. to hold between 15-25 trillion cubic feet of gas and a Figure 23: Wilayas with more natural resources are productive life of 25 years and could start producing more economically complex in terms of labor force in 2022. If managed well, this development could yield significant benefits to Mauritania. But, for this to happen and avoid past Dutch Disease effects,15 the country needs to strengthen its current framework for natural resource management (World Bank, 2019c). 3.1.2. Mauritania has struggled to diversify exports away from extractives Mauritania’s exports of goods remain heavily concentrated on extractives and fish products with no significant exports of manufactured products. In 1997, mining and fish products accounted for 97.6 percent of merchandise exports, with almost no manufacturing exports. Two decades later, this picture has not changed much as both sectors accounted for 98.1 percent of total exports in 2017 (Figure 24). The only difference over this period is that the extractives sector (light yellow) is now Source: LFS (2017) and authors’ calculations. 15  The extractives boom in 2007-2015 has lifted Mauritania into the ranks of lower-middle-income countries and contributed to reducing poverty by a remarkable 11.5 percentage points. Despite these achievements, the boom left a legacy of Dutch disease effects. High commodity prices prompted a rapid surge in foreign direct investments further increasing demand for non-tradeable services like construction, transport and commerce at the expense of job- creating sectors like manufacturing. Coupled with ineffective monetary policies, this has led to an appreciation of the real exchange rate, eroding the country’s competitiveness and impeding its diversification efforts. Growth remained moderate averaging 3.5 percent over this period, and limited progress was made in human development outcomes despite large infrastructure investments in education and health. The boom years were also accompanied by a pro-cyclical fiscal policy that resulted in a rapid expansion of public debt and a high risk of debt distress rating. MAURITANIA: Country Economic Memorandum 17 Figure 24: Mauritania’s export structure remains largely dependent on extractives and fish Composition of M urit ni 's Exports: 1997 Composition of M urit ni 's Exports: 2017 12.2 55.0 42.5 45.1 29.0 8.8 2.9 2.4 1.9 Other Fish Iron Other Fish Gold Iron Copper Oil Source: UN-COMTRADE and authors’ calculations. Figure 25: Although export destinations are more Figure 26: … exports of main products are diversified overall, … concentrated in few destinations Sh r of xports b d stin tion (% tot l) GDP Growth in SSA: 2011−2014 vs. 2015−2018 80 Fish 60 Gold Percent (%) 40 Iron Cooper 20 Oil 0 0 20 40 60 80 100 1998 1999 2000 2001 2002 2003 2004 2005 2006 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1997 2007 Africa China Europe Japan ROW USA Africa China Europe Japan ROW USA Source: UN-COMTRADE, IMF BOPS and authors’ calculations. Source: UN-COMTRADE, IMF BOPS and authors’ calculations. more diversified after the country discovered and started export market, accounting for as much as 70 percent of to export oil (in 2006), copper (in 2007), and gold (in 2012). exports in 2002. The EU’s share has, however, declined Mauritania is likely to remain dependent on exports of in favor of China after 2005, leading to an almost parity extractives and fish products given the wealth of its natural between the two destinations in recent years (Figure 25). resources (Figure 11). However, the country will need to do While China is the main export market for iron and copper, much more to add value before exporting, and to diversify the EU is a large export market for Mauritanian fish, gold, where possible, in order to generate more jobs. and iron (Figure 26). Meanwhile, Mauritanian exports to Africa, have been limited and accounted for less than 20 In terms of market destination, most exports of goods percent of total exports over the last two decades, even go to China and the European Union (EU) with limited dropping to 15 percent in 2017. African countries remain exports to Africa. The EU has traditionally been the main important destinations for non-mineral exports, mainly fish 18 MAURITANIA: Country Economic Memorandum Figure 27: Mauritania’s export growth was largely driven by the “intensive margin” Export rowth d composition 120 100 80 P rc nt (%) 60 40 20 0 -20 1997-2003 2004-2014 2015-2017 Old products to old m rk ts Old products to n w m rk ts N w products to old m rk ts N w products to n w m rk ts Source: UN-COMTRADE and authors’ calculations. Figure 28: FDI inflows in Mauritania are very high, … Figure 29: … but are destined to extractives FDI, n t inflows (% of GDP) FDI inflows in M urit ni b s ctor 30 1.600 1.400 1.200 20 1.000 Percent (%) US$ billion 800 600 10 400 200 0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2007 2007 Mauritania Benin Nicaragua Zambia Algeria Non-extractive Oil Gold Copper Senegal Lao PDR Moldova Morocco Tunisia Source: WDI and authors’ calculations. Source: BCM and authors’ calculations. but also animal hides and leather, textiles, and agricultural at the start of the period (“old” products and markets) or products. were introduced at the end of the period (“new” products and markets).16 During most of the last two decades, export Merchandise export growth was mostly driven by the growth was driven almost entirely by increases in sales “intensive margin”. Figure 27 shows the decomposition of old products to old partners (the so-called “intensive of export growth between 1997-2003, 2004-2014, and margin”), except for 2004-2014 in which new mineral 2015-2017 into four categories based on whether the products (oil, gold, copper) were introduced to the export export products or destinations were already established basket. 16  Figure 1 in Amurgo-pacheco and Pierola (2008) illustrates the four different classifications of export growth. In particular, the intensive margin of trade refers to the exports of “old products to old markets”, while the extensive margin refers to exports of “old products to new markets”, “new products to old markets”, or “new products to new markets”. MAURITANIA: Country Economic Memorandum 19 Foreign Direct Investment (FDI) did not support animal hides, coper derivatives, and transport services diversification toward non-extractives. Empirical evidence emerge as important options for Mauritania to diversify shows that FDI can underpin diversification efforts through its exports. Increasing the quality and adding value to transfer of technology and knowledge (including modern current export products – specially fish – will also help managerial and business practices), access to international diversification. markets and financing (Amighini abd Sanfilippo, 2014; Nicet-chenaf and Rougier, 2011). Compared to its peers, 3.2.1. Focus on products with emerging Mauritania has attracted a significant amount of FDI over comparative advantage the past decade (Figure 28), but extractive industries were the main destination of these inflows (Figure 29). FDI into Mauritania has struggled to increase the number of non-extractive sectors accounted for less than ten percent products with a Revealed Comparative Advantage of total FDI, with most investment projects going into non- (RCA). Except Algeria, Mauritania has the lowest number of tradable sectors like construction and retail. products with an RCA among its comparators (Figure 30). What is more worrisome is that the number of products with an RCA did not increase significantly over time and 3.2. What are the opportunities for fluctuated between 15 and 22 products between 2000 diversification? and 2017 (Figure 31), suggesting that Mauritania could not create new products with a comparative advantage. Diversification strategies can take many forms ranging In comparison, the number of products with an RCA from focusing on products with emerging comparative significantly increased in countries that managed to advantage, adding value to existing exports, and diversify their exports such as Laos (from 43 in 2000 to 73 developing new products and services. This section uses in 2017) and Tunisia (from 104 in 2000 to 131 2017). several standard trade analytical measures like revealed comparative advantage, export quality, and product space Few minerals and fish products with consolidated analysis to inform a diversification strategy. In sum, the 17 revealed comparative advantage constitute the core different analyses suggest that processed fish, leather and of the export basket. Among the 21 products in which Figure 30: In Mauritania, the number of products Figure 31: … and did not increase over time with an RCA is small … Numb r of products with RCA (2017) M urit ni : Numb r of products with RCA 140 40 120 35 30 100 25 Number Number 80 20 60 15 40 10 20 5 0 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 DZA MRT MDA MAR BEN ZIM SEN NIC LAO TUN Source: UN-COMTRADE and authors’ calculations. Source: UN-COMTRADE and authors’ calculations. 17  See appendix IV for the definitions of the different trade concepts used in this study. 20 MAURITANIA: Country Economic Memorandum Mauritania had a comparative advantage in 2017, there is with consolidated RCA. Two products introduced over a core group of seven products – all fish and iron products the last two decades, copper (in 2007) and gold (in 2012), – that exhibited revealed comparative advantage in every showed revealed comparative advantage every year since year over the 2000-2017 period (highlighted in red in Table their exports started and now have exports over US$ 200 2). Exports of these products usually averaged over US$ million per year, hence can also be considered as products 100 million per year and can be considered as products with consolidated RCA. Table 2: Mauritania has a consolidated revealed comparative advantage in mineral and fish products and a strong potential for creating a consolidated comparative advantage in some animal and mineral related products SITC 4 Product Name Avg. exports RCA in Number of years 2016-17 2017 with RCA>1 (US$ thou.) (2000-2017) 341 Fish, fresh(live/dead) or chilled 88,653 21.1 18 342 Fish, frozen (excluding fillets) 405,303 115.6 18 350 Fish, dried, salted or in brine; smoked 1,338 1.4 18 360 Crustaceans and mollusks, fresh, chilled 160,621 4.1 18 814 Fish flours and meals 133,191 163 18 2815 Iron ore and concentrates, not agglomerated 657,035 48.4 18 2816 Iron ore agglomerates (sinters, pellets) 11,699 8.3 18 2922 Shellac, seed lac, stick lac, resins 470 4.2 14 4111 Fats and oils of fish 23,178 105.1 13 344 Fish fillets, frozen 3,515 1.6 12 2871 Copper ores & concentrates 232,905 25.9 12 6115 Sheep and lamb skin leather 352 2.5 11 2117 Sheep & lamb skins without the wool 317 9.4 10 9710 Gold, non-monetary 278,833 6.8 6 482 Malt, roasted or not 2,126 3.8 3 2732 Gypsum, plasters, limestone flux & ca 2,001 5 3 2785 Quartz, mica, felspar, fluorspar 818 4.4 3 2111 Bovine & equine hides 141 5.1 1 5623 Mineral or chemical fertilizers 2,349 1.2 1 6581 Sacks and bags of textile materials 167 2.7 1 6582 Tarpaulins, sails, awnings, sun blinds 3,551 8.4 1 Source: Authors elaboration with data from UN-COMTRADE. Note: An RCA>1 indicates that Mauritania has a revealed comparative advantage in the related product. MAURITANIA: Country Economic Memorandum 21 Processed fish, leather and animal hides, Arabic gum, means that if Mauritania were able to increase the quality malt, and non-metallic minerals are products with of its mineral exports, the payoff in terms of obtaining emerging RCA that could be targeted for increasing higher prices in international markets would be small. diversification. Some products gained revealed In contrast, improving the quality of fish exports, could comparative advantage over the last two decades, but result in higher prices as the maximum prices paid in exports failed to increase significantly and usually stand at international markets are between 3 to 6 times higher less than US$ 5 million per year on average (see products than the average world price. highlighted in blue in Table 2). The list of products with emerging but unconsolidated comparative advantage Quality upgrading could complement export include: processed fish products like fish oil (SITC 4111) and diversification since Mauritania is close to the quality frozen fish fillets (344), sheep skins and leather (SITC 6115 frontier on low complex fish products, while far behind and SITC 2117), malt (SITC 482), arabic gum (SITC 2922), on high complex fish products. Mauritanian exports of gypsum (SITC 2732), and quartz (SITC 2785). frozen fish and molluscs accounted for 86 percent of all fish products in 2016-2017. These products are of relatively 3.2.2. Export quality upgrading high quality, as proxied by the average price obtained on these exports as a fraction of the world’s highest prices Building on comparative advantages, improving the (Figure 33). This means that the country already has the quality of existing products can raise productivity capabilities required to compete in terms of quality in these and hasten structural transformation (Henn et al., products and fulfill high standards in developed markets. 2017). Export quality upgrading offers another avenue Yet, these two products are the least sophisticated along for diversification, but the upgrading potential varies the fishing value chain and their potential for further quality with the length of a product’s quality ladder. Products increases are somewhat limited given that they are very with long quality ladders – i.e. a significant difference close to the world’s quality frontier. On the other hand, between the prices obtained in world markets – hold the Mauritania’s exports of high-value added fish products like most potential for quality upgrading. Figure 32 shows fish fillets, fresh/chilled fish, and dried fish are of low quality that the differences between the maximum and average and very small (see upper left side of Figure 33), indicating prices (normalized to one) for iron and copper are small that the country still has significant room to improve the compared to the price differences for fish products. This quality of these products. Figure 32: Fish products offer more opportunities Figure 33: …especially high value-added products for quality upgrading, … like fresh/chilled fish, fish fillets, and dried fish Qu lit l dd r l n th M urit ni fish xports: qu lit vs. compl xit 6 -1 Relative unit values (World average = 1) -1,1 Fish, fresh, or 5 -1,2 chilled Product complexity index Fish fillet -1,3 Fish frozen 4 -1,4 3 -1,5 Fish, salted, dry -1,6 2 -1,7 -1,8 Crustaceans and 1 -1,9 molluscs 0 -2 Iron ore Copper ore Frozen Frozen Fresh or 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1,0 mackerel sardines chilled fish Quality proxied by Relative Unit Values (World's best quality = 1) Source: UN-COMTRADE and authors’ calculations. Source: UN-COMTRADE, Observatory of Economic Complexity, and authors’ calculations. Note: The size of a circle represents the export value in 2016-2017. 22 MAURITANIA: Country Economic Memorandum 3.2.3. New export opportunities based on potential new product to a country’s existing capability established patterns stock (i.e. the goods that a country already exports with a high RCA). In essence, it captures the feasibility for a Established export patterns provide a natural basis country to make a new product. The underlying idea is for export diversification. The capabilities needed to that the process of accumulating productive knowledge is develop a revealed comparative advantage in exports can not random, but rather dependent on existing capabilities. be redeployed to similar export products that are nearby Hence, a country can easily develop a new product if it in the product space. We focus on products where the already possesses all or most of the capabilities required development of a comparative advantage would seem for production. In simple terms, it is easier for a country most feasible. Such feasibility is based on the proximity to move from producing chairs to producing couches than of these products to the current network of products that from chairs to cars. Mauritania is already exporting. Key industry and product clusters that appear promising The concept of “density” is used to determine the for Mauritania to develop include animal meat and feasibility of developing new export industries and leather, processed fish products, vegetable products, product upgrade options. This metric is a measure of and copper derivatives. Table 3 shows the main exports proximity which allows to determine the relation of a products into which Mauritania can more easily develop Table 3: Industries in the nearby product space of Mauritania’s current capabilities include animal, vegetable, fish and copper-related products SITC4 Product name density PRODY Avg. exports Path 2016-17 2879 Ores & concentrates of other non-ferrous metals 0.059 5,688 23 -5.3 9410 Animals,live,n.e.s., 0.055 9,882 3 -0.4 2927 Cut flowers and foliage 0.055 6,250 3 1.1 2681 Sheep's or lambs' wool, greasy or fleece-washed 0.052 25,091 0 0 371 Fish,prepared or preserved,n.e.s. including caviar 0.05 7,059 680 -1.8 2225 Sesame (sesamum)seeds 0.05 1,448 0 3.8 6673 Oth.precious & semi-precious stones,unwork.cut etc 0.049 8,139 906 9.8 3330 Petrol.oils & crude oils obt.from bitumin.minerals 0.049 13,305 169,100 -12.9 2713 Natural calcium phosphat.,natur.aluminium c.phos. 0.048 5,738 0 -10.9 2631 Cotton (other than linters),not carded or combed 0.048 4,210 0 -12.4 2114 Goat & kid skins, raw (fresh,salted,dried,pickled) 0.048 25,613 0 -100 112 Meat of sheep and goats, fresh, chilled or frozen 0.047 19,009 0 2.2 2929 Other materials of vegetable origin, n.e.s. 0.047 10,467 0 0 579 Fruit,fresh or dried, n.e.s. 0.047 9,200 6,667 6.2 542 Beans,peas,lentils & other leguminous vegetables 0.047 3,685 0 5.2 6899 Base metals,n.e.s.and cermets,unwrought 0.046 10,597 0 -3.9 2116 Sheep & lamb skins with wool on,raw 0.046 12.874 0 -13.4 6821 Copper and copper alloys, refined or not,unwrought 0.044 7,364 0 -3.9 2919 Other materials of animal origin, n.e.s 0.043 16,287 0 -0.1 Source: UN-COMTRADE and authors’ calculassions. MAURITANIA: Country Economic Memorandum 23 revealed comparative advantage based on its existing 2017). Looking beyond sea transport, Mauritania has capabilities. Four major options to target new products for a comparative advantage in tourism and ICT services. export diversification emerge from the analysis: However, with export volumes declining rapidly, it will be important for Mauritania to strengthen these sectors. The • Preserve or build comparative advantages in animal ICT sector in particular is a key input for trade integration, products, including live animals, sheep and goat meat, private sector development, public service delivery, and sheep’s wool, sheep and goat hides and leather; overall growth. • Increase exports of vegetable products, including fresh or dried fruits; Developing the North-South road corridor for transport • Develop exports of prepared or preserved fish products; services exports is crucial to support diversification • Deepen specialization in the copper value chain by in the agriculture, livestock and fishing sectors developing exports of copper alloys. highlighted above. While Mauritania does not currently have a comparative advantage in road transport, 3.2.4. Further develop exports of the development of this industry is crucial to support transport services diversification in agriculture and fishing. The North-South road corridor (Tangiers-Nouakchott-Dakar corridor) along Service exports are small in Mauritania, but there are the Mauritanian coast is one of the only viable and active opportunities to build on the recent improvements in transport routes between North Africa and SSA (WTO, sea transport services and develop ICT and tourism 2018). Traffic appears to have grown since 2011, reaching sectors. The sea transport industry has made important over 1,000 trucks per month that are either destined for strides both in its share of Mauritania’s service exports Mauritania or in transit to Mali or Senegal (World Bank, and in its revealed comparative advantage (Table 4). The 2016a). This corridor has potential for further development industry has grown faster than the global average and to become an export route, in particular from agricultural presents an opportunity to expand Mauritania’s service zones in the south and for the fishing hub in Nouadhibou. sector, which is still small compared to product exports With the objective of establishing a second North-South (services contributed to 11.5 percent of total exports in corridor, Mauritania opened its first border crossing with Table 4: Mauritania has an increasing (decreasing) RCA in sea transport (travel and ICT) services SITC Export value (US$ million) Export RCA 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 Transport (sea) 6 20 28 27 20 55 0.5 1.4 1.3 1.7 1.3 5.9 Transport (other) 2 10 7 5 13 1 0.1 0.5 0.2 0.2 0.6 0.1 Travel 48 41 37 29 30 22 13.7 9.0 5.3 5.6 5.1 6.7 Insurance and pension 3 2 3 2 3 2 0.3 0.2 0.1 0.1 0.2 0.2 services Telecommunicatios 27 20 17 16 14 15 19.6 11.2 6.7 7.8 6.2 11.6 Other business 41 74 164 124 144 37 0.3 0.4 0.6 0.6 0.6 0.3 services Total Commercial 127 167 256 203 224 132 services Source: IMF BPM6 and author’s calculations. 24 MAURITANIA: Country Economic Memorandum Algeria in August 2018. However, trade benefits are likely 35). The high illiteracy rate makes transformation of the to be small as this region was declared a military zone by agricultural sector a challenge because it impedes the Mauritanian authorities in 2017 because it was affected farmers’ and herders’ ability to learn new techniques and by terrorist activities of alQaida in the Islamic Maghreb, a adopt productivity-enhancing technologies, especially in a jihadi group which remains a threat to the security in the context where support services are limited. region. Public spending on agricultural Research and Development (R&D) has dropped in recent years.18 Among all types 3.3. Constraints to agricultural of agricultural expenditures, spending on R&D is argued productivity to be the most important factor to growth in agricultural production (Goyal and Nash, 2017). In Mauritania, however, The agriculture sector can play its role as the main this has been neglected by the Government in recent years driver of economic diversification only if its productivity as public spending on agricultural R&D dropped from 0.7 is boosted. As suggested in section 3.2, agriculture is percent of agricultural GDP in 2001-2005 to 0.5 percent in the only non-extractive sector which Mauritania has a 2010-2014 (Figure 35), with half of this investment being clear comparative advantage and has the potential to dedicated to fishing. Wiebe et al. (2017) estimate that this develop new export opportunities. At the same time, a R&D intensity rate is less than half of what Mauritania significant percentage of households in this sector are poor. should invest in agricultural research given the country’s Therefore, developing this sector could promote economic economic conditions. diversification and accelerate poverty reduction. Yet, this goal would not be feasible with a lackluster productivity The drop in research intensity was associated with (Figure 14) that faces numerous challenges. a deterioration in the skill level of researchers. The percentage of PhD-qualified agricultural researchers – This section examines the reasons behind the limited who are fundamental to the conception, execution, and agriculture productivity growth in Mauritania. It relies on management of high-quality research – declined over time the literature which identified the following determinants in Mauritania and fell behind the SSA average in 2012- of agricultural productivity growth: human capital, access 2016 (Figure 37). The two main publicly-funded agricultural to finance, infrastructure, developed markets, adequate research centers (CNRADA and ONARDEL)19 simply no and quality spending, good governance, and access to land longer have the required personnel to conduct high- (Block, 2014; Fuglie and Rada, 2013; Mandemaker et al., quality research, because they were not able to recruit or 2011). retain researchers due to lack of incentives. For instance, CNRADA’s higher-level staff, working on research and 3.3.1. Human capital development, are engineers without PhD and represent only 3 out of its 116 total staff (World Bank, 2019a). Moreover, The low level of human capital is a major obstacle to the Institut Supérieur d'Enseignement Technologique agricultural productivity. According to the 2013 census, (ISET) is the only institution in Mauritania that educates more than half of individuals working in the sector are and trains agricultural researchers. It graduates only 15- illiterate (Figure 34). The 2017 Financial Inclusion survey 20 students per year, which is insufficient to fill the large corroborates these results and shows that more than skills gap. All these capacity constraints are a major reason 60 percent of individuals who received an agricultural for the extremely low number of new agricultural products payment did not attain more than primary education. produced in Mauritania compared to other West African This compares less favorably to peer countries (Figure countries (IFPRI, 2018). 