Mauritania - Urban and Rural Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 2228-MAU STAFF APPRAISAL REPORT URBAN AND RURAL DEVELOPMENT PROJECT MAURITANIA March 12, 1979 This document has a restricted distribution and may be used by recipients only In the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS The Mauritanian currency is the Ouguiya (UM) UM 45 = US$1 The value of the Ouguiya is linked to that of a basket of five currencies, viz. US dollar, French franc, Belgian franc, Deutsche Mark and Dutch guilder. GLOSSARY OF ABBREVIATIONS ADAUA Association pour le Developpement Naturel d'une Architecture et d'un Urbanisme Africain B3M Banque Centrale de la Mauritanie BMDC Banque Mauritanienne pour le Developpement et le Commerce CEAO Communaut6 Economique de l'Afrique de l'Ouest CEPI Centre d'Etude et de Promotion Industrielle CFAT Centre de Formation de l'Artisanat du Tapis IC Investment Commission OMA Office Mauritanien de l'Artisanat OMAT Office Mauritanien de l'Artisanat et du Tourisme OMT Office Mauritanien du Tapis PPF Project Preparation Facility SOCOGIM Societe de Construction et de Gestion Immobiliere SONADER Societ6 Nationale pour le Developpement Rural VIS Village Irrigation Scheme  FOR OFFICIAL USE ONLY STAFF APPRAISAL REPORT URBAN AND RURAL DEVELOPMENT PROJECT MAURITANIA Table of Contents Page No I. PROJECT GENESIS, COMPONENTS AND INSTITUTIONS .............. 1 A. General . ............... ... ....... ............*......... 1 B. Project Concept and Institutions ......... . ............ 2 II. THE FINANCIAL SECTOR AND BMDC ..... ............................ 4 A. The Sector ............................................ 4 Background ............ .................... ........................ 4 The Banking System . .............................. . 4 Government Financial Sector Policies ...... ........... 4 a. Monetary and Liquidity Policies .................. 4 b. Term Financing . ....... . ......*............ ..*...... 5 c. Interest Rates . ................. ..... ............. . 6 Financial Sector Issues .. ...... . . ......... ... .......... . 6 B. Banque Mauritanienne pour le Developpement et le Commerce ........................................ 7 Background and Objectives ............................ 7 Ownership .............................. ............................ 7 Board of Directors ........ .......................... . 7 Management .............. .......................................... 8 Organization ........................................... 8 Staff ................................................ 9 Policies and Operating Guidelines .................... 9 Appraisals .......................................................... 10 Technical Assistance for BMDC ... ..................... 10 Disbursements and Procurement ........................ 10 Follow-up ........ .............. ...................... 10 Accounts ............................................. 11 Loan Contracts with Clients ........................... 11 Foreign Exchange Risk ..11 Resources ......*.. .............. 11 Operations.. 12 This report has been prepared by Uche Mbanefo, Christian Delvoie, Bahadur Jetha, Setsuko Ono (IDA), and Michel Delavalle (Consultant) follow'ing a mission to )4uritania from M2rch 8 to 24, 1978. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - [i - Table of Conternts (Cont'd) Page No Quality of the Portfolio ............ .. ............... 13 FinanciLal- Position ................................... @ @ 13 Performance ........................................... 14 Prospects .. . . ............................. 14 III. THE INDUSTRTAL SECTOR AND INSTITUTIONS ........ .. ......... 16 A. Characteristics of the Sector ........................ 16 Government Sector Policies ........................... 18 The Investment Code ................... .. ............. 18 Price and Import Controls ............................ 18 Prospects ............................................ 19 B. Industrial Promotion Institutions .............. ...... 19 CEPI .. 19 Investment Commission (IC) ................... ........ 21 C. Issues and Problems .................................. 21 a. Investment Code Issues ........................... 21 b. Industrial Zoning Issues ......................... 22 c. Industrial Financing Issues ...................... 22 d. Government Administrative Coordination and Delays 22 IV. THE ARTISAN SECTOR AND INSTITUTIONS ....................... 23 A. The Sector ........................................... 23 Main Characteristics ................................. 23 Government Policy .................................... 24 Carpet Industry ...................................... 24 B. The Artisan Institutions ............ .. ............... 25 CFAT and OMA .......................................... 25 OMAT ........................ ......................... 26 The Artisan Training Department ......... .. ........... 27 The Carpet Production Department ..................... 27 C. Issues and Problems .................................. 28 V. THE AGRICULTURAL SECTOR AND INSTITUTIONS ............. ..... 28 A. The Agricultural Sector .............................. 28 General Characteristics .............................. 28 Subsector: Development of Village Irrigation Schemes 29 Climatological and Soil Data ......................... 29 Water Resources and Water Rights ..................... 30 Government Policies and Activities ................... 30  - iii - Table of Contents (Cont'd) Page No B. Agricultural Institutions ..................*.......... 31 a. SONADER ....................... * .................. 31 b. Farmer's Village Cooperative Societies .......... . 32 C. Sector Issues and Problems ........................... 33 VI. THE PROJECT ............. .. . .. .... . .................... 34 A. Project Assistance for the Industrial Sector ......... 34 Studies ....................................... o .................. 36 B. Project Assistance for the Artisan Sector .... ........ 36 Carpet Production .37 C. Project Assistance for the Agricultural Sector ....... 38 D. Project Cost and Financing .............. ............... 40 Costs ................................................ 40 Financing . ........................... .. ................. 42 Financial Intermediation and Onlending Terms .... ..... 42 E. Project Implementation ............ 43 Procurement ......................... ........... 43 Disbursement ............................................. 43 Monitoring and Evaluation ...............n. ............ 43 F. Project Risks ..................................... 43 G. Financial, Economic and Social Evaluation ............ 45 VII. SUMMARY OF PRECONDITIONS AND AGREEMENTS REACHED ON LOAN CONDITIONS ...46  List of Annexes 1. Cost Recovery Table 1 - Summary of Project Costs Table 2 - Agricultural Costs Table 3 - Computation of Revolving Fund for Seasonal Credit Table 4 - Artisan Component Costs 2. BMDC - Income Statements 1974-1977 3. BMDC - Balance Sheets 1974-1977 4. BMDC - Projected Income Statements 1977-1982 5. BMDC - Projected Cash Flow Statements 1978-1982 6. BMDC - Projected Balance Sheets 1977-1982 7. BMDC - Assumptions for Financial Forecasts 8. OMA - Audited Balance Sheet as of December 30, 1976 9. OMA - Projected Income and Expenditure Statements for 1978-1981 10. Calculation of Financial and Economic Rates of Return for the Artisan Component 11. Calculation of the Internal Financial and Economic Rates of Return for the Agricultural Component 12. Typical Farm Budget 13. SONADER Balance Sheet as of December 31, 1977 14. Estimated Disbursement Schedule 15. Selected Documents and Data Available in the Project File Chart I SONADER - Organization Chart Chart II BMDC - Organization Chart Chart III SONADER Implementation Schedule for the Agricultural Component Map No. 13918 Mauritania and the Agricultural Project Area  I. PROJECT GENESIS, COMPONENTS AND INSTITUTIONS A. General 1.01 Mauritania's 1.5 million people occupy 1.2 million km , about three-quarters of which is in the Sahara desert with the remainder in the Sahel. GDP at factor cost was about UM 17.4 billion (US$384 million) in 1977, but the GDP per capita of about US$270 hides the extreme poverty of the vast majority of the population who do not participate directly in the dominant enclave mining sector. 