world bank document · document of the world bank report no.14220-mau staff appraisal report...

Document of

The World Bank

Report No.14220-MAU

STAFF APPRAISAL REPORT

ISLAMIC REPUBLIC OF MAURITANIA

CAPACITY BUILDING PROJECT

FOR THE DEVELOPMENT OF THE PRIVATE SECTOR

APRIL 26, 1995

Industry and Energy DivisionWestern Africa DepartmentAfrica Region

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CURRENCY EOUIVALENT

Currency Unit Ouguiya (IJM)US$ 1.00 UM 125UM I million = USS 8,000SDR I USSI.558

SYSTEM OF WEIGHTS AND MZEASUREs: METRIC

Metric U.S. Equivalent

1 meter (m) = 3.28 feet (ft)1 kilometer (km) = 0.62 miles (mi.)I square kilometer (km2) = 0.39 square mile (sq. mi.)I hectare (ha) = 2.47 acres (a)I metric ton (t) = 2,205 pounds (lb.)I kilogram (kg) = 2.205 pounds (lb.)

FISCAL YEAR

January I - December 31

ABBREVIATIONS AND ACRONYMS

ALMAP Soc ite de Peche Mfauritano-Alg&rie

ARCB Agence de Recouvrenerit des Creance BancairesBALM Ban que LibyenneVMauritanienneBAMIvS Banque al-Baraka Alauritanienne Islamique

BIMA Banque Internationale pour Ia Xfauritanie

BMCI Banque Afauritanienne pour le Commerce et l'Indusirie

BMDC Banque Afauritanienne du Developpement et du ComnierceBNM Banque Nationale AauritanienneCBC Capacity Building Credit for the Development of the Private SectorCCIA Chambre de Commierce, d'Industrie et dAgrncultureCGEM Confederation Generale des Employeurs AfauritaniensCNROP Centre Nationale de Recherchie Oceanographique et de Peche

CSA Commissariat de la Securite AlimentaireESAF Extended Structural Adjustment FacilityIDF Institutional Development FundGOM Government of MauritaniaNASR National Insurance CompanyMAUSOV Societe de Peche Afauritano-RussePCU Project Coordination UnitPE: Public EnterprisePESAP Public Enterprise Sector Adjustment ProgramPFP Policy Framework PaperPSDC Private Sector Development ProgramSMCP Societ Alauritanienne pour le Developpement de la P2cheSOE Statemiienit of ExpensesSONADER Societe Nationale pour le Developpement RuralSMB Societe Aauritanienne de Ban que

SNIM Societe Nationale Industrielle et AfinijreUBD Union de Ban ques de Dgveloppement

UNCACEM Union de Cooparatives pour le Developpement RuralZOPP Zieleorientierte Projektplanung (Objectives-oriented project planning)

ISLAMIC REPUBLIC OF MAURITANTA



Contents

CREDIT AND PROJECT SUMMARY ............................. i

I. BACKGROUND .................................................... 1A. MACRO-ECONOMIC FRAMEWORK AND RECENT DEVELOPMENTS ................. IB. THE PRIVATE SECTOR ............................................................. 2

1. Foreign Exchange System ............................................................. 52. The Regulatory Framework for Private Sector Activities ................................................ 53. The Lack of Adequate Support Services for the Private Sector ......................................... 64. Accounting and Auditing Framework ............................................................. 6

C. THE FINANCIAL SECTOR ............................................................. 7D. FISHNG AND MINING SECTORS ............................................................. 9

1. Fishing Sector ............................................................. 92. Mining Sector ............................................................ 12

II. THE PROJECT ............................................................ 13A. PROJECT OBJECTIVES ............................................................ 13B. PROJECT DESCRIPTION ............................................................ 15

1. Financial Sector ............................................................ 162. Private Sector Institutional and Regulatory Framework .................................................. 193. Mining Sector ............. 244. Fishing Sector ............. 26

C. PROJECT COSTS AND FINANCING PLAN .................................... 27D. PROJECT IMPLEMENTATION .. .................................. 29E. PROCUREMENT ........................................................................................................... 30F. DISBURSEMENTS ................ 33G. MONITORING AND EVALUATION ............................................. 34H. ACCOUNTING, AUDITING AND REPORTING ..................................... 34I. ENVIRONMENTAL ASPECTS .................................................... 36J. PROJECT RISKS AND BENEFITS .................................................... 36

III. AGREEMENTS TO BE REACHED AND RECOMMENDATION ................................... 38

This operation was prepared by a team comprising Hishamn El-Naggar (Financial Economist and TaskManager, AF5SE), Fredricka Santos (Economist, AFSE), Noel Tshiani (Financial Specialist, AF5IE),Susana Hristodoulakis (Operational Analyst, AF5IE), Anne-Marie Chidzero (PSD), Angela Walker(PSD), Patrice Brand (Consultant), Paulo da Sa (IENIM), Miguel Saponara (Economist, AF5CO), HovsepMelkonian (LOAAF), Bernard Abeille (AF5DR), and Hanz Wabnitz (Senior Legal Counsel, LEGAF) andSara Gonzalez Flavell (Legal Counsel, LEGAF). Michael Sarris (AF31E) and Loup Brefort (PSD) are thePeer Reviewers. Celir.e Gavach provided secretarial support. Mr. Jean-Louis Sarbib and Ms. SilviaSagari are respectively the Department Director and the Managing Division Chief for the operation.Mr. Fran9ois Laporte is the Lead Economist, and Mr. Emmerich Schebeck is the Projects Advisor.

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Contents (Cont'd)

Annexes

Annex I Implementation ScheduleAnnex 2 Letters of Development Policy for the Financial and Private Sectors and for the Fisheries

SectorAnnex 3 Performance IndicatorsAnnex 4 Supervision PlanAnnex 5 Organization ChartAnnex 6 Disbursement ProfileAnnex 7 Estimated Project CostsAnnex 8 Financing Plan

Map: IBRD25935


CAPACITY BUILDING PROJECT FOR THE DEVELOPMENT OF THE PRIVATESECTOR

CREDIT AND PROJECT SUMMARY

Borrower: Islamic Republic of Mauritania

Beneficiaries: The Central Bank, Ministries of Planning and others

Credit Amount: SDR 4.7 million (about US$7.2 million equivalent)

Terms: Standard IDA terms, with 40 years maturity

Project Objectives The objectives of the Project are to: (i) encourage investor interest inand Description: pursuing opportunities in the private sector, especially in the mining

and fishing subsectors, via revision of the commercial and tax codes aswell as other activities designed to enhance entrepreneurial dynamismand efficiency and (ii) strengthen the financial sector, so that it canbetter provide credit and banking services needed by the private sector.

The Project will finance activities which will contribute to therealization of the Government of Mauritania's Private SectorDevelopment program. That program is supported by the PrivateSector Development Credit (PSDC), which is being presetited to theBoard at the same time as this operation.

The proposed project will finance the following three subcomponents:(i) upgrading of credit risk and borrower arrears information(US$0.1 million); (ii) training in banking (US$0.9 million); and (iii)study for the formulation of a strategy for the second phase offinancial sector development (US$0.1 million).

With respect to the private sector institutional and regulatoryframework, the proposed project will finance the following fourimportant subcomponents: (i) upgrading of the accounting andauditing framework (US$0.4 million); (ii) support to the Chamberof Commerce (US$0.4 million); (iii) strengthening of legal andjudiciary framework (US$2.6 million); and (iv) feasibility study of atax free regime for exporters (US$0. 1).

In the fishing and mining sectors, the following components will befinanced by the proposed project: (i) strengthening of the regulatory

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and institutional framework of the mining sector (US$ 1.1 million);and (ii) survey of fishing resources, establishment of a monitoringmechanism for fish exports and strengthening of environmentaland quality control capabilities (US$0.50 million).

Project The executing agencies in charge of the components will be asImplementation: follows: (i) upgrading credit risk information, bank training and

development of a long-term financing strategy to benefit small- andmedium-size enterprises will be implemented by a small ImplementationUnit at the Central Bank; (ii) development of the accounting andauditing framework will be carried by the Project Coordination Unit(PCU -- see below), which will work closely with the Ministry ofFinance and the existing Ordre des experts comptables; (iii)reorganization of the Chamber of Commerce to aid in the promotion ofthe private sector, as well as to provide support services to that sector,will the Ministry of Commerce until such time as the Chamber ofCommerce is fully functional; (iv) legal and judiciary reform will becarried out by the Directorate for Judiciary Affairs of the Ministry ofJustice for the training prograrn, the PCU (see below) under thecommand of the Prime Minister's Office for the revision of legal textsand the establishment of the commercial register, and the SecretariatGMngral du Gouvernement at the Prime Minister's office for theelectronic indexation of laws and the publication of the improvedOfficial Bulletin; (v) study for the possible setting up of points francs asa mechanism for export promotion will be executed by the Directorateof Industry at the Ministry of Industry and Mining; (vi) promotion ofprivate investor interest in the mining sector will be implemented by theDirectorate of Mining at the Ministry of Industry and Mining; and (vii)survey of fishing production and foreign exchange flows, theimplementation of the action plan it will produce to set up a mechanismto monitor said flows, and the administration of technical support to theCNROP (Conseil National de Recherches Oceanographiques et dePeche) will be carried out by the Technical Advisor specifically giventhat responsibility at the Ministry of Fishing.

An existing and experienced unit, the Cellule de rehabilitation dusecteur parapublic in the Ministry of Planning, will be responsible forcoordination of project implementation.

Project Benefits The key focus of the proposed project is making the regulatory andand Risks: institutional framework for private sector development conducive to

attracting private investment. As such, the implementation of theproposed-project is closely tied to the reforms envisaged under thePSDC. In the process, the proposed project aims at promoting thefollowing: (i) better quality banking services and a better financial

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sector framework through programs to upgrade the skills of banksupervisors and commercial bank personnel, accountants, auditors,magistrates and other legal personnel; (ii) improved access to detailedinformnation on the credit standing of borrowers and on arrears throughrevamping the Centrale des Risques and the Centrale des Impayes; (iii)an enhanced legal and accounting framework which will allow formore transparent procedures and foster accountability and financialdiscipline in the financial and private sectors; and (iv) an ongoingdialogue between the private sector and the Government of Mauritania(GOM), as well as a solid mechanism for extending support services toaid the development of the private sector.

The success of the proposed project is not completely assured. Thevested interests within Mauritania may resist or try to dilute the positiveeffect of the reform measures, especially those providing support forthe programs geared to upgrading and enforcing regulation of thefishing sector. However, the GOM has given every indication that ithas a sense of participation and ownership in the proposed project andthat, in the interests of promoting the private sector, it is committed toseeing it carried out successfully.

Environmental No environmental risks are foreseen. Given the concem about theRisks depletion of the country's fish resources, the proposed project's survey

of fish resources component will help to provide baseline data that willhelp future conservation efforts. Environmental safeguards are builtinto various components of the proposed project, notably those dealingwith the revision of legal texts and codes.

Economic Rate Not applicable.of Return

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Table 1: Estimated Proiect CostsLOCAL FOREMGN TOTAL

-in USS million-

1. FFmancial Sector 0.23 0.86 1.081.a. Credit Risk & Borrower Arrears Information 0.01 0.05 0.06l.b. Training inBnking 0.20 0.69 0.88I.c. Financial Sector Development Study 0.02 0.12 0.142. Private Sector 135 2.18 3.542.a. Upgrading of Accounting & Auditing 0.14 0.21 0.362.b. Support to Chamber of Commerce 0.19 0.21 0.402.c. Strengthening of Legal and Judiciary Framework 1.02 1.63 2.652.d. Tax Free Regime Study 0.00 0.13 0.133. Mining Sector 0.40 0.74 1.144. FLshing Sector 0.22 0.29 0.505. Project Coordination Unit 0.38 0.15 0.536. Project Audit 0.03 0.18 0.21

Total Base Costs: 2.60 4.39 7.007. Continzencies:

Physical 0.12 0.18 0.30Price 0.11 0.12 0.23

0.23 0.30 0.53

8. Refinancing of Project Preparation Facility (PPF) Advance 0.40 0.40

TOTAL PROJECT COSTS: 2.83 5.09 7.92

Table 2: Estimated Financing Plan:

LOCAL FORErGN TOTAL-in USS milion-

Government 0.70 0.00 0.70IDA 2.13 5.09 7.22

Total: 2.83 5.09 7.92

Estimated Disbursements (IDA):

Annual 0.40 2.83 2.24 1.52 0.22Cumulative 0.40 3.23 5.47 6.99 7.22

Estimated Project Completion Date: June 30, 1999

Map No: IBRD 25935

: Fi,u= y mat dd up due to munding.




I. BACKGROLTND

A. MACRO-ECONOMIC FRAMEWORK AND RECENT DEVELOPMENTS

1.01. Economic Performance and Recent Economic Developments. For most of the 1970sand until the mid-1980s, Mauritania's economic development has been uneven and marked bymajor imbalances. While exogenous factors contributed significantly to the deterioration of thecountry's economic and financial situation, their impact was aggravated by weak economicmanagement. During this period, the GOM embarked on a large public investment programfinanced almost entirely through external borrowing. The program channeled resources towardlow-yielding projects which led to a large external debt and heavy debt service burden.Domestic demand was sustained by excessive growth of public expenditures, which in turncontributed to large balance of payments deficits. Price distortions and the regulated market foragricultural and industrial products discouraged the development of private activities. Poorlymanaged, over-equipped and over-staffed public enterprises became increasingly inefficient andaccumulated heavy financial losses.

1.02. From 1986 to 1991, the GOM carried out a number of important structural reforms. Inparticular, the GOM pursued a far-reaching price and trade liberalization policy. Import licenseswere abolished and petroleum product marketing and urban transportation were deregulated.Seven nonviable public enterprises were closed, others were reorganized, and the monopoly onthe sale of various basic items (including rice, tea and sugar) granted to import-export agency(SONIMEX) was eliminated. The GOM also privatized all rice mills as well as the marketing ofgrain products. The private sector rapidly replaced the public sector in land development,agricultural production and marketing activities. In 1990, 1991 and part of 1992, however, theeconomy experienced a series of exogenous shocks which had an adverse impact on theeconomic and financial situation. Against this background, the GOM resumed negotiations withthe IMF and the World Bank which made it possible for an agreement to be reached on a FourthPFP (Policy Framework Paper) in late 1992.

1.03. Recent Developments. Since October 1992, most of the regulations restrictingcompetition in the financial sector have been abolished and the GOM has implemented all of themonetary, credit, pricing, banking, trade, interest rate and exchange rate measures agreed under

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the Fourth Year Policy Framework Paper (PFP) to achieve long-term macro-economic stability.In October 1992, the GOM devalued the ouguiya by 27 percent against the US dollar, thuslargely restoring external competitiveness. Since then, the relative stability of domestic priceshas allowed gains in competitiveness to be maintained. This was accompanied by far-reachingreforms which substantially improved the climate for private sector activities. Measuresliberalizing the exchange system were implemented and restrictive features (exportauthorizations, preferential exchange rate for workers' compensation, restrictions ontransactions in the free market for foreign bank notes and travelers' checks) were eliminated. Asystem of auctions for import authorizations was introduced in January 1993 and was extendedto all imports except petroleum and those by the fisheries sector (both still allocated by theCentral Bank at that point) and SNUM (Socite Nationale Industrielle et Miniere, which, undera separate convention, disposes freely of the free exchange earned on its exports). In addition,most macro-economic targets have been met: consumer prices have stabilized and the goal oflimiting inflation in 1993 to less than 13 percent was achieved (inflation in 1993 in fact stood at10 percent despite the devaluation which occurred in October 1992, while in the 1994 inflationstood at 3.8 percent). GDP grew by 1.7 percent in 1992 and 4.5 percent in 1993-1994.Nevertheless, external imbalances have widened due to the significantly lower prices ofMauritania's two major exports, iron ore and fisheries products, in intemational markets, as wellas a higher debt service on external debt resulting from rising interest rates.

1.04. In October 1994, the GOM negotiated the Sixth Year PFP covering the period 1994-97.The main medium-term objectives of the PFP are the attainment by 1996 of sustainable GDPgrowth (4.4 percent), the containment of inflation (at about 3 percent a year), and the narrowingof the current account deficit (excluding official transfers) from 13.8 percent of GDP in 1994 to6.4 percent of GDP by 1997. To achieve these objectives, the GOM adopted a strategy aimedat: (a) strengthening extemal competitiveness and reducing domestic absorption; (b)consolidating structural reform by encouraging private sector initiatives through the provision ofadequate price incentives, reliance on market forces, and the liberalization of the legislative andregulatory framework; and (c) seeking extemal debt relief and reforming the domestic bankingsector. Notwithstanding significant growth potential given the importance and diversity ofMauritania's fishing grounds and newly discovered iron ore deposits, the medium-termdevelopment outlook remains fragile.

B. THE PRIVATE SECTOR

1.05. Public/private sector interface. A major drain on the economy has been poorperformance of the public sector, which in 1989 included 80 public enterprises, 22 of whichwere of non-commercial nature. The remaining public enterprises -- 40 of which were majorityowned by the GOM -- were involved in economic sectors and accounted for more than half ofpublic investment, receiving almost one-fifth of the credit disbursed through the domesticbanking sector. In 1989, twelve enterprises dominated the public enterprise (PE) sector,accounting for over 95 percent of sales and about 75 percent of employment. Overallperformance, reflecting largely the performance of these twelve enterprises, was mostly poor,with high losses, mounting arrears, a rising debt burden, increasing illiquidity and reliance onmonopoly privileges.

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1.06. Given the continued financial disequilibria in the PE sector, the GOM formulated in1989 a Public Enterprise Sector Adjustment Program (PESAP) and implemented an ambitiousrationalization plan, which as of today has resulted in: (a) the liquidation of fifteen PEs,including one large manufacturing firm; (b) the privatization, or initiation of the process for theprivatization, of 15 PEs, including the large stevedoring activity at the Port of Nouakchott; (c)the elimination of the state monopoly in the insurance sector and for the import of sugar, tea andrice; and (d) the settling of all major government debt and arrears to PEs, as well as honoringthe GOM's obligation to pay its share capital due to key enterprises. Emphasis was placed onmaximizing the autonomy and enhanced efficiency of those enterprises which remained public,while resources were shifted away from the public sector as a whole, leaving the private sectoras the most promising vehicle for promoting growth and employment creation.

1.07. Despite limited opportunities for private sector growth and the strong role played by thepublic sector through the 1970s and early 1 980s, the Mauritanian private sector has always beendynamic. This stems in part from the commercial traditions prevalent in Mauritania's trade-oriented society, and from Mauritanians' active involvement in international trade in the WestAfiican region. It is estimated that the private sector accounts for about 75 percent of totalofficially registered employment. Both the formal and informal private sectors are active in ruralas well as urban areas.

1.08. The formal private sector is dominated by a few large enterprises involved in trade,fisheries, agriculture and some manufacturing. The owners of these businesses are typicallyfrom prominent families, with substantial assets in Mauritania and overseas. Consequently, theyhave little difficulty in obtaining financing for their operations, both from Mauritanian banks,which in many instances are at least partly owned by them or their families, and from foreignbanks, which are happy to lend to them using their overseas-based assets as collateral.

1.09. At the other end of the spectrum, there is a large informal sector, consisting primarily ofindividually or family-owned enterprises. The informal sector is estimated to employ, at aminimum, about one third of the economically active labor force. It is likely to remain the mainoutlet for entrants to the labor market. About 85 percent of small businesses are orientedtoward petty commerce (selling food and clothing) and services (laundry and hairdressing).Only 10 percent are in construction, and about 4 percent engage in light manufacturing. Thefastest growing area of employment is services and commerce, with growth rates in excess of 15percent in recent years.

1.10. Small operators in the informal sector typically have very limited access to bank credit,because they have a limited range of assets, cannot provide accurate financial informationregarding their operations, or are intimidated by formal financial institutions. Women are quiteactive as owners of private businesses (often no more than a stall in the marketplace), butevidence suggests that women's access to credit is typically through their husbands. Informaloperators are believed to rely on informal credit circuits. These usually involve closed groups(the family, the guild or the clan) which are able to minimize the cost of obtaining informationabout the borrower, but which are also believed to charge extremely high interest rates.

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1.11. Policy Framework The GOM's strategy for promoting growth of private sectoractivities has pursued the following priorities: (i) a transparent and legally secure framework fortransactions; (ii) non-intrusive, efficient and respected public administration; (iii) competitivemarkets that promote factor and product mobility; and (iv) efficient and responsive social,physical and technological infrastructure. Priorities (i) and (iii) were pursued under the firststage of liberalization measures; (ii) is the main focus of this project and other donor-assistedprograms; while (iv) is now a key element in the GOM's evaluation of its PIP in concert with thedonor community.