18  Agricultural Research intensity is defined as public spending on R&D in agriculture as a ratio of agricultural GDP. 19  CNRADA: Centre national de recherche agronomique et de développement agricole; ONARDEL: Office national de recherche et de développement de l’élevage. MAURITANIA: Country Economic Memorandum 25 Figure 34: More than half of Mauritanians working Figure 35: … and the ratio of workers who receive in the agriculture sector are illiterate… agricultural payment with limited schooling is high Hi h st duc tion of indidu ls workin Educ tion of indidu ls who r ci v d in ricultur (P rc nt, %) ri p m nts (%, 2017) 53.1 50 Senegal 66.7 31.7 1.6 Laos 65.2 29.5 5.3 40 Mauritania 61.2 35.1 3.7 Percent (%) 29.6 30 Benin 58.1 38.6 3.3 Nicaragua 52.9 35.3 11.8 20 11.6 Zambia 40.5 54.3 5.2 10 4.1 Moldova 9.8 81.3 8.9 0.6 0.1 0.1 0 0 20 40 60 80 100 Hi h r t chnic l Non Prim. school Qur nic S c. school S c. t chnic l Univ rsit Prim r or l ss S cond r T rti r or mor Source: RGPH 2013 and authors’ calculations. Source: Global Findex database and authors’ calculations. Figure 36: Public spending on agricultural research… Figure 37: … and the skill level of researchers have dropped in Mauritania compared to comparators A ricultur l r s rch int nsit P rc nt of A ricultur l R s rch rs with PhD 1.2 75 0.9 Percent (%) Percent (%) 50 0.6 25 0.3 0 SSA M urit ni S n l B nin Z mbi M urit ni Z mbi SSA B nin S n l Av : 2001−2005 Av : 2012−2016 Av : 2001−2005 Av : 2012−2016 Source: ASTI database and authors’ calculations. Source: ASTI database and authors’ calculations. 3.3.2. Access to Finance systemic climatic risks. Moreover, agricultural households usually often lack collateral readily convertible into liquid Access to finance in the agriculture sector is extremely assets and do not maintain financial records. For instance, limited. While crops and livestock represent more than 25 the percentage of individuals with financial accounts in percent of GDP, the two sub-sectors accounted for less rural areas – where more than 80 percent of agricultural than 1 percent of total credit in 2010-2016. Commercial households reside – remains extremely modest and even banks usually shy away from lending to the agriculture declined between 2011 and 2017, in stark contrast to the sector because the sector is highly volatile and subject to increasing trend observed across peers (Figure 38). As a 26 MAURITANIA: Country Economic Memorandum Figure 38: Access to finance in rural areas declined Figure 39: Most Mauritanians still rely on cash in Mauritania, in contrast to the rising trend in peer to receive agricultural payments countries W s throu h which individu ls r c iv d mon Individu ls with fin nci l ccounts in rur l r s from th s l of ricultur l products in 2017 50 80 74,8 2011 2014 2017 70 40 60 50 Percent (%) Percent (%) 30 40 20 30 20 10 10,4 7,4 8,9 10 1,5 0 0 C rd Mobil Oth r B nk C sh SSA L o PDR Morocco B nin l Tunisi u ri Moldov M urit ni S n Nic r Al Source: Global Findex database and authors’ calculations. Source: Global Findex database and authors’ calculations. result, 75 percent of Mauritanians, surveyed as part the Fishing Global Financial Inclusion initiative in 2017, reported to have Fishing is an important source of export revenues, yet only received money in cash from the sale of agricultural the sector is specialized in relatively basic processes products (Figure 39). generating little added value. Over the past five years (2014-2018), inflows from the fishing sector accounted for The concentration of financial institutions in urban more than 31 percent of exports of goods. Nonetheless, the centers makes access to financial services even sector accounted for only 2-3 percent of GDP, highlighting more difficult. Only 1 percent of rural households live the sector’s limited integration with the rest of the economy. in proximity of a bank, compared to 22 percent among As highlighted earlier in Figure 33 Mauritania’s fish exports urban households (Amendola et al., 2017). Microfinance is are concentrated in products that are at the bottom of highly concentrated geographically in Nouakchott where the value-chain. This is because Mauritania has not taken almost half the number of institutions are located (Word the extra step of processing fish (fillets or meat), nor has it Bank, 2013). The financing constraints prevents crop and developed an upstream industry to provide inputs to the livestock producers from (i) modernizing their farms, (ii) sector. As of 2015, there were 72 fish processing plants in getting innovative and productive technologies, and (iii) 2015, out of which only two produce value added products, efficiently market their agricultural output. while the remaining companies mostly freeze and package fish products (World Bank, 2016a).20 3.3.3. Value chains and Markets Several challenges in the current policy of the fishing This section examines the constraints to value chain sector restricts competition and limits the development upgrading in the fishing sector and hides and skins. of the value-chain (World Bank, 2019d): These two sectors are mainly the only non-extractive sectors in which Mauritania has a clear comparative • First, the state-owned Société Mauritanienne advantage to export. de Commercialisation du Poisson (SMCP) has a 20  One in Nouakchott with the preparation of ready-to-eat meals for the EU catering sector and another in Nouadhibou that prepares headed and gutted small pelagics for Eastern Europe’s canning sector. MAURITANIA: Country Economic Memorandum 27 monopoly over fish exports. Since the mid-80s, Mauritania’s exports of leather and animal skins were only SCMP is mandated to regulate and sell frozen fish US$ 8.8 million (or 0.5 percent of total exports) in 2016. products on behalf of producers at the reference prices In addition, these exports were of low added-value when set by SMCP’s price Commission. This price-setting compared to exports in peer countries (Figure 40). mechanism disincentives firms to compete based on quality, because setting minimum export prices that The main obstacles to the development of the value might not always reflect the market dynamics could chain in the sector are the absence of local tannery hinder lower-cost suppliers from gaining market share and large informality (World Bank, 2016a). Although by developing cost-saving production techniques. global demand for hides and skins is expected to increase, only the smallest of the four tanneries operates • Second, the price-setting mechanism may act as at half capacity. Operators cite poor quality of hides, due a focal point for collusion between fish exporters. to inadequate skinning and limited tanning capacities, The mechanism of export prices is determined by and lack of revolving funds as major obstacles. Another SMCP’s committee, which is formed from three public challenge is the large informality. Most skins of small sector representatives and seven private sector ruminants are informally exported in raw to Senegal representatives, all appointed by the Minister of and Mali, while cattle and camel hides are burned on Fisheries for a (renewable) three-year mandate. The wheels and exported to Ghana and Nigeria for human commission can make decisions based on a two-third consumption. This happens because Ghanaian and majority, meaning that private sector players can Nigerian buyers offer prices twice as high as those self-regulate and protect themselves if they all collude that local tanneries can offer (i.e. UM 4,000 instead of together. This bears the risk of facilitating cartel-like UM 2,000 for cattle hide). As a result, it is estimated behavior, thus damaging market entry and competition. that about 75-80 percent of skins is being informally exported with no significant value-added in Mauritania. Hides and skins Environmental pollution and the limited skills of the Despite having a clear comparative advantage, workforce are additional constraints that impede the exports of hides and skins are low and of poor quality. development of this value chain. Figure 40: Mauritania exports lower added-value hides and skins’ products than Senegal and Cote d’Ivoire D composition of hid s nd skins xports (2016) L st compl x product Most compl x product Cot d'Ivoir R w Sh p Skin with Wool R w Sh p Skin Without Wool R w Hid s of Bovin nd Equin S n l W st nd scr p m t l of iron or st l Misc ll n ous Hid s nd Skins R w C lf Skins R w Hid s of Bovin nd Equin M urit ni 0 20 40 60 80 100 P rc nt (%) Source: Atlas of Economic Complexity, the Observatory of Economic Complexity and authors’ calculations. Note: the complexity of exported goods is defined by the Product Complexity Index. Goods with higher values are judged to be more complex. For instance, in the hides and skins sector raw sheep skin (waste and scrap metal) are the least (most) complex products. 28 MAURITANIA: Country Economic Memorandum Figure 41: Public spending on agriculture in Figure 42: … due to the large cut in subsidies Mauritania is very low and declined in recent years… Gov rnm nt sp ndin on ricultur D composition of ricultur sp ndin in (% tot l public xp nditur s) M urit ni (% tot l public xp nditur s) 14 5 12 4 10 Percent (%) Percent (%) 8 3 6 2 4 1 2 0 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2018 M urit ni S n l M puto r m nt W s Goods nd s rvic s Tr nsf rs nd subsidi s B nin M li Inv stm nts Tot l A ricultur sp ndin Source: MEF and authors’ calculations. Source: MEF and authors’ calculations. 3.3.4. Public spending remained almost unchanged, nor R&D spending which decreased (see Figure 36 above). Government spending on agriculture has declined and is insufficient to achieve agriculture transformation. Agricultural resources are also very centralized. Public The share of public expenditures on agriculture as part expenditures in the sector are carried out at the central level of total government expenditures has declined from 4.2 in Nouakchott as less than 5 percent are geographically percent in 2013 to 3.0 percent in 2018. This decrease decentralized. In addition, more than 80 percent of the widens the spending gap between Mauritania and its sector's staff are in central administrations and most of the regional agriculture-based comparators which were able to staff in decentralized services are in regional capitals. This significantly increase agriculture spending and reach the 10 concentration of resources limits the ability of field services percent goal set by the 2003 Maputo Agreement (Figure to be operational and provide the necessary services to 41). 21 farmers and herders (World Bank, 2016b). The overall reduction in agriculture spending was 3.3.5. Governance driven by a large drop in subsidies which, however, was not offset by an increase in productive spending. The The state actors and agencies involved in the sector emphasis placed on subsidies in 2011-2013 – to support are overwhelmed and unorganized. Many public bodies rice production and respond to the 2011 drought – has been are involved in the sector and significant problems reduced as the share of subsidies out of total agriculture are common regarding mandates and responsibilities, spending dropped from 29.3 percent in 2013 to 5.7 percent sometimes with competing roles and confusion between in 2018 (Figure 42). This is a good policy since subsidies policy management aspects and operational coordination. mostly benefitted input providers and larger producers For instance, the Ministry of Rural Development has, (World Bank, 2016b). However, the generated savings without the Minister's office, more than 40 administrative were not re-oriented to increase investment spending that structures and more than 10 public institutions under its 21  This target was reaffirmed in the Malabo Declaration in 2014 (Goyal and Nash, 2017). MAURITANIA: Country Economic Memorandum 29 supervision. This organizational chart shows organizational agents need physical space for processing, storage and links that are not strong to implement ambitious policies. marketing activities. While the scarcity of statistics on land administration prevents the development of an objective Management capacities of human and physical picture of the situation, Mauritania's land tenure situation capital are weak, posing significant challenges to the is very particular and one of the most complex in the region development of the sector. Previous staff assessments (World Bank, 2019e). show a top-heavy public administration that is dominated by managerial rather than operational staff (World Bank, The legal and institutional framework for land in 2016b). Insufficient separation of technical and managerial Mauritania has been dictated by history. It was the functions is another challenge that results in inefficiencies outcome of different influences stemming from traditional and affects the quality of service delivery. The shortcomings forms of land access, religious principles, and the colonial in the management of agricultural staff are coupled with era. The effects of the droughts in the 1970s, food crisis weaknesses in the management of public investments risks, and conflicts between livestock breeders and that are more focused on means than results (World farmers over decreased agricultural and pastoral resources Bank, 2016b). The sector does not have an expenditure led lawmakers to draft a new land tenure legislation: planning tool (such as an MTEF), which partly explains Ordinance No. 83-127 of June 5, 1983.22 This ordinance the deterioration of hydro-agricultural facilities and the was intended to develop irrigation projects on fallow land, significant gap in storage infrastructure in production and to reinforce the official abolition of slavery in 1981 areas. Finally, the processes of selecting and developing with provisions designed to facilitate land access for the projects remain very weak. Haratins. Its objective were to (i) consider all land as the assumed property of the State, (ii) abolish the traditional Monitoring and evaluation in the agricultural sector is land tenure system and its various forms of sharecropping, very important, and its management must be based on and (iii) facilitate access to individual private property. factual data and evidence. The production and access to quality and complete data/statistics is a major problem for Land availability in rural areas is not problematic, building policies on real evidence. The planning processes but its allocation is given that the 1983 ordinance in the sector at the central level are totally disconnected was not founded on consultations with local from the field and its challenges as there is a gap between communities. The 1983 was inspired by the principles project design and implementation. Moreover, production driving the development policy of many African nations objectives are not sufficiently based on factual evidence. at the time and was based on a belief that policies Livestock data are the source of much controversy and communicated through simple legislation would be able production and harvest statistics depend on rather dubious to challenge the foundations of societies. Therefore, this surveys of the sector's added value. ordinance was drafted without consultation with local communities, leading to social tensions that prevented 3.3.6. Land its application. For instance, the administrative circular of 1985 authorized the administration to issue concessions The longstanding land issue in Mauritania reflects the for fallow lands (that the administrative authorities country’s limited agricultural transformation. This issue considered to be “dead”) by derogating from the principle should be at the core of any agricultural development of development and of the purge of rights prior to the policy and key to support economic diversification. In rural concession. Many land allotments took place without areas, secure access to land as a productive resource is consideration of existing rights (World Bank, 2019e). At essential for farmers' livelihoods. Land ownership is also that time, the haste in the issuing of concessions by simple important for investment in urban areas where economic administrative authorization that benefitted new private 22  This ordinance is considered as the foundation of the new Mauritanian land policy and constitutes the legal framework currently in force. 30 MAURITANIA: Country Economic Memorandum owners fueled political tensions in the Senegal River Valley barriers. The lack of trade agreements, coupled with the poor and contributed to the events of 1989. quality of infrastructure, hinders the inflow of goods within the country and hampers trade with neighboring countries. Despite several attempts to improve the land situation, sensitivities over this issue persist. On the one hand, the 3.4.1. Rigid exchange-rate policy and Government intends to promote a modernized agriculture underdeveloped banking sector and considers public investments in irrigation for the benefit of all Mauritanians no matter of the ethnic identity. On the A fair-valued Real Exchange Rate (RER) is essential other hand, communities want to maintain local land rights for economic diversification and private sector on exploited or undeveloped lands to preserve farmland for development, particularly in resource-rich countries. The their members in the future. The communities living in the existing economic literature suggests that maintaining the valley can be still traumatized by the 1989 events and the RER close to its equilibrium level is a necessary condition related abusive land allocation and react strongly to what for sustained growth (Cottani et al., 1990; Rodrik, 2008). they consider as dispossession. Countries that avoided overvaluation have been associated with substantial export diversification (Elbadawi et al. An evaluation is needed to assess the actions of land 2012). Currency overvaluation, particularly in resource- offices in rural areas. The establishment of land offices in rich countries, exacerbates the distortions in the relative the four Wilayas of the Senegal River Valley Wilayas (Trarza, price of tradable and non-tradable goods, and amplifies the Brakna, Gorgol, Guidimaka) is one of the Government’s inefficiency in the allocation of production factors across major actions aiming to improve land management in sectors by implicitly imposing a tax on export-oriented rural areas. The land offices were created at the beginning sectors while subsidizing imports. This reduces prospects of the 1990s following the 1989 events. They allowed the for new sources of growth. In addition to being more suitable regularization of some concessions granted under the for export diversification, exchange rate flexibility tends to 1985 derogation system23 and at the beginning of the help resource-rich countries better manage commodity regularization process in several developed areas. Despite price fluctuations and support macro stability (Peterson some positive results obtained, the sustainability of these Institute, 2007). offices, initially supported by the international community, raises questions (World Bank, 2019e). Only the Rosso land In Mauritania, the real exchange rate is still overvalued, office is still in operation today, whereas the Kaédi, Boghé impeding the country’s diversification efforts. As and Sélibaby land offices have been closed due to a lack of shown earlier, the commodity-price boom and the surge personnel and insufficient financial and technical resources. in extractives-related FDI in 2012-2014 increased demand for non-tradeable services at the expense of job-creating sectors like manufacturing. Coupled with ineffective 3.4. Is Mauritania’s current monetary policies and limited exchange flexibility, this has diversification ecosystem adequate? led to an RER appreciation (Figure 43). Faced with depleting foreign reserves following the ToT shock in 2014-2015, BCM The diversification ecosystem in Mauritania suffers was pushed to abandon the fixed peg to the U.S. dollar, thus from several obstacles. An appreciated exchange rate, inducing a 4.9 percent depreciation of the RER in 2016. Yet, symptomatic of Dutch disease, eroded Mauritania’s the RER started to appreciate again in 2017 and was still competitiveness and impeded its diversification efforts. overvalued by 4-13 percent in 2018 because BCM continue The business environment is not favorable to attract FDI, to adopt a crawl-like peg with minimal deprecation (IMF, despite steady progress since 2015. This is compounded 2019). This overvaluation impairs the competitiveness of by relatively high tariffs and the prevalence of non-tariff the economy and hinders diversification efforts. 