1.02 At independence in 1960, some 80% of Mauritanians were poor nomadic herdsmen, while a small French enclave controlled the iron ore production around Nouhadibou. The mining and large-scale modern sectors grew rapidly thereafter, encouraged by Government incentives, and this growth, coupled with the Sahelian droughts of the early 1970s and their devastating effects on cattle herds, culminated in a 1977 situation in which the modern sector (especially mining of iron ore and copper) contributed some 66% of GDP, while agriculture (including livestock production) contributed less than 30%. 1.03 Following independence, the Government took over MIFERMA (the French mining company), converted it into the Societe Nationale Industrielle et Miniere (SNIM), and also undertook to pay substantial compensation (US$90 million) 1/ to MIFERMA's previous shareholders. These payments have placed a considerable strain on the budget and balance of payments. Since then, income from iron ore, which accounts for 80% of export earnings, has been drastically reduced by the fall in world prices, as well as disruption of production and shipments by guerrila activity. The war in the former Spanish Sahara has also proved extremely costly, inflating the need for foreign payments precisely when foreign exchange receipts are shrinking. 1.04 The series of droughts (para 1.02 above) killed off a great deal of livestock, forcing thousands of nomadic herdsmen to migrate to urban areas. SNIM although primarily concerned with the mining sector, nevertheless also created some industrial enterprises as the Government's intermediary. Govern- ment itself also tried to provide employment (and some import substitution) through some large public sector industries, e.g., oil and sugar refineries. Thus, between 1973 and 1978, Government borrowed an average of US$115 million a year to finance large-scale public enterprises which, for the most part, will make little or no impact on GDP in the short- or medium-term. Also, because of their very high cost per job, the large industries have not made the hoped-for impact on the unemployment problem. Nevertheless, following its "Plan de Redressement Economique et Financier", the new military Govern- ment seems to have arranged for financial assistance totalling about US$151 million, of which US$45 million has been disbursed. This assistance is expected to relieve the situation somewhat during 1978 and 1979. 1/ US$40 million immediately and the rest in equal annual installments.  - 2 - 1.05 Faced with this catalogue of financial and economic woes - an extremely costly war, a projected US$50 million annual balance of payments deficit, a projected food deficit of 70,000 tons of grain a year, an unusually rapid rate of forced urbanization, a rapidly shrinking rural sector Jith a modern sector that, if not shrinking, is not developing rapidly - Government is rethinking its development philosophy. It now wishes to implement a new strategy, shifting the emphasis from large industries with doubtful return to quick-yielding, cost-efficient, employment-creating, and food-producing investments. B. Project Concept and Institutions 1.06 As one of the first expressions of this new strategy, Government has requested IDA financing for a package of three small projects plus studies and technical assistance, the short-term impact of which would be the simultaneous relief of rural and urban poverty through the immediate creation of additional employment and income opportunities in the industrial, artisan and smallholder agriculture sectors, as well as immediate increase in food production. The long-term result of this package would be easier and more sustained growth in all three sectors as a result of fundamental sectoral and institutional reforms to be introduced through this project. 1.07 More specifically, the project would include the following: (a) technical and financial assistance to small- and medium-scale industrial enterprises promising substantially lower costs per job than are now current (estimated total cost about US$2.9 million, including US$0.8 million entrepreneurs' contribution); (b) technical and financial assistance for artisans engaged in the weaving of knotted carpets (about US$2.3 million); (c) technical and financial assistance for the development of 30-village irrigation schemes (VIS) along the Senegal river betwTeen Kaedi and Selibaby (about US$3.4 million); (d) 3-man-years of technical assistance for BMDC which would act as financial intermediary for (a) above; (e) two studies designed to promote future development by (i) finding a viable local construction material which can replace imported cement in the construction of low-cost housing; and (ii) creating a real industrial zone in Nouakchott.  1.08 Project responsibilities would be handled by specific institutions as follows: Responsible Institutions Project Function Industries Banque Mauritanienne pour le Financial intermediation for the Developpement et le Commerce industrial line of credit. (BMDC) Centre d'Etude et de Promotion Promotion of, and technical assistance Industrielle (CEPI) to, small- and medium-scale industries; industrial zone study. Investment Commission (IC) Approval of industrial enterprises for investment code privileges. Societe de Construction et Supervision of the artisan brick de Gestion Immobilier (SOCOGIM) industry study. Artisans Office Mauritanien de l'Artisanat Training of artisans and promotion of, et du Tourisme (OMAT) and technical assistance to, artisans through production units. Agriculture Societe Nationale pour le Agricultural project implementation Developpement Rural (SONADER) and technical assistance to farmers. Farmers' village cooperative Farmer organization and self-government. societies Studies 1.09 The financial sector, and BMDC, the financial intermediary for the industrial line of credit, are discussed in detail in Chapter II. Chapters III, IV and V discuss respectively the sectoral and institutional aspects of the industrial, artisanal, and agricultural components of the project. Chapter VI discusses detailed project proposals, project costs, financing, risks and justification, as well as those aspects (e.g., procurement, dis- bursement, etc.) which are common to all project components.  - 4 - II. THE FINANCIAL SECTOR AND BMDC A. The Sector Background 2.01 Mauritania, which was a member of the West Africa Monetary Union (UMOA) 1/ since the latter's establishment in 1962, withdrew from the Union and the Franc Zone in mid-1973. A central bank, La Banque Centrale de la Mauritanie (BCM), was established and was followed by the introduction of a new currency, the Ouguiya, whose value is reviewed daily by BCM and is linked to five currencies 2/. The Banking System 2.02 The development bank, Banque Mauritanienne pour le Developpement et le Commerce (BMDC), carries on substantial commercial banking operations as well as financing of housing. It also extends development credits to the local industry. These operations and BMDC's structure and current situation are discussed in more detail below. In addition to BMDC, there are four com- mercial banks. Two of these were established fairly recently: Banque Arabe Libyenne Mauritanienne (BALM) in 1972, and Banque Arabe Africaine en Mauritanie (BAAM) in 1974. The other two are ex-subsidiaries of French banks now with Mauritanian majority control: Banque Internationale pour la Mauritanie (BIMA) which belonged to the group BIAO, and Societe Mauritanienne de Banques (SMB) which belonged to the group of Societe Generale. The oldest bank (BIMA) now has total assets of UM 1.8 billion and 35.6% of total bank deposits; SMB has assets of UM 1.5 billion with 16.5% of deposits; BALM assets of UM 2.1 billion with 26.9% of deposits, and BAAM assets of UM 2.1 billion with UM 354 million, or 11% of all bank deposits. The Government has a majority controlling interest in all these banks, except for BALM, where it owns 49% of the share capital. Government Financial Sector Policies a. Monetary and Liquidity Policies 2.03 In addition to serving as the banker for the Government and a source of short- and medium-term refinancing for the banks (BCM does not rediscount for terms exceeding 8 years), BCM also acts as a regulatory 1/ Union Monetaire Ouest Africaine now includes as members Benin, Ivory Coast, Niger, Senegal, Togo and Upper Volta. 2/ US dollar, French franc, Belgian franc, Deutsch Mark and Dutch guilder.  - 5 - agency for the banking activities in Mauritania and, through the rediscount system, exercises a close supervision over the lending activities of all the banks. Control of non-rediscountable credits is exercised through the system of prior-approvals, whereby each individual credit has to be submitted for prior approval to BCM (except for short-term credits below UM 2 million). 2.04 Individual bank ceilings for rediscountable short-term credit (less than two years) and medium-term credit are determined separately by BCM every six months. The short-term rediscounting for an individual bank does not normally exceed 50% of its foreseen short-term financing operations. Under exceptional circumstances, BCM does however provide further support through temporary advances (pension) above the approved rediscount ceiling. These temporary advances are given for a term not exceeding 30 days, and at an interest rate which is 2 to 4% higher than the rediscount rate, depending on the amount. 2.05 Medium-term rediscountable loans generally finance housing construc- tion costs and local currency costs of an investment project. They also cover the import component for such projects, when external term loans or suppliers' credits are not available. Rediscountable medium-term credit could be up to 65% for all industrial and agricultural development projects and up to 80% for projects submitted by small- and medium-scale enterprises which benefit from a guarantee from the state or from a public guarantee institution but this special facility has, so far, not been used. Credits for construction of housing are rediscounted to the extent of 30% of the cost, except for low-cost housing where the proportion is increased to 80%. 2.06 The medium-term rediscount ceiling for a development bank is defined by BCM as 150% of the sum of the banks' equity (minus fixed assets, equity investments and losses, if any) and its long- and medium-term resources (minus term loans not rediscountable). For commercial banks the rediscount ceiling is defined as the sum of the bank's net equity (as defined above), its term resources (minus term loans not rediscountable) and 25% of its demand and short-term deposits. Medium-term credits guaranteed by the Government for financing of productive industrial and agricultural projects as well as for low-cost housing are not included in the ceilings, although they nevertheless are eligible for rediscounting at BCM. b. Term Financing 2.07 Given the 8-year limit on BCM rediscounting (para 2.03), there is no internal source of long-term financing. BMDC, which was the only bank in a position to provide such financing in the past on a case-by-case basis through refinancing from the Caisse Centrale de Cooperation Economique stopped doing so since 1973, when Mauritania withdrew from the Franc zone. The bulk of term financing in the country has thus been provided by medium- term rediscounting, accounting for 87% of total medium-term credit outstanding  - 6 - in Mauritania as at December 31, 1976. Rediscounting of short-term credit at BCM? has also been used regularly by the banks and accounted for 23.1% of total short-term credit outstanding in the country as at December 31, 1976. c. Interest Rates 2.08 BCM regulates interest rates charged by banks on short- and medium- term credits. While a straight rate of 11% is applicable to all medium-term credits not rediscountable at BCM, the rates applicable to rediscountable credits vary from a minimum of 5.75% to a maximum of 6.5% for credits to low-cost housing and productive sectors (agriculture, industry and commerce) and from 9.0% - 10.5% for all other sectors. The rediscounting rate at BCM is 4.5% for credits to productive sectors and 5.5% for the others. The spread allowed to the banks thus ranges from 1.25% to 2% on credits to productive sectors and from 3.5% to 5% on the others. The rates of interest charged on short-term credits follow a similar pattern and range from 5.5% to 7.5% on rediscountable credits and from 8% to 11% on non-rediscountable ones. 2.09 BCM also regulates interest paid on small private deposits (UM I million or less). Sight deposits earn up to 3.25% and term deposits between 2% and 6%, depending on term and amount of deposits. For term deposits in excess of UM 1 million and those from state and parastatal companies, the interest rate is left free to be negotiated between the parties. Financial Sector Issues 2.10 The main issues of the financial sector are: - how, in the short to medium term, to ensure sufficient term-financing on suitable terms, especially for agricultural, industrial and artisanal sectors; and - how, in the long term, to ensure that the interest rate structure properly reflects the demand and supply for loanable funds. 2.11 Given the complete lack of domestic long-term funds (para 2.07) there is clearly a need to attract resources, both from domestic depositors and from external lenders, to finance development. Higher interest rates might attract more domestic deposits, but the problem is more serious with regard to foreign borrowing. With the current inflation rate running at about 10% and expected to average 9% over the next three years, as against final borrowers currently paying only an average interest of 6% to 6.5% on indus- trial and housing loans, it is difficult to see how money raised in world financial markets at about 8% can be used to finance activities in these key sectors without substantial subsidies from an already hard-pressed Government treasury. For this project, interest rates would be 11% on loans to small- and medium-scale industries and 8.5% to farmers and artisans.  