Mauritania - Education Project

FD C opy DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. P-132j-MAU REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE ISLAMIC REPUBLIC OF MAURITANIA FOR AN EDUCATION PROJECT January 14, 1974 This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  CURRENCY EQUIVALENTS Currency Unit CFA Franc (CFAF) - until June 29, 1973 = Ouguiya (UM) - since June 29, 1973 Official Eachange Rate, as of February 15, 1973 UM 1 = CFAF 5 US$ 1 = CFAF 230.21 US$ 1 UM 46.o0 CFAF 1,000 ' US$ 4.34 CFAF 1,000,000 = US$ 4,340 UM 1= US$ 0.02 UM 1,000 = US$ 21.72 UM 1,000,000 = US$ 21,721 Floating Exchange Rate The Ouguiya is officially valued at 0.016 gram of fine gold or the equivalent or FF 0.1 or CFAF 5.0. As the French franc and the CFAF are now floating relative to the US dollar, the US dollar/Ouguiya exchange rate is subject to change. Conversions in the appraisal report and in this report have been retained at the floating exchange rate US$ 1 = Ouguiya 42.0 (CFAF 210.0), prevailing in October 1973. The exchange rate as of January 1h, 1974 was US$ 1 - CFAF 250 Ouguiya 50.0. FISCAL YEAR January 1 - December 31  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE ISLAMIC REPUBLIC OF MAURITANIA FOR AN EDUCATION PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Islamic Republic of Mauritania for the equivalent of US$3.8 million on standard IDA terms to help finance educational programs and facilities. PART I - THE ECONOMY 2. A report entitled "The Current Economic Situation and Prospects of Mauritania" (AW-27a) was distributed to the Executive Directors on August 27, 1971 (R71-214). A new economic report will be distributed to the Executive Directors shortly. Economic Structure 3. Two-thirds of Mlauritania's territory, about twice the size of France, lies in the Sahara Desert. The remaining third consists of savannah- grassland suitable for livestock herding and a narrow agricultural belt along the Senegal River. The Mauritanian economy consists of three isolated econo- mic centers: the modern mining and fish processing industries in the north- west around Nouadhibou, the capital city of Nouakchott, and the livestock and agricultural activities in the south and southeast. The latter is one of the poorest regions in the world and forms, with the western part of Mali and the northeastern park of Senegal, an almost entirely closed economic system, Mauritania's livestock surplus production being mainly exchanged in Senegal and Mali for cereals and cloth. Between the Nouadhibou region and the south, the capital city of Nouakchott, built since 1960 in a region deprived of all basic infrastructure, is only an administrative center. 4. In June 1972, Mauritania asked for the revision of the 1961 Coop- eration Treaty with France in the economic, monetary, technical, cultural and military fields. A new agreement was reached in February 1973, except in the monetary field. As a result, Mauritania left the West African Monetary Union and the franc zone and introduced its own currency, the ouguiya, in June 1973. However, Mtauritania remains a member of the West African Customs Union (UDEAO), which will be replaced by the West Africa Economic Community in January 1974, with the same members as UDEAO except Dahomey.  5. The factors limiting economic growth in Mauritania are many: First, the country is one of the poorest in terms of natural resources, except for iron ore and fish, and its climate is one of the most difficult, even among the Sahelian countries, as its most southern regions (about 7 percent of the country) do not receive more than 400-600 mm of rain per annum. Second, dis- tances are great and transport to all but a few places is arduous and costly; for example, freight rates for the journey from Nouakchott (in the west) to Nema (in the east) allow 9 days each way for a journey of less than 900 miles. Under such circumstances, the exchange of food products between the surplus and deficit areas is limited, and production incentives are considerably de- creased. Third, adult literacy in the country is low, while primary school enrollment does not exceed 15 percent of the school age population. These factors make for relatively high investment costs which Mauritania must face, particularly in its efforts at domestic economic integration. Past Economic Performance 6. Between 1960 and 1968, the Mauritanian economy grew in constant terms at 10-11 percent annually, mainly as a result of rapid expansion in the mining sector. But since then growth has slowed down to 3-4 percent annually as mining companies reached their capacity and as a result of a series of severe droughts, unprecedented in this century. Very little of the value added gen- erated in the modern sector spilled over into the rural areas. Moreover, a substantial part was transferred abroad in the form of profits and royalties. Per capita incomes of the rural poor may have increased at about 3 percent annually in the first half of the 1960s. But all of this was lost in the last few years as a result of the droughts, which further widened the gap between the per capita income in the traditional sector (US$70) and the modern sector (US$500), which itself includes only 10 percent of the country's popu- lation. 