23  In particular, Circular No. 20 of August 5, 1985 allowed administrative authorities to allot land without sufficient attention to pre-existing land rights. MAURITANIA: Country Economic Memorandum 31 Figure 43: The REER is on an appreciating trend Figure 44: NPLs in Mauritania are very high REER Gross NPLs to tot l lo ns in SSA: 2017 110 30 108 25 106 SSA 20 (REER=2012) Percent (%) 104 15 102 10 100 98 5 96 0 2012 2013 2014 2015 2016 2017 2018 Ni r sc r CAR Ch d B nin Burundi Con o C m roon G bon Burkin F so Sw il nd L sotho M l wi M uritius T n ni An ol Gh n Ni ri Z mbi Rw nd G mbi Botsw n South Afric N mibi U nd M urit ni Equ. Guin Guin K n M d Source: IMF and authors’ calculations. Source: WDI and IMF. Financial vulnerabilities also present risks to growth 3.4.2. Despite recent improvements, the and economic diversification. Despite improvements business environment remains challenging ongoing efforts to write-off old debt, non-performing loans (NPLs) remain of the highest in SSA (Figure 44). This was Notwithstanding important business reforms also accompanied by 4.2 and 5.1 percentage point drops implemented by the Government since 2015, Mauritania in the provisioning rate and the liquid-to-total assets ratio, faces several issues that need to be addressed so respectively in 2018. These indicators reflect structural that the business environment becomes favorable to vulnerabilities in the sector linked to a narrow deposits private sector development. Thanks to the 17 reforms base, low rates of access to finance (see below) and high implemented by the authorities between 2015 and 2019, credit concentration as 54 percent of the credit market in Mauritania improved by 28 positions in the last four years 2014 was dominated by four firms (World Bank, 2019d). on the Doing Business (DB) Index, reaching the 148th rank out of 190 countries in 2018 (Figure 45). Yet, the business BCM started to address some of these constraints environment remains below its potential considering the with IMF support. In July 2018, Mauritania has adopted country’s income level (Figure 46) due to several structural a new banking law that boosts the BCM’s independence issues (World Bank, 2019f): and strengthens the crisis management mechanism by establishing a new framework for bank resolution and • Financing constraints: Over the past few years, lack depositor protection. The law also expands BCM’s scope of credit has been consistently cited by businesses of supervision to include insurance companies and the as the most problematic obstacle for doing business “Caisse des Dépôts et de Développement” (CDD). To reduce (Figure 47). In fact, Mauritania is one of the least transactions costs and promote financial inclusion, the financially inclusive countries in the world, with the BCM is also developing automated payment tools and percentage of people with an account in a financial mobile banking instruments. The BCM also issued a new institution declining from 22.8 percent in 2014 to 20.8 directive in November 2018 aimed at combatting money percent in 2017, in contrast to the rising global trend laundering and terrorism financing. As a consequence, 700 globally. These trends reflect the low participation of illegal money transfer service providers were closed by Mauritanians in the financial system, which constraints March 2019. private sector development. 32 MAURITANIA: Country Economic Memorandum • Limited competition: Competition is very limited electricity production between 2015 and 2018 thanks (Figure 48) due to strong oligopolistic tendencies in to the Government’s efforts, Mauritania has high cost private markets that are dominated by well-connected and poor quality of electricity compared to its peers companies, and the significance presence of state- (Figure 49). This is due to the low generation capacities owned companies (Box 2). Some reforms have recently and high operating costs of power generation, operated taken place in this area, for example on conditions of by a single state-owned company. access to public procurement, but much remains to be done. In particular, SMEs' access to public procurement • Lack of skilled labor: The Mauritanian workforce is less markets remains low or non-existent, with most educated than in most peers (Figure 50). Many workers contracts being awarded to large, well-connected have little or no education and very few companies offer family groups. formal training to their employees. In addition, the supply of training programs in technical and vocational schools • Poor electricity: The reliability and affordable provision remains limited, representing less than 10 percent of all of energy is considered a key product market into the post-basic education enrolments. These skills shortages competitiveness of firms. Despite the 50 percent rise in create serious problems for business development. Box 2: Few large firms dominate key markets Enhanced competition could further promote a healthy investment climate in Mauritania and significantly contribute to private sector development and diversification. Efforts to shift toward higher-value-added activities and encourage economic diversification in the future will be a function of the intensity of domestic competition. Promoting domestic competition can ultimately prevent sectoral misallocation between tradeable and non-tradeable sectors. Furthermore, competition policy reforms can benefit the poorest households and improve income distribution and help reduce poverty. Around nine large industrial and commercial groups dominate key markets in Mauritania. A handful of large family- owned groups control trade in imported food products (e.g., rice and cereal), construction, hotel and restaurant services, and the banking sector in a country where the imports of goods and services represented 63 percent of GDP in 2018. Out of these nine groups, three participate in at least eight sectors, while another two operate in six sectors (figure 22 of World Bank 2018b). Furthermore, seven of the nine identified groups are active in the banking sector, allowing them to ensure access to credit for their own enterprises. This may strengthen the market power of large groups and potentially crowd out smaller firms given that the large financing constraints in Mauritania. In the banking sector, the concentration ratio of the lending market of the four largest banks was 54 percent in 2014. Informal ties between the Government and the private sector may provide well-connected businessmen with rent- seeking opportunities. In addition to regular functions of a government with regard to the market, such as taxation and regulation, the Government also participates in the market as a supplier (e.g. of electricity, water, gas) and as a buyer, for example of sugar, powdered milk and vegetable oils, primarily through SOEs. In some cases, the Government can act as a supplier and a buyer in the same market, for example when supplying cement through the SOE SNIM (Société Nationale Industrielle et Minière) to government construction projects. Source: World Bank, 2018b. MAURITANIA: Country Economic Memorandum 33 Figure 45: The business environment in Mauritania Figure 46: However, it remains below the improved compared to its peers in recent years country’s income potential because of … Evolution of DB r nkin DB 2015-2019 E s of Doin Busin ss vs. R l GDP p r c pit : 2018 40 100 60 Ease of Doing Business 80 80 Ranking 100 60 120 MRT 140 40 160 20 180 3 3.5 4 4.5 5 M roc Bénin l L os Al éri Tunisi Mold vi M urit ni u Séné Real GDP per capita (log) Nic r DB2019 DB2015 Source: ASTI database and authors’ calculations. Source: ASTI database and authors’ calculations. Figure 47: … financing constraints, … Figure 48: … limited competition, … Most probl m tic obst cl for doin busin ss Ext nt of M rk t Domin nc vs. R l GDP p r c pit (2018) 100 6 Percent of responses (%) 80 5 60 Score (1−7) 40 4 20 BEN SEN 0 3 2013 2014 2015 2016 2017 NIC Acc ss to fin ncin Corruption T xr t s Infl tion MRT 2 Gov rnm nt bur ucr c Polic inst bilit In d qu t infr structur In d qu t l duc t d workforc Poor work thic Gov rnm nt inst bilit /coups 3 3.5 4 4.5 5 For i n curr nc r ul tions T x r ul tions R strictiv l bor r ul tions Insuffici nt c p cit to innov t Real GDP per capita (log) Crim nd th ft Poor public h lth Source: GCI, WDI, and authors’ calculations. Source: GCI, WDI, and authors’ calculations. The entrepreneurship ecosystem is also primitive and survey conducted jointly by the World Bank and CMAP not conducive to transformational entrepreneurs (World in 2016, 77 percent of young Mauritanians expressed Bank, 2019i). The literature shows a significant effect of strong motivation to launch their own business, yet entrepreneurship towards economic growth (Wennekers just one in five felt “fully ready” to embark on their and Thurik, 1999; Wong, 2005). Entrepreneurship entrepreneurial adventure. This is partially due to the represents hope to many young Mauritanians who challenging business environment in which these aspiring perceive fewer and fewer opportunities in the public entrepreneurs are operating. The Global Entrepreneurship sector and traditional rural sectors. Responding to a Index, which measures how conducive ecosystem are to 34 MAURITANIA: Country Economic Memorandum Figure 49: … poor electricity infrastructure, … Figure 50: … and lack of skilled labor Cost nd r li bilit of l ctricit Pourc nt d s tr v ill urs nt t rminé l urs étud s s cond ir s 8 14000 90 7 Cost (% of income per capita) 12000 80 6 70 10000 Pourcentage (%) 5 60 8000 Score (0-8) 4 50 6000 3 40 4000 2 30 1 2000 20 0 0 10 B nin L os l Morocco Moldlov u Z mbi ri Tunisi M urit ni 0 S n Nic r Al Séné l M urit ni B nin (2016) Nic r u L os (2016) (2014) (2014) (2016) R li bilit of suppl ind x (lhs) Cost of l ctricit (rhs) Source: World Bank Doing Business. Source: World Bank Enterprise Survey. entrepreneurship, ranked Mauritania second to last in 3.4.3. High tariffs and trade restrictions the world in 2018. This weak ranking not only reflects the compound a challenging business challenging investment climate, but also reflects limited environment startup skills, low risk appetite due to culture factors, and lack of appropriate funding vehicles. Mauritania’s import tariffs are high, shielding domestic producers from international competition Policies to strengthen the business environment and and impeding access to cheap imported inputs. the entrepreneurship ecosystem must acknowledge Import tariffs in Mauritania are more than twice the level that Mauritanian women continue to face barriers found in other regions of the world. The average tariff to social inclusion and employment. Although women rate of 12 percent in 2017 remained almost identical represented more than half of Mauritania's working- to the 12.1 percent average in 2010 (Figure 51). Some age population (57.5 percent) in 2017, only 28.2 percent domestic sectors enjoy protection levels above the participated in the labor market, compared to 59.6 average tariffs like animal (18.4 percent), dairy (14.5 percent for Mauritanian men and 62.9 percent for percent), fish (19.8 percent), clothing (20 percent), and women on average in SSA. In addition, at 13.3 percent, electrical machinery (13.1 percent). Strikingly, the tariff the unemployment rate for women is higher than the 10.9 gap remains substantial on intermediate inputs used in percent for men. This gender gap is perhaps not surprising the production of other goods, decreasing the range of considering that 37 percent of Mauritanian women are available inputs and raising the costs to produce new married by age 18 and that the country ranks among varieties. The average applied tariff on intermediates is the bottom 20 percent of countries on allowing women 9.7 percent compared to the 3.5 percent globally. In the access to property and inheritance (World Bank, 2019i). agricultural sector, for instance, tariffs for agricultural Mauritania's score on the Women, Business and the Law machinery and key inputs like seeds, fertilizer, and (WBL) index was 41.9 out of 100 in 2019 (176 out of 1867 herbicides range from 5 to 15 percent with very few countries), indicating that Mauritanian women enjoy less tariffs having a 0-rate tariff. than half of the rights legal rights enjoyed by men. MAURITANIA: Country Economic Memorandum 35 Beyond tariffs, the prevalence of non-tariff measures Community of West African States (ECOWAS), it left (NTMs) and the absence of clear procedures hinder the 16-nation body in 2000 to concentrate its efforts in trade. 24 According to the Global Competitiveness Index the Arab Maghreb Union (AMU).26 However, the AMU is (GCI), Mauritania is second to last in the world on the not effectively operational and none of its conventions prevalence of NTMs (Figure 52). The country has experienced are currently being implemented. AMU’s failure to achieve difficulties in implementing its legislation relating to the tangible progress on many of its goals results from political standardization, certification and accreditation process disagreements between its members, particularly due to (WTO, 2018). Despite the adoption of a law in 2010, the differences between Algeria and Morocco over Western regulatory framework for trade processes remains weak in Sahara (Allouche, 2019). Faced with relative stagnation the absence of implementing decrees. There is also a lack of AMU, Mauritania has negotiated re-entry and signed of equipment, human resources, and funding for testing an Association Agreement with ECOWAS in 2017. The laboratory and conformity control infrastructure. Moreover, Agreement granted Mauritania an associate state sanitary and phytosanitary control is characterized by the status, under which it participates in the ECOWAS trade presence of different services without any real coordination liberalization scheme and was due to apply ECOWAS’s among institutions. (WTO 2018). The lack of transparency common external tariff (CET) and promote the free in NTMs is reflected in the fact that, by August 2019, movement of people, goods, and investments starting Mauritania has not made yet any notification under January 2019. However, none of the arrangements have Article 15.2 of the WTO’s Technical Barriers to Trade (TBT) been implemented as of August 2019 due to ongoing agreement and did not appoint a national enquiry point for discussions regarding the strategy to operationalize questions related to TBTs in the country.25 the agreement. According to Mauritanian officials, the agreement should enter into force in January 2020. Non-transparent taxes increase protection for certain industries. Consumption taxes applicable only Mauritania has signed and ratified the African at importation constitute hidden tariffs that increase the Continental Free Trade Area (AfCFTA), but its protection of selected industries. These taxes are levied implementation needs to be defined. AfCFTA, which on specific products like tea, sugar, meat, diary, cement, will create an African-wide free trade area over the next and concrete reinforcing bars, and are usually revised decade, aims to eliminate tariffs on most intra-regional upwards during the fiscal year. For instance, a 20 percent trade in goods, eliminate NTMs, reduce restrictions consumption tax on imported mineral water was created on trade in services, and harmonize policies related to in 2015 and was subsequently raised to 50 percent in 2016 investment, intellectual property, and competition. It has and 80 percent in 2018. Similar increases have happened the potential to deepen regional integration and drive with consumption taxes on imported poultry meat and economic diversification, attract FDI, and heighten regional edible offal, yoghurt, sweetened dairy products, and pasta. connectivity. The agreement came into force on May 30, 2019 after The Gambia became the 22nd country to ratify it 3.4.4. Absence of preferential trade and entered its operational phase on July 7, 2019. However, agreements critical parts of the agreement are yet to be finalized before countries start trading under the AfCFTA on July 1, Mauritania is one of the few countries that is not a 2020, including on schedules of tariff concessions, services full member of a preferential trade agreement. Although commitments, and policies around investment, intellectual Mauritania was a founding member of the Economic property, and competition. Negotiations for protocols under 24  NTMs are policy measures other than tariffs that can affect trade. This include core measures such as quantity and price controls (e.g., quotas, prohibitions, discretionary import licenses, and para-tariffs), as well as standards and technical regulations (e.g., sanitary and phytosanitary measures and technical barriers to trade). 25  The TBT aims to ensure that technical regulations, standards, and assessment procedures are non-discriminatory and do not create unnecessary obstacles to trade: https://www.wto.org/english/tratop_e/tbt_e/tbt_e.htm 26  The Arab Maghreb Union was established in 1989 with the aim to establish a free-trade area between Algeria, Libya, Mauritania, Morocco, and Tunisia. No meeting of the AMU’s presidency council took place since the last one in 1994 in Tunisia. 36 MAURITANIA: Country Economic Memorandum Figure 51: Mauritania’s import tariffs are high Figure 52: Mauritania is second to last in the world on the prevalence of NTMs Appli d MFN dut r t s b product (2010 vs. 2017) Ext nt of M rk t Domin nc vs. R l GDP p r c pit (2018) 25 2010 2017 Av (2010) Av (2017) 6 20 5 Percent (%) Score (1−7) 15 SEN 10 BEN 4 NIC 5 MRT 3 0 3 3.5 4 4.5 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Source: WTO (2018). Note: the numbers correspond to: 1. Agriculture, 2. Animal products, 3. Dairy products, 4. Fruit, vegetables, 5. Coffee, tea, 6. R l GDP p r c pit (lo ) Cereals, 7. Oil sseds, 8. Sugar, 9. Beverages, 10. Cotton, 11. Other agri products, 12. Non-agri products, 13. Fish products, 14. Metals and minerals, Source: Source: GCI 2018 and authors’ calculations. 15. Chemical, 16. Wood, paper, 17. Textiles, 18. Clothing, 19. Leather, footwear, 20. Non-electrical machinery, 21. Electrical machinery, 22. Transport equipment, 23. Other manufactured articles, 24. Petroleum phase II which include protocols on intellectual property, 3.4.5. Poor infrastructure and rights, investment, and competition policy are all still connectivity increase trade costs outstanding. Most of these remaining issues are scheduled to be concluded and adopted by 2021. The logistics competency of Mauritania further re- affirms its weak trade facilitation environment. Despite Mauritanian exports benefit from tariff preferences in the recent efforts made by the authorities to strengthen developed countries that can be revoked unilaterally. logistics and road services, the trade and transport Exports to the United States enjoyed duty-free and quota- infrastructure remains insufficient (WTO, 2018). As free access under the African Growth and Opportunity shown in Figure 52, Mauritania performs relatively poorly Act (AGOA) until Mauritania was declared ineligible in compared to its peers on key elements of the World Bank’s January 2019 due to human right concerns as cited by Logistics Performance Index (LPI) such as the efficiency of the US administration. The country had previously lost customs and border management clearance, the quality of AGOA eligible status following the coup d'état in August trade and transport infrastructure, the ease of arranging 2008 but recovered in 2010. Mauritanian exports to the competitively priced shipments, and the competence and European Union benefit from tariff-free treatment under quality of logistics services (trucking, forwarding, and the Everything But Arms (EBA) initiative. However, once customs brokerage). Mauritania graduates the status of least developed country (LDC), it risks losing free access to EU market The poor road infrastructure coupled with geographical without a free trade agreement. One of the benefits of the constraints, mean that trade costs are elevated. Despite Association Agreement with ECOWAS is that the country declining over time, aggregate trade costs of Mauritania can assure further free access to EU market as part of remain the highest among peer countries (Figure 53). While the ECOWAS Economic Partnership Agreement (EPA), this partially relates to the insular nature of the country which is yet to be implemented as Nigeria still has not (such as the large distances) for which policymakers have signed it.27 little direct leverage on, trade costs are elevated due to 27  https://trade.ec.europa.eu/doclib/docs/2009/september/tradoc_144912.pdf MAURITANIA: Country Economic Memorandum 37 Figure 53: Mauritania performs poorly in terms Figure 54: Despite declining over time, trade costs of trade logistics in Mauritania remain elevated Compon nts of Lo istic P rform nc Ind x (2018) M sur s of Tr d costs to th US Percentage change in trade cost (2005-2014) 3 10 S n l Moldov 0 2.8 Al ri Z mbi -10 Score (0-5) 2.6 Morocco L o PDR -20 Nic r u 2.4 Tunisi -30 M urit ni 2.2 -40 B nin 2 -50 Customs Infr - Int rn tion l Lo istics Tr ckin Tim lin ss 50 100 150 200 250 300 structur shipm nts qu lit nd tr cin M urit ni Structur l p rs Tr d cost (2014) Aspir tion l p rs N i hborin Ar b countri s Source: LPI and authors’ calculcations. Source: UNESCAP – World Bank Trade Costs database and authors’ calculations. poor domestic connectivity which stems from poor logistic Low maritime connectivity continues to undermine services and infrastructure. 28 the access of Mauritania to global markets. In contrast to Morocco which improved its global ranking on the The lack of quality roads particularly affects Liner Connectivity Shipping Index (LCSI) from 79th in agricultural production areas in the south, which remain 2006 to 22nd in 2019, Mauritania’s position on the LCSI isolated from the main economic and export centers. deteriorated from 112th in 2006 to 116th in 2019. Despite Even important agricultural production centers, such as the expansion of the port capacity in Nouakchott from Rosso, get disconnected at the start of the rainy season. three to seven berths in 2014, the rapid growth of imports The situation is bad enough that fruits and vegetables means that ships often wait for a long time to unload their production enterprises, which used to export to Europe, have cargoes. The construction of a container terminal and an oil suffered because products could not reach airport facilities jetty agreed as part of PPP in end-2018 would help expand in Nouakchott on time for shipping, or got damaged along the port’s capacity in the future. In addition to capacity the bumpy, muddy road (World Bank, 2019a). In fact, the issues, the most recent Trade Policy Review by the WTO speed at which an average vehicle reaches Nouakchott is (2018) points to several institutional issues that affect the by far the lowest from Rosso compared to the other main functioning of the port. These include the multiplicity of cities in Mauritania (Table 5). This suggests that the quality supervisory authorities which undermine the management of the Rosso-Nouakchott corridor needs upgrading since of port affairs, the uncontrolled liberalization of transport it links the agricultural production center to the main auxiliaries, and the non-existence of a legal framework for demand and export destination. Nevertheless, things are coordination that would facilitate the passage of goods slowly improving thanks to the support of the World Bank through the ports. and the EU who financed the rehabilitation of large parts of this road. 28  The trade cost measure captures two main categories: The first entails bilateral factors of separation between the exporter and the importer, more dependent on exogenous factors than particular policy choices such as geographical distance. The second includes endogenous trade costs, which measure the ‘thicknesses of two countries’ borders and includes logistics performance, trade facilitation bottlenecks, such as border control and transit systems, and international connectivity, as the existence of regular maritime, air shipments (Arvis et al., 2013). 