1.12. Compared to the pre-adjustment period, the economy is now less regulated and moremarket-oriented. All quantitative import restrictions and price controls have been removed, andprices are now allowed to move freely with supply and demand. Import tariffs have beenlowered and rationalized; corporate and personal income tax systems have been simplified andrates reduced. The GOM has reduced its role in employment and wage setting, and has takenthe first steps toward modernizing the investment code. Its presence in agriculture has beendecreased by privatizing the marketing of coarse grains and reducing the roles of thegovernment owned SONADER (Socite Nationale pour le Developpement Rural) and CSA(Commissariat a la Securite Alimentaire) enjoying a monopoly in this area. Through theprivatization program and other measures, the GOM has sought to promote the efficiency of theparapublic sector.

1.13. Apart from macro-economic stability, the major focus of reforms undertaken in theperiod 1992-1994 to stimulate private sector activities has been the incentive structure, notablythe trade and foreign exchange regime. To facilitate the transition to a unified system, a numberof intermediate steps have been taken. The GOM has intensified its efforts to liberalize theforeign exchange system since 1992, notably through the elimination of the export licensingsystem and the preferential foreign exchange rate given to Mauritanians resident abroad. As ofFebruary 1993, a bidding system for import licenses was introduced, limited at first to a smallportion of import activities financed by the Central Bank (viz. all activities except importscovered by the foreign exchange to which SNIM has unrestricted access). As of March 1994,commercial banks have been authorized to open foreign exchange accounts abroad, on whichthey are able to draw to finance imports in their customers' behalf As of the same date,exporters have had access to 5 percent of foreign export receipts for services and 10 percent forgoods. As of July 1994, the GOM expanded the bidding system to cover all Central Bankfinanced import operations except fuel and fishing imports. This raised the percentage subjectto competitive bidding to 60 percent of the total. As of September 1994, the percentage offoreign exchange export receipts which exporters could retain was doubled. As of December1994, the GOM has authorized the creation of foreign exchange offices by non-bankingestablishments. At the same time, operations which banks could carry out on the free marketwere expanded to include import operations and current private transfers.

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1. Foreign Exchange System

1.14. Despite substantial and relatively rapid liberalization of foreign exchange operations, thecontinued existence of some foreign exchange controls continued to distort the incentivestructure for potential exporters. The maintenance of an official (more favorable) exchange rateapplicable to certain transactions constitutes a hidden subsidy for these activities, at the expenseof potential private foreign exchange earners. This is evidenced by the existence of a gapbetween the official and parallel market exchange rate. While the size of the foreign exchangegap has shrunk considerably in the wake of the 27 percent devaluation of the ouguiya whichoccurred in October 1992, the implicit distortion in the foreign exchange market has continuedto penalize foreign exchange earners. Under the reform program supported by the PrivateSector Development Credit (PSDC) which is being presented to the Board at the same time asthis project, the objective is to unify the exchange rate system by December 31, 1995.

2. The Regulatory Framework for Private Sector Activities

1. 15. The importance of the regulatory framework to the development of private sectoractivities has been observed in numerous studies. In Mauritania's case, weaknesses in theregulatory framework were identified in a FIAS (Foreign Investment Advisory Service) study asone of the most important constraints inhibiting investment.

1.16. The Regulations Applying to Investment. Despite the reform of the investment codeundertaken in 1989, private entrepreneurs agree that there are persistent problems which therevised code has not adequately addressed. The current investment code appears to discourageforeign competition against established local companies. Complex red tape and costlyprocedures complicate entry of a new firm into the local market. Among the serious gaps in thelegislation are the absence of a bankruptcy law and the obscurity of legislation governing thecollection of collateral for bank loans (including a 1993 loan recovery law which is provingdifficult to enforce - see paragraph 1.20).

1.17. The Legal Framework of the Private Sector. The legal framework covering privatesector activities in Mauritania is at times ambiguous. Many laws are derived from old Frenchcodes which have since been amended or, at times, exhaustively revised in France itselfInformation about legal changes is transmnitted through the Journal Officiel (Official Bulletin),which is published irregularly and is not complemented with law reports. This results in reducedtransparency and inconsistent treatment of business operators by the legal authorities. There isa pressing need to classify existing laws and identify the laws applicable to specific businessareas. Equally needed is the regulation of legal arbitration, which is lacking at present but whichis imperative in view of the preference foreign businesses manifest for legal arbitration, given theambiguity of the legal framework and the inadequate implementation of the law. Under theproposed project, legal texts pertaining to private sector activities will be revised in line with theaforementioned considerations. The proposed project will also finance the upgrading andregular publication of an up-to-date Journal Officiel and the electronic indexing of Mauritanianlaws. The PSDC has an explicit third tranche release condition which requires the revision oflegal texts to IDA's satisfaction.

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1.18. Implementation of the Law. Another problem stems from the poor state of the judicialsystem. The lack of institutional and human resources, the dual training of magistrates (a resultof the coexistence of both a modem system, based on French colonial law, and the traditionallegal system, based on Shari 'a or Koranic laws) make the recourse to the courts costly andunreliable. Lengthy delays, uncertainty of enforcement and the proliferation of dubious "expertwitnesses" who are richly remunerated characterize the judicial infrastructure. This has tendedto diminish confidence in the legal system, even where businessmen agree that adequatelegislation has been adopted. The proposed project will finance the training of lawyers andjudges with a view to improving enforcement of the law. At the same time, in order to increasethe efficiency and transparency of the implementation of the law, the GOM intends to abolishthe existing system of judicial experts, at the latest by credit effectiveness. Such a step is longoverdue, since at present virtually anybody can pass for a legal expert, and the supposed legalexperts are responsible for numerous distortions in the judicial process.

3. The Lack of Adequate Support Services for the Private Sector

1. 19. The lack of vehicles to provide support services needed by private operators, notablysmall and medium entrepreneurs, has seriously hindered the scope of their activities.Furthermore, there is no universally accepted representative structure that can represent theviews of the private sector to the authorities or to donors. The Chamber of Commerce (CCIAor Chambre de Commerce, d'Industrie et d'Agriculture) is a logical conduit for support to thesector and notably to small and medium enterprises, following the model applied successfully inother French-speaking countries, but it will require institutional strengthening so as to becomecredible with private operators. The CGEM (Confgderation Generale des EmployeursMauriUaniens), while much better organized, is domninated by large-scale entrepreneurs and willcontinue to be viewed as such by most small- and medium-scale ones, suggesting a limitedpotential for acting as a truly representative agency. The proposed project will finance capacitybuilding for a reconstituted, autonomous Chamber of Commerce.

4. Accounting and Auditing Framework.

1.20. The inadequacy of the accounting and auditing framework is another problem which hasincreased the uncertainty in which private investors operate in Mauritania. Given the laxstandards defining the minimum requirements for qualifying as an accountant or an auditor, thevalidity of accounts and audits is often dubious. Furthermore, the organization of theaccounting and auditing professions is less than optimal, resulting in a weak esprit de corpswhich has discouraged the basic self regulation commonly practiced by both professionselsewhere. The plan complable (accounting plan) is likewise antiquated, having been inheritedfrom the colonial times. Being based on a French code which has since been vastly upgraded inFrance itself, it cannot be said to be in conformnity with intemational standards.

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C. THE FINANCIAL SECTOR

1.21. The Mauritanian financial sector consists of four commercial banks, an insurancecompany (NASR), the social security system and a cooperative agricultural credit facility(UNCACEM, or Union Nationale de Cooperatives Agricoles, de Credit et d 'EpargneMutuelle). At present, the only institutions which can be said to act as full financialintermediaries, channeling resources among sectors, are the commercial banks. During the firstbanking sector restructuring under the SAC framework which was carried out between 1988and 1990, the number of banks operating in Mauritania was reduced from 7 to 5, with two,SMB and BIMA, merging to form BNM (Banque Nationale Mauritanienne); BMDC and FNDmerged to form UBD (Union de Banques de Developpement); and the remaining banks (BMCI,Banque Mauritanienne pour le Commerce et l'Industrie; BAMIS, Banque al-BarakaMauritanienne Islamique; and BALM, Banque Libyenne Mauritanienne) were reorganized.The portfolio of bad debts totaling UM 14 billion (US$112 million) for the entire bankingsystem was transferred (against government bonds) from the books of the commercial banks toa special account at the Central Bank of Mauritania. Commercial banks were asked to recoverthe bad loans on the GOM's behalf for an 8 percent collection fee. All commercial banks wererecapitalized and an attempt was made to clean up their loan portfolio. The operation wasamong the components supported by a structural adjustment credit of US$42.4 million.

1.22. The first restructuring operation did not, however, bring an end to the problems of thebanking sector. The performance of the sector continued to be compromised by inadequatemanagement, improper application of credit procedures, generally weak bank supervision, aninadequate legal and judicial framework which complicated loan collection, and governmentintervention in the banking sector. (The GOM was a majority shareholder in the developmentbank, and maintained a major stake in the commercial banking system.) By 1992, the situationof the banks had deteriorated to such an extent that the authorities decided that a second, moreradical overhaul of the system was needed. IDA's assistance was solicited, but IDA made clearthat a prerequisite for any intervention on its part would be upfront action and thedemonstration of the political will to reform the sector. As a result, the GOM successfullycompleted in February 1993 the total disengagement of the State from the banking sectorthrough the privatization of all commercial banks but one (see para. 1.24), as well as the closureof UBD, the sole development bank in the country.

1.23. In order to demonstrate its will to take action in the banking sector, the GOMproceeded, in consultation with IDA, to do the following: (i) the conduct of bank auditsaccording to terms of reference prepared by the Bank; (ii) the full provisioning of the banks' badloans and the obligatory recapitalization of all banks; (iii) the strengthening of the bankregulatory framework and its enforcement through strong support from the IMF and assistancefrom IDA through a grant from its Institutional Development Fund; (iv) the establishment of arecovery program for bad loans transferred to the ARCB (Agence de Recouvrement desCreances Bancaires); the target for 1994 (UM 600 million) agreed with IDA has been fully met.

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1.24. Detailed audits of the banks' financial situation as of June 30, 1993 (completed inDecember 1993 following terms of reference prepared by IDA) indicated that the fourcommercial banks had a total of UM 35,661 million (US $285 million) in assets, UM 17,997million (US $144 million) in deposits, UM 31,338 million (US $251 million) in loans. Bad loanson that date were estimated at UM 18,840 million (US $151 million, or 60.1 percent of totalloans). Subsequently, the capital of BAMIS was increased from UM 2 billion (US $16 million)to UM 3 billion (UM $24 million); the capital of Chinguitty Bank (formerly BALM) was raisedby UM 1,480 million (US $12 million) and has been 66 percent paid in, with the remainder paidin 1994; the capital of BNM was also increased from UM 500 million (US $4 million) to UM 1billion (US $ 8 million) with the increment to be paid half in 1993 and the remainder in 1994.At present BMCI, BNM and BAMIS are 100 percent privately owned; Chinguitty Bank is 49percent owned by the Libyan Bank for Foreign Trade (itself 100 percent owned by the LibyanGovernment), with the remaining shares in the hands of the GOM.

1.25. More recent audits of the four banks mentioned above have been completed for theirfinancial situation as of December 31, 1993. The results suggest that, following substantialrecapitalization by shareholders as well as the assumption by the State of certain losses due tomandatory provisioning of bad loans, all banks met the capital adequacy ratio (8 percent ofassets) mandated by law. The recapitalization made by shareholders totaled UM 4.55 billion(US$36.4 million) for all four commercial banks. The losses assumed by the State totaled UM4.0 billion (US$32 million), of which UM 1.0 billion (US$8 million) represented payment ofguarantees on non-performing public sector (PE) loans, and UM 700 million (US$5.6 million)the State's share in the recapitalization of Chinguitty Bank, the only bank in which the Stateremains a partner. As a result of a portfolio transfer from BNM to the State (included in theUM 4.0 billion cost mentioned above), the State inherited UM 2.3 billion (US$18.4 million) ofnon-performing loans. These loans were transferred to the care of the Agence pour leRecouvrement des Creances Bancaires (ARCB), in addition to non-performing UBD loanswhich were also transferred to ARCB following the closure of UBD.

1.26. To summarize progress, the following has already been or is soon to be completed: (i)links between the banks and loss-makers have already been severed, with the rehabilitation ofthe banks' portfolios, the strict enforcement of prudential regulations (including provisioningguidelines), and the imminent improvement of credit risk and arrears information systems; (ii)banks, now fully privatized, have an incentive to recover the part of their portfolio consisting ofloans for which provisions have been made, and indeed are reported to be recovering at a rapidrate, while the authorities have put in place a recovery plan aimed at collecting roughly 20percent of the bad loans held by the ARCB; (iii) the possibility of further state intervention inthe banking sector has been excluded, as the authorities have privatized or liquidated state banks(except for Chinguitty Bank) and furthermore have asserted, and reiterated in the latest PFP,their intention not to divert funds to the banks; (iv) the bank supervision and regulatoryframework has been significantly strengthened, with support from the IMF and the InstitutionalDevelopment Fund (IDF); (v) increased competition among banks has been encouraged throughthe progressive liberalization of interest rates and more liberal (though still prudent) entry andexit rules specified in the Banking Law which will be submitted to the Assembly for approval inJune 1995; (vi) schemes to increase access to credit by small borrowers are being explored, as

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the second phase of the strategy for the development of the financial sector (formulation ofwhich is financed by this project) will specifically aim at developing mutualist and othersemiformal schemes to achieve this objective; (vii) a far-reaching debt recovery law has beenpromulgated and work on improving the overall legal and judiciary framework has beeninitiated; and (viii) the first step toward the development of money markets has been takenthrough the issue of T-bills and government intervention on the market to ensure sufficientliquidity, with further steps anticipated under the second phase of sectoral developmentdiscussed below; this will make it possible to switch from direct to indirect instruments ofmonetary control. To streamline information on outstanding credits, this project will finance theamelioration and updating of the Credit Risk and Arrears Information databases. The proposedproject will also finance training for bankers, so as to improve the quality of banking servicesand upgrade credit decision procedures which led to the deterioration of banks' financialsituation in the past. Finally, the proposed project will also finance a study for the formulationof a strategy for the second phase of financial sector development, with a view to addressingkey issues like the financing of investment and increasing small and medium enterprises' accessto credit.

D. FISHING AND MINING SECTORS

1. Fishing Sector

1.27. Fisheries activity in Mauritania grew remarkably over 1984-86 when catchesincreased from 286,000 mt to 591,000 mt -- a compound rate of about 44 percent perannum. However, in 1987 the total catch began to decline, from an estimated 563,000 mt in1987 to 446,000 mt in 1991. This was largely the result of overfishing causing a depletionof fish stocks, which arose from inadequate control and surveillance. Even with thisdecline, Mauritania's fishing activity is one of the largest in the sub-region. Until 1988, thefisheries sector in Mauritania was a dominant source of foreign exchange and governmentrevenue. The sector generated about US$308 million (68 percent) of the country's totalforeign exchange in 1988, falling to about US$236 million (54 percent) in 1991. Thereafter,the sector's share of foreign exchange earnings has stabilized at slightly over 50 percent.The fisheries sector also makes a vital contribution to the budget, yielding about 20 percentof total budget revenues.

1.28. The fishing sector is the focus of considerable private sector interest, attractingsizable investments from Mauritanian and foreign private operators. The sector wasexpected to be a major source of economic growth during the 1980s and 1990s; to offer thegreatest potential for increased employment and value-added; and to be a key generator offoreign exchange earnings and budget revenue. Instead, the fisheries sector now finds itselfin a crisis, evidenced by sharply lower catch rates caused by heavy overfishing and otherproblems. Its recent poor performance is therefore particularly worrisome, given theimplications for: lower economic growth; diminished foreign exchange earnings; lowerbudget revenues with substantially increased outstanding (and probably uncollectible) debtsdue to the banking sector.

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1.29. By the late 1980s, it was clear that the fishing sector was facing major problems. Thesecould be summarized as follows: insufficient resources for national research to determine extentof overfishing, need for conservation measures, etc.; persistence of problems of transparencyand efficiency in the allocation of fishing licenses; an inadequate regulatory framework forresource management, resulting in overfishing and dangerous depletion of precious fishingresources in certain areas; and an inefficient institutional framework in which the GOM wasinvolved as a producer and a marketing agent for fishing products.

1.30. The CNROP (Centre National de Recherches Oceanographiques et de Pche) has beenthe major research institution devoted to follow-up of fishing stocks, biological equilibrium infishing zones and the appropriate level of fishing that would ensure maximum exploitationconsistent with renewal. The CNROP suffered from inadequate resources, a limited ability todisseminate information and limited impact of policy decisions concerning the sector.

1.31. The problems of transparency and efficiency in the allocation of fishing licenses wererelated to the arbitrary manner in which said licenses have sometimes been granted, the relativelack of information about what licenses were granted to whom, and the fact that licenses aregranted to individuals rather than to boats. This resulted in instances of considerable overfishingby individual licensees, and occasionally inadequate standards of storage on some boats (amongthem a few which would not pass inspection if the boats themselves were being licensed). Thelatter led to a few instances of Mauritanian fishing stocks being denied entry into foreign ports,with obvious negative implications for the country's reputation in this area. The allocation oflicenses has momentous implications for the development of artisanal fishing, which has tocompete with industrial fishing operators for the same grounds. As artisanal fishing is apromising area for employment creation, fair access to fishing resources is a crucialconsideration.

1.32. The lack of an adequate regulatory and supervisory framework was a serious constraint,as it led to numerous violations going unpunished. The lack of control contributed tooverfishing, ecologically dangerous practices, inadequate standards and huge capital flightthrough unreported export operations. The latter not only harmed the Mauritanian economy,but has also contributed to the ill-health of the financial sector, as certain borrowers in thefishing industry defaulted on loans while channeling revenues elsewhere. The component of thisproject dealing with fishing focuses on systematic monitoring of foreign exchange earnings fromfishing exports, with a view to providing the GOM with a proper apparatus for the surveillanceof export activities.

1.33. Finally, while private sector activities dominate the fishing sector, the GOM'sinvolvement in certain areas of production and in the marketing of fishing products has resultedin instances of inefficiency, inadequate investment and decision-making determined by non-market-based criteria. The GOM's involvement in production and marketing is through: (a) anumber ofjoint-venture companies; and (b) the Marketing Monopoly Board (SocieteMauritanienne pour la Commercialisation de la Peche, or SMCP).

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1.34. The joint venture companies comprised three categories: public companies formed withthe participation of other States (the two largest being MAUSOV, with the Commonwealth ofIndependent States acting as a successor for the former Soviet Union, and ALMAP, withAlgeria); companies owned by the Mauritanian State in association with private Mauritanianentrepreneurs as well as foreign interests, and companies owned by Mauritanian citizens andforeign interests. As a rule, most such companies have suffered substantial financial losses, thebiggest loss-makers being MAUSOV and ALMAP, owing to dubious onshore equipment, poorutilization of vessels and high operating costs. Although the joint-venture companies have to be51 percent Mauritanian-owned, foreign citizens control a large part of management andtechnical activities. Furthermore, as the centrally planned economies to which Mauritania'spartners typically belonged moved to restructure their enterprises and rationalize use ofresources, Mauritania was forced to contemplate the prospect of assuming full responsibility forthese companies in the near-future, with little or not prospect of continued direct and indirectstate subsidies from the partners in question.

1.35. In addition, the GOM is involved in the marketing of fishing products through theSMCP, set up in 1984 by decree and given the monopoly for marketing fish that boats wereobligated to land in Nouadhibou (some exemptions to this rule existed; they included the catchof MAUSOV and ALMAP). The creation of SMCP was inspired by the need of the GOM tocontrol the payment of export taxes on fishes and the repatriation of foreign exchange earnings.Over time, however, SMCP became overstaffed and inefficient and its financial transactionsdevoid of any transparency. Moreover, in spite of its position, its net profits kept declining,resulting in a loss in 1991. SMCP's operations led to a decrease in incentives to fishermen andin a sharp reduction in the fishing fleet operating in the Mauritanian waters. This in tum led tounpaid loans to the banking sector by the fishing industry.

1.36. Policy Reforms Carried Out. In the closing months of 1994, the GOM has carried outthe following: (i) adoption of an action plan in concert with the donor community stemmingfrom the policy parameters defined at the Nouadhibou meeting; (ii) presentation of a plan for thedivestiture of ALMAP and MAUSOV; (iii) reduction of the GOM's stake in SMCP to 35percent; (iv) approval of a maritime code laying the foundations of a transparent and well-defined regulatory framework; (v) adoption of an action plan for the strengthening of theCNROP (with technical support from the donor community) and the setting in motion of itsapplication; (vi) creation of a Maritime Surveillance Authority with budgetary resources toensure surveillance, supported through donor capacity building programs; (vii) imposition andenforcement of absolute compliance with fishing ground limits and restrictions on fishingequipment and motors as recommended by the CNROP; (viii) permnanent closure of Zone A ofthe Banc d'Arguin and the implementation of regulations for Zones B and C, theaforementioned zones having been identified by the CNROP as having been dangerouslyoverfished; (ix) establishment of a committee to award licenses for pelagic fishing and accessrights for demersal and cephalopod fishing, according to clearly defined and transparent criteria;and (x) strict application of the granting of fishing authorizations to boats.

