Mauritania - Islamic Development Bank

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gold, copper, oil and deep-sea fishing) with little or no value-added for export markets. The two economies are disconnected and the spillover effect seen in most developing countries (without a high dependence on natural resource rents) has not taken place. 26. This unique economic structure has produced mixed results: On the positive side, the enclave economy has provided high and consistent rents that have allowed the Government to finance development activities including infrastructure for irrigated agriculture. On the negative side, the enclave economy has only limited links with the subsistence economy. In particular as the value added to raw material exports is limited and given the capital-intensive nature of extraction activities, the demand for labor is negligible. 27. Even worse, the economy reveals the classic symptoms of suffering from the wellknown “Dutch disease” common to natural resource based economies. The “Dutch disease” effect, which arises in economies enjoying large and sustained rents from extraction and export of natural resources (see figure 9), leads to an appreciation of the exchange rate, which undermines the competitiveness of investments in manufacturing and commercial agriculture. The effect works through an appreciation of the exchange rate which reduces the viability of investments in tradable goods. The latest consistent IMF data series available on the real effective exchange rate (REER) for the past decade 2000-2010 is supportive of this view and shows the REER remaining fairly constant despite the country running large current account deficits - see figure 10. This graph includes the post 2006 period for which the IMF feels the data is most reliable. It shows the REER remaining fairly constant between 2006 and 2010 at a time when current account deficits were exceptionally large (-18.3 % in 2007, -15.7 % in 2008 and -12.7 MCPS for Mauritania, 2011-2015 9
% in 2009). The short-lived oil boom in 2006- 2007, which accounts for only a small share of the natural resource rents accumulated during several decades, seems to have had little effect on the REER. 28. Evidence of “pronounced Dutch Disease effects” during the three decades from 1970 -2000 has also been noted in independent analysis 6 focusing on governance issues arising from windfall gains. This assessment is based on evidence indicating: (a) stagnation in the share of agriculture (including livestock) with its 2004 share in GDP of 16 percent “barely half that expected for a country at Mauritania’s level of development” and noteworthy for a country with “150,000 irrigable hectares which, with improved livestock management and roads to access markets, could lift agriculture’s share of GDP above the expected one-third level”, (b) manufacturing is “two-thirds the size expected”, and (c) the remarkably low commercial farm output has cut the agricultural sectors capacity “to stimulate agro-processing”. The root cause of this economic stagnation is attributed to a “rent driven economy” which in the three decades received sustained high rents from iron ore extraction, fishing and aid amounting to “one-third of GDP” and with political allocation of the rents, encouraged by lack of transparency and poor governance. 29. It is vital that the Government develops a strategy to manage economic rents from natural resources extraction to mitigate the adverse economic effects of long-term exchange rate appreciation and strengthen the links between the two economies. It can do this by among other things: (i) Moving towards more value-added production in all areas where it has a comparative advantage in terms of resources—fisheries, livestock, mineral ores, and oil. (ii) Addressing other constraints to enhancing linkages between the two dual economies for example human development and capacity building; and (iii) Facilitating investment in activities such as construction, that is less vulnerable to exchange rate appreciation. 6 See “Aid and Rent-Driven Growth: Mauritania, Kenya and Mozambique compared, Richard M. Auty, 2007. 10 III. MAURITANIA’S VISION, DEVELOPMENT CHALLENGES AND PRIORITIES 1. Poverty Reduction Strategy Paper 2001-2015 30. The PRSP (2001-15) sets out the vision of Mauritania as a politically stable and democratic country, which transforms itself into a decentralized and modern state, well integrated with the regional and global economy on the path of sustainable economic and social development. The Government is implementing this vision through multi-year action plans the latest of which, PRSP III covering the period 2011- 2015, is in the final phase of preparation following consultation with civil society, private sector and development partners. PRSP III has been designed taking account of the lessons learnt from the implementation of PRSP II and I (see Box 1). 31. For PRSP III, the Mauritanian government intends to maintain the objectives set in the two previous PRSPs. PRSP III outlines development priorities and interventions in a five-year action plan, clustered around four strategic objectives outlined below with increased emphasis on private sector development, monitoring and evaluation and donor coordination as a crosssector theme. i. Acceleration of Growth and Stabilization of Economy: The Plan will meet this objective through interventions designed to stabilize macroeconomic balances, improve the business environment for private sector development, support sectors with a potential for high growth, and reform the state owned enterprise sector to facilitate fiscal consolidation. ii. Anchoring Growth in the Economic Sphere of the Poor: The Plan aims to achieve this objective through interventions that support rural development, target pockets of urban poor, promote microfinance and SMEs, enhance food security, reduce environment degradation and reorient policies to focus on targeted poverty reduction programs. Expected outcomes of these interventions are an increase in the contribution of rural sector MCPS for Mauritania, 2011-2015
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Page 6 and 7: CURRENCY US$1 = 283.500 UM Euro 1 =
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Page 12 and 13: As part of its new Vision, the IDB
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Mauritania - Islamic Development Bank

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