38 MAURITANIA: Country Economic Memorandum Table 5: Among major cities, Rosso is the city where cars roll at the slowest pace when travelling from/to Nouakchott Route to Nouakchott Time (hours) Distance (km) Km per hour Nouadhibou 5h 51 480 87.1 Atar 5h 28 439 83.1 Kaedi 5h 52 415 75.2 Guerou 7h 35 547 74.4 Zoueiratt 10h 51 767 73.0 Kiffa 8h 28 603 72.8 Aioun El Atrouss 11h 23 814 72.5 Nema 15h 12 1,089 72.0 Selibabi 9h 27 645 69.6 Rosso 3h 34 205 61.4 Source: Google maps accessed on February 15, 2019 at 18:00 pm local time. 3.4.6. Weak human capital only 1.7 percent of grade 4 students in public schools could read a simple eight-word sentence in French and about Despite sustained investment over a long period of 37 percent could not add two single-digit numbers (World time, Mauritania has not yet achieved universal access Bank, 2018c). to primary education. While the Gross Enrollment Rate in primary education has been over 100 percent over the last decade, the Net Enrolment Rate (NER) of the primary education age-group (6-11 years) has remained under 75 percent, well below the average of SSA and Arab countries (World Bank, 2019b). Based on the MICS 201529 survey data, more than 236,000 children aged 6-15 years (24 percent of total age-group) were out-of-school. Two out of three were among the youngest (6-9 years old) signaling late-entry, and 46 percent have never been to school. While the primary education retention rate increased from 51.3 percent in 2000/2001 to 69 percent in 2016/2017, one third of primary school students drop-out before the end of the cycle with important regional disparities.4 Learning outcomes are poor. At the national level, the education system is failing to provide foundational skills that are critical to enable social and geographic mobility. In 2017, only a quarter of grade 6 students scored above 50 percent on the end-of-primary-school national exam, while 29  UNICEF 2016 – Multiple Indicators Cluster Survey – Mauritania 2015 MAURITANIA: Country Economic Memorandum 39 Chapter 4 The missing link between urbanization and growth 4.1. Introduction Mauritania’s geography and settlement pattern make W hen cities function well, they are engines urban centers distant from each other. Mauritania’s of economic growth and prosperity. Urban cities and towns are sprawling and suffer from low densities connect workers better to jobs and population density, undermining the agglomeration bring people physically closer, facilitating the exchange of benefits to be reaped from moving closer. Because of ideas and innovations, fueling productivity, and reducing the vast terrain, urban areas in Mauritania are also the cost of infrastructure and services (Lall et al., 2017). distant from each other and further divided due to poor Functioning cities support the structural transformation of infrastructure and cultural differences. The larger cities an economy: no country has reached middle income status are also disconnected from urban areas in neighboring without urbanizing (Spence et al., 2009). Today, African countries due to trade restrictions and hard borders. cities present themselves to investors as crowded, costly For instance, the agricultural-based Southern region and fragmented (Lall and Venables, 2018). Mauritania’s is disconnected from economic opportunities on the case, as will be shown below, is not so different and faces Senegalese side by the Senegal river that forms a natural additional challenges arising from its geography (low border between the two countries. These challenges limit population density and large distance from major markets) access to markets, thus undermining growth through and its economic structure that is heavily reliant on natural specialization and diversification. resource exports. Although the latter challenge will not be further explored here, empirical evidence shows that the More than 50 percent of Mauritania’s urban population linkages between urbanization and growth in manufacturing reside in Nouakchott, though living conditions and and services is weaker among resource exporting countries economic opportunities underwhelm. Although it is versus non-resource exporting countries (Gollin et al., 2016). the most diversified region, Nouakchott is not home MAURITANIA: Country Economic Memorandum 41 to productive firms or more complex manufacturing 4.2. Understanding the urbanization processes (see chapter 3). Plagued by sprawling and landscape in Mauritania disconnected neighborhoods, the capital’s infrastructure remains inadequate, thus stifling better services and 4.2.1. Urbanization and its Drivers improved connectivity for Nouakchott’s residents and reducing two important benefits associated with density: Mauritania’s population of 4.2 million is distributed improved connectivity and better services (Hommann across a vast territory of about 1 million square and Lall, 2019). It is estimated that about 80 percent of kilometers with four distinct ecological zones (Figure Nouakchott’s urban population live in slums, lacking either 55). The desert-like Saharan zone – comprising the regions adequate housing, infrastructure, tenure or a combination of Tiris Zemmour in the North, Adrar in the middle, and of these. Hodh Ech Chargui in the East – covers about two thirds of Mauritania’s territory, but is home to only 15 percent of This chapter aims to examine the urbanization pattern its population. The Sahelian zone extends from Boutilimit of Mauritania and explains the challenges that are in the South Western part of Mauritania to Nema in the preventing urbanization from contributing to growth East and from the Saharan zone to about 30 kilometers as expected. The rest of this chapter is organized as North off the Senegalese river. This zone is characterized by follows. Section 4.2 studies the urbanization patterns vast steppe and savanna grasslands that form the natural and the drivers of urbanization in Mauritania. Section home of Mauritania’s goat and sheep herders. Further 4.3 analyzes the challenges that prevented urbanization South stretches the only real fertile zone of Mauritania, the from contributing to growth as expected. Section 4.4 Senegalese River Valley, that supplies most of the country’s concludes by discussing the role of Nouakchott as a driver agricultural production. Lastly, the Coastal zone extends of economic prosperity. Policy recommendations are 754 kilometers along the Atlantic coast and comprises presented in chapter 5. mostly of dunes. Nouakchott (the capital) and Nouadhibou Figure 55: Mauritania’s territory is characterized Table 6: Administratively, Mauritania is divided into 13 by low population density regions, each with its own capital Wilaya Capital Adrar Atar Assaba Kiffa Brakna Aleg Dakhlet Nouadhibou Nouadhibou Gorgol Kaedi Guidimaka Selibaby Hodg Ech Chargui Nema Hodg El Gharbi Aioun el Atrouss Inchiri Akjoujt Nouakchott Nouakchott Tagant Tidhikja Tiris Zemmour Zouerat Trarza Rosso Source: Adapted from World Bank (2019). Source: Google maps accessed on February 15, 2019 at 18:00 pm local time. 42 MAURITANIA: Country Economic Memorandum Figure 56: Half of the urban population in Mauritania Figure 57: … while 37 percent reside in towns below resides in the capital Nouakchott … 10 thousand inhabitants Urb n popul tion in M urit ni Popul tion distribution p r cit si 2,5 70 62.3 62.7 60 2,0 50 Percent (%) 1,5 40 Millions 1,0 30 21.6 20 15.9 0,5 7.7 9.4 11 10 0.2 3.1 2.5 3.6 0.0 0,0 0 b low 1.5k to 5k to 10k to 50k to bov 1972 1975 1978 1960 1963 1966 1969 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 1.5k 5k 10k 50k 100k 100k Oth r urb n r s Nou ckhott 2000 2013 Source: WDI and authors’ calculations. Source: Citypopulation.de and authors’ calculations. are the most important cities in that zone. Mauritania’s Figure 58: Nouakchott’s population nearly doubled geography and climate determines its settlement pattern, over the past two decades, driven mostly by migration and climate change has contributed to the expansion of Popul tion b m in citi s the Saharan zone at the expense of the more fertile zones Nou kchott North of the Senegalese river and border. Nou dhibou Kiff Despite Mauritania’s low population density across much Mb r * K édi of its territory, the country maintains administrative Zou ir t presence over its geographic area. Administratively, Rosso Sélib bi the country is divided into 13 regions (wilayas), each with At r a regional capital that act as a hub for economic activity Aïoun El… (Table 6). Regions are further divided into departments Gu rou Ném (moughataas) that are subdivided into communes that 0 200 400 600 800 1.000 represent the lowest administrative level within the Numb r of individu ls (thous nds) government system. In turn, each commune has a “main 2013 2000 town” with an elected mayor responsible for all localities within the commune. The main town is the center for basic services, like hospitals and schooling, and commerce. 50 thousand (Figure 57). At the tail end of the distribution are almost 60 urban areas that have an average population Given terrain and geography, half of Mauritania’s urban of only 10 thousand inhabitants and account for about a population is concentrated in Nouakchott and about third of the total urban population. a third resides in small and scattered settlements in the South. In 2017, the country’s urban population reached Even though some of the small towns in the South are about 2.3 million or about 53 percent of the total population growing rapidly, there is limited evidence of what drives (Figure 56). After Nouakchott with 1.2 million inhabitants, urban population growth. Among towns with more than 20 the next largest city is Nouadhibou in the North with 120 thousand inhabitants, Aïoun el Atrous, located on the road thousand, followed by the town of Kiffa in the South with between Kiffa and Nema, experienced the fastest growth MAURITANIA: Country Economic Memorandum 43 Figure 59: The main cities to which individuals migrated are Nouakchott and Nouadhibou and the mining areas Distribution of individu ls p r wil ccordin to th ir l n th of r sid nc 100 90 80 70 60 P rc nt 50 40 30 20 10 0 Giudim k Gor ol Ass b T nt Hodh Gh rbi Br kn Hodh Ech Tr r Adr r Tiris Nou kchott Inchiri D khl tt Ch r hui Z mmour Nou dibou <1 r 1-4 rs 5-9 rs 10+ rs sinc birth missin Source: RGPH 2013 and authors’ calculations. Figure 60: Young males are the most likely Figure 61: … with Nouakchott being the main to migrate... migration destination Prob bilit to mi r t p r nd wil D stin tion of mi r nts p r 12 1 (min,5) 10 0,8 [5,10) 8 [10,15) 6 0,6 [15,20) 4 [20,25) Percent (%) Percent (%) 2 0,4 [25,30) 0 0,2 [30,35) (min,5) [5,10) [10,15) [15,20) [20,25) [25,30) [30,35) [35,40) [40,45) [45,50) [50,55) [55,60) [60,m x) (min,5) [5,10) [10,15) [15,20) [20,25) [25,30) [30,35) [35,40) [40,45) [45,50) [50,55) [55,60) [60,m x) [35,40) 0 [40,45) tt u rr rs m nt [45,50) kc i Br ol u r Go b u hir kn h Gh h rb ho ou bo r No Ad F m l M l s r No Inc dh r m di As Tr [50,55) T Ho Ch Ti idi -E Adr r T nt Tr r dh Gu [55,60) Ho tt Ass b Br kn Gor ol [60,m x) l kh Inchiri D khl tt Nou dibou Tirs - E mour D Hodh Gh rb Hodh Ch r h Guidim h Nou kchott Source: Authors’ calculations based on Dupriez and Spielauer (2017). Source: Authors’ calculations based on Dupriez and Spielauer (2017). of 6 percent between 2000 and 2013 (Figure 58). While Migration, coupled with a high fertility rate, fueled several of these small towns (i.e. Guerou, Kiffa, Sélibabi) rapid population urban growth, particularly in reported population growth rates higher than Nouakchott, Nouakchott and Nouadhibou. Mauritania’s fertility rate their impact on overall urbanization is low given the small is among the highest in the world at about 5.1 births per size of these settlements. What drives the population woman,3031and higher in rural (6.1 births per woman) than growth – migration or natural growth -- in specific towns in urban areas (4.3 births per woman). In addition to the is less understood. high fertility rate, data from the 2013 census shows 30  Mauritanie : Enquête par Grappes à Indicateurs Multiples (MICS) 2015 : http://www.ons.mr/images/mics/MICS5_rapport.pdf 31  44 MAURITANIA: Country Economic Memorandum that migration fueled population growth, particularly in of Akjoujt, and Tiris Zemmour (56 percent) with iron Nouakchott and Nouadhibou, where 50 and 55 percent mines in Zoueirat. While the census provides information of their respective residents report being born in another of movements between wilayas in the temporal intervals, wilaya (Figure 59). This confirms a high level of migration it does not record whether a person arrived from a rural into these two most urbanized wilayas. Other regions or an urban area, nor does it show the intra-wilaya with higher migration status – but lower population movement of population. At national level, about one numbers – include Inchiri (50 percent) in the North East quarter of the population have moved to another wilaya of Nouakchott with gold and copper mines near the town since birth. Box 3: Future population will grow rapidly and be largely concentrated in Nouakchott if past migration trends continue Mauritania’s population is projected to grow from 4.2 million in 2018 to almost 12 million in 2065 (Spielauer and Dupriez, 2017). This projection is consistent with previous dynamics between 1977 and 2013 when the total population in the country increased from 1.4 to 3.4 million. Population growth will be driven by fertility and migration, with the latter heavily influencing the regional composition of the population across wilayas if previous patterns of international and national migration continue in the future (Figure 62).31 Considering migration trends observed between 2000 and 2013, it is expected that Nouakchott would grow disproportionally faster due to a large number of migrants arriving in the capital city. Despite lower fertility rates in urban areas including Nouakchott, its population will increase from 1.2 million in 2018 to almost 6.5 million people in 2065. Continued rapid population growth in Nouakchott may lead to congestion and increases the risks posed by climate change. Already delinquent on the provision of basic infrastructure services and economic assets, Nouakchott risks falling behind further, unless appropriate urban planning and land use regulation guide the investments into housing and infrastructure within the city. As outlined in section 4.4.6 below, existing threats posed by climate change will expose the city further, unless accompanied by commensurate investments into climate resilience. Proj ct d tot l popul tion - mi r tion sc n rios 12.000.000 10.000.000 8.000.000 6.000.000 4.000.000 2.000.000 0 2060 2060 2060 2030 2030 2030 2050 2050 2050 2040 2040 2040 2020 2020 2020 2065 2065 2065 2035 2035 2035 2055 2055 2055 2045 2045 2045 2025 2025 2025 2015 2015 2015 NO MIGRATION INTERNAL MIGRATION ONLY INTERNAL AND INTERNATIONAL MIGRATION Nou kchott Inchiri Tirs-E mour Guidim h T nt Ass b Hodh-Gh rb D khl tt-Nou dibou Adr r Tr r Br kn Gor ol Hodh-Ch r h Source: Authors’ calculations based on Dupriez and Spielauer (2017). 31. Population projections are based on a dynamic micro-simulation model, which account for a broad variety of individual characteristics, model realistic life-courses and their diversity, and support the modeling of interactions between people. MAURITANIA: Country Economic Memorandum 45 Figure 63: The difference between rural and urban Figure 64: … and is more pronounced in the South welfare is sizeable ... that has the largest headcount poverty ratio Distribution of hous hold w lf r in M urit ni 1.0 -06 2.0 -06 3.0 -06 4.0 -06 5.0 -06 Density 0 0 200000 400000 600000 800000 1000000 P r c pit / dult quil v nt food & no-food consuption xp nditur ( nnu l) Rur l r s Urb n r s Source: EPCV 2014 and authors’ calculations. Source: Poverty Map for Mauritania, based on EPCV 2014 and RGPH 2013. Among the migrant population, migration is mainly During the same period, however, urban areas registered oriented towards Nouakchott and it is mainly young fewer gains in poverty reduction and Nouakchott witnessed men who migrate. Men are about twice as likely to migrate an increase in poverty likely driven by the arrival of poorer compared to women and the probability to migrate peaks households. This led to some convergence of poverty rates around the age of 20 to 25 (Figure 60). Among wilayas, between rural and urban areas (World Bank, 2017b). Still, Nouakchott is by far the preferred migration destination as welfare differences between rural and urban communes it attracts about 70 percent of total migrants (Figure 61). remain sizeable (Figure 63) and poverty headcount ratios This is because most jobs (34 percent, LFS 2017) are found remain highest in the populated South where population is in the capital. If these past migration trends continue, highly reliant on agriculture (Figure 64). Nouakchott’s population would grow disproportionally faster than the rest of the country (Box 3), likely leading The pattern of access to public services mirrors to congestion that could undermine its growth prospects the poverty rates across communes. As expected, further, and exposing the future generations to the threats urban communes, particularly those in Nouakchott and imposed by climate change (see section 4.4.6). Nouadhibou, are doing better in terms of access to public infrastructure and services, such as electricity, piped water, 4.2.2. Spatial Inequality in Welfare and sanitation compared to more rural communes (Figure and Access to Services: a Driver for 65 to Figure 68). More urbanized yet poorer communes Migration? in the South – such as Kiffa, Guerou, Kaedi and Aioun el Atrouss – are doing better too, especially compared to their Even though Mauritania has made positive strides in neighboring communes with rural characteristics. For these reducing spatial inequality over the past decade, welfare rural communes, the combination of lack of economies of and living conditions are still very different between rural scale, relatively higher cost of service provision and poverty and urban areas. Between 2008 and 2014 rural poverty explain the very low access to services. was declining behind the backdrop of more favorable terms of trade for commodities, which favored rural households The overlap between dependency on agriculture, poverty, by generating higher farm income (World Bank 2017b, p.9). and lack of infrastructure services is concerning when 46 MAURITANIA: Country Economic Memorandum Figure 65: Urbanized communes have better Figure 66: … electricity… access to… P rc nt of Popul tion Urb n P rc nt of Popul tion with Acc ss to El ctricit Figure 67: … piped water… Figure 68:… and sanitation systems P rc nt of Popul tion with Acc ss to Pip d W t r P rc nt of Popul tion with Acc ss to S w or S ptic Source: RGPH 2013 and authors' calculations. considering the likely negative impact of climate 4.3. Unpacking the linkages change. In Southern communes, the share of farmers between urbanization and growth and herders in the total workforce is very high (Figure 69). Agriculture dependence coincides with high poverty and Empirical evidence suggests that successful cities deficiency of public services and infrastructure. Climate enable firms to increase workers’ productivity through change will add stress to these communes that are already scale and specialization. Scale can be achieved by prone to food security crises (Figure 70) and is likely to push producing a lot of one product or through technologies, people in even greater numbers to the larger urban centers thereby reducing the fix cost per unit of production. (Henderson et al., 2017). MAURITANIA: Country Economic Memorandum 47 Figure 69: Communes in the south of Mauritania Figure 70: Regions in the South of Mauritania are largely dependant on framing and herding were affected by a food crisis in 2018 Source: RGPH 2013 and authors' calculations. Source: http://fews.net/west-africa/mauritania. Producing at scale requires access to a large market, so that It is therefore through the lens of density, distance, producers can sell to consumers at low transaction costs and division that growth opportunities can be usefully – either locally or exporting internationally. Specialization assessed spatially in a country or city. The “3Ds” occurs when workers concentrate on doing a few narrowly framework first emerged in the World Bank’s (2009) defined tasks and in that process accumulate specialized World Development Report, when location-based growth skills that increase productivity (Collier and Jones, 2015). opportunities and related policies were analyzed in the Scale and specialization interact and are stimulated by context of population densities, lagging regions (distance) the proximity between producers and consumers. The and hard borders (division). The framework allows to abundance of complementary skills of specialized workers identify the constraints that impede growth and propose encourage diversification of products as firms compete for remedies to remove these constraints (Wang et al., 2018). the market share. In Mauritania, the small size of urban settlements When consumers, producers and workers cluster in – apart from Nouakchott and Nouadhibou – means proximity, they spur competition and enable scale that few towns are sufficiently large to create market and specialization that bring agglomeration benefits potential or generate economies of scale. The low in form of higher productivity. To generate proximity, density shown earlier at the national level is also an issue either the physical distance needs to be reduced or at the urban level. The average density among urban overcome by investing into connective infrastructure and agglomerations in Mauritania is 3,162 inhabitant/km2 in transportation services. Therefore, productivity generated 2015, one the lowest densities in Africa (Figure 71). It is thus through scale and specialization, can only be reaped if not surprising that nightlight data – often used to depict connectivity between workers, producers and consumers economic activity, population or a combination of both – is fostered through density and efficient transport options. detects only Nouakchott, Nouadhibou and the mining area Many African cities are fragmented and disconnected around Fderik and Zoueirat as emitting lights, but without (Lall and Venables 2017) and therefore fail to reap these substantial growth between 1996 and 2010, these being agglomeration benefits. the latest years of comparable nightlight data (Figure 72). 