1.37. The donor community, which has been actively involved in dialogue with theMauritanian authorities regarding the fishing community, has already offered substantial

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technical support to enable the authorities to carry out their ambitious program of reforms in thesector. Such technical support includes: capacity building for the CNROP, support forstrengthening the surveillance of the sector, support for reorganizing the Ministry of Fishing,and assistance in the implementation of several studies, including the study dealing with taxationof the sector, and studies which have contributed to the revised text of the maritime codes andother regulations related to fishing. As a result of the substantial and continuing donor supportalready extended, notably by the European Union, France and Germany, the need forsupplemental capacity building under this proposed project is fairly limited. This explains therelatively small size of capacity building directed to this important sector in the proposedproject.

2. Mining Sector

1.38. Another focus of private sector activity is mining. Mining represents an estimated 12percent of Mauritania's GDP and 38 percent of its exports. A major part of the production isrepresented by iron ore that, with billions of tons of mineral reserves, will remain a major forcein the next decades. The key actor in this area is SNIM, in which the GOM has a majority stakebut which is run autonomously. SNIM, which is based in Nouadhibou oversees the productionof iron ore at Zoueirate. SNIM's output of iron ore has increased from 8.3 million tons in 1992to 11.4 million tons in 1994. SNIM has been beneficiary of substantial support from IDA,notably in the context of the PESAP.

1.39. Several mineral zones have been identified in Mauritania, notably for gold and copper.In addition, potential investors have expressed interest in searching for gold and non-ferrousmetals. They have, however, been hindered by lack of geological data and incomplete mininglegislation that introduces uncertainty and negotiating delays. It is, in fact, extremely difficult tospeak of development of the mining sector in the near-complete absence of data, basicgeological maps, a transparent mining code or a tax structure that is competitive with othercountries in the region. Investor interest is stimulated by the fact that numerous finds have beenreported, and successfully exploited, in neighboring countries (notably Ghana and Mali).

1.40. Given the preponderance of iron ore and the need to concentrate on ensuring the smoothfunctioning of SNIM as an autonomous company yielding the lion's share of the country'sexport earnings, it is only recently that the GOM has directed its attention to the non-ferrousmining sector. The authorities have adopted an action plan for the development of the sector, inconcertation with the Bank. The plan covers the identification of key areas for further dialogue,the reorganization of the Direction des Mines et de la Geologie, the revision of the mining codeand the tax code for mining activities, and the training of government staff in order to enhanceregulatory capabilities and ensure greater sensitivity to the needs of private investors.

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II. THE PROJECT

A. PROJECT OBJECTIVES

2.01. The proposed project will assist the GOM in implementing a program of private sectorpromotion through strengthening the legal and regulatory framework surrounding businessactivities and creating an environment that encourages and facilitates initiative on the part ofprivate investors. In order to realize this goal of creating an enabling environment for privateenterprise, the proposed Capacity Building Project (CBP) for the Development of the PrivateSector will focus on financing activities which: (i) encourage investor interest in pursuingopportunities in the private sector, especially in the mining and fishing subsectors, via revision ofthe commercial and tax codes as well as other activities designed to enhance entrepreneurialdynamism and efficiency and (ii) strengthen the financial sector, so that it can better providecredit and banking services needed by the private sector. The components of the proposedproject are designed to facilitate the implementation of policy reforms under the GOM' sprogram for the promotion of private sector development. That program is supported by thePSDC, which is being presented to the Board at the same time as the proposed project. Thepolicy measures to be carried out under the GOM's program are spelled out in the Letters ofDevelopment Policy (Annex 2) prepared in connection with the PSDC.

2.02. Specifically, the proposed project will address the following areas:

(a) improving the quality and scope of information available to privateinvestors seeking to make investment decisions, through the upgrading ofcredit risk information database (Component l.a. of the proposed project asdescribed in detail in Section B "Project Description"), amelioration of theaccounting and auditing framework (Component 2.a.), the commercial register(Component 2.c.ii.), the upgrading and regular publication of the JournalOfficiel or Official Bulletin (Component 2.c.iv.), the electronic indexation ofMauritanian laws (Component 2.c.v.), the improvement of cadastral procedures(Component 3.a.ii.) the monitoring of resources and foreign exchange flows inthe fishing sector (Component 4.a.) and the dissemination of information aboutthe GOM's policy measures by the PCU (Project Coordination Unit -- see para.2.50);

(b) enhancing the capabilities of both regulators and operators providingsupport services to the private sector in key areas so as to ensure betterenforcement of regulations and better quality of support services to theprivate sector, through the training of bankers (Component 1 .b.i. and 1 .b.ii.),accountants and auditors (Component 2.a.iv.), Chamber of Commerce staff(Component 2.b.), magistrates and court auxiliaries (Component 2.c.ii.),technicians for electronic indexation of Mauritanian laws (component 2.c.iii.),and officials and technicians at the Direction des Mines et de la Geologie(Component 3.a.iii.);

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(c) strengthening the legal and regulatory framework for private and financialsector operations through the revision of the accounting plan and standards forthe accounting profession (Component 2.a.ii. and 2.a.iii.), the revision of keylegal texts which affect private sector activities (Component 2.c.i.), the revisionof the mining code and tax legislation applied to mining (Component 3.a.i. and3.a.ii.), and improved monitoring of fish exports and enhanced environmentaland quality control in the fishing sector (Component 4.a.); and

(d) exploring additional mechanisms to strengthen and support the privatesector, through the elaboration of a strategy for a second phase of financialsector development (Component l.c.), a feasibility study and scheme for a tax-free regime for exporters (Component 2.d.), support to the Chamber ofCommerce (Component 2.b.), which will provide a forum for the private, notablythe informal, sector, and improved dialogue between the private sector and otherproject beneficiaries through the PCU (see para. 2.50).

2.03. In preparing the proposed project, care was taken to involve, to the maximum extentpossible, representatives of the private and financial sector, as well as the staff of the variousconcerned ministries. It was through dialogue with these interlocutors that the areas ofintervention, the scope of intervention, the budget for each component, the implementationschedule, monitoring procedures, and the performance indicators were developed. This wasdone to ensure a sense of project ownership as well as a realistic approach to implementation.Agreement was reached with the GOM to continue client consultation throughout projectimplementation, and to make extensive use of ZOPP (Zieleorientierte Projektplanung,objectives-oriented project planning) to maximize the efficiency of this participatory effort. Theproposed project includes financing for two ZOPP workshops.

2.04. Lessons Learned. The lessons learned from previous capacity building operationsinclude the following:

(a) It is essential to involve project beneficiaries in the design, preparation andimplementation of project components which involve them. The successfulPESAP operation in Mauritania (MAU-2167) was able to involve enterprisesreceiving assistance in all stages of dialogue, which proved highly beneficialduring the implementation stage. This participatory approach has been used inthe preparation of this project, and will continue to be emphasized during projectimplementation, through, inter alia, the use of ZOPP workshops.

(b) A unit responsible for the coordination of project implementation is invaluable toensure project success. Virtually all technical assistance programs in Mauritaniaother than PESAP have suffered from slow implementation and delayeddisbursements. Success was possible in the case of PESAP because of the roleplayed by the Cellule pour la rehabilitation du secteur parapublic, whichensured interministerial coordination and handled disbursement and procurement

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procedures. The proposed project will involve said unit in the coordination ofproject implementation, as the implementation of PESAP is now nearing its end.This will make it possible to capitalize on its experience and on its record ofproven success.

(c) Rehabilitation of commercial banks requires rigorous follow-up, the upgrading ofthe skills of commercial bankers and a better flow of information among banksand to the Central Bank. The first commercial bank restructuring, which wassupported by a SAC (MAU- 1812), did not prevent the banks from slipping backinto unsound financial practices and poor portfolio maintenance. Inadequatebank supervision and imperfect data transmission allowed the problem to goundetected for some time. This project emphasizes improved information flowsand involves the Central Bank, particularly the Bank Supervision Department, inthe implementation of several components.

B. PROJECT DESCRIPTION

2.05. The proposed project will finance the following components:

(1) Financial Sector (US$1.1 million)

L.a.: Upgrading of credit risk and borrower arrears information database.

L.b.: Training in banking.

l.c.: Study to formulate a strategy for the second phase of financial sector development.

(2) Private Sector Institutional and Regulatory Framework (US$3.5 million)

2.a.: Upgrading of the accounting and auditing framework, including:

(i) Study providing recommendations to reorganize and upgrade theaccounting and auditing professions, including the establishment ofminimum standards for both professions;

(ii) Revision of the plan complable (accounting plan); and

(iii) Training of accountants and auditors.

2.b.: Support to the Chamber of Commerce.

2.c.: Legal and judiciary reform, including:

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(i) Revision of legal texts (in French and Arabic) affecting private sectoractivities;

(ii) Establishment of a commercial register listing companies;

(iii) Training of magistrates and court auxiliaries in both French and Arabic;

(iv) Upgrading and regular publication of a Journal Officiel (OfficialBulletin);

(v) Training of technicians and provision of technical support for theelectronic indexation of Mauritanian Laws.

2.d.: Feasibility study of a tax-free regime for exporters (pointsfrancs) anddevelopment of a scheme for its implementation.

(3) Mining Sector (US$ 1.1 million)

3.a.: Strengthening of the regulatory and institutional framework of the mining sector,including:

(i) Formulation of a strategy paper for the development of the sector andrevision of mining codes and taxation of mining;

(ii) Reorganization of the Direction des Mines et de la Geologie (Mining andGeology Directorate), and revision of cadastral procedures; and

(iii) Training of staff at the Direction des Mines et de la Geologie.

(4) Fishing Sector (US$0.50 million)

4.a.: Survey of (fisheries) resources to assess the quantity and quality of resources in thefishing sector, their current level of exploitation, and foreign exchange flows inand out of the sector; establishment of a monitoring mechanism for said flows,and capacity building in the environmental and quality control areas.

2.06. These components are described in greater detail in the following paragraphs. The stepsentailed in their implementation are summarized in Annex 1 (Implementation Schedule).

1. Financial Sector

2.07. Upgrading of Credit Risk and Borrower Arrears Information Databases (Centraledes Risques and Centrale des Impayes - Component l.a.). This component will finance thestrengthening of the centralized information database pertaining to credits outstanding and thesize of borrower arrears in the banking system. The centralized credit information database

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(Centrale des Risques) is an important instrument to ensure that banks share information aboutborrowers who have dealings with more than one bank. The system can be used to ensure thatbad borrowers do not have access to further credit, thereby reducing the perceived riskiness ofnew borrowers. The system will make it possible for each bank to be informed whether theprospective borrower is indebted to other banks, whether the borrower's assets have been usedas collateral for other loans, and whether the borrower has acted as guarantor for anotherborrower. The second database whose upgrading will be financed under this component is thecentralized information database for arrears (Centrale des Impayes), which provides informationon the extent to which a borrower may be delinquent on a loan or undergoing legal prosecutionowing to nonpayment.

2.08. The Central Bank currently has a Centrale des Risques as well as a Centrale desImpayes, but both are of very poor quality. This reflects limited equipment and software,inadequate data processing methods, and staff at the Bank Supervision Department of the Bankwhich has received little training in this area. The proposed project will finance: (i) the CentralBank's purchase of additional equipment (two computers) needed to maintain the data; (ii)short-term advisory services to update the information in both databases; (iii) the training ofCentral Bank personnel working in the Bank Supervision Department to become better qualifiedto monitor the process of data transmission and to maintain the databases; and (iv) the trainingof commercial bank personnel to fill out the requisite forms accurately and provide the data on atimely basis. Access to both databases will be ensured, so that any creditor considering makinga loan will have information on the financial condition of the potential borrower supplied by theCentrale des Risques and the Centrale des Impayes. The Agence pour le Recouvremenl desCreances Bancaires (ARCB) will also have complete access to these two databases. Twoshort-terrn advisors will be recruited from abroad for the purposes of data management designand training (Terms of reference for these consultants are in the Project implementation file).This component of the proposed project will be implemented by the Central Bank, as shown inFigure 1 of the Organization Chart (Annex 5). The component will be executed over a periodof six months.

2.09. Training in Banking (Component l.b.). The training of commercial bank personnel isa crucial component of this proposed project, given the poor quality of bank management in thepast, and the evident lack of experience in bank accounting, provision of banking services, legalprocedures related to banking operations, information systems and internal auditing. A two-parttraining program will offer: (a) professional training for bank employees and (b) a (diploma)course for the specialized training of bank personnel. The program will be administered by theCenter for Bank Training (Centre de Formation Bancaire - CFB), an entity established by thecommercial banks under the guidance of the Central Bank.

2.10. The cost of the program will be partially recovered for the professional training (fees willtotal 50 percent of actual costs) and fully recovered for the diploma course. The justification ofpartial cost recovery in the case of professional training stems from the externalities involved.There is an advantage in insisting on a minimum level of training offered to the staff of all banks,according to a uniform methodology consistent with international standards. The commercialbanks will be required by the Cent'ral Bank, in its role as supervisory agency, to send selected

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staff to the professional training courses. This will ensure a homogeneity of basic methods andstandards across banks, regardless of other training programs each bank may adopt individually.The emphasis on course-oriented training as opposed to on-the-job training reflects the fact thaton-the-job training is already a component of training programs applied by the banks themselvesinternally, and that, by its very nature, on-the-job training is not easily adaptable to a uniformformat.

2.11. The courses for both professional and diploma training will be held in Mauritania andwill comprise: (i) six short-term (three-week) professional training courses over a period of ayear offered for bankers in the areas of resource mobilization, liability management, letters ofcredit, foreign exchange operations, lending decisions and portfolio management; and (ii) athree-year diploma program, offered in three six-month cycles. The professional training will bereceived by 30 students (some attending more than one seminar). The diploma will aim to train15-20 students per year.

2.12. This component will be implemented with the help of local and foreign short-termconsultants. The terms of reference for these short-term consultants are in the Projectimplementation file. The component will finance the use of short-term consultancy services(namely, the services of a consulting firmn) for: (i) the teaching of the professional trainingcourses; (ii) six interventions of six months each by foreign instructors in the diploma programover a period of three years. The interventions of the foreign instructors will be timed asfollows: three the first year, two the second and one the third, the objective being the teachingof courses and, simultaneously, the training of local trainers who will progressively take overfrom the foreign instructors. The first year will be dedicated entirely to the training of localtrainers. The diploma training program is expected to be self-sustaining once the training oflocal instructors is completed. The component will also finance the purchase of equipment forinstructional purposes (six computers with software) and the preparation of instructionmanuals and other pedagogical materials which can be used by the local instructors once theyare fully trained.

2.13. As shown in Figure 1 of the Organization Chart (Annex 5), the Central Bank will beresponsible for the implementation of this component, which will be cover a period of a year for(a) and three years for (b). Assurances have been provided by the GOM that the implementingagency will submit, by September 30, 1995 at the latest, a short-list of consulting firms toexecute this component, from which the selection will be made. This will ensure that thetraining program will be clearly defined and ready for launching once candidates for the courseshave been identified.

2.14. Formulation of a Strategy for the Second Phase of the Development of theFinancial Sector (Component l.c.). Under this component, the proposed project will finance(a) a study to prepare a strategy paper for the second phase of the development of the financialsector, the first phase (restructuring of the banks) having been completed; and (b) short-termadvisory services for the production of promotional materials for new financial institutions orinstruments, should it be concluded in the course of discussions between the GOM and IDA thatsuch a step is warranted. The emphasis of this phase will be on widening access to credit

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(notably to small- and medium-size enterprises), and promoting the availability of medium- andlong-term financing. The underlying objective is to make the financial sector more responsive tothe needs of private sector operators, without jeopardizing the private and autonomous natureof key credit institutions or compromising minimum performance standards established by theprudential regulatory framework.

2.15. The study will focus on: (i) exploring the scope for new, privately-owned financialinstitutions (GOM limited to minority participations only) to mobilize longer-term resources andprovide medium- and long-term financing; (ii) exploring the feasibility of setting up a CreditGuarantee Fund, which has been employed successfully in more than a dozen countries(including the Carneroon and Ghana in Africa), provided the fund was not financed bybudgetary resources or counterpart funds; (iii) developing mutualist (or cooperative)mechanisms (which have proven successful in a broad range of countries, especially in Asia andLatin America) for mobilizing savings from, and, subsequently, providing credit to, small- andmedium-size private enterprises; (iv) examining the role of the institutional investors (theprivatized insurance company and the social security system) and exploring means oftransforming them into dynamic participants in the financial system; and (v) coordinatingexisting and new schemes so as to avoid excessive sectoral concentration and to ensure propersupervision and regulation.

2.16. Assurances have been provided by the GOM that the conclusions of the study will formthe basis of a subsequent dialogue with IDA for the formulation of a detailed strategy, includingincentives and regulatory measures, for the second phase of the development of the sector, andthat recommendations will be implemented in light of the dialogue with IDA. To the extent thatsaid strategy calls for eliciting foreign investors' interest in new financial institutions orinstruments, this component will finance short-term advisory services for the preparation ofpromotional material for that purpose. As shown in Figure I of the Organization Chart (Annex5), the Central Bank will be responsible for the implementation of this component, which willcarried out over a period of eight months. The Terms of Reference for this study are in theProject implementation file.

2. Private Sector Institutional and Regulatory Framework

2.17. Upgrading of the Accounting and Auditing Framework (Component 2.a.). Thiscomponent will finance two studies and a training program designed to improve the quality andeffectiveness of monitoring of financial accounts and the reporting thereof across enterprises.The first study which will examine and comparatively evaluate ways to reorganize theprofession and enhance its standing. The study will also make recommendations for capacitybuilding in both professions, and will recommend the necessary modification of rules andstandards for the practice of accounting and auditing so as to define stringent minimumqualifications for practicing as a professional accountant or auditor, in contrast to the currentsituation where unqualified people can offer their services as "experts". The second studyfinanced by this component will focus on revising the Plan Comptable (accounting plan),updating it, and bringing it fully in line with current international standards. It will also includethe preparation of a reference manual.

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2.18. Both studies will be carried out over a period of a year by short-term consultantsaccording to terms of reference which are in the Project implementation file. Assurances havebeen provided by the GOM that the conclusions and recommendations of both studies will bethe basis of subsequent dialogue with IDA concerning the upgrading of the accountingprofession and the revision of the accounting plan, and that the recommendations of the studywill be implemented in light of the dialogue with IDA.

2.19. The component will also finance a subsequent training program designed to enablethose with basic qualifications to upgrade their skills and qualify as accounting technicians orauditors under the newly adopted stringent minimum requirements for practicing. In particular,the component will finance: (i) short-term advisory services for the detailed design of thetraining program, including adaptation of the curriculum for the needs of candidates; the termsof reference for the consultant to carry out this task are in the Project implementation file; (ii)training seminars for approximately ten candidates in two cycles (about five months apart) ofthree weeks each; this will be carried out by two foreign instructors, assisted by a group of fourlocal instructors who will receive on-the-job training, the objective being the provision of basicupgrading of skills for candidates to meet the minimum level of qualifications. The courseswill be operated on a full cost recovery basis. The objective is to ensure a minimum level ofcompetency, enabling local accountants to work with foreign accounting firm whose serviceswill be needed for the foreseeable future. By bringing foreign and local instructors together, andtraining a modest number of locals who meet basic qualifications, the idea is to promotetwinning arrangements between foreign accountants and auditors and their local counterparts,and provide local with the first level of minimal qualifications, after which they can supplementtheir training with courses abroad or correspondence courses.

2.20. Assurances have been provided by the GOM that the implementing agency will submit,by September 30, 1995 at the latest, a short-list of consulting firms to carry out the detaileddesign and execution of the training program, from which the selection will be made. This willensure that the training program will be clearly defined and ready for launching once candidatesfor the courses have been identified.

2.21. As shown in figure 2 of the Organization Chart (Annex 5), this component will beimplemented by the Project Coordination Unit (PCU -- see para.2.50) in collaboration with theMinistry of Finance, which will coordinate its efforts with the existing Ordre des expertscomptables. The objective is to involve member of the profession in implementation of theproject component, as well as to develop a sense of professional consciousness amongaccountants and auditors which would encourage their espousal of more stringent standards.

2.22. Support to the Chamber of Commerce (Component 2.b.). Design of this componentwas based on the conclusions of the study of support needed by the private sector, conducted bySOFRECO according to terms of reference prepared by IDA and financed by a Japanese grant.In the course of subsequent discussions of that study between the GOM and IDA, the Chamberof Commerce was selected as the representative agency for private operators and investors of allsizes. In French-speaking countries and elsewhere, foreign investors typically turn first to the

21

local Chamber of Commerce as a repository of information. Other agencies were considered bythe aforementioned study and, while some may be more developed (e.g. the ConfederationGinerale des Employeurs Maurilaniens), their ability to benefit the interests of the privatesector appears to be limited as they tend to be dominated by large operators and reflect vestedinterests.

