BMI View: We hold an upbeat view on the Mauritanian economy believing th at structural improvements and a strong outlook for the mining sector will keep real GDP growth in the 5.0-6.0% range over the coming years. The banking sector is well-capitalised but will need to take measures to aggressively grow the deposit base if it is to benefit from the positive economic outlook. The major risks to the economy stem from lack of progress at addressing deficient infrastructure , and security challenges in neighbouring Mali.
The Mauritanian economy proved resilient in 2012 when real GDP expanded by an estimated 6.4% in spite of headwinds for the sectors which make up the lion's share of output. Indeed, given that the economy is dominated by natural resources (iron ore in particular) which are exported to softening economies in Asia and Europe, and agriculture, which was impacted by poor weather in the early months of the year, headline economic growth in excess of the 5.2% annual average of the ten years between 2002 and 2011 is a positive indication of a diversifying economy.
|Mining Exports And And Exports Dominate|
|Mauritania - Breakdown Of 2011 Nominal GDP By Sector & Expenditure Component, %|
Underpinning the strong performance was a broad structural improvement. Inflation has fallen from 6.8% y-o-y in February 2012 to 2.7% y-o-y in February 2013 while the IMF reported that the country would record its first fiscal surplus (including grants) in recent history in 2012 (official data are not yet available) thanks to enhanced revenue collection, prudent spending and increased foreign assistance. Against this backdrop, the government was able to allocate resources to construction and other public investments which was an important contributor to headline expansion in 2012.
|Strong Economic Growth Ahead After Decade Of Volatility|
|Mauritania - Real GDP Growth, % y-o-y|
Looking ahead, these positive structural developments set the economy up to continue expanding at around 5.0-6.0% y-o-y over the coming years. Continued fiscal prudence will allow the government to expand infrastructure spending which is a requirement for further productivity gains. It will also prevent public borrowing from crowding out the private sector. Lower inflation, meanwhile, will increase consumers' purchasing power and drive demand for goods and services. Added to this, our mining team is cautiously upbeat on the prospects for the mining sector over the coming years believing that iron ore output will expand by an average of 7.8% annually between 2013 and 2017 to reach 17.4 million tonnes by the end of that forecast period. At the same time, investment in gold and copper projects will also provide a boost to the sector.
Infrastructure And Political Risk Challenges
The main risks to this broadly upbeat view on the mining sector, and the economy as a whole, stem from a lack of infrastructure and political risk. With regard to the former, the poor state of the electricity sector continues to harm mining activity. The movement of goods in and out of Mauritania is also a key problem for investors. The only major port, Nouakchott, has severe capacity constraints, preventing efficient shipping of exports. There has been some progress with the World Bank, IMF and the African Development Bank having announced projects totalling US$4.2bn on developing the country's infrastructure. Further investment plans include more than 1,300km of new roads, intended to help the transport flows to and from key mining areas. Although these projects would represent a boost to the economy, caution is warranted, as there is far more that needs to be done to improve the country's infrastructure.
On the issue of political risk, Mauritania shares a vast border with Mali where Islamist and Tuareg fighters captured large swathes of northern territory from the government in early 2012. The government, backed by French troops, has made some progress at regaining control of these areas, however the situation remains tense and we believe that the success of ongoing reconciliation efforts is far from guaranteed. Although major mines and other sources of Mauritanian economic activity are situated relatively far from northern Mali, we note that a general perception of security risk is likely to weigh on Mauritania's prospects, especially if the situation in Mali deteriorates.
Banking Sector Focus
Mauritania's banking sector was a conspicuous absentee from the strong headline economic growth of 2012. Indeed, total deposits as a percentage of GDP stood at 23.0% in September 2012 down from above 25.0% in early 2010. Credit extended to the private sector has seen an even greater decline having fallen from 32.0% of GDP in 2010 to reach 24.6% in September 2012.
|Banking Sector Lagging|
|Mauritania - Banking Sector Deposits And Outstanding Credit (RHS)|
The aggregate banking sector balance sheet is in a relatively healthy state with tier one capital making up a solid 34.1% of risk weighted assets in April 2012 (the minimum capital requirement is 10.0%). However, further asset growth will depend on the 13 banks which comprise the sector increasing their deposit bases. Indeed, the loan to deposit ratio is above 1.0 and has been since our records began in early 2008.
|Deposit Growth Needed For Further Credit Expansion|
|Mauritania - Loan To Deposit Ratio|
Mobilisation of deposits will provide banks with the funds to increase loan books, which will not only improve their profitability, but will also drive economic growth as the private sector borrows for consumption and investment.