48 MAURITANIA: Country Economic Memorandum Figure 71: Urban agglomerations in Mauritania are Figure 72: Many localities, especially in the South, among the least dense in Africa show low economic activity and do not emit light Av r d nsit in urb n lom r tions (p rsons/km2) 12 10 8 6 4 2 0 CPV CIV BWA TZA DZA UGA NGA ZAF MRT CMR MAR SWZ NAM TUN MWI ZWE COG GIN SEN SLE COD SOM BEN SSD TCD Source: National Oceanic and Atmospheric Administration and authors’ Source: Africapolis and authors’calculations. calculations. Figure 73: Urban agglomerations in Mauritania are Figure 74: About half of Mauritania’s territory very distant from each other has no or limited connections to within country Av r dist nc b tw n urb n lom r tions in Afric market towns 160 140 120 100 80 60 40 20 0 r CAR Con o -biss u South Sud n DRC Burundi B nin nd… pt Zimb bw Si rr L on Z mbi An ol ri South Afric N mibi M urit ni Guin Ni E Al S o Tom Guin Source: Africapolis. Source: Open Street Map (OSM), Africapolis and Authors’ calculations. In addition to low density, distances between urban such as in the North Eastern part of the country. However, regions are vast, leaving large parts of the country the South Eastern border to Senegal has also inaccessible disconnected. The average distance between urban areas (highlighted in purple) where population settlements agglomerations in Mauritania is 107 km, the third longest in are disconnected from other towns in Mauritania due to Africa (Figure 73). When visualizing access to marketplaces non-existing roads. across Mauritania’s territory (and assuming thick borders to its neighboring countries), one can see that half of Large distances and high cost of transportation limit the country is disconnected (Figure 74). Lack of market the integration of product and labor markets. Figure accessibility mostly coincides with little to no populations, 75 shows prices for charcoal and milk concentrate for MAURITANIA: Country Economic Memorandum 49 Figure 75: The spatial price variation for Charcoal (panel A) and Milk concentrate (panel B) points to high transport costs Source: World Bank staff calculations based on EPCV 2014. Note: Results show percentage variation in nominal prices after controlling for observable characteristics. Red (blue) regions show higher (lower) prices relative to Nouakchott. different Moughataas in Mauritania. These prices are to Saint Louis in Senegal or Bamako in Mali, or likewise systematically linked to patterns of production but also Nouadhibou or Atar to connect to the North. point towards high transport costs. For instance, prices for charcoal (Panel A) are relatively lower for the South-West Acute divisions between settlements also prevail due of the country, which reflects the abundance of wood as to poor road infrastructure. Division is characterized by input for production. In the North and East of the country, the shortage of effective transportation which adversely charcoal is imported and significantly higher prices signal affects the travel time between cities and countries. high cost of transportation. Milk concentrate (Panel B) is Adequate roads are also important for the development of normally imported through Nouakchott or comes from rural areas as they provide cheap access to both markets Mali, and spatial patterns suggest that distance matters. for agricultural output and for modern inputs (Jacoby, It is likely that high transport costs undermine domestic 2000). Despite the increase in investments, the quantity and international market integration. and quality of roads in Mauritania are extremely low as the country ranked last in SSA on both measures (Figure 76 and Even when considering larger agglomerations in Figure 77). Poor road conditions also increase transportation neighboring countries, Mauritania’s towns are far costs, which adversely affect firm growth (Dinh and Clarke, from other towns. In Mauritania, the average distance 2012). In Mauritania 45.9 percent of firms surveyed as part to the nearest larger city was about 335 km in 2015 the World Bank Enterprise Survey considered transport (Table 7), compared to 128 km, 264 km, 270 km, and 271 as major constraint to their operations, compared to 26 km in neighboring Senegal, Morocco, Mali and Algeria, percent in SSA. The dearth of transnational highways and respectively. These large distances increase transportation railways thwart mobility and trade and undermine the cost, thus reducing possible spillover benefits that could be generation of economies of scale. reaped from a more tightly knitted network of cities. While Nouakchott has a geographically central location in the In addition to physical barriers, social barriers inhibit country, it is however distant from any other significant economic integration. In a general setting, acute social growth pole. Towns in the South, like Rosso or Kiffa, could divisions inhibit growth as they encourage rent-seeking perhaps play an important role to bridge the distance behavior, lead to market distortions, and mismanagement 50 MAURITANIA: Country Economic Memorandum Table 7: In 2015, 90 percent of the urban population (other than Noukachott and Nouadhibou) lived in cities that were more than 200 km away from the next larger city City or town Population Closest larger Distance City or Population Closest larger Distance city (km) town city (km) Tintane 14,117 Bamako, Mali 481 Atar 25,632 Nouakchott 407 Bassiknou 10,444 Bamako, Mali 420 Boghe 17,089 Nouakchott 243 Tembedra 15,538 Bamako, Mali 402 Selibabi 30,071 Touba, Senegal 400 Tidjikja 11,293 Nouakchott 480 Maghama 12,023 Touba, Senegal 335 Magta Lahjar 14,100 Nouakchott 308 Zoueiratt 47,188 Nouadhibou 512 Lexeibe 10,502 Touba, Senegal 332 Aleg 17,186 Nouakchott 244 Aioun El Atrouss 26,738 Bamako, Mali 481 Kaedi 48,858 Touba, Senegal 294 Nema 23,960 Bamako, Mali 449 Nouadhibou 129,573 Nouadhibou 0 Akjoujt 14,993 Nouakchott 247 Nouakchott 1,060,776 Nouakchott 0 Kiffa 56,941 Nouakchott 509 Rosso 34,325 Nouakchott 174 Guerou 25,325 Nouakchott 458 Mbera 50,000 Bamako, Mali 426 Boutilimit 16,377 Nouakchott 145 Source: Africapolis. Figure 76: The quantity and … Figure 77: … quality of roads in Mauritania are poor Ro d d nsit in SSA: 2012 P rc iv d ro d qu lit in SSA: 2017 0.30 5.5 5.0 0.25 Index (0 worst - 7 best) 4.5 SSA v r 0.20 4.0 SSA v r Km/Km2 3.5 0.15 3.0 0.10 2.5 2.0 0.05 1.5 0.00 1.0 r Mo mbi… sc r Burkin … l L os C m roon M li s… L sotho B nin ch ll s M l wi Zimb bw Mo mbiqu ni Ethiopi u N mibi ni M urit ni Lib ri Ethiopi Z mbi Gh n G mbi Rw nd M urit ni Guin K n Ni S n Nic r T n T n M d M d S Source: World Road Statistics and authors’ calculations. Note: 2012 Source: World Economic Forum and authors’ calculations. represents the latest available data for in Mauritania. of public resources (Gören, 2014). In turn, these challenges ethnic fragmentation overlaps with spatial variation in reduce connectivity within and between cities. Mauritania access to services and poverty rates. In particular, Haratines is one of the least socially cohesive countries in the world, and Black Africans (Melly, 2019) are largely present in the even in Africa (Figure 78). This is partly because the society poorer South and the less well-off districts of Nouakchott is constructed around a complex and hierarchical system, such as Riyadh, Sebkha, and El-Mina. In addition to ethnic made up of three ethnicities: white Moors, black Moors (or fragmentation, regulatory complexities undermine social Haratine), and Black Africans (World Bank, 2017b). This cohesion. For instance, the process of birth registration MAURITANIA: Country Economic Memorandum 51 Figure 78: Social cohesion in Mauritania is very low when compared to other countries in the world (8,10] (6,8] (4,6] [2,4] No data Source: Author calculations based on the Social Cohesion Index developed by Foa (2011). is complicated and expensive, making it inaccessible for 4.4. Is Nouakchott lifting its weight a large part of the population. According to the United as an urban agglomeration? Nations Children’s Fund, only 66 percent of under-5-year- olds are registered. Lack of identification makes it difficult Since Nouakchott is the only agglomeration of any for individuals to obtain formal employment and get access significant size, this section examines the city’s to basic services such as education and healthcare. Women performance as an engine of growth for Mauritania’s are also marginalized as highlighted in section 3.4.1. economy. The focus on Nouakchott is motivated by three factors. First, it is the only city of any significant size in the Lack of spatial integration through trade linkages country, i.e. dominant city in a low market potential area generates further division and reduces Mauritania’s (OECD, 2017). Second, the wilaya of Nouakchott is the only economic potential. Not a member of the Economic one that is classified entirely as urban.33 This enables use of Community of West African States (ECOWAS) and further data that is only statistically representative at wilaya level. distant to the European Union countries – even though a Third, Nouakchott remains the country’s main interface for recent signatory to a regional EU economic partnership international trade through its port facility which receives agreement32 – Mauritania is neither belonging fully to most of Mauritania's imports (WTO, 2018).34 the club of North African nor SSA countries (see chapter 3 above). Apart from terrain and distance, the rigidity of Nouakchott experienced one of the fastest population geopolitical boundaries impede trade and discourage the growth in Africa since it was chosen in 1958 as the continuity of urban areas and urban corridors which could capital of the then soon to be independent Mauritania. otherwise be developed into lucrative trade hubs. Back then, Nouakchott was a fishing village of about two 32  http://trade.ec.europa.eu/doclib/press/index.cfm?id=1911 33  Nouakchott is divided into 9 moughataas – Arafat, Dar Naim, El Mina, Ksar, Riyadh, Sebkha, Teyarett, Toujounine, and Tevragh Zeina – of which Arafat had the largest population in 2013 (176 thousand) followed by the fast-growing areas of Dar Naim and Toujounine with both around 144 thousand in 2013(JICA, 2018). 34  Another ongoing study entitled “From rural towns to cities: Critical path to capture the economic potential of South Mauritania” is examining the urban potential of southern cities. 52 MAURITANIA: Country Economic Memorandum Figure 79: Between 1977 and 2018, Nouakchott’s Figure 80: Nouakchott’s contribution to the economy population grew by a factor of ten is lower than what is expected given its population Popu tion p r Wil Popul tion vs GDP t th cit l v l (2015) 4,0 45 Chisn u 3,5 1,2 Lus k 3,0 1,0 Tunis City level GDP (% of total) 35 Nou kchott 2,5 B m ko Millions 0,6 2,0 D k r M n u 1,5 0,4 25 0,1 1,0 Cotonou C s bl nc 0,5 15 0,0 1977 1988 2000 2013 2018 Al i rs Vi nti n Inchiri Tiris Z mmour Adr r 5 T nt D khl t Nou dhibou Tr r 7 12 17 22 Guidim k Hod El Gh rbi Br kn Gor ol Ass b Hod Ech Ch r ui cit popul tion (% of tot l) Nou kchott Source: ONS, Citypopulation.de and authors’ calculations. Source: Oxford Economics, WDI and authors’ calculations. thousand inhabitants (Choplin and Dessie, 2017). In the and the boom in the construction sector distorted the decades that followed – and accelerated by a series of labor market, inducing new migrants to find employment droughts since the beginning of the 1970s – Nouakchott’s opportunities in non-tradable and low-productive population grew exponentially from 135 thousand in 1977 sectors such as retail, construction, transport and public to almost 1.2 million in 2018 (Figure 79). administration. Combined, these sectors accounted for about 50 percent of jobs in Nouakchott in 2017. As a result, Rising revenues from resource extraction accelerated Nouakchott represents a “consumption city” as defined by income growth that translated into a higher public sector Gollin et al. (2017) as it urbanized without acquiring the wage bill, a public investment program and a surge in industrial sectors that are typically associated with the consumption imports. As shown in section 2.2.1 above, development of productive cities. natural resource extraction, coupled with the commodity super-cycle, raised income per capita in Mauritania in Several factors prevented Nouakchott from evolving the past. This resource-boom led to a surge in food and into a production city that could support economic manufacturing imports which rose from 27.1 percent of diversification. Compared to capital cities in peer GDP in 2006 to 38.7 percent of GDP in 2014, and created countries, Nouakchott’s contribution to the national opportunities in the import and domestic trade sectors. economy is below its potential considering its population Public consumption became another driver of economic size (Figure 80). Rapid and unplanned expansion, growth, when the Government increased the wage scale by deficiencies in connectivity, weak governance, the lack 123 percent following the onset of oil production in 2006 of population density and access to finance have all and launched the PIP in 2009. undermined agglomeration economies and made it costly to connect people, workers, and firms within the city. The resource boom rendered Nouakchott a consumption Meanwhile, the low skill base, owing to low educational city that is not serving as an engine of economic growth attainment outcomes of Nouakchott’s original population as it shifted labor away from the manufacturing sector coupled with the influx of less educated immigrants and into non-tradable sectors. The increase in consumption the outflow of highly educated emigrants has failed to imports, coupled with the higher public sector wage bill invigorate the private sector. MAURITANIA: Country Economic Memorandum 53 Figure 81: Nouakchott's urban footprint expanded 30-fold between 1964 and 2016 1958 1964 1980 1989 1995 2000 2008 2012 2017 Source: Author calculations based on the Social Cohesion Index developed by Foa (2011). 54 MAURITANIA: Country Economic Memorandum 4.4.1. Absence of effective land management system. Clearly, local preferences for single management and urban planning has family housing and larger plots prevail in the Mauritanian resulted in urban sprawl culture.35 92 percent of buildings in Nouakchott are composed of only 1 or 2 floors (Figure 83). Still, and despite Since the city’s inception, population growth has not attempts to improve current land administration in recent been guided by urban planning and land use regulation. years, Mauritania’s land administration system suffers from Nouakchott’s urban footprint, which is visualized in Figure complex formalities to land registration, lack of capacity 81, expanded from only 5 square kilometer (km2) in 1965 and financial resources, and dispersion of records and to 150 km2 in 2016 (CILSS, 2016). Rather than prioritizing responsibilities across different institutions. As per a 2010 the development of land within or near the city core (infill decree, the Directorate General of State Land and Property development), thereby increasing density and using prime (DGDPE) at the Ministry of Finance has the responsibility of land more efficiently, Nouakchott’s urban expansion, processing and formalization of land rights. However, this especially since 2000, took more the form of leapfrog administration has only has 84 employees, or one agent development, meaning the development of land that is per 30,000 inhabitants (World Bank, 2019e). In contrast, disconnected from currently developed areas (Figure 82). Namibia – whose geographical characteristics are similar Some of the leapfrog development is called “Kebbe” and to those of Mauritania – has a land administration staff of “Gazra” and are associated with often illegal occupation 455 agents (or one agent per 4,600 inhabitants). of land. Many of these areas are characterized by informal housing, poor infrastructure and services (roads, access Emerging inconsistencies are the result of poor to water, and basic services) as well as poor integration management, fraud and transactions being not into the urban environment (World Bank, 2019e). Such recorded officially, undermining further the credibility development increases the costs of providing future public and the functioning of land record systems (World services and connecting roads. Bank, 2019e). As of 2018, only 30 thousand deeds were officially issued by the DGDPE since the creation of While partly attributable to local preference, inefficient Nouakchott. The absence of official deeds is confirmed by land use is mostly a symptom of a dysfunctional land the household survey implemented by JICA in 2018: none Figure 82: Leapfrogging in Nouakchott increased Figure 83: Low-rise buildings dominate the housing dramatically since 2000 structure in Nouakchott Sh r of n w l pfro fr m nts out of n w fr m nts in Afric n c pit ls Distribution of buildin s in Nou kchott 60 1990-2000 2000-2010 7+ Floors; 0,2% 50 3-6 Floors; 8,0% Ground floor; 12,4% 40 P rc nt (%) 30 20 10 2 Floors; 39,9% 0 1 Floor; 39,5% D k r Addis Nou kchott Windho k Bul w o dou ou L os K no N irobi Ki li B m ko M puto Accr Con kr Abuj Toub K mp l N l Sukut Lus k Ni m Ou Source: Lall and Venables (2017). Source: JICA 2018 and authors’ calculations. 35  A household survey conducted by JICA 2018 showed that 87 percent of the sampled population in Nouakchott preferred to live in a single house. MAURITANIA: Country Economic Memorandum 55 of the 10 thousand households interviewed in Nouakchott 4.4.2. Low population densities, had a real title; 32 percent had an occupancy permit, which disconnected neighborhoods, is sufficient to build a home on public land; 8 percent had and financing constraints make a provisional occupancy right, and the vast majority of 60 infrastructure and services costly percent had no document at all (JICA, 2018). Inefficient land use leads to low population densities Nouakchott’s experience in upgrading informal that are not conducive to agglomeration economies. settlements has been mixed at best, thwarted by lack Nouakchott’s population density gradient is lower and of strategy and political economy considerations. As flatter compared to neighboring Dakar for instance highlighted above, Nouakchott experienced rapid growth (Figure 84). The population density in Nouakchott’s center since its inception, much of it was unplanned. This has measures about 50 persons per hectare, just around one increased pressure and competition for land, causing sixth of that in central Dakar. Low density and urban land prices to skyrocket. At the same time and in order sprawl carry economic consequences. First, they lengthen to accommodate the growing population, the state has the average distance to jobs and services, leading to distributed free land, most of the time not considering the fragmented labor markets and more difficult access to impact on urbanization and not taking into account existing hospitals and schools. Second, they increase the per capita plans. For instance, after 2008, the state conducted cost to provide infrastructure such as roads, electricity, resettlement operations that aimed at reducing urban sewage, and drinking water. poverty and improve living conditions in poor neighborhoods of Dar Naïm, Arafat, and Toujounine. However, this objective Low population density undermines access to various was not met because the Government simultaneously types of infrastructure and services in Nouakchott. In distributed 20,000 plots of land in the southern peripheries 2014 (latest available household survey), access to internet for resettled households (named as Tarhil area) without was insignificant in both Nouakchott (8 percent) and other preparing the necessary infrastructure (water, electricity, urban areas (2 percent), averaging only 3 percent for the roads, etc.) that are needed to ensure decent living entire country (2014, EPCV). While access to electricity was conditions. In addition to being unplanned, some of these far higher in Nouakchott (82 percent) compared to other resettlement initiatives were driven by political motives to urban areas (66 percent), the access to piped water was guarantee stability of the political regime as many of the only 40 percent in Nouakchott, significantly lower than the slums were home to opposition groups that were not in 78 percent average reported across other urban areas.36 favor of the Government at that time (Choplin, 2014). Low access to services worsens further as households move away from the Center of Business District (CBD) Lack of land registration also undermines planning and assumed here to be the Presidential Palace (Figure 85 and tax collection. The absence of land title leads to a shortfall Figure 86). The interaction of density and services has in collected taxes and undermines the role of the state been analyzed by Gollin et al. (2017) who demonstrate how in controlling speculation and the proliferation of illegal service outcomes improve with rising population densities. occupations. The lack of well-documented studies and the scarcity of data make it difficult to establish a clear picture Nouakchott is also under equipped in roads that have of the taxation system in Nouakchott. According to JICA poor quality. Outside of the airport area,37 paved roads (2018), there is an annual tax on constructed buildings represented only 3.4 percent of the territorial surface in and a residential tax, however there is no land tax and the 2017 (JICA, 2018). Putting this into the regional context, official land price registration system has not been applied. the coverage of paved roads was 386 meters per 1,000 36  Authors’ computation using EPCV2014. Although these figures need to be interpreted with the caveat that households reporting access to piped water may not be connected to formal utility water but have a makeshift connection to a well. 37  The airport area accounted for 66 percent of the road network. 56 MAURITANIA: Country Economic Memorandum Figure 84: Nouakchott has a very low and flat population density gradient compared to Dakar Nou kchott D k r 400 400 350 350 300 300 250 250 P rsons/h ct r P rsons/h ct r 200 200 150 150 100 100 50 50 0 0 0 10 20 30 40 50 60 0 10 20 30 40 50 60 km km Source: Authors’ computation based on Worldpop 2015 for Nouakchott and Landscan 2014 for Dakar. Figure 85: Access to piped water is low declines Figure 86: … as does access to the internet within with distance to the CBD … household 30 60 Sh r of HHs with pip d w t r(%) Sh r of HHs with int rn t(%) 50 20 40 30 20 10 10 0 0 km km km km km km km km km km km km km km 5 2 3 4 6 8 15 5 2 3 4 6 8 15 0− 3− 2− 4− 5− 6− 0− 3− 2− 4− 5− 6− 8− 8− Dist nc from CBD (Pr sid nti l P l c ) in km Dist nc from CBD (Pr sid nti l P l c ) in km Bottom 40% Bottom 40% − b st fit Bottom 40% Bottom 40% − b st fit Av r Av r − b st fit Av r Av r − b st fit Source: ECPV 2014 and authors’ calculations. Source: ECPV 2014 and authors’ calculations. inhabitants in Nouakchott in 2017 compared to the 467 exchange of ideas and discourages workers to participate in neighboring Dakar (latest available data). The reliability in labor markets that are beyond their reach. This is further of the road network is further impeded due to the absence exacerbated by the lack of affordable transportation of an appropriate drainage system which contributes to system. Similar to other African cities, walking is the main inundations during the rainy season. mode of transportation in Nouakchott, accounting for 58 percent of all transportation. However, the absence of, or Beside the dearth of and bad quality of roads, urban poorly maintained and crowded, sidewalks makes walking mobility is constrained by limited access to walkable unsafe and inconvenient. And yet, walkability is assessed as space and an almost inexistent public transport system. being low: more than 70 percent of households expressed Large distances between neighborhoods undermine their discontent about walking conditions in the city (JICA, MAURITANIA: Country Economic Memorandum 57 Figure 87: The cost of financing in Mauritania is the highest compared to peer countries Av r l ndin r t 25 20 S n l P rc nt (%) B nin 15 Al ri Moldov 10 Nic r u Z mbi M urit ni 5 0 2010 2017 Source: WDI. 2018). Taxis were the second mean of transport (27.3 2007, the Urban Development Agency that was responsible percent) followed by cars (10.5 percent) and public buses (3.3 for Urban Community of Nouakchott – reconfigured as percent). The low usage of public transportation is associated the Urban Region of Nouakchott (RUN) in 2018 – signed a with lack of reliable timetable and service (JICA, 2018). ten-year contract with a private company to clean the city and collect and dispose household waste from the city to High cost of borrowing and lack of collateral aggravate a landfill site located 30 km south-east of the city center. urbanization challenges in Nouakchott. As highlighted in While anecdotal evidence suggests that this has improved section 3.4.1, limited access to finance is a major constraint the quality of service, it significantly increased Government to the development of the private sector and the overall arrears since the authorities did not properly anticipate the growth of the country. This is due to unfavorable lending associated cost owed to the private company. The resulting rates that are too high compared to those in peer countries arrears coupled with a deterioration in relations with the (Figure 87), and a low-quality collateral system that is a company led the Government to abruptly terminate the serious obstacle for getting loans. While BCM is working contract in May 2014. Since then, waste management on developing an eligible collateral framework and reducing in the capital passed by several institutional changes, the cost of financing, 38 the lack of affordable financing reflecting the lack of clear planning. Currently, the RUN is undermines urbanization patterns in Nouakchott because in charge of waste collection over all Nouakchott. it precludes private sector developers from constructing higher-density, multifamily lodgings close to activity centers. Two main challenges limit the ability of RUN to manage waste properly. The first is that of financing given that 4.4.3. Inadequate institutional capacities RUN resources are limited. The second is operational as also hamper other urban services RUN's human resources are not enough and do not have the necessary skills to efficiently manage waste. In this Poor waste management is another result of inadequate context, there is a need to involve the private sector in institutional capacity, posing serious health and specific activities (pre-collection, collection, and transport) hygiene problems for the population in Nouakchott. In that have high economic returns. 