2.23. This component will focus on the strengthening of the Chamber of Commerce throughthe training of newly elected officers and newly appointed staff in administrative skills andthrough the development of basic support services to be made available to private enterprises(e.g. information about regulations, international market information and surveys, directory ofexisting facilities and services available to operators in Mauritania, preparation of creditapplications). This will help make the Chamber of Commerce more responsive to the needs ofthe formal and informal sectors, since both foreign firms seeking entry into the market, and localbusinesses with limited capital, will be able to draw on services like: foreign market advisories,sectoral surveys, improved accounting procedures (to facilitate access to bank credit), andfinancial planning. The Chamber of Commerce would also coordinate with donors theirprograms benefiting the private sector, most notably microenterprises.

2.24. This component will be implemented by the Ministry of Commerce until such time as theChamber of Commerce is fully functional and can operate in conditions of complete autonomy.Under this component, the proposed project will finance two consultants who will provideshort-term advisory services for the reorganization of the existing Chamber and the setting upof its basic new structure, which will be carried out over a period of three months. Theproposed project will also finance the subsequent training of new Chamber of Commercepersonnel in client relations, administrative techniques and product promotion. Short-termadvisory services, provided by a consultant, will also help set up and conduct two workshopsto be administered by the newly reconstituted Chamber of Commerce, bringing togetherrepresentatives of the private sector and government officials. The objective is to sensitizegovernment officials to the needs of the private sector, while at the same time enable theChamber of Commerce to gain credibility as a forum for private sector interests. The analysis ofissues concerning the financing of these entrepreneurs will be closely coordinated with theanalysis undertaken in the context -of the formulation of the strategy for the second phase of thedevelopment of the financial sector (see paras. 2.14 and 2.15). The proposed project will alsofinance the purchase of office equipment. The entire program for the development of theChamber of Commerce will be carried out over a period of fifteen months. Thereafter, theChamber of Commerce will operate autonomously, relying for its financing on: (a) dues frommembers; and (ii) other sources, which may include an earmarked allocation of tax revenues.One of the key responsibilities of the Chamber of Commerce once it is functional, for whichfunding is available under this component, is to work with representatives of the private sectorand with the authorities to articulate a strategy for the development of microenterprises,including an analysis of the assistance microenterprises may need and ways of promoting donor,including NGO, support for microenterprises. The Project will also finance a studies fund whichwill be administered by the Chamber of Commerce, equivalent to US$ 100,000, to which smalland medium enterprises will have access according to specific conditions. These include thefollowing: the enterprise in question must finance a minimum of 50 percent of the cost of the

22

study upfront, and also must assume all costs in excess of US$20,000. The studies may cover:the identification of new markets or products, or the preparation of credit applications.

2.25. Assurances have been provided by the GOM that it will revise, by December 31, 1995 atthe latest, the charter of the Chamber of Commerce so as to establish it as an autonomousagency empowered to act as a convincing representative of the private sector. This will betterequip the Chamber of Commerce to represent private sector interests vis-i-vis the GOM inaccordance with the appropriate Mauritanian law, and advocate laws and regulations favoringprivate sector development. The revision of the charter will be accompanied by a financing planfor the Charnber of Commerce detailing anticipated financing from dues and other sources, as ofthe time the elections are held and the Chamber of Commerce is considered fully functional.Assurances have also been provided by the GOM that it will submit to IDA, by September 30,1995 at the latest, a short list of consultants from which one will be selected to carry out thereorganization of the existing Chamber of Commerce, as well as a short list of consultants fromwhich one will be selected to implement the training of Charnber of Commerce personnel. Thiswill ensure that these two important steps will be carried out without delay as anticipated by theimplementation schedule.

2.26. Strengthening of Legal and Judiciary Reform (Component 2.c). The activities to beincluded in this component were agreed with the authorities in light of a discussion of theconclusion of a study of the scope for legal and judiciary reform in Mauritania. The study,which was financed by a Japanese grant, was conducted by Cabinet Roussel according to termsof reference prepared by IDA. Under this component, the proposed project will finance short-term advisory services to carry out the following: (i) the revision of the legal and regulatoryframework pertaining to commercial law, including the investment code and the Code desObligations et des Contrals (1989), to commercial and civil procedural law, including the statusof the auxiliaires dejustice and expert witnesses, to national and international arbitration, andto bankruptcy proceedings; all preceding revisions will be done in both French and Arabic; (ii)the establishment of a commercial register for companies; this will include a register forownership titles which can then be used as collateral; (iii) the upgrading of the Journal Officiel(Official Bulletin) and its regular publication to report on decisions of the Supreme Court, theCourts of Appeal and the Commercial Courts (Chanbre Mixte); and (iv) the implementation ofa program to ensure electronic indexation of, and the establishment of electronic archives for,Mauritanian laws after training by experts from the United States Library of Congress, therebymaking Mauritanian laws more accessible to interested local and foreign parties.

2.27. The revision of the legal and regulatory framework will require the services of aconsulting firn working periodically over a period of three years. It will also cover thepublication and electronic indexation of the revised legal texts. Especially important in thiscomponent will be emphasis on evaluating the environmental impact of code revisions, toavoid any negative impact on the environment. Owing to the need for extensive coordination inthe implementation of this component, it will be administered by the Project Coordination Unit(PCU -- see para. 2.50 -- which will play a coordinating function in the implementation of theproposed project as a whole) under the direct management of the Prime Minister's office. ThePCU will also assume responsibility for the subcomponent establishing a commercial register.

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The latter subcomponent will require the services of an international expert in commercialregisters, assisted by a local expert in information system, who will carry out the work over aperiod of twelve months.

2.28. The electronic indexation of Mauritanian laws, which will be carried out over a period ofeight months, will require the financing of travel of Mauritanians to the United States to attendfree training seminars offered to officials at the S&retariat General du Gouvernement by theUnited States Library of Congress. It will also require the financing of the publication of theusers guide and the needed equipment to carry out the electronic indexation. Given the role itplays in the processing of legislation, the Secretariat General du Gouvernement will beresponsible of the implementation of the electronic indexation of laws (see Figure 2 of theOrganization Chart, Annex 5). So will the upgrading and regular publication of the JournalOfficiel, which will require the services of two local legal experts working periodically over aperiod of a year.

2.29. The proposed project will also finance a training program for magistrates (judges) andcourt auxiliaries (lawyers). This is crucial given the difficulty encountered in enforcing laws, thelengthy delays in court procedures, and the unreliable nature of recourse to law in general, all ofwhich tends to discourage prospective private sector investors. The training program will entailthe training of approximately 200 lawyers and 100 judges over a period of two and a half years.It will comprise two phases, each consisting of a series of seminars spread over a period of sixto eight months. Both foreign and local instructors will preside over the seminars from themoment of their inception. As the program moves from Phase I to Phase II, the number offoreign instructors will decrease and more local instructors, who will have themselves beentrained during Phase I, will be used. An ideal arrangement would be five foreign instructorsduring Phase I and three during Phase II. The program could be extended thereafter, with localinstructors taking over, assisted by occasional interventions of foreign experts. The expertshired under this component will be specialized in training and will be expected to have closefamiliarity with legal systems applied in Mauritania, especially as these are modified in thecourse of the revision of legal texts under this component. Training will be carried out in bothFrench and Arabic and will include language training as needed. Training courses will beoffered free of charge to lawyers and judges, given the major externalities that would resultfrom having adequately trained lawyers and judged thoroughly familiar with the laws and withinternational legal practices as both applies to private sector activities. The component will alsofinance the purchase of equipment for pedagogical purposes (mostly computers and software)and the publication of instruction manuals. This subcomponent will be implemented by theDirection des Affaires Judiciaires, which will in turn rely on a local Training Coordinator whowill oversee coordination efforts (see Figure 2 of the Organization Chart, Annex 5).


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2.31. Feasibility Study and of a Tax-Free Regime for Exporters (Component 2.d.). Witha view to fostering export-led growth and eliminating problems stemming from high tariffs(effective protection is around 40 percent), this component will finance the short-term advisoryservices to carry out a follow-up to a study already conducted, with financing from a Japanesegrant, which evaluated options for export-processing zones. That study, conducted by GOPA(Gesellschafiffir Organisation, Planung undAusbildung, mbH) according to terms ofreference prepared by IDA, concluded that the establishment of a tax-free regime (pointsfrancs) within Mauritania would likely be the best mechanism to foster export-led growth.

2.32. Following discussions between the GOM and IDA, it was decided that it would beadvisable to launch a follow-up study to carry out a cost/benefit analysis of this a tax-freeregime. The study will also make recommendations as to appropriate administrative and legalmeasures that need to be taken. Terms of reference for a short-term foreign consultant toconduct a feasibility study are in the Project implementation file.

2.33. Assurances have been provided by the GOM that the conclusions of the study will formthe basis of a subsequent dialogue-with IDA, and that the recommendations of the study will beimplemented in light of the dialogue with IDA, notably with regards to the setting up or no of atax-free regime for exporters. If cost/benefit analysis favors the setting up of such a regime, thiscomponent will comprise short-term advisory services for the implementation of said regime.The study and full implementation of its conclusions is scheduled to take fifteen months.Implementation will be the responsibility of the Direction de l 'Industrie at the Ministry ofIndustry and Mining.

3. Mining Sector

2.34. Strengthening of the Mining Sector Framework (Component 3.a.). In order toestablish an environment conducive to promoting interest in the mining sector on the part ofprivate investors, this project will finance the subcomponents listed below. To facilitate theadministration of the component, the proposed project will finance (under subcomponent (i)below), a local coordinator who will be responsible for monitoring the progress on the studies,on reorganization efforts at the Direction des Mines et de la Geologie (Mining and GeologyDirectorate) at the Ministry of Industry and Mining, and on the design and administration oftraining courses. (See Figure 2 of Annex 5.)

(i) Strategy paper, review of the mining code and of tax code as it appliesto mining

2.35. The first subcomponent will focus on policy issues and reforms. The objective is toassist the GOM in preparing a clear statement of policies and objectives with respect to thedevelopment of the minerals sector and devise a consistent strategy to implement policies. Forthis to be achieved, short-term foreign and local consulting firms will be hired to conduct astudy covering the following areas: role of GOM in the sector, intemational mining costcompetitiveness, intemational tax regimes, artisanal miningAocal industry development

25

prospects, environmental safeguards. Given the large scope of the work involved, emphasis willbe placed on twinning arrangements between foreign and local consulting firms.

2.36. Based on the conclusions of the above-mentioned study, the consulting firm(s) executingthis subcomponent will make recommendations for the revision of the mining code and the taxcode. In revising the mining code, special emphasis will be placed on evaluating any possibleimpact of regulatory changes on the environment. The completion of study of the mnining codeand the application of its recommendations are explicitly linked to the fulfillment of the third-tranche release condition of the PSDC being submitted to the Board at the same time as thisproject, stipulating the adoption of a new mining code satisfactory to IDA.

(ii) Reorganization of the Directorate of Mines and Revision of CadastralProcedures

2.37. This subcomponent will finance the completion reorganization of the Directorate ofMines and Geology, which is the key supervisory body in the mining sector. Thereorganization, which will be carried out with technical support from a consulting company, willbe designed to optimize the functions of appropriate supervisory institutions in accordance withinternational standards, define roles and functions for said institutions, establish operatingprocedures, and upgrade ability of all ministries connected to mnining to deliver informationpertaining to the sector.

2.3 8. As an extension of the review and strengthening of the institutional framework of thesector, this subcomponent will also finance short-term advisory services for the revision ofcadastral procedures. These services will be provided by a consulting firm which will assist theauthorities in the setting up of title registry procedures, including the establishment of acomputerized information system. This will be backed up with the compilation of geologicalinformation, in such a way that the system could later be extended to a GIS (GeographicInformation System). In additional, the consulting firm will assist the GOM in defining cadastralprocedures, will propose criteria for evaluating and granting exploration and exploitationpermits, and specify all the procedures, quantitative and qualitative data required, informationon the permit holder, etc.

(iii) Training of staff at the Directorate of Mining

2.39. This subcomponent will finance the training of officials at the Directorate of Mining inthe following areas: mining economics/finance, environmental, health and safety legislation,norm-setting and monitoring, organizational management and investment promotion, miningaccountancy and tax regimes, and mining cadaster and information systems.

2.40. The training program will be conducted in parallel to the other two subcomponents, withthe explicit intention of making the results of the other subcomponents self-sustaining throughcapacity-building which would enable Mauritanian officials to take over the application andmonitoring of procedures outlined above. In addition, this subcomponent will be designed tosensitize and educate key government officials as well as stakeholders in the development of the

26

sector in Mauritania in the dynamics and the best practices of the world mining industry. It willalso sensitize government officials to the needs and concerns of the private sector. Manyseminars will be designed so as to bring officials and other stakeholders in the sector together,thereby promoting dialogue and exchange of information.


2.42. All three subcomponents pertaining to mining will be implemented by the Directorate ofMining and Geology at the Ministry of Industry and Mining. The three subcomponents will becarried out over a period of a year and a half, their implementation being coordinated to ensureproper sequencing. A more detailed implementation schedule appears in Annex 1. Moredetailed terms of reference for the three subcomponents are in the Project implementation file.

4. Fishing Sector

2.43. Survey of Fisheries Resources and Foreign Exchange Flows In and Out of theFishing Sector and Establishment of a Permanent Mechanism for the Monitoring of SaidFlow. In order to support the GOMNs effort to implement a medium-term strategy fordeveloping the fishing sector and actively manage, monitor and promote the sector, thiscomponent will finance short-term advisory services for a survey of fisheries resources. Thiswill include: an assessment of the quantity (statistics) and quality (e.g., product condition) offish, by collecting the statistics pertaining to species by weight and market price will becollected, as well the quantities exported by country of destination, customs encountered, andenterprises importing. Product quality will be analyzed according to product type (commercialversus industrial), quality control at different stages of production, and type of producttreatment. The survey will also recommend a system for the regular monitoring of foreignexchange flows in and out of the sector. The survey will be conducted by a consulting firm overa period of six months. The terms of reference for a foreign fishing expert to provide short-termadvisory services are in the Project implementation file. This component will be implemented bythe Ministry of Fishing, as shown in Fig. 2 of the Organizational Chart (Annex 5). Assuranceshave been provided by the GOM that the conclusions of the survey will forn the basis of asubsequent dialogue with IDA, and that the recommendations of the survey will be implementedin light of the dialogue with IDA, notably with regards to monitoring of fishing activities and ofexport operations. The survey will comprise the preparation of an action plan, theimplementation of which will then be financed by this component. The latter is explicitly linkedto the conditionality of the PSDC which specifies that, as a condition for second trancherelease, the GOM will strengthen the monitoring scheme for the export of fishing products.This component will also provide financing (equivalent to US$ 100,000) of technical support forthe CNROP, notably in the area of environmental capacity building and quality control ofexports, an important consideration given the need to upgrade quality control to meet themarket access requirements of the European Union which will be enforced as of January 1996.

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2.44. The proposed project will also finance a Project Coordination Unit, an audit of theproposed project. (See para. 2.60.) An advance from the Project Prefinancing Facility(US$400 thousand) has already been approved and has been used to provide partial financing ofbank audits as well as the hiring of consultants to evaluate said audits, and also to pay for thetravel staff at the Secretariat General du Gouvernement who attended training seminars at theLibrary of Congress. (See para. 2:28.)

C. PROJECT COSTS AND FINANCING PLAN

2.45. The total cost of the proposed project, net of taxes and duties, is estimated at US$7.9million, with a foreign exchange component of about US$5.1 million (71 percent). Costestimates are based on January 1995 prices, and include physical and price contingencies. Pricecontingencies amount to 3.3 percent of total project costs (excluding the PPF), and are based onan assumption of a price escalation of 3 percent per year locally and 2 percent per yearinternationally. A total of US$290,000, or roughly 4 percent of total project costs, is made forphysical contingencies. A summary of cost estimates is presented in Table 1 on the next page.Detailed project cost estimates are provided in Annex 7.

2.46. The high proportion of local costs (36 percent) reflects efforts made during projectdesign to: (i) maximize the capacity-building element in project implementation; (for example,all long-term consultants are local); (ii) involve local elements in the technical aspects of thework, both to promote capacity-building and to emphasize on-the-job training through jointefforts by foreign and local consultants; and (iii) involve the staff of the existing ministries inproject implementation, follow-up and coordination, with support from a Project CoordinationUnit (see para. 2.50) which will be temporary in nature and staffed entirely by Mauritanians.

2.47. The proposed financing plan includes an IDA credit of US$7.2 million equivalent,which will finance 91% of the estimated project costs, net of all taxes and duties. This willcover all of the foreign exchange costs (US$5.1 million) and 75 % of the local costs (US$2.1million). The GOM will finance the remainder of the local costs (US$0.7 million).

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Table 1: Estimated Project CostsLOCAL FOREIGN TOTAL

-in USS miUion1. Financial Sectorl.a. Credit Risk & Borrower Arrears Information 0.01 0.05 0.061.b. Training in Banking

(i) Professional training 0.03 0.08 0.11(ii) Diploma course 0.17 0.61 0.77

l.c. Financial Sector Development Study(i) Preparation of strategy paper 0.02 0.06 0.07

(ii) Production of Promotional Material 0.00 0.07 0.07

Subtotal: 0.23 0.86 1.082. Private Sector2.a. Upgrading of Accounting & Auditing

(i) Study: Reorganization and Upgrading 0.01 0.08 0.09(ii) Revision of Accounting Plan 0.03 0.07 0.10

(iii) Training 0.10 0.07 0.172.b. Support to Chamber of Commerce 0.19 0.21 0.402.c. StrengtherAing of Legal and Judiciary Framework

(i) Legal texts 0.42 0.31 0.73(ii) Establishment of Commercial Register 0.05 0.06 0.10(iii) Training 0.38 1.16 1.54(iv) Regular publication of Joumal Officiel 0.01 0.07 0.08(v) Access to Inforrnation 0.16 0.03 0.19

2.d. Tax Free Regime Study 0.00 0.13 0.13Subtotal: 1.36 2.18 3.54

3. Minina Sector3.a. Strengthening of Mining Sector

(i) Policy Dialogue: mining code review & tax reform 0.24 0.26 0.50(ii) Institutional Reform & Upgrading Mining Carinter 0.08 0.19 0.26

(iii) Training 0.09 0.29 0.38Subtotal: 0.40 0.74 1.14

4. Fishing Sector 0.22 0.29 0.50

5. Proiect Coordination Unit 0.38 0.15 0.53

6. Project Audit 0.03 0.18 0.21

Total Base Costs: 2.61 4.39 7.007. Continzencies:

Physical 0.11 0.18 0.29Price 0.11 0.12 0.23

0.22 0.30 0.52

8. Reflnancina of Proiect Preparation Facility (PPF) Advance 0.40 _40

TOTAL PROJECT COSTS: 2.83 5.09 7.92

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D. PROJECT IMPLEMENTATION

2.48. Given the multiplicity of subcomponents that are designed to assist the GOM's effort topromote the private sector and the extensive need for capacity building in Mauritania in order tocarry out the reforms envisaged by the PSDC, the following elements have been emphasized: (i)close coordination with, and involvement of, counterparts in the GOM; (ii) establishment, basedon close consultations with the authorities, of an implementation schedules (Annex 1), includingseveral intermediate target dates; (iii) establishment, in close coordination with the executingagencies, of performance indicators (Annex 3) which will make it possible to track progress inall components; and (iv) preparation of a supervision schedule (Annex 4) which identifies theinput needed for the supervision of the project, including probable timing and scope ofsupervision missions.

2.49. The executing agencies in charge of the components (see the organization chart inAnnex 5) will be as follows: (i) the upgrading credit risk information will be implemented by asmall Implementation Unit at the Central Bank; (ii) the bank training component will also beimplemented by the same Implementation Unit at the Central Bank; (iii) the development of along-term financing strategy to benefit small- and medium-size enterprises will be implementedby the Implementation Unit reporting directly to the Governor of the Central Bank; (iv) thedevelopment of the accounting and auditing framework will be implemented by the ProjectCoordination Unit (PCU -- see para. 2.50) in collaboration with the Ministry of Finance and incoordination with the Ordre des experts comptables; (v) the reorganization of the Chamber ofCommerce to aid in the promotion of the private sector, as well as to provide support servicesto that sector, will be implemented by the Ministry of Commerce until such time as the Chamberof Commerce is fully functional and can operate autonomously; (vi) the legal and regulatoryreform will be implemented by the Directorate for Judiciary Affairs of the Ministry of Justice forthe training program, the PCU (see para. 2.50) for the revision of legal texts and theestablishment of the commercial register (the PCU will work under the direct supervision of thePrime Minister's Office on the revision of legal texts), and the Secretariat General duGouvernement at the Prime Minister's office for the electronic indexation of laws and theimprovement and regular publication of an improved Official Bulletin; (vii) the study for thepossible setting up of pointsfrancs as a mechanism for export promotion will be implementedby the Directorate of Industry at the Ministry of Industry and Mining; (viii) the promotion ofprivate investor interest in the mining sector will be implemented by the Directorate of Mining atthe Ministry of Industry and Mining; and (ix) the survey of fishing production and foreignexchange flows and the setting up.of a permanent mechanism to monitor said flows will beimplemented by the Technical Advisor specifically given that responsibility at the Ministry ofFishing.

