Mauritania - The Economy Role of the Government

More about the Economy of Mauritania.

Role of the government

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

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

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

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

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

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

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

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

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