38  In efforts to render the policy rate more effective in influencing commercial interest rates and encourage commercial banks to conduct refinancing operations, BCM reduced in November 2018, for the first time in a decade, its policy interest rate from 9 to 6.5 percent. The lower rate reflects better the market dynamics especially that of Treasury Bills (TBs). Moreover, BCM defined in March 2018 a new collateral framework so that banks participate in the new lending and deposit facilities. To date, however, this framework is not yet operational. 58 MAURITANIA: Country Economic Memorandum 4.4.4. Nouakchott’s low wage premium of 1-5 percent is observed between Nouakchott and the other urban areas, suggesting that higher nominal wages Inefficient land use, weak management, and low are necessary to offset the high living costs. connectivity make urban living costly. All of the above suggests that connecting people to services and jobs is Wage disparities in the country are driven by higher more expensive in Nouakchott due to its urban form. Apart wages paid by the mining sector that attracts better from transportation cost, households in African cities are educated workers. The Oaxaca-Blinder Decomposition estimated to pay, on average, 77 percent more for housing (OBD) is used to decompose the spatial wage difference and 26 percent more for food than households in other cities –here between the various wilayas and Noukachott – into at comparable levels of economic development (Nakamura differences attributed to (i) endowment levels such as et al., 2016). In turn, this may result in higher urban wages educational attainment and labor market participation, that are not driven by productivity gains, but higher urban and (ii) differences in the returns to endowments (see costs that are passed on to consumers and reduce firm appendix VI for details about the methodology). As level competitiveness. In the context of Mauritania, a wage expected, higher wages are paid, on average and all regression analysis and an Oaxaca-Blinder decomposition things being equal, to workers in the mining sector (~50 are used to examine wage differentials across cities. percent), workers with higher education (~40-85 percent) and male workers (~60-80 percent). Decomposing the Nouakchott’s nominal wage premium against other wage gap shows further that some spatial sorting may urban areas is eroded when considering real wages. drive endowment levels in Tiris Zemmour and Inchiri to be Following Jones et al. (Jones et al., 2017) regression higher than in Nouakchott (Figure 88). The opposite effect analyses show that nominal wages in Nouakchott are can be seen in Nouadhibou, which is house to SNIM’s about 25-38 percent higher than in rural areas and 2-6 headquarters and includes the largest fishing port: wages percent higher than in other urban areas (see appendix V for (i.e. the return to endowment) are higher in Nouadhibou detailed regression results). 39 However, when considering than in Nouakchott at given endowment, despite lower real wages,40 Nouakchott’s advantage over other urban endowment (education, age, gender, marital status) areas is eliminated. In fact, a reversed real wage premium compared to Nouakchott. Figure 88: Nouakchott has an advantage in wage differentials over other Mauritanian regions, except with Tiris Zemmour, Inchiri, and Nouaddhbiou W p r l tiv to Noukchott 140 Endowm nt R turns to ndowm nt W p 120 100 80 P rc nt (%) 60 40 20 0 -20 -40 -60 D khl t Tiris Tr r Hodh Inchiri Hodh Adr r T nt Ass b Br kn Gor ol Guidim h Nou dhibou Z mmour El Ch r hi El Gh rbi Source: LFS 2017 and authors’ calculations. Note: wage gap=endowment + return to endowment + interaction term, the latter is not shown here. 39  Nouakchott’s wage premium ranges reflect results from depending regression specifications. 40  Conversion of nominal to real wages was carried out by applying the regional deflators used in the poverty analysis using ECPV2014. MAURITANIA: Country Economic Memorandum 59 4.4.5. Low education Nouakchott suffers from a skill deterioration as it attracts low skilled immigrants and loses high skilled Although educational infrastructure is well distributed emigrants. When considering educational attainments spatially, access to education seems to be low in of migrants into Nouakchott and defining migrant status Nouakchott. The Government seemed to have ensured as “having moved to the current location within the past presence of primary schools and secondary schools across 12 months”, one can see that immigrants who arrive have its vast territory (Figure 89). However, access to primary on average a lower level of education than their peers in schools falls short in Nouakchott, which registered the in the capital city (Figure 90). However, emigrants who lowest percentage of 42 percent in 2014. This highlights the leave, show a higher level of education compared to peers problem of planning and service provision for urban growth. at the place of origin. These results have important policy implications. On one hand, providing better access to high Younger migrants to Nouakchott are less educated quality education for immigrants to Nouakchott would turn than older cohorts. One of the hypotheses of the immigrants into productive assets for productivity growth. supportive role of urbanization for productivity growth On the other hand, investments in better education across and structural transformation is that the self-selecting all other regions of Mauritania ensures that emigrants (new nature of migration will ensure that the higher skilled or arrivals) who are likely to move to the capital city contribute educated workers would seek a higher return in cities that more to higher growth in the future. offer a more diverse range of employment opportunities. Here, ‘pull’ factors would drive the decision on whether 4.4.6. Climate change challenges to migrate or not. In Nouakchott, however, younger migrants are less educated than earlier generations of Environmental degradation reduces a city’s resilience arriving migrants, and more of the younger population to climate change, undermining the well-being and born in the capital have no education compared to older economic prospects of its residents. Climate change cohorts (Table 8). Whether skilled labor is poached by the exacerbates resource scarcity (especially water) and mining sector or not, the lowering levels of education in places vulnerable communities at risk from sea-level rise, Nouakchott are of concern and necessitate more efforts more frequent and intense flooding, and extreme weather to improve schooling and skill development to assure events. SSA countries already tend to be less resilient to better integration into jobs. natural disasters because of fragile economies, poverty, Figure 89: While access to schools seems spatially secured, it is low in Nouakchott Acc ss to duc tion p r r ion 90 80 70 60 P rc nt (%) 50 40 30 20 10 0 Nou kchott D. Tr r Hodh Ass b Hodh Ech Adr r Gor ol Tirs Guidim h Inchiri T nt Br kn Nou dhibou Ch r ui Gh rbi Z mmour prim r school coll or mn sium Av r (prim r school) Av r (coll or mn sium) Source: EPCV 2014 and authors’ calculations. 60 MAURITANIA: Country Economic Memorandum Table 8: Younger migrants to Nouakchott are less educated than older cohorts Time of residence in Cohort of 25-35 years old Cohort of 45-55 years old Nouakchott No Prim. Educ. More than No Prim. Educ. More than education or less prim. Educ. education or less prim. Educ. 1 year 66 19 15 60 19 21 1-4 years 58 20 22 51 19 30 5-9 years 46 28 26 44 24 32 10+ years 42 26 32 45 18 38 Born in Nouakchott 68 17 15 52 23 25 Source: RGPH 2013 and authors’ calculations. Figure 90: In Nouakchott, emigrants are better educated than those that they leave behind, but immigrants seem less educated compared to the original population Educ tion l v l of non-mov rs, immi r nts nd mi r nts ccross wil s 100 80 P rc nt (%) 60 40 20 0 Not movin pop Immi r nts Emi r nts Not movin pop Immi r nts Emi r nts Not movin pop Immi r nts Emi r nts Not movin pop Immi r nts Emi r nts Not movin pop Immi r nts Emi r nts Not movin pop Immi r nts Emi r nts Not movin pop Immi r nts Emi r nts Not movin pop Immi r nts Emi r nts Not movin pop Immi r nts Emi r nts Not movin pop Immi r nts Emi r nts Not movin pop Immi r nts Emi r nts Not movin pop Immi r nts Emi r nts Not movin pop Immi r nts Emi r nts Hodh Hodh D. Tiris Ch r h Gh rb Ass b Gor ol Br kn Tr r Adr r Nou dibou T nt Guidim h Z mour Inchiri Nou kchott Not movin pop immi r nts mi r nts Source: RGPH 2013 and authors’ calculations. lack of risk awareness, and a lack of coping capacity in considerable damage. In fact, the main natural disasters urban communities (Hommann and Lall, 2019). The loss of in Nouakchott are flooding due to marine incursions wetlands and increasing desertification in urban areas can and stagnation of inland waters. As a natural protection increase the risk of flooding. against marine incursion, the city is characterized by a 3 to 5-metre coastal dune. However, in recent years, there has Like other capitals on the West African coast, been a significant reduction in the level of sand dunes due Nouakchott’s geography and geology exposes the city to to the illegal and informal use of the sand for construction important climate risks that threaten its sustainability. purposes and the increase of car traffic on the beach and In particular, a large part of Nouakchott (42.9 percent) is on the dunes. located below sea level (JICA, 2018). The urban blocks of the city that are largely underwater include the Airport Front Uncontrolled infrastructure building and inadequate East (26.9 percent), the Airport Zone (55.3 percent), and the drainage systems aggravate the city’s topographic Northern East (77 percent). In these areas, floods can cause challenges. The poorly planned port infrastructure has MAURITANIA: Country Economic Memorandum 61 dramatically altered the flow of sediments along the coast leading to substantial erosion in the city’s south. This was coupled with unplanned expansion in coastal zones that are prone to floods and where the population density and poverty rates are the highest: Sebkha, El-Mina, and Tevragh Zeina. In addition to the unplanned expansion, the drainage system is not able to accommodate extreme weather events, particularly in urban slums.41 This is because the sewerage network only covers 38 km, or only 5 percent of the city area (JICA, 2018). Even this tiny network does not always function well because of lack of maintenance, aging, and the pollution of the groundwater stemming from wastewater that is not sanitized. As a result, wastewater appears on the ground surface during periods of high rain, causing public health problems, and disturbing the normal economic activity. 41  For in 2013, more than 500 houses were destroyed and 8 people died when heavy rain trigger massive flooding in Nouakchott. 62 MAURITANIA: Country Economic Memorandum Chapter 5 The way forward for a more sustainable and resilient growth path A s shown above, Mauritania has failed to reap • Strengthen governance and improve urban planning; benefits from its rapid urbanization process and • Better manage natural resources. did not manage to diversify its economy. While some of the underlying reasons are beyond Mauritania’s control – like the geographic conditions common to other 5.1. Promote a more market-oriented countries in the Sahel region – other underpinning factors economy are home grown and could be tackled through critical decisions. Lessons learnt from Peru are but one example 5.1.1. Adopt an export-prone trade policy of potential ways for a small and resource-rich country like Mauritania to grow rapidly and become an upper- Trade policy reforms should aim at reducing tariffs, middle country (see Appendix VII for details about the Peru eliminate non-transparent import taxes, and adhere to experience). international standards on trade barriers. Mauritania needs to reduce its tariffs on intermediate and capital While there is no blue-print for accelerating growth, a goods to improve access to cheap imported inputs package of policies could help Mauritania leverage the and increase domestic firms’ competitiveness. This is potential benefits of urbanization and foster economic particularly important in the case of livestock and fishing, diversification. This chapter proposes a policy agenda given the importance of these sectors for future growth. anchored in four interlinked dimensions that support The elimination of non-transparent import taxes and NTMs the SCAPP’s overall objective of boosting growth (Table 1 that protect specific sectors will also help level the playing provides a summary of these policies): field and increase competition in the domestic market. Furthermore, it is important to notify the WTO about • Promote a more-market oriented economy; trade procedures and how they conform to (or differ from) • Enhance production factors; international standards as per the TBT agreement. This MAURITANIA: Country Economic Memorandum 63 Box 4: One-stop shops facilitated trade in Laos and Zambia Laos favored trade across borders by implementing a Trade Facilitation Strategy and launching the Trade Information Portal (LTIP) in 2012. The latter enabled firms to cut down the number of trips needed to get information on trade transactions and regulations. These measures improved the regulatory environment, increased transparency, and consequently helped ameliorate Lao’s ranking on the World Bank’s Doing Business Indicator from 171 (out of 183) in 2011 to 154 (out of 190) in 2019. Moreover, the LTIP has helped the country accede the WTO and fulfill the commitments of the Association of Southeast Asian Nations (ASEAN). From its end, Zambia enacted the One-Stop Border Control Act in 2009 to reduce border costs and facilitate trade. This act enabled the country to sign bilateral agreements with other countries with which it wants to establish a One-Stop Border Posts (OSBP). One of the first agreements signed was with Zimbabwe, where the Chirundu Border Post was opened in 2009. The establishment of this border-post increased the efficiency and capacity to effectively handle larger volumes of traffic, thus facilitated trade and increased government revenues (OECD, 2011) 43. should be accompanied by appointing a trade facilitation ECOWAS’s economic space, through agreeing on a common enquiry point that would deal with queries from other WTO external tariff as part of the association agreement signed Members and the public on trade facilitation issues. in 2017, will harmonize Mauritania’s tariff regime with West African countries, reducing the costs and delays entailed The establishment and launch of an online trade and in formal cross-border trade. This could boost exports of investment portal in November 2018 is a step in the livestock and fish, and strengthen the role of Nouakchott as right direction. In November 2018, the Government a gateway port for landlocked Mali and even Burkina Faso. launched, in partnership with UNCTAD and the International Chamber of Commerce the “iGuide Mauritania”, which is Local authorities should carefully study and develop a one-stop shop that provides key information on trade strategies to implement AfCFTA in the future. Although and investment in Mauritania: tariffs, standards, technical intra-Africa trade will be expanded thanks to AfCFTA, it is requirements, tax system, investor rights, and costs. 42 notable that there are no automatic country benefits and While it is still early to evaluate the impact of this policy, each country will be required to develop suitable strategies the experiences of Laos and Zambia indicate that one-stop and policies to leverage on the benefits that will accrue shops facilitate trade (Box 4). 43 from the expanded markets. In the short term, Mauritania will need to prepare an offer of tariff commitments (i.e. a Given its cultural and economic history, Mauritania timeline for eliminating tariffs for different products) and could strengthen its ties with West African countries identify actual or potential export products for which to without abandoning its existing links with the Maghreb negotiate accelerated tariff reductions in other members’ countries. Until now, the differences in tariffs and trade markets. In the medium term, there is a need to assess rules between Mauritania and ECOWAS have incentivized existing regulatory constraints to trade in services and informal trade, smuggling and corruption, which can be investment to be negotiated in the AfCFTA. revenue sources for terrorists (Melly, 2019). Integration into 42  https://www.theiguides.org/public-docs/guides/mauritanie 43  OECD (2011). Aid-for-Trade Case Story – Zambia. Full report is available at: https://www.oecd.org/aidfortrade/47379298.pdf 64 MAURITANIA: Country Economic Memorandum 5.1.2. Improve the business environment Local authorities should also support and promote and promote local entrepreneurship entrepreneurship. The Government needs to move from policy promises to implement specific actions that will For Mauritania to reap the benefits from urbanization support entrepreneurship development. As a start, it would and diversify its economy, it needs to make its business be important to establish a well-coordinated institutional environment more conducive to private investors. architecture for startup and entrepreneurship related Investments into public services will be essential to enhance policies. This should be followed by setting a startup status people's productivity, but higher growth in urban areas will that would have an appropriate legal and fiscal framework ultimately also be a function of better jobs to absorb these to encourage startups. new talents. This necessitates a vibrant private sector. Legal barriers to women’s participation in the economy The Government is encouraged to continue implementing must be removed. In particular, Mauritania could adopt the 2019-2020 reform roadmap (World Bank, 2019f). reforms guaranteeing equal pay for work and prohibit and This roadmap is built around four pillars: (i) simplify and punish sexual harassment (World Bank, 2019f).44 While it is enhance the transparency of administrative procedures; essential to ensure health and safety at work, protection (ii) simplify taxation and promote access to credit; (iii) must be guaranteed for all workers, regardless of their modernize commercial justice and improve the resolution sex. In addition to guaranteeing equal pay, it is important of commercial disputes; (iv) and improve consultation and to prohibit all forms of gender-based discrimination by communication. granting women equal property rights and inheritance as men. The country could also equalize the mandatory Beyond the current reform agenda, the authorities need retirement age for men and women. to strengthen competition through the adoption of pro- competitive policies. To do so, the Government should encourage pro-competitive regulations in order to open 5.2. Enhance production factors markets and remove anti-competitive sectoral regulations, promote a level playing field and ensure competitive 5.2.1. Boost education and skills neutrality, and strengthen the effectiveness of competition policy by eliminating implicit cartels that increase input In addition to improving physical connectivity, it is also costs and reduce access to a wider variety of products very important to improve human capital. While the country statistics show a relatively high access to primary Mauritania could study the possibility of joining the schools, the quality of education is poor, leaving pupils with Organisation for the Harmonisation of Business Law low arithmetic, reading and writing capabilities. Moreover, in Africa (OHADA). Such membership would facilitate and as discussed above, there is an increasing population trade with other members of the organization as well as with no finalized primary education. At the macro level, international investors operating in these countries. It would simulation results using the Long-Term Growth Model also enable Mauritania to benefit from modern regulations, (LTGM) developed by Devadas and Pennings (2018) show inspired by international best practices. Finally, it would that Mauritania could significantly boost economic activity make it possible to call on OHADA’s bodies to provide and accelerate poverty reduction if it raises its human training for judges and judicial staff. Senegal and Mali are capital to the level of its aspirational peers (Figure 91 and already members of OHADA while Morocco is evaluating Figure 92).45 the possibility of joining the organization. 44  Article 247 of the Law No. 2004-017 of the labor code prohibits women from performing work exceeding their strength or work likely to harm their health, physical integrity or morals. Section 166 of the same law prohibits women from working in the same sectors as men, including factories, mines and construction sites. 