2.50. It was agreed that the coordination of all project components will be entrusted to theCellule de rehabilitation du sec/eurparapublic established as an executing agency within theMinistry of Planning for the Public Enterprise Sector Adjustment Project (PESAP, Credit 2167-MAU) (see Annex 5, Fig. 3). Said organization will be reconstituted as a Project CoordinationUnit (PCU) for this project, and will be designated as a temporary structure. The PCU will

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have the advantage of being staffed entirely by Mauritanians; to the extent that it will requirethe hiring of temporary staff to handle the added administrative, accounting and legal burdensimposed by the proposed project, the credit will finance the hiring of said staff. It will alsobenefit greatly from the experience acquired during the implementation of the PESAP. The taskof the PCU will essentially be coordination, not implementation (the latter being left toexecuting agencies), except in the case of the legal component where the need to work withnumerous different government agencies makes it essential that the PCU, operating under thedirect command of the Prime Minister's Office, should handle the implementation (see para.2.27), as well as the accounting and audit component, where the PCU will work with theMinistry of Planning and the autonomous Ordre des experts comptables. In addition, the PCUwill: (a) assist in the preparation of annual project and Special Account audits (see section onAccounting and Auditing) and semi-annual statement of expenditures (SOE) audits, (b) processpayment requests, (c) enforce budgetary control and (d) ensure compliance with theprocurement, disbursement and other procedures required by the Bank. The PCU will be underthe direct supervision of the Minister of Planning and will receive reports and transmitinformation directly to a group of representatives from other ministries associated with thePrivate Sector part of the proposed project (Industry and Mining, Justice, Commerce, andFinance). The GOM will appoint a Project Manager who will act as Director of the PCU nolater than credit effectiveness. Another important role the PCU will have is management of aSocial Communications Fund to explain and disseminate information about the measuresundertaken by the GOM in the context of its program. The PCU will also be in charge ofensuring maximum client consultation at all stages of project implementation. Agreement wasreached with the GOM to continue client consultation throughout project implementation, andto make extensive use of ZOPP to maximize the efficiency of this participatory effort. Theproposed project includes financing for two ZOPP workshops. The procedure proposed for theworkshops, funding for which is included in the budget for the PCU, is described in the Projectimplementation file.

E. PROCUREMENT

2.51. Table 2 summarizes project costs by disbursement category and procurement method.Mauritania's procurement laws and regulations conform to IDA procurement guidelines. Nospecial exemptions, permits or licenses need to be specified in credit documents for internationalcompetitive bidding (ICB), as Mauritania's procurement regulations allow IDA procedures totake precedence over any contrary provisions in local regulations.

2.52. Consultant services. Consultant services financed by the proposed project (US$3.17million) will be contracted in accordance with the Bank's Guidelines for the Use of Consultants(August 1981). Services to be contracted include technical assistance, studies, training, andauditing. Contracts estimated to cost US$100,000 or more for firns or US$50,000 or more forindividuals will be subject to prior review by IDA.

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Table 2: Procurement Arranqements(in US $ million)

TOTALICB NCB OTHER COST

1. Consultants

LT Consulting Services 0.5 0.5(0.3) (0.3)

Studies 3.0 3.0(2.6) (2.6)

Training 1.7 1.7(1.6) (1.6)

Audits 0.2 0.2(0.2) (0.2)

2. Equipment

Office equipment (e.g., computers) 0.4 0.4(0.4) (0.4)

Workshop equipment and supplies 0.4 0.01 0.4(0.3) (0.3)

3. Operating Costs

Maintenance (incl. amortized rent) 0.2 0.2(0.1) (0.1)

Communications 0.05 0.05(0.05) (0.05)

Local temporary Staff 0.3 0.3(0.2) (0.2)

Travel & other expenses (incl. per diem) 0.9 0.9(0.8) (0.8)

4. PPF Refund 0.4 0.4(0.4) (0.4)

TOTAL: 0.4 0.4 7.1 7.9TOTAL IDA: (0.4) (0.3) (6.4) (7.2)

Ia) Fiures in parenthesis are the amounts financed by the IDA credit. Cost igures shows above are ,vundad. and include

price and physical contingencies.

(bi About 20 contracts over a pefiod of 5 yea,.

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2.53 Goods. Goods financed by the IDA credit (US$0.8 million) include computerequipment, software, scanner, office supplies, and vehicles. Goods will be grouped intopackages of at least US$ 150,000 each and procured through ICB in accordance with the Bank'sGuidelinesfor Procurement under IBRD Loans and IDA Credits (January 1995). The Bank'sstandard bidding documents should be used. A preferential margin of 15% or the applicablecustoms duty, whichever is less, over the c.i.f prices of competing goods for all ICBprocurement will be given to domestic firms in accordance with Bank guidelines. Becauseforeign bidders are unlikely to be interested in bidding on limited quantities of goods, and localfirms can produce at competitive prices, goods that cannot be grouped into packages of at leastUS$150,000 each will be procured through NCB provided that the aggregate amount of suchprocurement does not exceed US$0.4 million equivalent. Draft standard bidding documents forNCB have been reviewed by and agreed with IDA.

2.54. Review by IDA. IDA-financed contracts for goods above a threshold value ofUS$150,000 will be subject to IDA's prior review procedures. The review process will cover56% of the total value of the amount contracted for goods. Selective post-review of awardedcontracts below the threshold levels will apply to about one in three contracts. Prior IDAreview will not apply to consultant contracts estimated to cost less than US$50,000 andUS$100,000 equivalent for individuals and firms, respectively. However, the exception to priorIDA review will not apply to the terms of reference of such contracts, to single-source hiring offirms and individuals, to assignments of a critical nature as determined by IDA, and toamendments of contracts raising the contract value to US$50,000 and US$ 100,000 or more forindividuals and firms, respectively.

2.55. Procurement Status of Ongoing Projects and Proposed Arrangements. The GOMwill take necessary measures to ensure that: (a) procurement phases do not exceed the timeperiods shown in Table 3 below; and (b) customs formalities for importing goods and servicesunder the proposed project will be processed within one month of the date of application.

Table 3Maximum period of time in weeks

NCB ICBPreparing Bidding Documents 8-16 8-16Reviewing Bidding Documents 2-3 2-3Revising Bidding Documents 1-2 1-2Preparing Bids 4-6 6-8Bid evaluation 1-2 1-2Proposed contract award 1-2 1-2Review of contract award decision by IDA - 1-2Contract preparation 1-2 1-2Review of contract by IDA - 1-2Contract signature 2-4 2-4

_ 20-37 24-43

33

F. DISBURSEMENTS

2.56. The proposed project is expected to be disbursed over four fiscal years, according tocategories shown in Table 4. This disbursement is shorter than the profile for the Region, but isclosely linked to disbursements of the parallel PSDC (see Annex 6). The project is forecast tobe completed June 30, 1999, and the credit will be closed December 31, 1999.

Table 4Allocation and Disbursement of the IDA Credit

Proposed IDA Allocation % of ExpendituresCateeory of Expenditure (US$ million) Financed by IDA

1. Goods 0.76 100 % of foreign and90 % of local

2. Consultants 3.17 100 %

3. Training 1.60 100 %

4. Operating Costs 1.21 75 %

5. PPF Refund 0.40 n/a

6. Unallocated 0.08

TOTAL: 7.22

Note: - Categories 1 through 4 include price contingencies. Category 6 reflects physical contingenciesfinanced by the Project.

- All items financed by IDA are exclusive of taxes and duties.- Percentages of IDA financing are rounded.- The average of 75 percent for operational costs reflects a declining scale of financing, namely: 90

percent in FY 96 and FY97, and 70 percent thereafter.

2.57. All disbursements of the IDA credit will be based on full documentation, except forcontracts of less than US$150,000 equivalent (except for consultants), which will be submittedon the basis of SOEs. SOE ceilings for consultants will be US$100,000 for firms andUS$50,000 for individuals. The Project Coordinator will have the responsibility for thepreparation of withdrawal applications for all components. The documentation for withdrawalsunder SOEs will be retained at the Ministry of Planning for review by IDA staff duringsupervision missions and for regular semi-annual audits.

2.58. To facilitate disbursement, the GOM will establish (a) a Project Account for the GOM'scounterpart funds; and (b) a Special Account in the Central Bank to cover IDA's share ofeligible expenditures. The initial deposit of US$50,000 equivalent into the Project Account willbe a condition of effectiveness to cover the GOM's contribution to financing in the first year,which will be small given that financing of operational costs will be on a declining basis (seeTable 4 above.). Also, an initial deposit of US$500,000 equivalent will be made into the Special

34

Account from the proceeds of the proposed credit upon effectiveness. IDA will replenish thespecial account monthly, upon receipt of satisfactory evidence of incurred eligible expenditures,with supporting documentation, copy of an up-to-date bank statement and a reconciliation formshowing the status of funds at the moment a request for replenishment has been submnitted toIDA. Details of the establishment and operations of the Special Account and otherdisbursement procedures have been discussed and agreed upon during preappraisal discussionswith the authorities. An agreement was also reached that adequate budgetary provision forlocal costs will be inscribed in the annual operating budget of the Ministry of Planning. Theestimated disbursements, by fiscal year, allocation, and component of the proposed IDA creditare shown in Table 5.

G. MONITORING AND EVALUATION

2.59. Monitoring and evaluation of project performance will be carried out by theimplementing units over the life of the proposed project, with the PCU playing a coordinatingrole. Key monitoring indicators are shown in Annex 3. In its role as Project Coordinator, thePCU will: (i) organize, in June of each year, a joint IDA-Government review of projectimplementation, based on the progress reports and on an annual work program and budget forthe next year; (ii) carry out a mid-term review of project implementation, jointly with IDA inJuly 1997. Details on IDA's supervision plan and on the mid-term review are provided inAnnex 4. Based on the results of the mid-term review, the GOM will prepare and implementan action plan, acceptable to IDA, for further implementation of the proposed project.Assurances have been provided by the GOM to this effect.

H. ACCOUNTING, AUDITING AND REPORTING

2.60. The PCU will establish and maintain, in accordance with International AccountingStandards, separate accounts and records to be used exclusively for the Capacity BuildingProject. Since the PCU will take over the accounting system already being applied by theCellule de la rehabilitation du secteurparapublic. Audits of project accounts will be carriedout annually, in accordance with International Standards on Auditing, by an independent auditorunder an annually renewable contract acceptable to IDA. The reports will be submitted withinsix months of the end of each fiscal year. Disbursements under the SOEs will be audited semi-annually. Assurances have been provided by the GOM that the Project Coordination Unit(PCU) in the Ministry of Planning will submit to IDA: (i) a semi-annual report on the progressof project implementation; (ii) annual work programs and budgets for the following year(including the GOMs contribution to the financing of the proposed project), no later thanOctober 31 st of any one year; and (iii) an implementation completion report, according to termsof reference acceptance to IDA, within six months of the credit closing date describing theproposed project's implementation as well as current and future costs and benefits derived. Anindependent auditor will be appointed as of the date of credit effectiveness. This auditor will beselected to carry out an audit that has been elaborated according to standard terms of referencewhich have been agreed with the GOM.

35

Table 5: Scheduled Disbursements by Fiscal Year(US $ million)

FY95 FY96 FY97 FY98 FY99 Tocal1. Fmnancial SectorCredit Risk & Borrower Arrears Information 1.a. 0.02 0.02 0.02 0.1

Bank Training 1.b.Professional Training L 0.04 0.03 0.03 0.01 0.1Training (Diploma course) ii. 0.35 0.24 0.16 0.04 0.8

Financial Development Strategies l..Scudy i. 0.03 0.02) 0.02 0.1Producton of Promotional Mate.ral i. 0.03 0.03 0.01 0.1

2. Private SectorStrengthening of Accounting & Auditing 2.a.

i 0.04 O.04 0.1iu. 0.03 0.03 0.03 0.1

inU. 0.06 0.06 0.03 0.2

Support to Chamber of Commerce 2.b. 0.13 0.13 0.12 0.4

Legal Reform 2.c.Legal tex i. 0.34 0.17 0.17 0.7Establishment of Commncrcial Register ii 0.05 0.02 0.02 0.1Trainring iW. 0.70 0.54 0.31 1.6Regular publication of Journal Oficil iv. 0.04 0.02 0. 02 0.1Access to Infonnation V. 0.10 0.03 0.03 0.2

Feasibility Study & Scheme for Implementation of TaxHoliday 2.d. 0.06 0.08 0.1

3. Mininn SectorPolcy Dialogue-Mining Code i. 0.17 0.17 0.14 0.5Institutional Reform & Upgrading Mining Cadastcr iH. 0.09 0.09 0.08 0.3Training ii. 0.13 0.13 0.11 0.4

4. Fishine Sector 0.24 0.19 0.05 0.5

S. Proiect Coordinatioo Unit 0.12 0.12 0.12 0.12 0.5

6. Proiect Audit 0.05 0.05 0.05 0.05 0.2

Subtotal: 0.0 2.83 2214 1.52 022 6.8Refunancing of PPF advance: 0.4 0.4

Total Costs (IDA financing): 0.4 2.83 2.24 1.52 0.22 7.2Government contribution: 0.7

Total Project Costs: 7.9

36

I. ENVIRONMENTAL ASPECTS

2.61. The Capacity Building Project does not present the prospect of any detrimentalenvironmental impact. The Project was designed to ensure no detrimental impact of theenvironment. To the extent that it promotes the development of the fishing and mining sectors,which can have environmental implications, the following steps have been taken to ensure thatthe impact will be neutral: (a) institutional strengthening for the CNROP, will include a budgetfor environmental capacity building; (b) legal and judicial reform, which will include the revisionof codes affecting business, will emphasize the environmental dimension; and (c) the miningsector component includes environmental capacity building at the Directorate of Mining, andemphasizes the role of environmental protection in the revision of the mining code.

2.62. Mauritania's environment is fragile given: (i) the exposure of its predominantly baresurface to wind erosion; and (ii) the fast growth of urban areas. The GOM, the United NationsSudano-Sahelian Office (UNSO), and other agencies are focusing on the crucial problem of landdegradation manifested in Mauritania, most visibly in the form of dune encroachment. Theurban explosion calls for measures to address issues, such as the water supply and sewagedisposal. To facilitate the link between environmental matters and broader developmentalstrategies, the GOM is working with the World Bank and other partners on a NationalEnvironmental Plan. Depletion of fisheries resources is another problem and, certainly, thesurvey of fish resources component of this project will help to provide a more precise estimateof the country's resources.

J. PROJECT RISKS AND BENEFITS

2.63. The key focus of the proposed project is making the regulatory and institutionalframework for private sector development conducive to attracting private investment. As such,the implementation of the proposed project is closely tied to the reforms envisaged under thePSDC being presented to the Board at the same time as this proposed project. In the process,the proposed project aims at promoting the following: (i) better quality banking services and abetter financial sector framework through programs to upgrade the skills of bank supervisorsand commercial bank personnel, accountants, auditors, magistrates and other legal personnel;(ii) improved access to detailed information on the credit standing of borrowers and on arrearsthrough revamping the Centrale des Risques and the Centrale des Impayes; (iii) an enhancedlegal and accounting framework which will allow for more transparent procedures and fosteraccountability and financial discipline in the financial and private sectors; and (iv) an ongoingdialogue between the private sector and the GOM, as well as a solid mechanism for extendingsupport services to aid the development of the private sector.

2.64. As the reform measures supported by the PSDC are carried out with technical supportextended under the proposed project, and as the project components are implemented over thenext four years, the expectation is that Mauritania will have become more attractive to foreignand local private investors. The private sector will be better informed about investmentopportunities, relevant laws and regulations and existing support services. Regulators will have

37

been made more conscious of the need to enforce regulations in a uniform and rigorous manner,and will have better tools at their disposal (improved credit information, improved accountingand auditing framework) to carry out their duties. The legal and regulatory framework willhave become more transparent, more responsive to private sector needs and more enforceable.The fishing sector will be functioning more efficiently as the GOM disengages itself fromproduction and marketing and carries out its supervisory function, with a special emphasis onresource conservation. The mining sector will offer more attractive opportunities to investorsas the mining code and taxation of mining will have become more investor-friendly, and asprocedures will have been streamlined and made more transparent.

2.65. The proposed project emphasizes institutional support and capacity building in theministries as well as supervisory and regulatory agencies. Most of the funds are devoted tooverhauling, reorganizing, strengthening, modernizing, and upgrading the efficiency of theMinistry of Justice, the Direction des Mines el de la Geologie, and the Central Bank. Trainingis a key element in this approach; training costs represent 25 percent of total project costs.Another factor that is specifically incorporated in this project is the need to ensure broaderaccess to information, so as to promote greater transparency and better understanding ofexisting regulations. This is represented by the attention given to the Centrale des Risques andthe Centrale des Impayes, the upgrading of the accounting and auditing framework, theimprovement of the Journal Officiel, and the electronic indexation of Mauritanian laws, thesetting up of the Chamber of Commerce as a repository of infornation on the economy and onexisting regulations for use by investors, the upgrading of cadastral procedures to ensure abetter and more transparent allocation of mining concessions, the carrying out of an survey ofthe resources of the fishing sector, and the setting up of a mechanism for monitoring the flow offunds for exports and imports by the fishing sector.

2.66. The success of the proposed project is not completely assured. The vested interestswithin Mauritania may resist or try to dilute the positive effect of the reform measures,especially those providing support for the programs geared to upgrading and enforcingregulation of the fishing sector. However, the GOM has given every indication that it has asense of participation and ownership in the proposed project and that, in the interests ofpromoting the private sector, it is committed to seeing it carried out successfully.

38

III. AGREEMENTS TO BE REACHED AND RECOMMENDATION

3.01. The GOM has submitted a Statement of Policy (Annex 2) which defines its commitmentto private sector development. This policy statement endorses policy measures to be taken in aneffort to realize the development of the private sector, in general, and the financial, fishing, andmining sectors. These policy measures, which appear as tranche release conditions in thePSDC which is being presented to the Board at the same time as this project, can besummarized as follows:

(a) Progressive implementation of the first phase of the access fees system fordemersal and cephalopod (deep sea) fishing, said fees being fixed set to rise to 11percent of the estimated value of production by mid- 1997.

(b) Adoption by the Assembly of a new Banking Law satisfactory to the Bank andits continuous application thereafter.

(c) Recovery of an additional UM 800 million by ARCB in 1995 and UM 700million in 1996.

(d) Formulation, in agreement with the Bank, of new standards for the accountingand auditing professions, and adoption of said standards.

(e) Launching of invitation to submit bids in the context of the action plan for theprivatization of MAUSOV and ALMAP in case decision is made not to liquidateone or both of them.

(f) Strengthening of the monitoring scheme for the export of fishing products, andcompletion of the second phase of the study of taxation of the fishing sector.

(g) Revision of commercial code, investment code, arbitration and bankruptcy rules,and the code of civil and commercial procedures in accordance with the studycompleted in January 1995.

(h) Revision and adoption of a new Mining Code satisfactory to the Bank.

3.02. In addition to the aforementioned policy measures, the following specific assurances,pertaining to this proposed project, have been provided by the GOM:

(a) That the implementing agency will submit, by September 30, 1995 at the latest, ashort-list of consulting firms from which the selection will be made to completethe detailed design of, and to carry out, the training programs financed under thisproject. (See paras. 2.13, 2.20, 2.25, 2.30 and 2.41.)

(b) That the conclusions of the studies financed under this project will: (i) form thebasis of a subsequent dialogue with IDA, and that their recommendations will be

39

implemented in light of the dialogue with IDA, and (ii) be disseminated to thepublic through workshops or conferences organized under the initiative of theGOM, and short publications to be made available to the public. (See paras.2.16, 2.18, 2.33 and 2.36 and 2.43.)

(c) That by December 31, 1995 at the latest, the Chamber of Commerce will beestablished as an autonomous agency empowered to act as a convincingrepresentative of the private sector. (See para. 2.25.)

(d) That the PCU, in its role as Project Coordinator, will: (i) organize, in June ofeach year, a joint IDA-Government review of project implementation, based onthe progress reports and on an annual work program and budget for the nextyear; (ii) carry out a mid-term review of project implementation, jointly with IDAin July 1997. (See para. 2.59.)

(e) That the Project Coordination Unit (PCU) in the Ministry of Planning will submitto IDA: (i) a semi-annual report on the progress of project implementation; (ii)annual work programs and budgets for the following year (including the GOM'scontribution to the financing of the proposed project), no later than October 31 stof any one year; and (iii) an implementation completion report, according toterms of reference acceptance to IDA, within six months of the credit closingdate describing the proposed project's implementation as well as current andfuture costs and benefits derived. (See para. 2.60.)