B. Banque Mauritanienne pour le Developpement et le Commerce Background and Objectives 2.12 BMDC was established in 1961 as a purely development bank (Banque Mauritanienne pour le Developpement (BMD) by the Government of Mauritania and the Caisse Centrale de Cooperation Economique (CCCE). The main objective of the bank was to promote economic and social development of the country. However, over the years BMDC developed mostly as a housing and consumer-credit financing institution and got more and more actively involved in short-term borrowing and lending operations. This situation was formalized in June 1974 when its name was changed from BMD to BMDC (Banque Mauritanienne pour le Developpement et le Commerce). Under its revised statutes, BMDC has a broad mandate authorizing it to carry out the full range of commercial banking activities. It is also authorized to act as an agent for the government. Since its inception, BMDC has worked mainly with locally available funds including rediscounting from the Central Bank (BCM), except for four loans totalling CFAF 384 million (UM 79 million) provided by CCCE to finance building constructions for the airport at Nouakchott and housing development for the old mining company, MIFERMA. Ownership 2.13 BMDC's initial share capital was CFAF 200 million (UM 40 million) owned by the Government (58%), CCCE (34%) and BCEAO (8%). In 1973, when Mauritania withdrew from the Franc Zone and established its own central bank, the shares of BCEAO were transferred to BCM. In 1974, BMDC's capital was increased. CCCE's shares were bought over by the Government, and Societe Tunisienne de Banque (STB) was introduced as a new shareholder. The fully paid-up capital of BMDC as at March 31, 1978 was UM 80 million owned by the Government (76%), STB (20%) and BCM (4%). As of February 1979, BMDC and IFC were discussing the possibilities of the latter's equity participation in BMDC. Board of Directors 2.14 BMDC's Board consists of twelve members appointed by the Government (10), BCM (1) and STB (1). Directors representing the Government, including the chairman of the Board, are all senior civil servants holding responsible positions in various ministries. Although the statutes require the Board to meet at least four times a year, this rule has not been observed lately. Moreover, although limits on the Credit Committee's and General Manager's powers for granting short-, medium- and long-term credits have been defined by the Board, the credit committee as such does not exist, and in several cases credits exceeding the limits set down have in fact been approved by the General Manager prior to obtaining the approval from the Board. Assurances were, therefore, obtained at negotiations that, in the future, BMDC's Management would adhere strictly to the procedures and loan approval limits established by its Board.  Management 2.15 For close to 12 years, technical assistance to BMDC management was provided by CCCE. In 1974, when the mandate of BMDC was broadened and CCCE was replaced by STB, a team of five experts was sent by STB to provide manage- ment and expertise required to launch BMDC as a fully-fledged commercial bank. Tunisian technical assistance was reduced in July 1977 when the Tunisian general manager was replaced by Mr. Kane, the present Mauritanian general manager. At present, Tunisian assistance consists of two persons, the chief of Documentary Credits Section, and a banker who joined BYDC in February 1978 as advisor to the general manager. However, all the institution building in the last 4 years at least, has been geared to commercial, rather than develop- ment, banking. Technical assistance in the field of development banking should, therefore, be one of the priorities of any Bank Group intervention at BMDC (para 2.23). 2.16 Mr. Amadou Kane, who was the chief accountant of 3CM prior to assuming the position of general manager at BMDC, had no experience of develop- ment banking and only limited operational experience of commercial banking. The departure of the Tunisian general manager, who, moreover, did not have a Mauritanian counterpart under training, thus left a serious vacuum at the top management. This deficiency has, to a certain extent, been overcome by now, partly due to Mr. Kane's efforts and partly due to the arrival of the Tunisian advisor (para 2.15), who is providing technical assistance mainly in commer- cial banking. Organization (Chart II) 2.17 BMDC is functionally organized into four departments: operations, credit, accounting, and administration. All these departments are headed by experienced and able Mauritanians who have been in BMDC for several years. While the accounts are generally well kept, document handling and filing could be improved. 2.18 The present organizational structure of BMDC, essentially tailored to suit the needs of a purely commercial banking institution, has on the whole, served BMDC's requirements satisfactorily. However, there are important weaknesses. For example, BMDC does not carry out a systematic review of the arrears, neither does it follow any established program for their recovery. It also lacks an adequate internal control system, with the result that certain statutory infringements are carried forward from one year to the other as a matter of routine and never brought to the attention of the management in order to be corrected. Furthermore, distribution of responsibilities between departmental heads could probably be spelled out more precisely and put in writing. 2.19 All these problems have been discussed with the management, which has set up a separate unit responsible for a systematic review of the arrears and follow-up of recoveries. Similarly, procedures for regular internal aNid,tts vexe intr oduced recently.  -9- Staff 2.20 BMDC's employees number 77, of whom only 19 are professionals (including the two expatriate advisors), four with university or equivalent qualifications. The professional staff is on the whole of good caliber, highly motivated and eager to learn new techniques but thinly spread, rela- tively young and inexperienced. Training has been mainly on the job, but there are plans to send three staff members to BNDA and CCI in the Ivory Coast and STB in Tunisia. Locally available training facilities at the central bank are also being explored and staff members are being encouraged to take appro- priate correspondence courses partly financed by BMDC. Possibilities for sending staff to EDI and some other DFCs working with the World Bank Group were also explored, and Mr. Kane has agreed to pursue an active training program for professional development of BMDC staff. The development of such a program will go a long way towards increasing the effectiveness and motivation of the staff. Policies and Operating Guidelines 2.21 BMDC's Policy Statement (Reglement interieur) defines BMDC's opera- tional and financial policies. BMDC limits its equity investments in a firm to 25% of the firm's share capital with the aggregate amount of investments and fixed assets limited to 25% of its own equity. However, BMDC does not have any limit on its total exposure (loans and equity), neither in terms of its own resources nor in relation to the project's total cost. In fact, financing in some cases has been close to 100% of the project cost, with term commitments to private projects ranging up to 60% of BMDC's own equity and those to public projects to over 100% of its own equity. For example, BMDC's lending, approved by the previous management, to Societe Mauritanienne des Industries et de L'Equipement (MIE) has gone up to about UM 118 million, approximately equivalent to BMDC's equity. Total recovery of this loan appears doubtful due to MIE's weak financial position caused by serious start up delays. The government has decided to take steps to strengthen its management and to render the project profitable. In the meantime, the government has agreed to cover any reduction of BMDC's capital, provisions or reserves as of December 31, 1977 if such reduction is caused by a loss on any BMDC loan whose original amount, exceeded UM 30 million. (The MIE loan was originally UM 33 million). This government commitment will be included in the subsidiary loan agreement between the government and BMDC. 2.22 To prevent future over-exposure, BMDC has amended its regulations to ensure that its total exposure in term loans and equity participation in a single project will be limited to 30% of its share capital and free reserves, or to 90% of the project cost, whichever is lower. Exceptions could be made for projects from public companies, provided a state guarantee is obtained and only subject to the approval of the Board on a case-by-case basis. These lending limits have recently been written into BMDC's policy statement.  - 10 - .ADprai _als 2.23 Appraisals for term-credits and equity investments are carried out by the cre6ii- department. There are no formal guidelines for the appraisal rf industrial projects. Fairly simple guidelines have been drawn up for consumer and housing credits. Appraisal reports on industrial projects prepared by B`DC showed that the appraisal capability of BMDC is extremely poor and needs to be substantially strengthened. Appraisal work mainly focuses on financial aspects,while only lip service is paid to technical, marketing, management and economic matters. Technical Assistance for BMDC 2.24 To strengthen BMDC's appraisal capability, the project would provide US$376,000 for a total of three man-years of technical assistance to BMDC to enable it to establish a Development Department to be devoted primarily to industrial project identification, appraisal and supervision. US$37,000 would also be provided for extra costs of foreign training for BMDC senior staff, including the Mauritanian counterpart for the proposed technical assistant. Disbursements and Procurement 2.25 All borrowers are asked to open an account with BMDC. For consumer credits, clients are not asked to finance any part of cost, nor are they required to produce any proforma invoices and, since the proceeds of the loan are directly credited to clients' accounts, BMDC is totally unaware of the final utilization of the loans. In the way they are managed, BMDC's consumer credits are in fact personal loans. Disbursements for housing credits are better controlled as no funds are disbursed before the borrower has paid his share of the investment. The payments are then made progressively in accord- ance with the work performed. Progress under construction is verified by on-site checks. Procurement is checked at time of the application when BMDC refers all applications to the Societe de Construction et de Gestion Immobiliere (SOCOGIM). For industrial projects BMDC does not ask for competitive bidding, nor does it try to satisfy itself of the adequacy of the suppliers' offer. Disbursements are made at borrowers' request without much control over the progress of the project and even when the borrower's share of the investment has not been paid in. BMDC's amended policy statement requires all project beneficiaries to deposit their contribution, or satisfactory evidence of its expenditure on the approved subproject, with BMDC before the latter would disburse its contribution to subproject financing. Follow-up 2.26 There is a total lack of procedures for the follow-up of both the projects under construction and those in operation. The only instances of visits to the projects are those for housing credits, (and even those are limited to the simple assessment of the cost of work performed), and those which become necessary when the borrower is in serious trouble. Regular supervision of development projects would be one of the chief functions of the proposed Development Department.  - 11 - Accounts 2.27 BMDC's accounts are reviewed annually by two "commissaires aux comptes" appointed by the General Assembly for two-year renewable periods. One of the commissaires is a Mauritanian accountant from a local firm, and the other an indeperdent auditor from Tunisia. The investigations they carry out during their annual reviews are fairly short and are geared mainly to ensuring that the accounts are properly kept without providing any in-depth analysis of the accounts. BMDC management has accepted the advisability of getting BMDC's accounts audited annually by an independent firm acceptable to the Bank. During negotiations assurances were obtained that BMDC's accounts for the year ended December 31, 1977 shall have been audited by auditors acceptable to IDA and received by IDA prior to credit effectiveness. Assurances were also obtained that BMDC would continue to employ an external auditor accept- able to IDA, and would send to IDA, BMDC's annual accounts, so audited, not later than nine months following the end of the period to which they relate. Loan Contracts with Clients 2.28 BMDC term loan contracts comprise standardized individual contracts and a separate document stating its general terms and conditions. While these documents appear satisfactory on the whole, some improvements are nonetheless warranted to ensure that (i) imported equipment in transit is fully insured; and (ii) proper accounts are kept by the client and sent regularly to the lender. BMDC has agreed to introduce these requirements into future BMDC loan contracts. Foreign Exchange Risk 2.29 The policy statement of BMDC is totally silent on the issue of the foreign exchange risk and BMDC has not felt the need to raise it with the Government as its only external source of funds were Franc Zone loans raised from CCCE when Mauritania was still in that Zone. During negotiations assur- ances were obtained that the Government would carry the foreign exchange risk on the proposed IDA Credit against a fee of 1% per annum to be charged only to industrial subborrowers on the outstanding loan amount. Assurances were also obtained that BMDC would protect itself against foreign exchange risk on all future external borrowings by introducing an appropriate paragraph to this effect in its policy statement. Resources 2.30 Deposits, most of them short term, and rediscounting at the Central Bank, make up the bulk of BMDC's resources. As of December 31, 1977, refinanc- ing at the Central Bank provided almost 38% of BMDC's total resources, and deposits 33.5%; the only external resource being the outstanding balances of four CCCE loans. Shown below is a summary of BMDC's resources as of December 31, 1975 through 1977.  - 12 - December 31, 1975 1976 1977 UM UM UM million % million % million % Short-term resources (Deposits 41%; Rediscount 341.4 61.6 639.9 69.8 774.5 64.4 37%; Sundry 22%) 1/ Term resources 111.1 20.1 171.7 18.7 307.4 25.5 (Deposits 38%; Rediscount 54%; CCCE 18%) 1/ Capital, reserves & provisions 101.6 18.3 105.6 11.5 121.3 10.1 Total resources 554.1 100.0 917.2 100.0 1,203.2 100.0 1/ This distribution relates to 1977 Operations 2.31 Commercial Operations. The bulk of BMDC's operations have so far consisted of extensive commercial lending activities, including overdrafts, discounting of bills, financing of imports and exports, foreign-exchange transactions, as well as personal and consumer credits. Such lending increased from UM 75 million in 1973 to UM 693 in 1977, accounting for 72% of total lending and 80% of revenue. 2.32 Development Operations. An overwhelming share of term credits provided by BMDC since its inception and particularly after 1974 have been directed towards financing of housing construction. Out of 132 term credit approvals totalling UM 242.7 million, during the last three years, 128 credits totalling UM 190.6 million were for financing of housing construction. The four remaining credits comprised two credits to industry (UM 13 million), one to the Post Office (19.1 million) and one to the electricity company (UM 20 million). The outstanding term-credit portfolio of BMDC, as of December 31, 1977, is composed of 129 medium-term loans totalling UM 212.7 million and 46 long-term loans totalling UM 58.6 million. Both medium- and long-term loans are heavily dominated by housing and construction loans, and have not increased as much as the commercial operations. Loans to MIE/SIPP (para 2.21) which started off mainly as short-term advances, have effectively developed into substantial additional term-lending. 