7. Among the Sahelian countries, Mauritania was particularly affected by the 1969-73 drought. Agricultural production decreased by about 60 percent in 1972, while the cattle herd was reduced by an estimated 40 percent between 1968 and 1973. In spite of the substantial effort undertaken by the inter- national community to provide emergency aid to Mauritania, the consequences of the drought will be felt for many years to come in the form of: (i) lower output in the livestock sector; (ii) a difficult public finance situation as a result of new demands on the national budget for the food relief operation and social and health services; (iii) social problems created by the concen- tration of refugees around the emergency food supply centers; (iv) malnutrition and starvation resulting in higher death rates among children and older people and causing a marked increase in the incidence of physical and mental damage among the surviving children. Strategy for Economic Development and Public Investments 8. The Government's economic policy in the first decade of independence focused on the development of infrastructure in an effort to equip Mauritania with a modern capital and the facilities needed to run the country; the infra- structure development effort also aimed at decreasing the dependence of  -3- Mauritania on Senegal for the transport of goods in and out of the country. As a result, 80 percent of public investments between 1963 and 1972 were absorbed by projects in transport and urban infrastructure. In consequence, little change took place in the agricultural and livestock sectors which remain almost entirely dependent on weather conditions. The current budget has been little development-oriented since independence. The education ex- penditures, although considerable, representing almost one-fourth of the Central Government current budget in 1972 (as compared to 12 percent in 1960/ 61) had only a limited impact on the country's economic growth, the educa- tional programs being ill-adapted to the needs of the country, as will be pointed out in Part III (paras 19-21). 9. Public investments increased at about 9 percent per annum in current terms between 1964 and 1973, to reach an annual average of US$19 million in the past 4 years, or 7.8 percent of GDP. Besides the general constraints on economic development mentioned in para. 5, the major constraint on plan im- plementation has been the country's limited capacity to identify, prepare, and execute projects. The technical ministries are understaffed, so that there is little project preparation and analysis. The same can be said of the Ministry of Planning which at present is not equipped for setting priori- ties and undertaking with the Ministry of Finance the economic and financial analysis of investment projects. 10. Future growth in the modern sector is essential to improve the public finance situation and provide a substantial part of the revenues needed to finance investments and recurrent expenditures for the develop- ment of the rural sector. Otherwise the modern sector will contribute very little to improving the conditions of Mauritania's rural poor. Even if the contemplated substantial new investments for the Guelbs iron ore mines are undertaken (a continuation of the present MIFERMA operation), mining alone cannot provide employment for more than a very small fraction of Mauritania's active population and its indirect effects will continue to remain limited. Similarly, introduction of manufacturing industries--so far strongly supported by the Government--cannot provide the answer to the question of raising the standard of living for the mass of the Mauritanian population, as high pro- duction and transport costs and small local markets severely limit possibili- ties. In consequence, the Government's basic strategy should be to develop the country's few natural resources in livestock, agriculture, arabic gum and fisheries. Although details of the Government's investment program for the Third Plan period (1975-79) are not yet known, indications are that a much larger share of public investments will be devoted to the rural sector than was the case in the past, as shown by a certain number of projects presently under preparation in this sector. The development of irrigated agriculture in particular is expected to play an important role in ensuring that the dra- matic consequences of the recent droughts will not reoccur. Two irrigation projects totalling several thousand ha. are already underway. Other projects are being considered in the context of the development of the Senegal River Basin.  - 4- Financing Public Investment 11. The public finance situation improved markedly in the 1960s. From a negative US$7 million in 1960, budgetary savings reached a positive US$5 million in 1972 or about 15 percent of Central Government revenues. This is quite an achievement, which proves the Government's ability to implement a tight budgetary policy. Public savings (after debt amortization) financed about 20 percent of the public investment program in the past three years. To finance the balance, Mauritania succeeded in mobilizing an annual average of US$11 million per annum in development assistance in the past six years. During this period, the Bank has been the third largest aid donor (providing about 14 percent of Mauritania's external capital assistance), after France (31 percent) and the European Communities (30 percent). About 70 percent of foreign development assistance financed transport and urban infrastructure. Also important was technical assistance, mainly in education, which amounted to US$5.2 million per annum in the past three years, mostly financed by French bilateral assistance and UNDP. Conditions of foreign aid have pro- gressively hardened with the share of grant aid decreasing from 100 percent in the early sixties to about 35 percent in 1970-72, although the terms of the loans have remained soft. The public external debt outstanding as of December 1972 amounted to US$36.4 million; the average interest rate was 3.8 percent. Prospects 12. Even assuming normal rainfall conditions, growth in the rural sec- tor will at best reach an estimated 2-3 percent per annum for the rest of the decade, and would be well below this level should there be a reoccurence of the drought. Therefore, the standard of living on a per capita basis in the rural sector cannot be expected to reach its 1968 level again before the early 1980s in spite of substantial investments planned in this sector, as the effects of these investments will be felt mainly in the 1980s. The modern sector rate of growth during the same period could reach about 5 percent, a small decline from the performance of the past four years, mainly due to the attainment of capacity by MIFERMA and SOMIMA mining operations after 1974. As a result, economic growth for the country as a whole could reach 4.5 per- cent between 1971/72 and 1980. In line with this potential growth level and the needed increase in current expenditures in the directly productive sectors public savings before debt amortization could reach 16 percent of the Central Government current revenues or more than 3 percent of GNP in 1980. 13. Considering the need to broaden the base of economic development, it appears essential that public investments be increased to US$28 million per annum in the Third Plan (1975-79) from UJS$19 million equivalent in 1968- 72. During the Third Plan period, it is estimated that public debt amortiza- tion would absorb about 30 percent of public savings. On that basis, at least 80 percent of this investment program will have to be financed by foreign aid, which would have to increase therefore by 50 percent over its 1969-72 level. This increase appears to be a reasonable target, and is entirely justified considering the extreme poverty prevailing in Mauritania's rural population after several years of drought. The World Bank Group, FED, France, the  - 5 - People's Republic of China, and several Arab countries are likely to be the main donors. To arrive at a percentage of financing of 80 percent of total public investments, foreign aid would have to cover at least 90 percent or the cost of individual projects eligible for foreign financing, including the financing of some local expenditures. This is fully justified by the tight public finance situation likely to prevail for the rest of the seventies. The projected low public contribution towards financing public investments underestimates the expected Government development effort during the period of the Third Plan (1975-79). Over the coming years, the Government is ex- pected to make available considerably more resources for current develop- ment outlays than in the past. Including recurrent expenditures in the rural and. transport sectors alone, the Government's share in the financing of total public development outlays during 1975-79 could reach 25 percent. Although the debt service ratio is low (3-4 percent), at least 70 percent of public inflows should be on soft terms in the coming years. Borrowing on harder terms could seriously endanger the public finance situation. PART II - BANK GROUP OPERATIONS IN MAURITANIA 14. The Bank Group has had 5 operations in Mauritania to date. Total lending amounts to US$82.4 million, including one Bank loan of US$66 million for MIFER