3.03. The effectiveness of this credit will be subject to the following conditions:

(a) Appointment of an independent auditor to carry out an audit according terms ofreference which will be finalized during negotiation. There is no need to agree onan accounting system being in place by project effectiveness, as the PCU willtake over the accounting system already in use by the Cellule de la rehabili1ationdu secteurparapublic. (See para. 2.60.)

(b) Appointment of a Director of the PCU. (See para. 2.50.)

(c) Initial deposit in the Project Account. (See para. 2.58.)

3.04. Recommendation. Subject to the above terms and condition, the proposed projectwould be suitable for an IDA credit of US$7.2 million equivalent on standard IDA terms.

40 ANNEX I

Page 1 of6

ISLAMIC REPUBLIC OF MAURITANIAPRIVATE SECTOR CAPACITY BUILDING PROJECT

IMPLEMENTATION SCHEDULE

MAJOR ACTIVITIES TIMING EXPECTED IMPACTTARGET

1. Financial Sector

l.a. Upgrading of Credit Risk and Borrower'sArrears Information

* Selection of consultants July 1995 Strengthen information system pertaining• Definition of procedure for both data-bases Sept. 1995 to credit and arrears in banking system;* Updating both databases Nov. 1995 improve flow of information between* Training Central Bank staff in database Dec. 1995 banks; reduce costs to banks of working

management, input and retrieval with new clients; increase cost of* Training bankers to provide requisite Jan. 1996 accumulating arrears for borrowers.

information

l.b. Training in Banking

(i) Professional trainingI Selection of consultants July 1995 Enhance skills of commercial bank staff;| Identification of existing skills Nov. 1995 upgrade quality of bank services; increase! Designation of candidates for courses Dec. 1995 scope of bank activities; develop- Final design of courses March 1996 professional association of bankers.. Teaching of courses May 1996. Cycle completed Nov. 1996

(ii) Training (diploma course). Selection of consultants Mar. 1996 Creation of pool of qualified bankers;. Final design of courses May 1996 development of banking as a career. Launching year I of program Oct. 1996 option; encourage competition between. Launching year 2 of program Oct. 1997 banks for qualified labor market entrance.. Launching year 3 of prograrn Oct. 1998

41 ANNEX IPage 2 of 6


1. Financial Sector continued

l.c. Formulation of Strategy for FinancialDevelopment

(i) Study July 1995 Formulate Action Plan for next phase of* Selection of consultant Oct. 1995 financial sector development, design* Submission of preliminary report Nov. 1995 strategy for mobilizing private sector* Discussion of strategy and proposed interest (local and foreign) in development

promotional materials Dec. 1995 of financial mechanisms; prepare* Submission of final report promotional material as necessary.

(ii) Production of Promotional Materials* Selection of consultant Sept. 1995* Production of written material Oct. 1995* Evaluation of written material and proposed Jan. 1996

publicity campaign* Launching of publicity campaign Feb. 1996

2. Private Sector Institutional and RegulatorvFramework

2.a. Upgrading of Accounting and AuditingFramework

(i) Studies (reorganization and upgrading ofaccounting profession) July 1995 Review status of accounting profession;

. Selection of two consultants to study propose action plan for development ofreorganization Oct. 1995 profession; agree on action plan with

. Report on status of profession Nov. 1995 Government authorities.

. Discussion of strategy paper Jan. 1995. Implementation of strategy paper

. Selection of consultants to formulate norms Jan. 1995 Define minimum qualification for public

. Completion of study Feb. 1996 accountants and auditors; create demand

. Formulation of norms for accounting April 1996 for improved formal training inprofession accounting.

. Adoption of these norms May 1996

42ANNEX I

Page 3 of 6


2. Private Sector Institutional and RefulatoryFramework continued

(ii) Revision of Accounting Plan. Selection of four consultants Sept. 1995 Update existing accounting plan taking. Report with recommendations (first draft) Dec. 1995 into consideration changes in accounting. Reference manuals April 1996 procedures in other countries and realities. Final report June 1996 of the Mauritanian economy; ensuring that

transparent, reliable accounting rules arein place; ensuring comparability ofstatements.

(iii) Training. Selection of consultant Jan. 1996 Enhance skills of local accountants and. Design of program April 1996 ensure their ability to provide world class* Launching of 1st cycle of program Oct. 1996 service.. Launching of 2nd cycle of program Feb. 1997

2.b. Support to Chamber of Commerce

. Selection of consultant June 1995 Establishment of permanent support

. Finalizing of organization chart July 1995 structure to act as spokesman for private

. Appointment of staff - Sept. 1995 sector and provide vehicle for dispensing. Training of staff Feb. 1996 support to private sector.. Purchase of equipment Feb. 1996. Elections Sept. 1996. Launching of studies cofinanced by private

sector Oct. 1996. Completion of studies Oct.1997

2.c. Legal and Judiciary Reform

(i) Revision and Elaboration of Legal Texts. Selection of consultants July 1995 Update legal code as it pertains to. Exhaustive review of existing codes and Dec. 1995 business; make legal environmnent more

comparative analysis of other countries investor friendly; enhance transparency. Preparation of draft codes June 1996 and legal security; ensure consistency with. Adoption of new codes Dec. 1997 respect to Mauritanian's treaty obligations

with trade partners.

43 ANNEX IPage 4 of 6


2.c. Legal and Judiciary Reform

(ii) Establishment of Commercial Register Provide information on existing. Selection of consultants Sept. 1995 companies in Mauritania.. Setting up of registration procedure Dec. 1995. Completion of compilation of company records Sept. 1996

(iii) Training. Selection of consultants Sept. 1995 Enhance quality of court officials and. Setting up of program Dec. 1995 magistrates; ensure smooth functioning of. Selection of candidates March 1996 dual legal system; make possible the. Beginning of French language training June 1996 requirement of high standards among legal. Beginning of Phase I of legal training Dec. 1996 officials.. Beginning of Phase II of legal training Oct. 1997. Completion of Phase II of legal training Mar.19980

(iv) Regular Publication of Up-to-date JournalOfficiel. Selection of consultants Sept. 1995 Provide up-to-date, reliable information. Purchase of computers and software Dec. 1995 on Mauritanian laws.. Design of format Mar. 1996. First regular updated issue Sept.1 996

(v) Access to Infonnation- Training of Mauritanian officials (financed by

PPF) April 1995, Issue of hard copy of indexation of Sept. 1996 Provide handy computerized indexation of

Mauritanian laws Mauritanian laws; increase access ofi Issue of Users Guide Dec. 1996 foreign investors to Mauritanian legal

texts; improve dissemination of legalinformation; integrate Mauritanian legalsystem into international database;improve quality of "Journal Officiel".

2.d. Feasibility Study and Scheme forImplementation of Tax-Free Regime forExporters

. Selection of consultants Sept. 1995 Offer advantages to export-oriented

. Submission of preliminary report (discussion of Dec. 1995 investors; enhance Mauritania's reputationintroduction of" regime) March 1996 as a viable locale for investment; draw

. Submission of final report maximum advantage from a competitive

. Preparation of regulatory texts June 1996 exchange rate.

. Adoption of new texts Dec. 1996

44ANNEX I

Page 5 of 6


3. Mining Sector

.a. Strengthening of Mining Sector Framework

(i) Policy Dialogue* Selection of consultants* Drafting of preliminary strategy paper Sept. 1995 Design action plan for attracting investors* Adoption of strategy paper Oct. 1995 to mining sector; sensitize and educate key* Agreement on revisions of mining code Dec. 1995 officials in dynamics and best practices of* Adoption of revised mining code June 1996 world mining, as well as in Government* Agreement on revision of tax code June 1996 priorities; review and update mining code* Adoption of revised tax code Dec. 1996 to make environment more investment

Dec. 1996 friendly; review tax code to increaseincentive for private investments in miningsector.

(ii) Institutional reform and Upgrading ofMining Cadastre

* Selection of consultants Jan 1996 Strengthen supervision of mining sector;* Investment promotion seminar Feb. 1996 improve procedures and documentation;* Agreement on institutional reforms April 1996 make institutional environment more* Reconfiguration of institutions June 1996 investment friendly; upgrade mining* Definition of new procedures June 1996 cadastre.* Implementation of new procedures June. 1996* Definition of new cadastral procedures Sept. 1996• Purchase of equipment Sept. 1996• Implementation of new cadastral procedures Mar. 1997

(iii) Training* Selection of training experts Sept. 1995 Improve administrator's grasp of mining* Training seminars abroad economics and finance, improve

* 1st seminar Dec. 1995 environmental monitoring; consolidate* 2nd seminar June 1996 institutional build up; enhance quality of

* Basic training course in Mauritania Dec. 1995 mining accounting and implementation of* Advanced training course in Mauritania Sept. 1996 tax regime, strengthen mining cadastre

capabilities; improve administrator'snegotiation skills as they pertain to miningsector.

ANNEX IPage 6 of 6


4. Fishine Sector

4.a. Survey: Implementation of Action Plan. Selection of consultant July 1995 Verify compliance with regulations. Preparation of preliminary report Sept. 1995 introduced and identify violations; track. Preparation of final report Oct. 1995 foreign exchange flows from fishing. Application of new mechanism for export Dec. 1995 sector; monitor environmental impact on

control fishing sector; provide technical support. Technical support to CNROP Dec. 1996- to CNROP.

Jan. 1997

5. Proiect Coordination Unit (PCU)

• Selection of all staff May 1995 Monitoring imnplementation of all. Unit fully operational June 1995 components; coordinate strategy with. Communications campaign Sept. 1995- other ministries; maintain contact where

June 1997 necessary with private sector coordination• Mid-term report June 1997 structure; provide information for project. Final Report May 1999 supervision; disseminate information

about GOM policy measures.

6. Proiect Audit

. Selection of consultants March 1999 Verify compliance with Government and

. Preparation of preliminary audit May 1999 Bank procurement, expenditure and3 Submission of final audit July 1999 reimbursement rules; verify accounting for

each component; verify use of specialaccount

46

ANNEX IIPage 1 of 21

Islamic Republic of Mauritania

LETTER OF SECTOR DEVELOPMENT POLICYFOR THE FINANCIAL AND PRIVATE SECTORS

(Translated from French)

INTRODUCTION

1. Mauritania's financial system and private sector have undergone far-reaching changes during the last fewyears. In the context of the continuous dialogue established between the World Bank and the Government of theIslamic Republic of Mauritania, and particularly of the negotiations concerning the 1994-97 economic policyframework paper, we should like to set forth the broad lines of our development policy for the financial andprivate sectors.

2. First of all, however, it will be useful to describe the overall economic setting within which this policy isto be implemented.

1. MACROECONOMIC POLICY FRAMEWORK

A. Status of the Economic Reform Program

3. Since 1992, on the basis of the fourth framework paper, drawn up at the end of that year, Mauritaniahas stepped up its adjustment efforts aimed at correcting the structural imbalances that have accumulated sincethe 1970s, in order particularly to limit the deterioration of the macroeconomic situation that characterized thefirst two years of the decade. With the support of the International Monetary Fund and the World Bank, theGOM has drawn up an economic recovery plan, the broad lines of which were set forth in the 1992 frameworkpaper and which was subsequently revised to take account of exogenous developments and the progress achievedin implementing the program.

4. The GOM's strategy has put the emphasis on continuation of the liberalization policy initiated in 1986 inthe context of the adjustment programs (supported by the 1987 SAC, the 1989 PASA and the 1990 PASEP),whiclh have contributed greatly to the goals of substantial liberalization of the economy, increased private-sectorparticipation in economic activity and a greater role for market forces.

5. The economic difficulties (fall in export receipts, relaxation of budgetary and monetary policies and lossof solvency of certain banks) encountered during the period 1990-91, owing essentially to exogenous factors,were rapidly overcome as a consequence of Mauritania's continued restructuring efforts and its evolution towarda democratic system.

6. In order to contain these problems, in October 1992 the GOM embarked on an ambitious program ofaction designed to rekindle the adjustment process and deepen the structural reforms. The implementation ofthese important reforms in the various areas has yielded positive results.

47

ANNEX 11Page 2 of 21

7. Price instability has been brought under control, wvith an estimated rate of inflation of 3.8 percent in1994. The economic growth rate for the period 1993-94 was close to 5 percent, against an original target of 3.5percent.

8. Mauritania's current monetary and budgetary policies have been implemented in conformity with theprograrn drawvn up together with the IMF and the World Bank and set forth in the 1995-97 econornic policiesfrarnework paper. More resolute application of monetary policy has enabled Mauritania to combat inflationarytrends and cope With the fall in export prices more effectively.

9. Despite the decline in inflation, the rediscount rate has been maintained at I1 percent, and the ceiling onlending rates, currently 20 percent, is being progressively relaxed. The experience gained with the PublicTreasury bonds auction system introduced in June 1994 will henceforth serve, among other purposes, as basicindicator for setting base rates, and base lending rates have been liberalized. The minimum remuneration ondeposits has been abolished.

10. The price stability that has prevailed since devaluation confirmns that Mauritania has conserved the gainsachieved in export competitiveness. All the measures geared to the deregulation of the foreign exchange and tradesystem, provided for in the program, have been implemented.

11. The free foreign exchange market is operating normally and without restrictions with respect tooperations in invisibles, and the banks have gained experience in transactions in foreign currency transactions.This market has been opened to non-banking foreign exchange houses in order to stimulate competition and takea first step toward a true exchange market. Foreign currency transfers to finance the imports of goods andscrvices are authorized in this market.

12. Turning to foreign debt, Mauritania is on good terms with its various creditors. Arrangements on termsbroadly comparable to those accorded by the Paris Club were obtained in 1984, and an armngement wMith theFKDEA is imminent. The introduction of the auction system for import licenses, the conclusion of reschedulingagreements, the settlement of public arrears, and the abstention from contracting new loans on non-concessionalterms are major steps in the right direction.

13. In December 1994 Mauritania requested the second arrangement under the Enhanced StructuralAdjustment Facility (ESAF) at the IMF, in collaboration With the World Bank. The major benefits gained by thearrangement were: (i) maintenance of price stability through continued application of restrictive budgetary, fiscaland monetary policies; (ii) creation of a transparent, market-linked exchange and international trade system inorder to stimulate competition and eliminate the obstacles to investment and production; (iii) reform of the legal,judicial and regulatory framewvork; (iv) refomi of the fishing sector through the installation of a transparentsystem based on access fees (taxes based on the expected value of production), the strengthening of surveillance,the move toward the privatization of marketing, and the adoption of an exit mechanism for non-viable enterprises;(v) strengthening financial intermediation, and (vi) resolution of the extemal debt problem.

14. The program's macroeconomic objectives are as follows: (i) a sustained average economic growth rateof 4.4 percent, thus assuring a moderate increase in income and consumption per capita; (ii) stabilization ofannual inflation at about 3 percent, and (iii) reduction of the external current account deficit (excluding officialtransfers) from 14.2 percent of GDP in 1994 to 6.4 percent in 1997, together with an increase in the CentralBank's intemational reserves so that they cover imports for 2 months in 1995 and 3 months by 1997. The key

48

ANNEX TIPage 3 of 21

factor in achieving such a growth rate would be expanded private sector investment apart from that undertakenby the mining company. Investment should rise from about 13 percent in 1994 to about 15 percent in 1997. Inaddition, investment aimed at raising the value added of exports of fish and mineral products, together with amore liberalized economic environment, should enhance the productivity of existing capital. In order to narrowthe external and domestic imbalances, it is projected that the fiscal deficit of 4.3 percent of GDP in 1994 will betransformed into a small surplus in 1997. The net reimbursement of government debt to the local banking sectorwould create possibilities for the satisfaction of the private sector's financing needs, as well as permit a growth ofthe money supply compatible with the program's inflation goal.

B. Relative importance of the financial and private sectors

15. The economic setting described above brings out the importance of the financial and private sectors inthe GOM's medium-term strategy. It goes without saying that improving the situation of the external sector willdepend in large part on increasing exports, which can only be achieved by assigning a more dynamic role to theprivate sector. The GOM is therefore acting to improve the sector's incentives structure, especially in the area ofexport promotion.

16. Outside the external sector, the private sector has an extremely important role to play in the process ofexpanding economic activity and thereby rekindling econormic growth. The GOM sees the private sector as thedriving force of the economy, in line with the strategy of trimming the role of the public sector (reflected in itspublic enterprises reform program instituted in 1989 with the support of the World Bank, which granted astructural adjustment credit for the sector and a technical assistance credit for implementation of the reformmeasures). Expanding private-sector activity has thus become a top-priority goal in order to stimulateemployment and mitigate the negative impact on it of budgetary and monetary austerity and to ensure the highlevel of budget receipts required to be able to achieve the program's macroeconomic objectives.

17. The financial sector also has a key role to play in the GOM's program. In the first place, the soundnessof its macroeconomic policy wvill depend on the future health of the banking sector. The GOM has already statedits intention not to grant any financial support to the banks from now on. It is therefore essential that the banksregain their profitability and pursue their development in a context of strict compliance with the prudentialregulations.

18. The GOM's macroeconomic policy will be reflected in the immediate future in tightening of policiies formanaging demand, and the consequent reduction in absorption will necessarily be accompanied by an increase insaving. In addition to the efforts of the authorities in the taxation area, this will call for action to revitalize thefinancial sector's capacity to mobilize resources. Efficient financial intermediation must play a larger role in thechanneling of funds toward the most remunerative economic uses.

ll. REFORM OF THE FINANCIAL SECTOR

19. The first bank restructuring program, which covered the period 1988 to 1990, was implemented vithsubstantial support from the World Bank. It was among the financial components financed by a structuraladjustment credit. The results of this restructuring did not entirely come up to expectations. In particular:

49


(a) This first restructuring exercise did not basically alter the way the banking system functions. Itremained largely dominated by the state, which until 1990 was owner of the country's twvo largest banks (UBDand BNM) and co-owner of the Chinguitty Bank.

(b) The rehabilitation was only partial, since the need for provisions to cover possible borrowerdefault was under-estimated. In this context the (public) banks remained dependent upon Central Bankrefinancing operations for their daily cash flow, thereby preventing implementation of a judicious monetary policybased on an indirect control of liquidity.

(c) The State's intervention in the activity of the banks caused the latter to incur risks, especially inthe fishing sector, whose activity posted negative fluctuations.

20. After audits of the situation of the banks, as of June 30, 1993, were completed in December 1993, baddebts rose again to UM 18.84 billion (US$151 million or 60.1 percent of bank loans), part of which (at least UM5 billion) represented bad debts transferred to the state but still carried on the balance sheets of certain banks.The uncertainty that afflicted the sector led to a general slowdowvn of the credit system, which penalized theprivate sector in particular.

21. In light of this situation the monetary authorities, with the support of the IMF and the World Bank,instituted a major program of reform of the financial sector. The first phase of this program, restructuring of thebanking system, is now nearing completion. Its most important measures were as follows:

(a) The GOM wvithdrew from the banking system completely and transferred all the shares it held inthe banks to the private sector, except for the Chinguitty Bank, to which it is linked through internationalcommitnents.

(b) The Union of Development Banks (Union des Banqtues de Developpemenf-UBD), the onlydevelopment financing agency, was liquidated on June 24, 1993.

(c) All the development banks were financially rehabilitated by means of substantialrecapitalization.

(d) Supervision and oversight of the banks was strengthened, and vigorous measures are currentlybeing implemented to provide the Central Bank with all the tools it needs for efficient quality control; the WorldBank fumished substantial assistance, through its Institutional Development Fund.

(e) An ambitious, precise and monitored programn is under way of recovcry of bank debtorbalances transferred to the GOM's portfolio, just as of all other receipts. A recovery agency has been set up forthe purpose. The recovery target for 1994 (UM 600 million) has already been achieved.

22. The GOM now proposes, with the continued help of the IMF and the World Bank, to launch the secondstage of the banking sector reform program, i.e. the consolidation stage. The main objectives of this stage are to:(i) consolidate the bank rehabilitation and debtor balances recovery process; (ii) institute a stricter supervisionsystem in order to avoid any repetition of banking crises; (iii) strengthen the skills of bank management staff, (iv)promote investnient financing through markct mechanisms, and (v) improve the incentive structure of the bankingsystem and thereby enhance the efficiency of financial intermediation.

50


A. Consolidating the Restructuring of the Banking System

23. As mentioned above, during 1993 the GOM maintained a dialogue with the commercial banks whilecarrying out technical studies designed to identify ways to definitively rehabilitate the banking system. Thesetechnical studies received substantial support from the World Bank, which helped to finance them. The GOMfelt that, in withdrawing from the banking system, it wvas incumbent upon it to bear part of the restructuring costs.However, all bank owners were constrained to make a substantial contribution in order to restore the financial

health of their respective institutions.