2.33 Equity Investments. BMDC's equity portfolio totals UM 6.2 million for investments in five companies, four of which are privately owned. Except for an investment of UM 1.5 million in the capital of SOCOGIMNin 1975/76, all the other investments were made before 1970 and comprise UM 4 million in two fishery projects, UM 0.1 million in a tanning company and UM 0.6 million in a construction company. All these projects are in serious difficulties. BMDC has therefore, made a provision of UM 3.5 million against possible losses on its equity portfolio.  - 13 - Quality of the Portfolio 2.34 BMDC reviews its portfolio at the end of each financial year, in order to make provisions for bad and doubtful debts. However, since it does not carry out a systematic review of its arrears, determination of bad and doubtful debts is essentially done on a case-by-case basis and bears little relationship to the arrears situation. As a result, provisions cover only those credits which have little or no chance of recovery. Moreover, since the only criterion for determining provisions is the potential solvency of the clients, some of its short-term credits, given to potentially solvent clients, get rolled over from one year to the next and become in fact term credits. Under the project BMDC would be introduced to the regular use of arrears ratios as an instrument of continuous management review while the external auditor will annually assess the adequacy of provisions for bad and doubtful debts (para 2.35). 2.35 Analysis of the information compiled by BMDC indicates that loans affected by arrears of principal and interest represent a total of UM 353.9 million or 36.7% of the total loans portfolio. Of these UM 312.8 million are short-term credits (45.1% of short-term portfolio) and UM 41.1 million medium- and long-term loans (15.3% of term portfolio). Effective arrears amount to a total of UM 248.6 million of which UM 221.3 million are on short-term credits and UM 27.3 million on medium- and long-term loans. Arrears on short-term credits are generally for periods ranging from three to six months, except in the case of one credit where the arrears are of close to two years. This credit shown in the 1977 accounts at the level of UM 33.7 million is, in fact, a term credit given to an industrial project under con- struction (MIE) (para 2.21). On term credits arrears of UM 7.3 million are between one and two years and UM 17.7 million in excess of two years. While specific provisions to cover defaults on medium- and long-term loans are appropriate (UM 21.2 million or 7.8% of the total term portfolio), they are clearly insufficient for short-term credits (UM 3.3 million or less than 0.5% of the short-term portfolio). General provisions which amount to UM 7.7 million give a further coverage of only 1.1%. Consequently, BMDC's management agreed that it will henceforth attach a high priority to building-up BMDC's level of provisions and reserves, and, as a first step towards that, has appropriated not only the total profits for 1977 to provisions, but has also cancelled its earlier decisions to distribute dividends of UM 3.2 million on profits for 1976, thus increasing the coverage by a further 1.2%. Institution of the systems proposed in paragraphs 2.19 and 2.33 above should improve both the arrears and debt situations. Financial Position 2.36 BMDC's summarized balance sheets for the period 1973-1977 are shown in Annex 3. Primarily as a result of a spectacular growth in commercial operations, assets more than quadrupled between 1973 and 1977. The increase in net worth was, however, much lower and represented a growth of only 8.6% over the period. As a result, BMDC's overall debt/equity ratio increased dramatically from 1.8:1 in 1973 to 11.2:1 in 1977. The term-debt equity ratio during the period also increased substantially from 0.7:1 in 1973 to 3.2:1 in  - 14 - 1977. Consistent with BCM's guidelines, BMDC's overall debt/equity ratio is expected to remain below 12:1, and its term debt/equity ratio not to exceed 4:1. Assurances were obtained at negotiations that these ratios would be maintained. Performance 2.37 BMDC's income statements for FY 1973 through FY 1977 which are summarized in Annex 2, show that BMDC's profits, though not substantial at present, have been increasing regularly and represented 5.5% of its net equity in 1977 against 0.9% in 1973. Profits in 1977 would have been much higher but for a dramatic increase in financial costs which doubled between 1976 and 1977 reflecting a stringent credit policy of the Central Bank which suspended rediscounting for six months during 1977, and thus obliged the banks, either to use its special advances (pension) at a much higher cost, or to pay higher interest rates to lure deposits from their clients. Personnel and administra- tive expenses which have grown proportionately to the growth of assets, remain at a moderate level, representing 1.7% of the total assets. BMDC has not distributed any dividends since its inception, and, although it recorded substantial profits in the late sixties and early seventies, these served to wipe out losses which it had accumulated earlier on. The new management does not plan to distribute any profits for a few years and plans to build up adequate reserves and provisions (para 2.34 above). Prospects 2.38 Restrictive credit policies at present being followed by the Central Bank, coupled with poor recoveries of its short-term loans and the inability of BMDC to attract further deposits since the beginning of 1978, has put BMDC in a tight liquidity position. Consequently, BMDC has been following an extremely restrictive credit policy itself, and only approves further lending if the resources become available from the Central Bank. It has also neither been actively seeking projects nor encouraging its clients to propose potential projects for financing. Its pipeline of industrial projects is, therefore, limited to three projects costing UM 100 million requiring financing of UM 75 million (US$1.7 million). However, if BMDC were to obtain external resources, it could finance six additional projects identified by the Ministry of Industry, and requiring financing of about UM 150 million (US$3.3 million). The possible artisanal brick industry, the study for which is being financed through this project (para 1.07(e)) could be an early beneficiary from the proposed industrial line of credit to BMDC. 2.39 Financial projections for BMDC and the assumptions on which they are based are presented in Annexes 4 to 7. Consistent with BMDC's intended strategy and restrictive rediscount policies of the Central Bank, these projections assume a much slower growth rate for commercial credits than in the past and a gradual increase in term-lending to industries. While rediscounting from BCM and deposits from its clients are expected to cover its needs in short-term resources for commercial lending operations, BMDC will have to mobilize about UM 195 million ($4.3 million) in term resources (essentially for housing finance) over the next 5 years, in addition to the proposed IDA industrial  - 15 - line of credit. Though most of this could be covered through the Central Bank rediscounting, BMDC plans to secure approximately half of it from as yet unidentified external borrowings. BMDC's financial performance is expected to remain satisfactory over the forecast period with total provi- sions to be maintained at the level of 7% of the outstanding loans and profits increasing to 15% of its average equity. However, in order to main- tain the term-debt equity ratio of 4:1 (para 2.36), BMDC will have to increase its share capital by 50% by 1982 at the latest. IFC equity participation in BMDC (para. 2.13) would be one of the ways of achieving the capital increase.  - 16 - III. THE INDUSTRIAL SECTOR AND INSTITUTIONS A. Characteristics of the Sector 3.01 The industrial sector in Mauritania is heavily dominated by mining, which contributes 22% of GDP at factor costs and provides 24% of the total employment in the modern sector (excluding self employment). With employment for 4,800 persons, mining is the second largest employer after the Government. However, it is very well catered for by other projects. Also, because of its enclave nature (in a geographical as well as technological sense) it is subject to several special considerations which do not apply to the rest of the industrial sector with which this project is concerned. The mining subsector is therefore excluded from most of the discussion below. The rest of the modern industrial sector (including construction) consists of about 80 modern enterprises contributing about 14% of GDP, and employing more than 6,000 people (para 3.02 below). It is located almost exclusively in the capital, Nouakchott, and the mining and fishing port center, Nouhadibou. 3.02 Following are the known components of the modern industrial sector in Mauritania: (1) (2) (3) (4) Number of Selected Invest. Cost/Job Enterprises Employment Enterprises in US$ Construction 20 2,869 14 10,056 Carpentry and metal working 16 375 11 5,285 Electrical, plumbing and painting works 6 192 6 2,940 Water and electricity 1 400 1 47,777 Mechanical 9 287 5 6,344 Chemical and parachemical 7 283 5 23,235 (new public petrol refinery) 1 (256) 1 347,222 Printing 5 169 3 19,935 Agricultural processing 4 57 1 13,219 (new sugar refinery) 1 (500) 1 50,000 Textile and leather 4 443 1 5,185 Fish processing 5 1,057 4 15,705 Metal processing - - (new public steel mill) 1 (226) 1 73,750 80 6,132 54 13,226 (982) (132,892) The average industrial sector cost per job is thus US$130,000 for the large public sector enterprises, and US$13,000 for the others. Column (3) includes all the enterprises with data allowing a calculation of the investment cost  - 17 - per job. This represents 68% of the number of enterprises and 89% of the employment. The relatively low cost per job for industries other than the new public industries comes from two factors: (i) it is calculated for older enterprises, thereby masking the effects of inflation which has been high in the construction sector, and (ii) most small enterprises, such as carpentry, metal working, electrical, plumbing, printing or mechanical services, rent their land or workshops instead of buying them, because construction costs are high and adequate financing was not available for them. 3.03 The small- and medium-scale manufacturing sector faces a lot of obstacles in Mauritania. To cite the most evident: there is a lack of skilled people and the wages are relatively high by African standards, due to the mining sector. Infrastructure is weak, and construction costs are among the highest in Africa. Furthermore, this subsector was never specifically promoted by the authorities. 3.04 Although the public sector dominates large-scale industries, most of the small- and medium-scale industries are privately owned. At least nineteen private sector projects were being considered for investment code privileges as of March 31, 1978, and some others were rejected by the Ministry of Industry as similar projects already existed, or were under consideration. In addition, all the existing small-scale enterprises were created without applying for ex- ternal financing or investment code benefits, but practically all such entre- preneurs interviewed complained about avoidable administrative and financial obstacles which hinder the development of this subsector. Also, most of the project preparation studies examined have been of rather poor quality. 3.05 Furthermore, with its many shortages, the domestic market is open to many import substitution activities and the existing local raw materials are underexploited. For instance, the projected public plaster plant should replace 40% of the present cement imports, according to its appraisal report. In addition to the iron ore and copper, gypsum, lime, clay, salt and mineral water are available. Prospecting for oil, nickel, uranium and phosphates is also currently taking place. 3.06 Fish and cattle also represent opportunities for increased indus- trialisation. The long coastal strip represents one of Mauritania's principal sources of rapid development but the fishing industry needs to be reorganized. Government is also considering the creation of small ports for traditional fishers. With over 1.4 million heads of cattle, over 5 million sheep and goats and around 1 million camels, horses and donkeys, there is potential for the development of leather goods and other industries based on the processing of animal hides and skins. 3.07 Five industrial zones already exist in Nouakchott: four are satu- rated and one is under implementation. They consist only of a piece of land reserved for industrial purposes without any kind of infrastructure or services. All free land is state property in Mauritania, and the industrial plots are sold to private individuals after a study done by the "direction de l'urbanisme" and the "direction des domaines." The plot prices in the indus- trial zones are lower than those in residential areas and there is no effective control of the use made of land once it is sold.  - 18 - Government Sector Policies 3.08 There is evidence of a change in Government's industrial strategy which has been brought about, partly by disenchantment with the many clearly unviable large public enterprises, and partly by financial stringency (para 1.05). Thus, the Government decided not to open the sugar refinery, although the construction is finished, to reject other public projects, such as a milk factory and a flour mill, and to postpone the implementation of a textile plant. Instead, the Government is now turning more to the private sector to relieve the widespread unemployment as it appears that all the public invest- ments had a very high cost per job created. The Investment Code 3.09 An investment code issued in 1976 grants a series of incentives to industrial enterprises being established in Mauritania. Industries in all sectors of the economy, except commercial activities, are eligible for these incentives. The benefits consist of tariff exemptions for imported equipment, raw materials, and spare parts (up to 50%), and discretionary exemptions from other taxes. In addition, the Government may provide a piece of land when the projects are outside Nouakchott and Nouhadibou, protection from imports, monopoly rights, exemption from export taxes, and government assistance with infrastructure works. Enterprises are classified under three categories, according to the amount of their investment and jobs created, which determine the amount and the duration of the benefits: Investment Minimum Employ- Maximum duration Category (UM million) ment created of benefits A Up to 15 and 10 2 years B 15 - 40 20 5 years C 40 50 7 years The greatest advantage of the investment code is that in granting rewards, it takes account, not only of investment size, but also of employment creation. It also encourages geographical dispersion of industry by granting free land outside Nouakchott and Nouhadibou. However, the code has some serious dis- advantages insofar as it encourages capital intensity, it is more severe than codes in neighboring countries, it does not clearly spell out detailed provi- sions and it does not protect beneficiary enterprises from direct duty-free imports by some state companies. These deficiencies are discussed in greater detail in paras 3.19 to 3.16 below. Price and Import Controls 'Yeo protect t'he pwrcNxasi-g 'po'Ze of the popeXatAo, the Goweret fixes the prices of approximately 50 products, has created a public enterprise with monopoly rights, SONIMEX, to provide basic goods at reasonable prices,  - 19 - and controls trader's commercial margins. A price control commission has been set up under the responsibility of the Ministry of Commerce. This Ministry also grants import licences, and its usual policy has been to grant such licenses even if the same goods were locally produced, because they are persuaded that it is not a good policy to protect industries which cannot face competition. 