45  The Long-Term Growth Model developed by Devadas and Pennings (2018) is used to simulate the effects of an improvement in human capital levels MAURITANIA: Country Economic Memorandum 65 Figure 91: Boosting human capital would yield Figure 92: … and reduce the percentage of economic gains … Mauritanians living under 1.9$ per day Pov rt h dcount r tio t $1.90 d (2011 PPP) R l GDP p r c pit 30 2600 25 2400 2200 20 % of popul tion 2000 US$ 2010 15 1800 10 1600 5 1400 0 1200 2018 2020 2022 2026 2028 2030 2032 2034 2036 2038 2040 2018 2020 2022 2026 2028 2030 2032 2034 2036 2038 2040 2024 2024 1: B s lin 2: B s lin + ( ) HC 1: B s lin 2: B s lin + ( ) HC Source: Authors’ calculations. Source: Authors’ calculations. To ameliorate educational outcomes, the quality of the provider (teachers, school directors, school governance teaching should be improved. It is important to gradually structures) more accountable. As in other sectors of the improve the quality of teaching and learning at both Mauritanian economy, the Government should also instill primary and secondary levels. This can be attained through a culture of monitoring and evaluation that would allow to strengthening teacher management and professional track progress and evaluate the efficiency of its policies. development to improve the quality of the stock of teachers, instituting a strategic staffing mechanism to The education of girls should be encouraged. Girls keep bad teachers out of the classrooms, and reviewing educational outcomes are solid determinants for fertility critical learning content of primary school curricula and and participation in the workforce. Mauritania’s urban deliver teaching and learning materials to schools (World fertility rate is with 4.3 higher than the SSA country average Bank, 2019b). (Bouquier and Shoemaker, 2018) and a key determinant, in addition to migration, of urban population growth. There is also a need to strengthen the governance Integrating young women into the workforce postpones and management of the education sector. Authorities their child bearing, reduces urban pressures, and allows should improve the delivery of education services through the country to reap its demographic dividend from a young better allocation of resources and enhanced school- work force. It is thus of utmost importance to bring girls to based management which is found to help increase school and understand their lack of attendance -- whether school participation and reduce students and teachers’ cultural, due to absence of sanitation services, co-ed or absenteeism (Burns et al., 2011). In particular, it addresses other. a fundamental failure of service delivery by providing better information and a stronger voice to the client Given the importance of agriculture in the Mauritanian (pupils, parents, and communities) so that she can hold economy, efforts should be made to strengthen the on the paths of GDP growth per capita and the poverty ratio. The baseline (or Scenario 1) is based on the following assumptions: in 2019-2021 the economy is assumed to maintain the steady recovery, driven by strong activity in the primary sector, reforms in the financial sector and better management of investment; in 2022-2023 growth would accelerate further thanks to the onset of gas and oil production; post-2023 growth will benefit by the numerous reforms in the business environment and investment management. In addition to the baseline, we consider a second scenario in which human capital in Mauritania growth similarly to the path of its aspirational peers. 66 MAURITANIA: Country Economic Memorandum research environment and upskill the agricultural territorial development, and Mauritania’s case is no workforce. In support of economic diversification, research different, partly driven by security needs especially in its should be focused on raising the quality of fishing and less populated regions. However, investment needs in livestock-related products, thus supporting poverty more populous areas, especially in the urban communes reduction and economic diversification. Investment in in the South, are needed to modernize these small-town developing, attracting and retaining human capacity economies, connect them better to their surrounding will need to be prioritized to fill the current gaps in the villages, and provide better access to electricity to enable workforce. This should be complemented by mechanisms commercial agriculture and spur the economic growth. to deploy staff regionally, instead of nationally. It would be Investments outside Nouakchott will reduce pressure for also important to strengthen relationships and affiliation further migration, which already today leads to significant with regional and international centers. congestion in the capital city, while not realizing the gains from agglomeration. 5.2.2. Improve infrastructure and connect cities While all urban communes need better infrastructure, the cost of not improving and organizing Nouakchott’s Mauritania cannot change the vast geographical infrastructure is even higher. As outlined above, distances between its towns and cities, but it can Nouakchott is by far the largest city, but is delivering below reduce the time it takes to overcome these distances. expectations. One reason is that road infrastructures are Reducing physical divisions within its territory could scarce and limited, restraining mobility. Infrastructure spur more economic opportunities especially in the more investments were not able to keep pace with its rapid populous and poorer Southern communes. In that spirit, urban population growth, leaving some peripheral and poor the rehabilitation of the 200-km Nouakchott-Rosso regions largely disconnected from the center that accounts road started in early 2010s would reduce transport for most jobs. Thus, it is important to continue expanding costs, generate market activity, and strengthen the the paved road network to increase accessibility of the links between farmers in the agricultural South to local population to transport services and opportunities. These consumption markets, such as Nouakchott, hence expansions also provide opportunities for labor intensive support diversification. However, as of August 2019, the jobs suited for low-skilled local workforce as experienced construction works were not completed due to issues in other SSA countries. In the Democratic Republic of with one of the contractors that delayed the finalization Congo, Gabon or Côte d’Ivoire, employment of low-skilled of this project. Therefore, it is critical to rapidly finish the people is highly encouraged in urban slum upgrading ongoing rehabilitation work, and in a later stage enlarge projects to foster community participation, and enhance the road to allow for more traffic circulation. This road and social and economic inclusion (World Bank, 2019g). is also is an integral part of the Tangier-Nouakchott- Tasks usually consist of tertiary road upgrading which rely Rosso-Dakar corridor linking Tangier (in Morocco) to on labor-intensive construction techniques (fabrication of Dakar (in Senegal). Thus, its completion would help interlocking pavers). Expanding sidewalks would increase Mauritania play its natural role as a link between North walkability and improve pedestrian safety in a metropolitan African and West African countries and facilitate trade area where walking remains the first mean of transport for with its neighboring countries. The planned bridge the population and notably the poor. over the Senegalese river in Rosso would also increase connectivity and foster trade. Improving physical infrastructure in Nouakchott should be accompanied by a well-studied transport plan that is Apart from reducing distance and division between connected to other plans. In addition to ameliorating the cities, infrastructure improvements need to be road network, improving the city’s connectivity, should be prioritized based on a population factor. Countries based on an urban mobility plan that is a pre-requisite to frequently adopt a strategy to ensure equality in their identify the actual transportation needs and capabilities. MAURITANIA: Country Economic Memorandum 67 This should be followed by efforts to better organize the 5.2.3. Make land use more efficient public transport system and support pilot operations to identify routes that could be profitable enough to attract Securing land rights in rural areas is key to bolster private sector operators. Effective coordination among agriculture productivity. This can be achieved in two ways. different plans is fundamental to ensure the effectiveness First, through the restructuring of institutions responsible of planning and the efficiency of investments. for land tenure and the use of modern tools and simplified Box 5: Successful experiences of land management in SSA countries Improving land registries • Rwanda’s comprehensive land-tenure reform has shown successes. Over 2005-12 it implemented a program to issue land titles based on photomapping technology at a cost of less than $10 per parcel. • Tanzania surveyed all communal land and registered 60 percent of them at a cost of $500 per village. Ghana and Mozambique have begun to follow Tanzania’s example. • Ethiopia issued certificates for 20 million parcels of land at less than $1 per parcel and mapped them onto a cadastral index map at less than $5 per parcel in 2003-05. Streamlining registration procedures • In 2009, Kenya adopted a new land policy that strives to streamline land administration processes by reducing the stamp duty from 25 to 5 percent of the principal amount; by providing VAT exemptions for developments with more than 20 low cost units; and by reducing the tax on mortgages from 0.2 to 0.1 percent. • The introduction of Lesotho’s Land Administration Authority in 2012 has significantly improved land registration in the country by reducing wait times and improving application turnaround. It also has gained general support from land- holding communities. • Computerizing land records and registration systems helped significantly cut the number of days to transfer property for Ghana (169 to 34) and Uganda (227 to 48). Improving tenure security • In 2012, Namibia passed the Flexible Land Tenure Act, which allowed communities to obtain blocks of multiple plots and a “starter title” that grants perpetual occupancy and transfer rights. This Act is aimed at the 30 percent of Namibian residents that live in informal settlements (CAHF, 2013). Residents were able to also apply for full, ‘’mortgageable’’ land titles. Upon receipt of title, the communities were responsible for upgrading the site infrastructure. The legislation has been regarded as innovative in its methodology of recognition of incremental tenure and building. • In 2011, Senegal passed a new Land Tenure Act under which those with temporary occupancy permits in urban areas can convert the permits into permanent title deeds at no cost. Improved tenure security further helps increase housing investment and improvement, access to housing finance, and the activity of the land market. • Kenya, Lesotho, and Tanzania were utilizing bulk surveying and land use planning approaches to regularize tenure in slums. Source: World Bank (2019g). 68 MAURITANIA: Country Economic Memorandum procedures to ensure the accuracy of land information. It is important to develop a National Quality Second, through the formal recognition of existing rights Infrastructure (NQI) system to provide quality through low-cost, easily accessible, and participatory assurances in accordance with the country’s current processes implemented by local land commissions and a and near-future needs. The lack of a laboratory for the local land service. Third, and more importantly, there is a control and certification of animal products (besides fish) need to clarify the distribution of State land and private and the outdated sanitary legislation since 1960 are a big land, which can only be developed within the framework handicap for exports of meat, hides, skins and leather, of consultation between different stakeholders based on where Mauritania has definite comparative advantages. actual circumstances on the ground. The National Livestock and Veterinary Research Centre (CNERV) could include such a laboratory but lacks the Strengthening land management is a pre-requisite to human and financial resources for doing so (WTO 2018). sound urban planning. As outlined comprehensively in Hence, the authorities could design a legal framework to the Mauritania Land Sector Review (2019), various steps support the establishment of NQI system. – from simplified land registration procedures and aligning responsibilities to fewer institutional actors, including Ameliorating agriculture, particularly livestock, related eventual decentralization to municipalities, to implementing statistics is critical for a better understanding of and recording electronically existing registration agricultural performance and its connection to the rest instruments – need to be implemented to improve current of the economy. It is very important to strengthen human land administration. Without these steps, land transactions skills and design plans with concrete targets and defined will remain unmonitored and uncontrolled, leading to land monitoring mechanisms to track the progress in the sector. use that is illegal or in non-adherence to master plans or Improvements in agricultural data collection and processing building standards. Successful and simple experiences can be done using ICT technologies along with adequate in land management from other African countries are estimation methodologies. It is also imperative to conduct, presented in Box 5. as a matter of urgency, a General Livestock Census (GCE) to accurately measure the size of the livestock sector and its integration with the rest of the economy. 5.3. Strengthen governance and improve urban planning Mauritania should improve urban planning by developing and implementing city master plans. Master plans play Agriculture will not drive the development and a key role as they lay out the city’s spatial structure diversification agenda in Mauritania unless the along with definitions of land uses and city expansion. In governance of the sector is improved. This includes particular, they help local authorities in (i) examining the increasing and re-orienting Government spending in current stage of the city’s development, (ii) setting out agriculture toward productive factors. After winding the directions of change for the future, and (iii) identifying down the current subsidy system, there is a need to the priority areas to focus on. A critical next step would be increase public spending on agriculture, particularly on to implement the Master Plan for Nouakchott that was irrigated infrastructure. Priority should also be given to developed with support from JICA. Simultaneously, other investing in agricultural technologies and agricultural Mauritanian cities and towns need to start preparation of research centers. The reallocation of public funds to R&D, master plans, so they too can lead rather than follow the technology promotion and adoption, and education could development of infrastructure and housing. These plans also significantly help increases yields and production also constitute a formidable opportunity to engage with efficiency. In 2012, for instance, Moldova moved away from citizens and understand the constraints that they face. a focus on machinery to smart subsidies that promote new This is paramount to ensuring that plans are effective and technologies in the agricultural value-chain. This has helped can be enforced. increase yields and production effiency (World Bank, 2015). MAURITANIA: Country Economic Memorandum 69 Climate change mitigation measures should be at the 5.4. Better manage natural heart of future urban planning. Mitigating climate risks resources and adopt a more market- requires innovative, open, and dynamic data collection based exchange rate and mapping processes that support management of urban growth and disaster risk. In addition, the authorities Given previous failures, Mauritania needs to effectively should study the possibility of prohibiting construction manage natural resource revenues to support in areas at high risk of flooding and rising groundwater. diversification. International experience shows that in This should be accompanied by intensified efforts to (i) commodity-exporting countries a sound fiscal framework build large-scale drainage facilities and (ii) strengthen the is designed based on a simple and clear fiscal rule that coastal dune and protect it from illegal activities. has an appropriate target and some degree of flexibility when unexpected economic shocks occur (Richaud et al., Moving from a low density and sprawling city to one 2019). A key challenge in developing such a framework is that is compact and connected requires however to reconcile long-term strategic development objectives more than effective urban planning. Incentive-based with the need to manage the short-term volatility and regulation, including penalty taxation for vacant land as uncertainty of resource revenues. A recent World Bank to encourage compactness and discourage speculation, (2019c) study assesses different approaches to the would entail defining building standards – including management of resource revenues in Mauritania in minimum heights and land to building ratios – that will general, and the expected gas ressources starting 2022 increase housing supply. However, multi-family units are in particular. Given that Mauritania has infrastructure and usually beyond the means of single owners and typically human capital shoratges, the paper aruges that adopting built by developers, who need to access long-term a capital front-loading rule (an MPIH or FSF),46 with a finance from commercial banks which remains limited as clear visibility of the share of the resources to be invested highlighted above. upfront, could be important to ground the management of ressource revenues into a sustainable and equitable inter- Coordination among different stakeholders is generational framework. paramount. Coordination between the central Government and local communities is critical for urban The introduction of a rule-based fiscal framework development. If transport investment decisions are will require strengthening fiscal institutions. Strong not taken in close coordination with land planning, institutions are necessary to withstand the political pressure Mauritanian cities will continue to grow into forms that to consume resource wealth either for short-term political inhibit their development and livability for decades. gains, or worse for misappropriation by special groups. Coordinated land use and infrastructure planning involves Their role is to guarantee that natural resource wealth is bringing together decisions of infrastructure investments reinvested into productive assets. Indeed, international with the development of productive and other logistical experience indicates that countries experience more infrastructure, as well as accompanying investments in productive investment and higher growth when institutions connectivity with flood protection investments and efforts reaffirm the rule of law, ensure government accountability, to enhance structural drainage to increase resilience. and help control corruption (Lange et al., 2018). By bringing together the different pieces of the puzzle, coordination has the potential for enhancing the efficiency Specifically, the Government needs to implement of urban cities. various institutional reforms to design and implement an effective fiscal framework. It should lay the basis for an effective medium-term economic and fiscal framework by investing in capacity building in the Ministry of Finance 46  MPIH stands for Modified Permanent Income Hypothesis and FSF refers to Fiscal Sustainability Framework. 70 MAURITANIA: Country Economic Memorandum (MoF) in the areas of medium-term budget planning, revenue forecasting, and fiscal risk analysis. Key actions also include ensuring political, administrative, and financial support to execute the recently adopted organic budget law (LOLF 2018), which introduced a medium-term expenditure framework (MTEF). It could be also relevant to consider the creation of a fiscal council that can validate the fiscal projections feeding into future fiscal rules and fiscal frameworks. Such entity will have to be truly independent and have technical capacity staff for it to succeed in its mandate. Building on existing mechanisms, it would be important to transform the National Fund for Hydrocarbon Resources (NFHR) to an institution that caters for the development needs of current and future generations. The NFHR National was originally set-up to be an intergenerational equity fund. However, because of weak public financial management and a cautious asset management strategy the NFHR was used instead as a macro stability instrument to close the budget financing gap (World Bank, 2019c). Moreover, yearly audits were not undertaken despite adequate provisions in the law. Given these bottlenecks, there is a need to clarify operational rules in the law to reduce policy discretion, strengthen the governance framework by conducting and publishing yearly audits, and embrace a more active investment strategy with the objective of diversifying the external investment portfolio and increasing the returns on those assets. In addition to better managing its natural resources, the exchange rate policy should be more market oriented. In that context, it is important to reform the official foreign exchange market to achieve a market-determined exchange rate as this would help the authorities respond to exogenous shocks and improve competitiveness of the domestic economy. In the short-run, BCM is encouraged to review the calculation of the daily published reference exchange rate to reflect the weighted average of transactions on the official market. Later, a monthly FX auction budget and interbank market should be established (IMF, 2019). In the longer run, there is a need to introduce auctions in a competitive official market and discontinue daily FX interventions. MAURITANIA: Country Economic Memorandum 71 Appendices Appendix I: Data limitations Data gaps prevented the team from conducting several would be needed to inform policies focused on improving empirical analyses, including: transportation. Apart from cost, transportation modes are not asked in the household survey, which means one • Firm-level analysis: Currently, the Mauritanian cannot estimate demand for transportation services or authorities do not gather complete information constraints to their affordability from existing data. about firms and SMEs. Nouakchott's One-Stop Shop • Land values and implications for housing for Business Creation and Nouadhibou Free Zone development projects: The scarcity of statistical One-Stop Shop provide some statistics on firms’ land data accentuate the difficulties of establishing creation; however, they do not include details on firms’ an exhaustive, up-to-date and objective overview of performance. Moreover, companies do not respect the sector. For instance, this lack of data makes it their legal obligation to file their financial statements impossible to empirically explore changing land values in the commercial register. The World Bank conducted in the process of rapid urbanization in Nouakchott an Enterprise Survey (ES) in 2014 which provides and its implications for urban land management useful data on the constraints that affect businesses. and administration in the city. In the future, a Unfortunately, the ES only includes 150 firms with at comprehensive land registry would make it possible to least five employees covering only Nouakchott and centralize information within the same land information Nouadhibou. In addition, it does not provide granular system to ensure the management data. This should and enough data on firm-level dynamics (firm survival, be associated by surveys to quantify land and house productivity, production factors, etc.), which limit its prices in different regions of Nouakchott. usefulness to conduct rigorous firm-level analyses. • Analysis of livestock potential: Livestock production • Detailed migration analysis: This report suggests statistics are obsolete. Estimates of livestock trends, that migration had a profound impact on population are not very accurate because animal population is dynamics and shaped the process of urbanization, calculated (not empirically estimated) by applying a especially in Nouakchott. However, the 2013 census constant growth rate to some historical guestimate only reports the location of birth by Wilaya and base. Mauritania has never carried a livestock census, the length of residence in that locality in different and instead reports animal populations on the basis of temporal intervals. Without clear understanding of colonial tax records on herders, vaccination drives, and arrivals and exits by locality, it is difficult to ascertain ad-hoc animal biometrics calibration surveys that lack whether population growth is driven by migration or statistical validity. by natural population growth. Unless there is a change to the census questionnaire, this will remain a topic of • Road inventory. Distance and accessibility have been uncertainty. estimated using Open Street Map, which is assuming full navigable roads with speeds at permissible levels. • Transportation costs: The report argues that the If road quality is however uneven or roads are closed weak link between urbanization and economic growth during flooding, these disruptions to trade and in Mauritania, is partly explained by high transportation connectivity are not captured without a better road cost within and across urban centers. There is suggestive inventory. evidence on high cost of transportation arising from large distances and limited density (in urban areas), • Public spending. There is no data on transfers or public but more granular statistics on quality of roads, use of spending on localized services and education that would different modes of transportation and cost of transport allow an assessment of the efficiency of such spending. 