24. The cost of rehabilitating the commercial banks has thus been bome by the private owners as well as bythe GOM. The GOM's involvement was due to the followving considerations: (i) the GOM could not wvithdrawfrom the sector without bearing part of the rehabilitation costs, having regard to its responsibility as a formershareholder with, in the case of one bank (BNM), a major role in management, and (ii) the banks' losses were duein large part to non-repayment of loans by public enterprises. This being so, the cost to the GOM was UM 4billion, wvhich falls within the budgetary and monetary limits established in the Policy Framework Paper. By Nvayof comparison, the costs borne directly by the other owners of the banks total so far the equivalent of UM 4.55billion. Following the payment of UM 2.3 billion to BNM in the form of bonds and cancellation of liabilities tothe Central Bank, the GOM became the owner of a portfolio previously held by the BNM with a nominal valueequivalent to the same arnount. These credits were added to those of the UBD whiich are managed by the ARCB(Agence pour le recouvrement des creances bancaires).

25. The GOM's strategy for successful implementation of the commercial banks restructuring program forcommercial banks is based on the following measures:

(a) Bad debt recovery. The GOM has drawn up a plan of recovery of bad debts held by theARCB, with the following recovery targets:

December 31, 1994: UM 600 millionDecember 31, 1995: an additional UM 800 millionDecember 31, 1996: an additional UM 700 million

The first recovery target, that of 1994, has already been met. The above timetable represents a realisticrecovery plan compared with the targets adopted at the beginning of 1993. This is mostly due to the delays in thetransmission of loan files from the BNM to ARCB; the process was completed in October 1994. Note howeverthat according to an analysis perforned by several experts, the proposed recovery ratio represents the maximumthat could be expected, given the poor quality of the loan documentation delivered to the GOM. It should benoted also that the banks themselves are successfully pursuing recovery of the loans remaining in their portfolio.

(b) Compulsory recapitalization of all banks. The GOM has already notified all the banks thatthey will have until March 31, 1995 to complete their recapitalization so as to bring them into compliance withthe capital adequacy ratio in force (8 percent of assets), taking into account the data deriving from thecompulsory audits completed in January 1995. On the basis of these audits and with the increase in BNM'scapital, all banks have been adequately recapitalized. A additional capital increase of UM 700 million has alsobcen decided by the Board of BAMIS. Said capital wiJl be paid up during the first half of 1995.

51

ANNEX IIPage 6 of 21.

(c) Submission of medium-term financial programming plans to the Central Bank by all thebanks, detailing their strategies to ensure profitability. The GOM also inforned the banks that they arerequired to present to the Central Bank before March 31, 1995 financial programming plans sununarizing theirstrategy for regaining profitability. Note that this represents the final stage of the financial restructuring of thebanks, which are henceforth private (except for one of them) and completely autonomous. These plans are theexclusive responsibility of the primary banks. Said plans were received and are being used as guidelines forevaluating future financial performance by the banks. The plans will fuirnish a point of departure so that by thebank supervision authority can evaluate the banks' evolution in terms not only of financial accounting but also ofimplementation of a coherent strategy for regaining their profitability. This will make it possible to set upindicators wvhereby crises can be anticipated well in advance.

26. The GOM is consulting with the World Bank in order to implement a debt reduction operation for short-term extemal loans. Completion of this operation can only strengthen the financial situation of the entire bankingsystem. Concerning the part of the debt not covered and deposited in ouguiyas by the banks with the CentralBank, the GOM wishes to deal with this problern in close consultation with the World Bank.

B. Strengthening Bank Management and Staff Skills

27. In parallel with strengthening of the financial sector regulatory frameework, the GOM intends to requirethe banks to undertake major capacity strengthening of their capacity so as to avoid repetition of the past mnistakesthat led to the deterioration in the financial situation of the banking sector. This wrill be done by setting up,trining courses, under the aegis of the Central Bank and with the technical and financial assistance of the WorldBank under its Capacity Building Project (CBP) for the financial and private sectors. The training courses willbe of two kinds:

(a) Professional training, which will take place in a training center where the emphasis will beplaced initially on training of trainers, designed to provide continuous training of bank management and line staff.The training will comprise local courses covering, inter alia, the following topics: loan approval procedures,

bank accounting, liquidity management, resource mobilization, documentation of credits and internal auditing.

(b) Diploma training, spread over three years, designed to train the banks' future management andline staff.

28. The banks will be required to participate in the professional training courses, which they will later beable to strengthen by means of intemal training courses tailored to their specific needs and long-term strategy.

C. Incentive Framework for the Financial Sector

29. In order to redress the problems stemming from the relative lack of incentive to Mauritania's financialsector to mobilize savings and the limited financial deepening of its economic system, the GOM will continue toimplement the following measures:

(a) Maintenance of a positive interest rate in real terms. At the same time, the banks will continueto be entirely free to set their deposit rates, the ceiling on six-month deposits (7 percent) having been abolished inJanuary 1995.

52

ANNEX TTPage 7 of 21

(b) Continuation of the periodic public treasury bond auctions instituted in June 1994, as providedfor in the program contained in the Policy Framework Paper. The creation of a treasury bonds market furnishesan important instrument for both management of the public debt as well as the conduct of monetary policy. Atthe same time it makes it possible to set up a true money market, enabling the banks to manage their surplusliquidity, and this wvill encourage them to mobilize resources. It is also expected, in view of the development of amarket for Treasury debt instruments, that monetary policy will increasingly be implemented through indirectinstruments of control. This will make it possible to reexamine the required reserve ratio and gradually toabandon credit ceilings on individual banks by the end of 1996. To ensure transparency and encourage widerparticipation in bond auctions, the results are now published in the newspapers and the minimum purchaseamount has been substantially reduced. To encourage the development of a secondary narket, the Central Bankhas stated that it is prepared, effective January 1, 1995, to intervene on the market in order to enlarge it and toimplement monetary policy. The monetary policy instruments will be increasingly linked to the functioning of themarket, in accordance with the mechanisms devised, w%ith the assistance of the IMF, in February 1994. SinceSeptember 1994 this has included access to a Central Bank rediscount window based on Treasury instrumentswithin the framework of monetary policy constraints as laid down in consultation with the IMF. The ceiling onlending rates has been relaxed. This rate has risen from 18 percent to 20 percent at the end of 1994.

(c) Maintenance of the system of incentives to banks to mobilize deposits of Mauritanians livingabroad, i.e. authorization to the banks to freely deploy the foreign exchange captured through these accounts.

D. Investment Financing

30. Since the liquidation of the UBD, the country's only development financing agency, the Mauritanianfinancial system has been characterized by the absence of long-term resources, the only ones suitable for financeinvestment projects. In light of the great need for such financing, as evidenced by the banks' current volume oflending operations, the GOM considers it urgent and essential that a mechanism be set up through Nwhich toalleviate the current deficiencies and promote the creation of new instruments.

31. To this end the GOM, with the support of the World Bank, undertook a study of this question whichfocused on examination of possible mechanisms and comparison with experience in other countries. The study,and the ensuing dialogue with the World Bank, yielded a number of important recommendations, including thefollowing:

(a) Emphasis needs to be placed on mobilizing Mauritanian and foreign savings. This includessavings of Mauritanians resident in the country itself (particularly rural savings, in which local banks arebeginning to show interest), savings of Mauritanians living abroad, and foreign savings which could be channeledthrough local financing mechanisms if the latter prove to be attractive.

(b) The possibility should be exanmined of setting up an investment bank, on condition that theGOM's shareholding in it is limited (a maximum of 20 percent would be desirable) in order to avoid a repetitionof the UBD situation.

(c) The possibility should also be considered of setting up a specialized institution (for example, ahousing bank). on condition that it is adequately capitalized, that there is limited governmnent participation andthat its activities are closely monitored, particularly with respect to asset/capital ratio.

53


(d) In order to promote long-tern financing, the feasibility of setting up a guarantee fund should bestudied, on condition that it not be financed out of budget resources or counterpart funds.

(e) SME (small and medium enterprises) financing could be promoted through the fornation ofmutualist groups whose primary purpose would be to mobilize the savings of the members of the group andchannel them toward the most promising uses.

32. These conclusions reflect the GOM's policy as expressed in the new Banking Law. At the same time, theGOM feels that it would be appropriate to carny out a more detailed examination of the issues raised by theabove-mentioned study and to pursue the dialogue with the World Bank concerning themn, with a view inter alia toharnessing the support of private investors and donors for the next stage of development of the financial sector.

33. To this end the GOM, under the CBP, w%ill carry out a second study, with the following objectives: (i) amore thorough analysis of the prospect for savings mobilization; (ii) an appraisal of various alternative ways tofinance investment, given that certain circles in the Mauritanian and foreign private sector have shown interest;(iii) an examination of the role of institutional investors (insurance companies, social security, postal checkingservice-CCP) and of ways of steering them towvard the financing of investment, and (iv) preparation, whereappropriate, of material for promoting approved courses of action among private investors.

34. The GOM undertakes, in light of the findings of that study, to pursue the dialogue with respect to thesecond stage of development of the financial sector. It will coordinate its sectoral development strategy with theWorld Bank.

E. Regulatory Structure

35. In view of the prime importance of strict application of a coherent, clearly-defined and adequate set ofprudential regulations, the GOM has already instituted an intensive program of action to strengthen the structureof regulation and oversight of the banking sector.

36. Under the aegis of the IMF, the GOM has launched a process of strengthening the Central Bank'smanagement and line personnel skills. This effort has also been supported by a grant from the Bank'sInstitutional Development Fund. With financial support from the IMF, the Central Bank has recruited an expertadviser on supervision of banks and banking oversight. In parallel, the Institutional Development Fund grant hasenabled the Central Bank to review the current banking regulations, the procedures through which the regulationsare applied and the banking accounting plan.

37. With the support of the World Bank through the IDF grant, the Central Bank has carried out thefollowving: (i) the launching of training courses for Central Bank management and staff covering bankingoversight, intemal auditing and information system; (ii) the preparation of bank supervision and bank portfolioappraisal manuals, and (iii) the improvement of the infomiation system as well as the establishment of bank datatransmission procedures.

38. A draft revision of the Banking Law has been prepared, covering provisions relating to the granting ofloans to bank shareholders, to managers and to staff, and to increase disciplinary penalties for failure to complywith the rules of sound management as defined by the banking regulations. This draft law, which has been the

54


subject of discussions with the World Bank, will be finalized in consultation with the Bank and will be presentedto Parliament at its next session in June 1995.

39. The Central Bank will require the banks to be in compliance with the banking regulations by June 30,1995, on which date it will begin to apply the penalties instituted at the beginning of the year. From that date, thetransmission of bank data, preparation of on-site and off-site inspection reports, and application of the bankaccounting plan will be effected in conformnity w ith the procedures established during 1994.

40. By the end of 1995 the Central Bank, with the help of the World Bank through the CBP, will haveupdated the Credit Risk Information System (Centrale des Risques) and the Credit Arrears Information System(Centrale des Impayes), using a more highly developed information system. These two centers will improve theavailability of data on borrowers and enable the banks to check on the financial status of each loan applicant andthe existence of any other debts already secured by the collateral offered by the applicant.

41. It should be added that the regulatory structure of the banking sector will also be strengthened withsupport from two components of the Bank's Capacity Building Project (CBP): first, revision of the nationalaccounts chart and strengthening of the accounting and auditing professions, and second, revision of the businesslegislation (for example, to facilitate application of the debt recovery law) and strengthening of legal staffcapacities.

III. REFORMS SUPPORTING THE PRIVATE SECTOR

42. A comerstone of the GOM's strategy of promoting the growth of the private sector consists of action toencourage private-sector activity in the form of measures to improve the incentives system, reform the regulatoryfiamcwork and strengthen the institutional framework.

43. The GOM's approach is based on the hypothesis that Mauritania's private sector is best able to create thejobs necessary to absorb the labor force created by a growing population. The sector is moreover destined to playa key role in export expansion, necessary to improve Mauritania's extemal situation. The GOM's objective istherefore to promote private-sector activity in general and encourage export growth in particular.

A. Improvement of the Incentive Framework

44. The restauration of macroeconomic stability which has taken place during the last few months representsa substantial improvement in the framework of incentives to private activity. The estimated inflation rate for1994 of 3.8 percent means that it will be much easier for private entrepreneurs to program their activities. Therelatively low inflation rate since the 27-percent devaluation of the ouguiya in October 1992 enhances theeconomic competitiveness of activities based in Mauritania.

45. In addition, the progressive deregulation of prices and trade opens up the prospect of an increasinglydistortion-free economic system in which relative prices reflect the economic costs of production. The GOM hasdecided to put the emphasis on improving the other types of incentives to private economic activity. The maintarget of the GOM's proposed reform is the foreign exchange system. The GOM has stepped up its efforts toliberalize the exchange system since 1992, for example by abolishing export licenses and the preferentialexchange rate accorded to Mauritanians living abroad. Note that the differential between the official exchangerate and the parallel rate has narrowed substantially since the October 1992 devaluation.

55


46. In February 1993, the GOM instituted an auction system for licenses to import, lirnited to importsfinanced by the Central Bank. Since March 1994, the commercial banks have been authorized to hold foreign-exchange accounts abroad, to which they have access to pay for imports. Also from that date, exporters haveaccess to 5 percent of foreign exchange receipts from exports of services and 10 percent of those from goodsexports.

47. From July 1, 1994 the GOM widened the auction system to include all imports except fuel and fishing-sector imports. It should be noted that the effect is to raise the proportion of exchange operations covered by theauction system from 49 to 60 percent of the total controlled by the Central Bank (the part not controlled by itconsists essentially of imports covered by foreign exchange receipts freely available to the SNIM).

48. From September 1994 the percentages of access by exporters were doubled, to 10 percent for servicesand 20 percent for goods. Also noteworthy is the creation of 12 foreign exchange offices on March 31, 1995,with the authorization of the Central Bank. At the same time, the scope of the operations in which thecommercial banks may engage on the free market has been widened to include foreign exchange purchases for thesettlement of goods and services import transactions and current private transfers.

49. A study will be conducted by the end of April, 1995, with the help of the IMF, to identify the modalitiesof a unified exchange rate system. Exchange rate policy will be directed to narrowing the gap between the officialrate and that of the free market and the parallel market, wvith the objective of eliminating the practice of multipleexchange mtes by the end of December 1995. The improvement in the external current account, the totalclimination of public and private external arrears in 1995, the reform of the fishing sector and the application ofstringent budgetary and monetary policies should facilitate exchange rate unification and the transition toward amore liberal exchange system and prepare Mauritania to accept the provisions of Article VIII (sections 2 through4) of the IMF's Articles of Agreement.

B. Institutional Framework

50. To improve the dialogue betveen the Government and the private sector, the GOM proposes to set up aprivate-sector consultation mechanism. This structure will bring together representatives of the private sector,ensure continuous and open dialogue between the govemment and the private sector and help the GOM and thedonors to define their policy of support to the sector.

51. In 1994 the GOM carried out a study, financed by the Japanese grant administered by the World Bank,aimed at designing the best possible scheme for setting up an institution that would serve as spokesman for theprivate sector in any dialogue with the GOM, furnish support to private-sector operators and investors, bothMauritanian and foreign, that seek to play a role in the economy, and help donors to channel their assistance tothe private sector. The conclusions of this study were the basis of important discussions between the authoritiesand the Bank. It was subsequently decided to undertake the following action: (i) to designate the Chamber ofComnnerce as the private-sector support agency; (ii) to take the necessary steps, with the financial assistance ofthe World Bank, to reorganize of the Charnber of Commerce, including its charter (before end-1995) as anautonomous institution, and the choice, by election, of a new president; (iii) to select and train the Chamber's staffand procure the necessary equipmcnt to enable the Chamber to be functional by June 1996, and (iv) to train theChamber's staff and, in consultation with representatives of the private sector and the donors, set up mechanismsenabling the Chamber to contribute to the promotion of the private sector.

56

ANNEX llPage 11 of 21

52. Another study was conducted in 1994, again financed by the Japanese grant administered by the WorldBank, to assess the feasibility of setting up one or more free trade zones or systems within Mauritania. Thisfeasibility study showed that a free trade regime (sysIeme de points francs) for new exporters is currently themost suitable wuy of accomplishing this purpose under the socioeconomic conditions prevailing in Mauritania.Such a system could help greatly to promote export-oriented production, especially for food products, in whichMauritania possesses a comparative advantage. The GOM therefore proposes to conduct a detailed study of thefeasibility of such a system, again under the CBP. The study will seek to define the arrangements for setting upfree trade points, particularly with respect to the necessary administrative, legal and regulatory measures. Adecision whether to set up such a scheme will be taken by June 1996 at latest. If it is decided to do so, a deadlineof December 1996 is envisaged by which to establish the free trade points system and adopt the necessaryregulations.

C. Business Laws and Regulations

53. The GOM considers it essential, as a basic condition for injecting dynamnism into the private sector, thatan appropriate legislative and regulatory framework be created that ensures legal security in the conduct ofbusiness, inviolability of contracts, recoverability of bank loans and transparency of and better access to laws andregulations.

54. With this in mind the GOM has conducted a study, financed by the Japanese grant administered by theWorld Bank, designed to identify the essential components of a program of reformn of the legal and judiciary theframework. The study yielded a detailed analysis of the deficiencies of the current system, together with acomprehensive plan of action covering: (i) the revision of laws and regulations that create problems in theconduct of business; (ii) the implementation of an ambitious program of training of judges, lawyers and paralegalpersonnel, and (iii) the development of a data base to provide an exhaustive compendium of Mauritanian laws,their regular and speedy publication in the Official Gazette (Journal Officiel) and the incorporation of thecompendium into an international information network. On the basis of these recommendations the GOMnegotiated World Bank financing, under the CBP, of the following components of the reform of laws andregulations governing the private sector:

(a) The revision of the principal elements of the regulatory framework relating to business, inaccordance wkith the very detailed recommendations produced by the above-mentioned study, in order to fumishan envirormient favomble to Mauritanian and foreign private investment. The most important part of thetechnical work wvill be launched during the coming months with a view to adopting the nev versions of thecommercial and investment codes, an improved set of arbitration rules and clearly-defined bankruptcy rules,among other legal reforms, by December 1996. This will be accompanied by the establishment of a commercialregister (of property).

(b) The strengthening of the legal institutions, in accordance with the recommendations of theabove-mentioned study, and implementation of a program of training for judges and paralegal staff; this programwill be started in January 1966.

(c) The establishment of a data bank on legal texts and regulations in effect in Mauritania, using aclassification system that ensures rapid and easy access; the manual necessary to this operation is scheduled to beready by December 1995.

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(d) Also under the CBP the reorganization, expected by December 1995, of the accountingprofession by preparing a plan of action and identifying the necessary components of a program to strengthen theaccounting and auditing framework; revision of the national accounting plan and the mandatory auditing rules,and preparation of a new accounting procedures manual, by April 1996; promotion of the accounting professionthrough the adoption, by April 1996 at the latest, of professional standards that ensure a high quality of service,and training of auditors and accountants, to be spread over the years 1996 and 1997.

IV. FISMHNG SECTOR

55. In 1993 the fishing sector accounted for 48 percent of Mauritania's total current receipts (excludingofficial transfers); realization of the sector's potential ranks among the GOM's highest priorities. The recent fallin fishery export receipts underscores the importance of speedy implementation of the GOM's plan of action.Reform of the fishing sector forms an integral part of the GOM's program. Its sectoral development strategy isdescribed in detail in the separate letter of development policy for the fishing sector.

V. MINING SECTOR

56. Mauritania enjoys favorable geologic conditions, such that the mining sector represents a major sourceof national wvealth. A number of mineralized zones (notably gold and copper deposits) have been identified inMauritania; interest on the part of geological investors is relatively low, however, owing to the inadequacy ofavailable geologic data and the limitations of resources available to the government agencies responsible for thesector.

57. Deposits of gold and certain base metals have been worked for a number of years or have recently beendiscovered within the subregion (Mali-Ghana). It is therefore hoped that Mauritania, with a legal and tax codesframework that is competitive in light of international practices and with an adequately developed geologic database, Will experience strong growth in the precious and non-ferrous metals sector.

58. Mauritania's mining industry is currently dominated by iron ore which, with reserves totaling severalbillion tons, will continue to occupy a leading place in the economy during the decades to come. The World Bankhas vigorously supported the development of this activity and has carried on a sustained dialogue with the GOMconcerning ways to promote investnment in the mining sector. In light of these discussions the GOM has drawn upa sectoral development program wNith the following major components:

(a) Fornulation, in consultation with the World Bank, of a strategy for the mining sector that spellsout the sector's development goals, together with the necessary incentive measures to make it more attractive toprivate investors; this strategy will be formally adopted in December 1995.

(b) Adoption of legal and tax frameworks that are competitive with those of other mining-orientedcountries; the new mining and tax codes applied to niining will be adopted by December 1996.

(c) Strengthening of the government institutions responsible for regulation and oversight of themining sector; to that end, the GOM proposes to adopt and apply new procedures within the Mining Directorate(Direction des Mines) by June 1966, together vith new cadastrai procedures which will take effect in March1997.

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(D) Finally, taining of Mining Directae stag in 1995 and 1996, in order to stengthen theDirectorate's skills base and make government staff aware of investors' needs and intemational mingindustrystadards.