3.11 In fact, the price control system has never been very effective, with a lack of means for implementation, an estimated 20% of the imports unrecorded, and an import duty free zone in the former Spanish Sahara. The Government has taken steps to progressively abolish this duty free zone, but the long border with Senegal, as well as the uncontrolled port landing, still make the Mauritanian economy relatively open. Prospects 3.12 To implement its new industrial policy, the Government is creating a promotional unit (CEPI) under the Ministry of Industry (para 3.13). It has already contracted for foreign technical assistance from the German Government and from UNIDO in forms of staff and operating funds. Possible terms of reference and modus operandi for CEPI were discussed between the responsible ministry and IDA, and were described in a document IDA sent to the Government after appraisal. Bank group assistance is also being sought to define a new industrial policy based on promotion of small- and medium-scale enterprises and to provide medium- and long-term financing. B. Industrial Promotion Institutions CEPI 3.13 CEPI is the main institution which would be concerned with industrial promotion and technical assistance. Although it is still in the process of formation, with technical assistance from Germany and UNIDO, its objectives and terms of reference are fairly well established. Furthermore, IDA's proposed assistance to CEPI, and the latter's proposed role in the project are discussed in greater detail below (Chapter VI). Functions 3.14 CEPI would be a self-contained unit, with clear and specific terms of reference, within the Direction de l'Industrie in the Ministry of Industry. It was agreed with the Government to retain this organisation form, at least temporarily, rather than create a new institution because the suggested arrange- ment would be easier to manage. CEPI's main functions would include: - study and appraisal of all industrial projects for which investment code privileges are sought; - identification and promotion of small- and medium-scale Mauritanian industrial enterprises;  - 20 - provision of technical advice and management assistance for Mauritanian industries; performance of feasibility studies on request; study, recommendation, and subsequent management of new industrial zones; training of technicians and staff for Mauritanian industries; - study and establishment of a Guarantee Fund, to insure bank loans to small- and medium-scale Mauritanian industrial enterprises. 3.15 CEPI would not embark upon all the above functions immediately. Which functions it tackles first will depend partly on the demands of projects such as this, and partly on the inputs made by its initial staff. However, initially, CEPI would be expected to perform at least project appraisal, and the industrial zone study, even within the context of this project. Staffing 3.16 The initial staffing would consist of: From UNIDO, an expert whose job, over a contract period of about six months, would consist of defining CEPI's procedures in greater detail; and an engineering expert in small-scale enterprises, who will organize and deliver technical assistance to Mauritanian enterprises during a one-year contract period; From the Federal Republic of Germany, two appraisal experts (one an engineer, the other an economist) who will appraise all the industrial projects to be handled by CEPI during a one-year (renewable) contract period; one management expert on a one-year (renewable) contract, who will not only manage CEPI, but also help in giving management advice and assistance to Mauritanian industrial enterprises; From Mauritania, three Mauritanian counterpart staff who will work with and understudy the German and UNIDO technical assistance staff with a view to taking over the running of CEPI in due course. The above staff would later be expanded as necessary. Financing 3.17 Initially, CEPI's budget would be financed either from technical assistance grants (e.g. the UNIDO and German grants already contracted), and from Government budgetary allocations. As CEPI's reputation becomes better established, however, it would charge for appraisal and technical assistance  - 21 - services for which its clients would have had to hire and pay private con- sultants. Investment Commission (IC) 3.18 The Investment Commission (para 1.08), whose sole function is to consider and recommend enterprises to the Council of Ministers for investment code privileges, is administratively located in the Ministry of Plan, in the sense that a director of that Ministry acts as its secretary, and summons meetings of the Commission from time to time. Beyond that, the Commission has no separate existence and no staff. For the project, it would continue to function as in the past, with reforms which would be introduced in the context of this project (Chapter VI below). These reforms would be aimed essentially at speeding up the Commission's processing of projects by avoiding unnecessary duplication and delays. C. Issues and Problems a. Investment Code Issues 3.19 The investment code is inappropriate in several important respects. Firstly, the classification encourages capital intensity. As more benefits are given for the upper categories, entrepreneurs tend to increase their investment amount, either by strictly nonindustrial expenditure, or by unneces- sarily capital-intensive production techniques. The employment-creation require- ment has proved too lenient to moderate this capital intensity. 3.20 Secondly, the code seems more severe than in neighboring countries. Senegal, Mali and Upper Volta, for instance, give total import tax concessions over ten years to approved enterprises, plus income tax concession over five years in Mali and Upper Volta. In addition, industrial exports are import tax deductible in these countries, even for the nonapproved enterprises. As all these countries are members of the same custom union (CEAO) which imposes preferential tax rates on imports originating from member countries, these investment code differences have a great impact on the Mauritanian industrial sector. With, in addition, very high custom duties on imported raw materials, the Mauritanian production is handicapped in competition with CEAO imports mainly from Senegal, even in its own domestic market. The CEAO common tariff makes it impossible to restore the competetiveness of Mauritanian products by imposing appropriate import duties on finished goods originating from other member countries. 3.21 Thirdly, the Mauritanian code is rather vague with regard to detailed provisions. This probably allows the investment commission to give specific benefits on a case-by-case basis, but it also prevents the entrepreneur from knowing in advance what advantage he can count on, and can also result in inequities between industries, and even between enterprises in the same industry. Fourthly, given the small number of enterprises expected to qualify for privileges, the present investment code is too complicated and should be simplified.  - 22 - 3.22 Fifthly, important public sector agencies, such as the mining in- dustry, the army, the road projects or the mosque constructions are exempted from import dutfies This exposes Mauritanian small- and medium-scale enter- p-rses w'fich c&u d