74 MAURITANIA: Country Economic Memorandum Appendix II: Growth accounting: production function Growth accounting analysis decomposes the growth in Production function: accounting for GDP as the weighted average of the growth of factors of natural resources production (labor and capital) and Total Factor Productivity (TFP) growth. The latter is usually interpreted as a To account for natural capital, we use the following measure of technological change. However, in resource rich augmented production function recently introduced by countries, the contribution of TFP growth might be over- Monge-Naranjo et al. (2019): estimated since this measure is effectively a “residual” that incorporates the contribution of natural resources, among (PF.4) other things. Hence, in the case of Mauritania, it is important to disentangle the contribution of natural resources from In equation (PF.4) Tt represents the non-produced capital TFP growth to avoid misleading conclusions. (natural resources), and α(1-y) is the natural resource share in GDP. This canbe proxied as the ratio of natural resource Production function: standard rents to GDP from the World Bank’s WDI. In this context, TFP growth becomes: The standard Cobb-Douglas production function (known also as the Solow decomposition) that illustrates the (PF.5) relationship between output (or real GDP) and the various factors of production is (Hall and Jones, 1999): (PF.1) where Yt is the country’s real GDP, Kt is the aggregate capital stock, and hL represents the “quality adjusted” labor force —that is, the total workforce (L) multiplied by the quality of human capital (h). Furthermore, α represents the share capital in the economy, and A represents the Solow residual which is interpreted as TFP or the efficiency with which factors of production are used. To estimate TFP growth, the production function in equation (PF.1) is expressed in per-worker terms as (PF.2) ̂ =log(xt) - log(xt-1) and re-arranging Considering that x equation (PF.2), TFP growth can be calculated as: (PF.3) MAURITANIA: Country Economic Memorandum 75 Appendix III: The diversification-growth nexus: evidence from the literature Economic diversification brings economic benefits. growth and the income of countries to which they export, First, by increasing the complexity of the production base, suggesting that countries could increase growth by tapping diversification boosts domestic and per-capita income. into rich export markets. According to structural models, (Chenery, 1979; Syrquin, 1988), as countries grow richer their production structure Another area relates to the role of innovation in export becomes more complex and the share of industrial output diversification. Endogenous growth models emphasize increases. At the empirical level, studies show a U-shaped the role of “learning by doing” in the manufacturing sector relationship between economic concentration and per- as a driver of growth. In this context, a higher export capita income: countries tend to initially diversify economic diversification can bring knowledge spillovers to other activity and at later stages in the development process sectors or industries (Gutierrez de Pineres and Ferrantino, they start specializing again (Imbs and Wacziarg, 2003). 2000). At a theoretical level, countries can produce “inside- the-frontier” (or goods that are already produced) or Diversification also strengthens resilience to external “on-the-frontier” (innovations, or products not produced shocks and improves macro-stability. This is particularly elsewhere). Klinger and Lederman (2006) examine the true for commodity producers which tend to have a highly relationship between innovation and export diversification. concentrated export base. In countries at early stages They find that developing countries that are in the of development, like Mauritania, export concentration diversifying stage are characterized by a larger number of in primary commodities increases external vulnerability “inside-the-frontier” discoveries. On the contrary, along the and may confine them into low-growth sectors (Prebisch, line of the U-shape pattern finding of advanced countries 1959). Ghosh and Ostry (1994) and Jansen (2004) argue that are concentrating their exports (Imbs and Wacziarg, that diversification makes countries less vulnerable to term 2003) show a higher level of “on-the-frontier” innovations. of trade shocks, which in turn stabilizes export earnings and supports economic growth in the long term. This was reflected in the growth downturn in many resource- rich countries following the end of the recent commodity cycle. In fact, 60 percent of SSA’s commodity exporters experienced a drop in growth above 2 percentage points in the three years following the end of the commodity cycle (2015-2017).47 The positive impact of diversification on growth is linked to the composition of a country’s export base. Studies have shown that economic growth is not only driven by a country’s comparative advantage, but also by diversifying the product base into high-value products (Hausmann and Klinger, 2006; Hausmann and Rodrik, 2003). Hausmann et al. (2007)further identify a positive relationship between 47  GDP growth rates calculated between 2015 and 2017 and compared to growth rates between 2012 and 2014. 76 MAURITANIA: Country Economic Memorandum Appendix IV: Definitions of export/trade concepts Concept Definition and Use Cases Revealed Revealed Comparative Advantage calculates the relative advantage or disadvantage of a Comparative country in a certain class of goods or services as evidenced by trade flows (Balassa 1963). Advantage (RCA) Economic Complexity Economic Complexity Index is an extension of the sophistication measure and suggests that Index (ECI) the large income gaps between rich and poor nations are an expression of the vast differences in productive knowledge amassed by different nations. The ECI, developed by Hausmann et al (2011), approximates the productive knowledge in a country and helps explain differences in the level of income of countries. Export Quality (EQ) Export Quality measures the export quality by using unit value adjusted for differences in production costs and for the selection bias stemming from relative distance (Spatafora et al. 2014). Export Density (ED) Export Density measures the relatedness of a potential new industry to the goods that a country already exports competitively. It varies from 0 to 1, with higher values indicating that the country has achieved comparative advantage in many nearby products, and therefore should be more likely to export that good in the future. Hausmann and Klinger (2006) show that this measure of density is indeed highly significant in predicting how a country’s productive structure will shift over time: countries are much more likely to move to products that have a higher density, meaning they are closer to their current production capabilities. Product Space (PS) The Product Space approach presents a variety of statistical measures that facilitate an understanding why a country that exports a certain set of products was able to diversify in another set of new exports. The changes in the RCA are governed by the pattern of relatedness of products at the global level (Hidalgo et al. 2007). As countries change their export mix, there is a strong tendency to move towards goods that are more closely related to ones already being produced rather than to goods that are less closely related. The initial step in building a network representation of product relatedness (proximities) involved first generating a network framework using the maximum spanning trees (MST) algorithm for all the product nodes. The network exhibits heterogeneity and a core-periphery structure: the core of the network consists of metal products, machinery, and chemicals, whereas the periphery is formed by fishing, tropical, and cereal agriculture. On the left side of the network, there is a strong outlying cluster formed by garments and another belonging to textiles. At the bottom of the network, there exists a large electronics cluster, and at its right mining, forest, and paper products (Hidalgo et al. 2014). Generally, the core (or center) of the product space indicates a higher path or link to variety of other products, hence higher likelihood of broad-based diversification. Source: World Bank (2017a, 2018a) MAURITANIA: Country Economic Memorandum 77 Appendix V: Wage premium analysis Table 9 below represents the estimation results of the wage gap analysis between Nouakchott and other urban areas (relative to rural areas) when accounting for nominal (orange columns) and real (green columns). Table 9: Wage gap estimation between Nouakchott and other urban areas. log of nominal wages log of real wages (1) (2) (1) (2) urban_type = 1, Urban outside Nouakchott 0.353*** 0.188** 0.350*** 0.186** urban_type = 2, Nouakchott 0.375*** 0.250*** 0.297*** 0.172** isic_cat = 2, Mining & quarrying 0.531*** 0.524*** isic_cat = 7, Wholesale & retail trade 0.346*** 0.345*** isic_cat = 8, Transportation & storage 0.430*** 0.430*** isic_cat = 9, Accomodation & food services 0.470** 0.468** isic_cat = 10, Information & communication 0.376* 0.377* isic_cat = 12, Real estate activities 0.439* 0.436* Professional category = 3, Employi ou ouvrier qualifii -0.376*** -0.376*** Professional category = 4, Manoeuvre -0.597*** -0.593*** Professional category = 5, Employi de maison ou domestiques -0.446*** -0.443*** Professional category = 6, Patron,Employeur(utilisant une maison 0.494** 0.501** d'oeuvre payante) Professional category = 7, Travailleur pour compte propre (sans -0.520*** -0.513*** employis salariis) Professional category = 10, Aide familial -1.672*** -1.668*** Type of organization = 2, Etablissement public ` caracthre 0.336** 0.336** administratif Type of organization = 3, Entreprise non financihre sous contrtle 0.319* 0.314* publique Type of organization = 7, Coopirative, association ou ONG cherchant -1.182** -1.177** un binifice Sexe 0.660*** 0.607*** 0.659*** 0.608*** Age 0.074*** 0.056*** 0.074*** 0.056*** age#c.age -0.001*** -0.001*** -0.001*** -0.001*** Etat Matrimonial = 2, Marii(e) 0,0101 0,0208 0,0114 0,0216 Etat Matrimonial = 3, Divorsi(e) -0,0339 0,002 -0,033 0,00251 Etat Matrimonial = 4, Veuf(ve) -0,25 -0,142 -0,251 -0,143 Educational attainment = 2, Secondaire 0.317*** 0.136* 0.316*** 0.135* Educational attainment = 3, Supirieur 0.869*** 0.410*** 0.867*** 0.408*** Educational attainment = 4, Coranique -0.257*** -0.181** -0.254*** -0.179** Niveau d'etude = 5, Mahadra 0,195 0,0902 0,194 0,0883 Niveau d'etude = 6, Technique et professionnel 0.804*** 0.411*** 0.794*** 0.406*** log_hours_worked 0.117* 0,105 0.117* 0,106 Constant 7.682*** 8.649*** 7.710*** 8.674*** Observations 3.155 3.153 3.155 3.153 R-squared 0,239 0,319 0,232 0,312 Source: LFS 2017 and authors’ calculations. Notes: Robust standard errors were used, for clarity, they were omitted but are available upon request. ***, **, and * denote statistical significance at the 10, 5 and 1 percent level, respectively. Reporting only significant coefficients for ISIC categories, professional category and type of organization.  78 MAURITANIA: Country Economic Memorandum Appendix VI: Oaxaca Decomposition Analysis The Oaxaca-Blinder Decomposition referred to as BOD If the locally inclined people are the worse-off and we (Blinder, 1973; Oaxaca, 1973) is used to examine spatial consider the normal returns to be , the last term of equation differences in wages across Mauritanian regions. Apart BOD.3 can be dropped48 and we end-up with: from estimating the wage gap, it decomposes spatial differences of wage levels into (i) differences attributed (BOD.4) to endowment, such as educational attainment, gender, marital status and age and (ii) the returns to a given In equation BOD.4, the first part measures endowment in that particular location. Moreover, and the effect of the differential in endowments while the similar to a wage regression, controls for type of employer second captures the differential in returns to and industry of occupation have been applied. The BOD endowments. reveals whether wage differences across regions are driven by differences in endowment versus differences in returns The estimation of welfare gaps based on the OLS version (to endowment). It suggests that for an individual with of the Blinder-Oaxaca decomposition focuses on mean given endowment, it could be beneficial to move to another effects. The effect of the covariates is limited to an average location, provided this endowment is higher remunerated effect that remains constant across the wage distribution. there, hence explaining potential ex-ante reasons for However, the effect of each covariate might in fact vary migration decisions. across the welfare distribution. While it is beyond the focus of this study, one can use quantile regression to extend The decomposition is obtained by estimating equation the decomposition of characteristics and returns effects (BOD.1) for both the country’s metropolitan leading region across the wage distribution. and all other regions: (BOD.1) where yi is the log of the nominal wage ratio in region i, the main city (indexed by A) or else (indexed by B), and xi is a set of characteristics mentioned above. After estimating equation BOD.1 using OLS, the average wage gap can be expressed follows: (BOD.2) Mathematically, equation BOD.2 can be rewritten as: (BOD.3) 48  See Blinder (1973), Oaxaca (1973), and Jann (Jann, 2008). MAURITANIA: Country Economic Memorandum 79 Appendix VII: Lessons from Peru’s successful growth experience Peru and Mauritania had similar economic structures • Tax policy: The Agriculture Sector Promotion Law in the late eighties, but Peru became an upper-middle granted a series of tax incentives and tax reductions income country. In 1988-1990, both countries were close for agro-exporters. Firms in this sector benefitted to the low-income threshold and were heavily dependent on from a corporate tax rate of 15 percent, compared to natural resources (particularly mining). During this period, 29.5 percent for other sectors; VAT exemptions; and natural resources rents accounted for about 10 percent VAT drawback mechanism for exported products. of GDP, with mining exports accounting more than 40 Investment related to irrigation also benefited from percent of merchandise exports. Despite a similar economic additional tax exemptions. structure, Peru transitioned to an upper-middle income country with a GNI per capita that was almost six times • Trade policy: Peru signed several bilateral and trade bigger than that of Mauritania in 2017. liberalization agreements in the 2000s, leading to significant tariff reductions on agricultural products. As To mitigate its dependency on mining products, Peru a result, the weighted average tariffs for vegetables was successfully diversified its exports structure by significantly reduced from 17 percent in 2000 to only upgrading its agriculture sector. Between 1998 and 2017, 0.1 percent in 2017. This is particularly relevant as Peru the share of agricultural exports surged as a percentage implemented its free trade agreement with USA (2008) of both non-traditional exports 49 and total exports. In and China (2010). addition, Peru diversified its agriculture exports which were in 2017 dominated by 6 crops (grapes, asparagus, avocado, • Sanitary and phytosanitary compliance agency: In mango, blueberries and coffee), compared to only 2 crops 1992, the Government of Peru created the SENASA, a (coffee and asparagus) in 2000. As non-traditional exports public/private agency responsible for the compliance surged, Peru’s agricultural productivity increased steadily. with sanitary and phytosanitary requirements. SENASA The development of the agriculture sector was driven by certifies shipment and supports the private sector to several policies since the early nineties, including: enter into new markets, such as North America and Europe • Land markets and irrigation policies: In early 1990s, the Government introduced a series of changes to the • Logistics: As a result of the liberalization process constitution to develop the private sector. In particular, launched in early 1990s, the Government removed it removed restrictions to private ownership of lands, restrictions and procedures constraining the aviation liberalized land markets, and incentivized private land sector, allowing free pricing for passengers and freight acquisition in the Costa region. In 1994, the Government transport. It also eliminated the monopoly of CORPAC created the Commission for the Promotion of Private in the provision of services related to air transport, such Investments to promote the privatization of public as merchandise storage and cargo handling. Although firms and assets. The Government also used PPPs to port infrastructures remain broadly underused and finance several irrigation projects. 50 inefficient, maritime transport accelerated in mid 2000s thanks to bilateral and multilateral free-trade 49  Non-traditional agriculture exports exclude coffee, sugar and cotton 50  Olmos (2004), Majes-Siguas (2010) and Chavimochic (2013). 80 MAURITANIA: Country Economic Memorandum agreements. Indeed, the liner shipping connectivity budgeted public spending, in a context of decreasing fiscal index surged from 14.8 in 2004 to 37.8 in 2016, revenues. Similarly, the Government used USD 1.7 billion suggesting higher integration to international trade. (0.8 percent of GDP) in 2017 to finance public spending related to the reconstruction of damaged infrastructure in In addition to developing its exports structure Peru the regions affected the floods created by el Niño. used mining revenues to build fiscal buffers and foment investment at the sub-national level. During the Mining revenues are earmarked to investment projects commodity boom cycle, Peru took advantage of increasing at the sub-national levels, resulting into a significant mining fiscal revenues to finance its stabilization fund, increase of investment over the past 20 years. 80 which aims at mitigating fiscal instability and enhancing percent of mining-revenue transfers are earmarked to investment in infrastructure at the subnational level. investment projects while the rest should be used to cover maintenance spending for infrastructure. Resource- As fiscal revenues are dependent on commodity prices, revenue sharing transfers are distributed according to Peru’s stabilization fund heavily benefitted from the their point of origin. For example, over 75 percent of canon boom of commodity prices in 2000s. Over the past 20 mining-revenue transfers go to local governments while years, revenues from mining and hydrocarbons accounted regional governments and universities receive 25 percent. on average for 15 percent of total tax revenues. Peru Moreover, district municipalities receive more than 50 established a fiscal stabilization fund (FSF) in 1999 to percent of resource-revenue transfers in each region where accumulate funds during boom periods with the aim of an extractive industry is located. Investment from sub- using them in recessions or natural disasters. The FSF is national governments in education and culture and health financed by tax resources, 10 percent of the sales of public & sanitation steadily surged from 0.1 to 1.3 percent of GDP assets for privatization, and 10 percent of concessional between 2005 and 2017. Similarly, investment in transport fees. As tax mining revenues surged in the mid-2000s due expanded from 0.1 to 0.6 percent of GDP. to higher commodity prices, the stabilization fund climbed from USD100 million (0.2 percent of GDP) in 2000 to 6.4 billion (3.3 percent of GDP) 2016. The FSF helped Peru to cope with decreasing mining revenue and natural disasters. As per the Law of Fiscal Prudence and Transparency,51 the FSF should be used: (i) in case of national emergency or international crisis that could seriously affect the economy; (ii) when there is evidence that real GDP is declining or could decline next fiscal year; and (iii) when current revenues financed by tax collection are expected to decline in the current fiscal year by more than 0.3 percent of GDP, compared to the average of the last 3 years. In addition, if the FSF is more than 4 percent of GDP, the government can used additional savings to reduce public debt. In 2015, the Government withdrew USD 1.2 billion (0.6 percent of GDP) from the FSF in a context of decreasing fiscal revenues and economic deceleration caused by declining commodity prices. The funds were used as a countercyclical fiscal policy to ensure the financing of 51  Law 27245, 1999 MAURITANIA: Country Economic Memorandum 81 References Allouche, Y. (2019). Regional Power Rivalry and the Failure of Elbadawi, I. 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