VI. MACROECONOMIC AND SECTORAL FRAMEWORK

59. The adjustment program for the fiancial and private sectors forms an intgal part of the GOIvfs overalladjustmert progriam, set forth in the 1995-97 medium-tern economic and financial policy fimework paperapproved by the IMF and the World Bank in January 1995. The maarecononic fiamework as defined in thatpolicy letter, particlarly the chapters on private-sector and invesment prorwoion policy, developmeat stwategyfor the fishing and mining sectors, and financial and credit policy, is compatible witi the objectives of thefinancial and private sectors adjustenet project.

Washington, . 1995

H.E. hIr. Mohamed Lemine Ch'Bih Ould Cheikh MelainineMinistre du Plan

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ANNEX TIPage 14 of 21

Islarnic Republic of Mauritanlia

LETTER OF SECTOR DEVELOPMENT POLICYFOR TBE FISHERIES SECTOR

(Translated from French)

.1. As part of the ongoing and open dialogue established in 1985 with the international donorcommunitv, the Government of Mauritania sets out below the thrust of its policy to revitalize the fisheriessector based on sustainable and balanced development.

Backaround

2. Since 1985, with the support of the intemational donor community, the Government of Mauritaniahas worked to overcome the adverse effects of the economic and financial crisis of the 1980s and toremodel its economy on the bases of competitiveness and social betterment within a framework of greaterinstitutional democratization and respect for the major macroeconomic equilibrium.

3. Given the importance of fish resources to the general development of the country in terms of valueadded, budget receipts and inflows of foreign exchange, the Government has formulated a developmentpolicy tailored to that sector.

4. Following a number of studies and analyses, in April 1987 the Governnent adopted a developmentpolicy statement for the fisheries sector, which focused on the rational economic utilization of the country'sresources in the Exclusive Economic Zone (EEZ), based on a new system of access and exploitation thatfacilitated the integration of fisheries activities into the national economy.

Performance

5. The implementation of the new fisheries policies dramatically reshaped the sector, by opening theway for:

(a) the establishment of a national industrial-scale fleet for deep-sea fishing, i.e. 110 coldstorage vessels and 45 refrigerated trawlers;

(b) the development of a traditional fishing fleet;(c) the construction of onshore freezing and storage facilities;(d) an increase in national production;(e) the introduction on international markets of Mauritanian fish products with a higher value;(f national benefits in terms of jobs and products wvith a higher value added.

6. In tandem with these encouraging developments, the sector faced major problems, namely:

(a) over-indebtedness with the banks;(b) obsolescence of a portion of the national fleet;(c) insufficient resources for scientific research;

60

ANNEX rlPage 15 of 21

(d) overfishing of the preferred target species.

7. In an effort to inject new life into the sector, the Government has just formulated a new sectoralpolicy. This letter of development policy sets forth its objectives and strategies.

Maior obiectives

8. The Government's objectives for the sector will henceforward be prioritized as follows:

8.1 compile data and ensure the preservation and protection of fish resources through rationalmanagement and surveillance to ensure their continued availability;

8.2 turn the fisheries sector into a catalyst for growth in GDP by maximizing value added, in particularthrough the processing of products, vocational training and creation of local jobs;

8.3 maximize net foreign exchange gains:

(a) by increasing and diversifying sector exports through new products, access to new marketsand constant upgrading of quality;

(b) by reducing the foreign exchange costs of sector operations (foreign labor, ship repair,refueling);

8.4 ensure that the sector generates an optimum volume of tax receipts.

Strateojes

9. With a view to achieving these objectives, in accordance with the measures contained in theEconomic Policy Framework Document, the Governmnent - together with its development partners - willimplement a consistent strategy supported by an action plan specifying the measures to be taken as well asan appropriate investment program for the various branches of activity in the fisheries sector.

A. Research of Fisheries

10. Despite the efforts by the Centre National de Recherches Oceanographiques et des Peches(CNROP), data on fish resources remain insufficient with regard to biological balance, reproduction andbalanced economic exploitation of target species.

11. With a view to increasing the data on fish resources for the ultimate goal of rational and prudentresource management, the CNROP needs to be reorganized and strengthened, which would entail areformulation of its missions.

12. This reformulation and strengthening of the CNROP's mission would cover three main areas inparticular:

(a) better knowledge of the fisheries sector environment with formulation of periodic researchplans and the establishment of a specialized, multi-disciplinary team;

61


(b) resource management through the issuance of fishery maps, classification of commercialspecies in terms of biological properties and availabilitv, evaluation of the permissible annual catch in viewof changes in potential, a study of the most appropriate fishing equipment and the monitoring of its impacton the resource;

(c) sanitary control of onshore plants and products of the sea, in the form of authorization ofhandling companies and health certification of products in accordance with intemational standards.

13. The following measures have already been carried out:

(a) a decree dated March 2, 1994 has reorganized and redefined the mission of CNROP;

(b) a five-year development plan covering the period 1993-1998 has been forrnulated outliningmain direction in CNROP's research. Said plan has been supplemented with an increase in the budgetaryallocation allowing for its implementation.

(c) the scientific views of CNROP concerning the permissible level of fishing has beenofficially published.

B. Maritime surveillance

14. To improve the protection of fish resources, the Govemment has created, at the Ministry of Fishingand Maritime Economv, a department responsible for surveillance and oversight at sea, in accordance withDecree 94.125 issued December 31, 1994. In this context, the Government has decided:

(a) to transfer budgetary resources and equipment from the Fishing Command to this department,which wvill enjoy the necessary autonomy in the financial, personnel and resources areas, and will be incharge of enforcing compliance with laws and State regulations at sea.

(b) to amend the fisheries and merchant marine codes as necessary in order to better reflectnew aspects of maritime activity (rescue and pollution control) and ensure that proper disciplinarymeasures are taken in the event of violations, as well as the effective collection of penalties;

(c) to strengthen the airbome and sea-going capacity in order to improve the scope and qualityof maritime surveillance.

(d) to insist on absolute respect of fishing zones and of limits and fishing equipment asreconmmended by CNROP.

(e) to collect fines (equivalent to 80 percent of fines due at a minimum) accrued by violatorsduring the previous fiscal year.

62


15. Missions

In addition to fisheries surveillance, which is its main function, the department will:

(a) combat marine pollution;(b) Wipe out illegal marine trade;(c) enforce national legislation and regulations related to vessel safety and hygiene;(d) participate in sea rescue operations.

16. Institutional framework

The Marine Surveillance and Oversight Department will be attached to the Ministry of Fisheriesand Maritime Economic Activities. It will have financial and functional autonomy.

17. Sea and air capacitv

The Department will be provided with appropriate resources, which will be supplemented by aprocurement and replacement program.

18. Personnel

The Department's manning table will include the mnilitary personnel necessary to crew the ships,aircraft and radar stations that will be assigned to it in accordance with current regulations.

19. Cost and financing

The maritime surveillance budget has three chapters:

(a) normal operations, covering the wage bill as well as the operating costs connected withsurveillance equipment;

(b) maintenance costs, including careenage and servicing of surveillance equipment;(c) the investment program, including new purchases of equipment.

The surveillance operating budget is financed exclusively from the State budget. The Governmentis seeking donor assistance for the financing of the last two chapters.

20. Violations

The Government will revise the Fisheries Code as it relates to maritime surveillance so as toinclude, in particular for serious infractions, mandatory re-routing of ships and the posting of a mandatorytemporary bond equivalent to the applicable minimum penalty prior to any legal proceedings oradrrinistrative action, for which the cases will be precisely defined. Likewise, the procedure for penaltycollection will be both strengthened and streamlined. In addition, the pertinent judicial and adninistrativepersonnel will receive appropriate training in fishing violations.

63


C. Resource mana2ement

21. As of January 1, 1995, the Government will irnplement a newv fish resource management system,taking into account both economic and biological considerations. The Government's primary concern is toavoid the risk of overfishing, wvhich can threaten the very existence of fish resources, and to optimizeexploitation in terms of the economic results for Mauritania. The new system will be applied to the twvomain types of export-oriented fishing, i.e. demersal (deep-sea) and pelagic (surface) species.

22. To that end, the Government will allocate the resource on the basis of the permissible potential andthe optimum fleet level, which will be set annually for each type of species.

23. For bottom species fishing, the Government will introduce an access fee in 1995 that will graduallyreplace, over a three-year period, current taxation based on export duties. The access fee will stand at 2percent (1995), then 8 percent (1996) and then 11 percent (1997) of the estimated value of production. Thereform is intended to improve the efficiency of the national fleet, by introducing incentives for productionand fleet replacement, while simultaneously ensuring that the Public Treasury receives an appropriate levelof receipts. The first phase of this access rights regime has begun to be applied under Finance Law 1995.In this contexct, the Government will continue the study of the tax system as it applies to fisheries so as toassess its efficacy.

24. For surface species, the Government wvishes to provide access to this significant resource to allinterested parties and in particular those who are potential investors in onshore processing. Open licenseshave been offered via international competitive bidding as of September 1, 1994.

25. Capture quotas will be determined annually by the Minister of Fisheries, who is also thecompetent authority for authorization of access to the resource. These fishing permits will be givenexclusively to boats. In addition, an auctioning committee for pelagic fishing licenses for national andforeign operators has been instituted, and will also be in charge of monitoring access fees assessed againstthe of demersal and cephalopod (both deep-sea species) fishing. This committee, presided over by theMinistry of Fishing, comprises also the Minister of Finance and the Governor of the Central Bank.

26. The Government will encourage the development of coastal fishing which represents high valueadded and new jobs. It will consequently make regular adjustments for the different types of species,reflecting changes in traditional fishing. It will also help improve infrastructure for unloading andprocessing, and ensure that storage and freezing capacities match the development of production. It willencourage the renovation and adaptation of existing facilities to meet the dictates of product revaluation.To that end, it will in particular promote commercial and industrial joint ventures for processing andpackaging plants. The Government will also implement the practical measures needed to implement theplan for the privatization/liquidation of ALMAP and MAUSOV.

27. The Government %kill use appropriate provisions to promote a climate attractive to foreigninvestors, who can be instrumental in improving the integration of the fisheries sector into the nationaleconomy. That effort will take the form of incentives under the general investment code, foreign exchangelegislation and corporate law.

64


D. Sectoral infrastructure

28. Sectoral production costs should fall folloving the improvements in conmmon infrastructure.Planned investments will be limited to the major basic infiastructure vital for sector promotion, so as topreserve the major economic equilibrium as part of the ongoing structural adjustment process.

29. In this context, the Government will build a pipeline in Nouadhibou to bring in diesel oil for boatfuel. It wvill also complete its efforts to remove obstacles and plans to support the construction of a shiprepair yard.

30. The Govemment wants to create a new fishing center in Nouakchott, in order to promote a moregeographically balanced and better distributed development of the fisheries sector. To that end, it plans toconstruct a fishing wharf and related facilities that would help open up the coast.

31. In the short term, it is also planned to establish two units that would provide rescue and fire-fighting services at Nouakchott and Nouadhibou ports.

32. Because of the priority now accorded to the export of fresh and processed products, theGovernment wvill upgrade the airstrips at Nouakchott and Nouadhibou and will build in-bond cold storagefacilities there.

E. Sector financina

33. The Government would like the donor commrunity to make funding available for the financing ofinvestments (ships, rehabilitation and new projects) and lines of credit to meet the sector's financing needs.

F. Marketingk

34. In order to improve marketing, the Government has decided to liberalize the exportation of all freshproducts in any form as well as processed products such as filleted, salted, dried and pressed fish. Theliberalization of processed demersal fish will be carried out gradually. Such liberalization will be consistentwith the regulations and practices protecting the interests of the national economy (foreign exchange,taxation, brand image). In particular, the rules of international trade must be respected and privateeconomic interest groups promoted.

35. All products frozen onshore or at sea other than pelagics remain the exclusive domain of theFishery NIarketing Board (SMCP), to allow for economies of scale and to avoid any fragrnentation ofsupply in a very specific market. The privatization of 65 percent of SMCP was completed in September1994, and will be accompanied by the strengthening of control of exports of fish products.

36. To promote foreign trade, in association with sector agents, the Government will establish a FishExport Promotion Center (market identification, clientele research, tracking of prices on the internationalmarket and at unloading). It will also apply the required hygienic and sanitary standards to fish productsdestined for export.

65

ANNEX ITPage 20 of 21

G. Vocational trainina

37. With a view to short-, medium- and long-term human resource management planning throughconsistent training projects, the Government has drafted a four-year training and employment plan, whichwill seek to develop national resources in line with the demand for skilled labor in the sector.

38. In related sectors, the Government will develop basic, advanced and continuing trairing in order toupgrade skills in those sectors.

39. With a view to improving the latter stages of training, the Government has also approvedlegislation and regulations that would make it mandatory for all crews on board ships flying theMauritanian flag to include two trainees (a student officer and a trainee crew member).

H. Institutional and incentives framework

11.1 Institutional framework

41. The success of the fishery policy hinges largely on the institutional capacity for resourcemanagement, oversight and in particular regulation of fishing. Together with a strengthening of research,surveillance and training capacities, the Ministry of Fisheries will be restructured and given resourcescommensurate with its objectives.

42. A new Mferchant Marine Code has been adopted in December 1994 ed in order to improve theadministration of sector activities and implementing decrees will be adopted to supplement existinglegislation.

43. One of the priority tasks of the Ministry of Fisheries and Maritime Economic Activities will be topromote and reorgarize the sea-going trades in order to ensure that training leads to the actual employmentof a growing number of Mauritanian seamen and officers.

44. In addition, Mauritania will seek to improve international cooperation in fishing natters. In thisconnection, it vill strengthen its consultation with its partners on the management of migratory species.

H.2 Incentives framework

45. The investment code, which is now being revised, will strongly promote the development of coastalfishing, product processing, joint ventures and the introduction of appropriate taxation.

46. In addition, steps will be taken to control the price of sector inputs. The Government will alsoencourage all those working in the sector to buy locally produced inputs and to use supply pools for thesake of economies of scale.

47. The Government will maintain ongoing consultations with the private sector, which will take theform of more frequent contacts culminating in conferences and workshops on sector-related issues.

66

ANNEX IPage 21 of 21

I. Fishinz-related occupations

48. The Government will help improve organization among sector workers so that they are betterinformed about resources and markets and are able to comply with the new standards required by theinternational markets.

49. Sector operators will be encouraged to join economic interest groups (GIEs). One GEE, consistingof producer-exporters of pelagic products, and another of producer-exporters of fresh, salted and dried fish,will be created, with a participation by the State which cannot exceed 35 percent.

J. Environment

50. The Government plans to implement an appropriate strategy to protect the marine environment,upon which the durable preservation of marine resources largely depends. It is in particular aware thatMauritania's coast is an invaluable part of the world's marine assets.

51. As marine environmental protection begins with an understanding of its parameters, scientificresearch and monitoring programs will receive support. In this connection, the research conducted by theCNROP in conjunction with the Banc d'Arguin (PNBA) will be supported and coordination among theentities involved will be ensured so as to protect breeding areas in particular.

52. With a view to eliminating polluting discharges into the sea, especially from hydrocarbons, theenforcement of legislation will be tightened in tandem with the establishment of waste recovery capacity.

Washington,

H.E. Mr. Mohamed Lemine Ch'Bih Ould Cheikh MelainineMinistre du Plan

67ANN?EXMilPage 1 of 3



PERFORMANCE INDICATORS

1. Financial Sector

L.a. Credit Risk Information End 95 End 96 End 97 June 98

Fichier entered in Centrale des Risques 200 250 300 350Fichier entered in Centrale des Impayes 200 250 300 350Central Bank staff trained 4 4 6 6Commercial Bank staff trained 15 15 15 15

;.b. Bank Training

(i) Professional Training End 96

Number of students taught 30Number of seminars launched 06

(ii) Training (diploma course) End 96 End 97 End 98 June 99

Number of trainers trained 0 3 4 4Number of students in courses 20 33 46 46Number of students completing Ist year 0 13 26 26Number of students completing 2nd year 0 0 13 26Number of students completing 3rd year 0 0 0 13

(iii) Financial Development Strategy

Strategy paper: December 1995Promotion of materials for financial mechanisrns: February 1996

2. Private Sector

2.a. Strengthening of Accounting and of Auditing Framework

(i) Studies (reorganization and upgrading) Strategy Paper: January 1996New accounting norms: May 1996

(ii) Revision of Accounting Plan Reference Manual: April 1996

68 ANNEX BI

Page 2 of 3

(iii) Training End 96 Mid 97

Number of trainers trained 2 4Number of students in courses 12 24Number of students completing 1st cycle 0 8Number of students completing 2nd cycle 0 0

2.b. Support to Chamber of Commerce End 96 End 97 June 98

Number of members 250 470 600Number of PNE members 200 400 500Number of women members 50 100 200Number of files under care of Chamber 0 5 6

of Commerce

2.c. Legal Reform

(i) Adoption of Legal texts December 1997(ii) Commercial registry September 1996

(iii) Legal Training Mid 96 Mid 97 Mid 98

Number of auxiliaries trained 0 100 200Number of judges trained 0 50 100

(iv) Journal Officiel September 1996

(v) Access to Information

Index September 1996Users Guide December 1996

2.d. Free Trade Regimes End 95 End 96 End 97 June 98

Number of enterprises enjoying benefits 0 0 5 7(if applies)

3. Mining Sector

3.a. Policy dialogue, mining code review, and tax reform

(i) Policy Dialogue, etc.

Strategy Paper December 1995Revised Text Codes December 1996

69 ANNExM

Page 3 of 3

(ii) Institutional Reform and Upgrading of Mining Sector

Revised institutional procedures of Mining: June 1996Revised cadastral procedures June 1996

(iii) Training Mid 96 Mid 97

'Number of Mining officials trained 6 10Number of taining seminars 2 8

4. Fishing Audit

Final evaluation of sector (violations of regulations,flow of foreign exchange, environmental impact): Decemnber 1995

70 ANNEX IVPage 1 of 5

ISLAMIC REPUBLIC OF MAURITANIACAPACITY BUILDING PROJECT FOR THE DEVELOPMENT OF THE PRIVATE SECTOR

SUPERVISION PLAN

ApproxL Activity Expected Skills Required Staff Input Comp. ActivityDate _ Supervised0 + 2 P?oject launch * Financial analyst/Economist 6 weeks l.a. Credit Risk Selection of

(July 1995) Workshop start-up *Procurement and disbursement Information consultantsactivities specialist

Financial Sector Specialistl.b. Bank training(i) Prof. trainring Selection of

consultantsI.c. Phase II - Selection ofFinancial Dev. Strat. consultants(i) Study2.a. Accounting(i) Studies Selection of

consultants2.b. Support Selection of

to Chamber of consultantsCommerce

2.c. Legal Reform(i) Revision of Selection of

Codes consultants

(v) Access to Review of trainingInformation results

5. Poject Unit fullyCoordination functionalUnit (PCU)

Disbursementprocedures

Procurement______________________________ __________________ ___________ procedures

o + 8 Supervision Financial sector specialist 8 weeks L.a. Credit Risk Completion of(Jan. 1996) * Legal expert Information work:

* Accounting expert * Operational* Mining Expert database* Computer specialist * Trained staff

L.b. Bank training Completion ofcourse design:

(i) Prof. training Candidates chosenI.c. Phase l - Review of

Financial Devp. implementaionStrategy report, and assess(i) and (ii) promotional

materials

71 ANNEX IV

Page 2 of SApprox. Activity | Expected Skills Required Stafflnput Comp. Activity

Date I I Supervised

0 + 8 Supervision 2.a. Accounting(Jan. 1996) (i) Studies ' Agree on action

plan' Selection of

consultants toformulate norms

(ii) Revision of Discussion ofAccounting Plan report, with

recorrunendations

(iii) Training Selection ofconsultants

2.b. Support to Revision ofChamber of organization chartCommerce. and staff

2.c. Legal Reform(i) Revision and Review of existing

elaboration of codesCodes

(ii) Establishh Revise proceduresCommercial Register

(iii) Legal Training Review of finalcourse design

(iv) Journa/ Officiel Review equipmentand consultants

(v) Access to Review resultsInformation

2.d. Tax Free Discussion ofRegime preliminary report;

discussion ofintroduction ofregime

3.a. Private Discussion andInvestment in the agreement on:Mining Sector(i) Policy Dialogue ' Strategy paper

(ii) Institutional ' Selection ofReform and consultantsUpgrading ofMining Sector

(iii) Training Review of 1stseminar

4..a. Fishing Survey ' Review ofapplication ofreport &recommendations

ANNEX IV72 Page 3 of S

Approx. Activity Expected Skllls Required Staff Input Comp. ActivityDate 7l Supervised

0 + 13 Supervision * Financial sector specialist 7 weeks L.b. Bank training(July 1996) * Legal expert (i) Professional I st courses taught

Accounting expert trainingMining expert

(ii) Training Selection of(diploma course) consultants

I.c. Phase If - Follow-up on actionFinancial Devp. plan and publicityStrategy (i) and campaign(ii)

2.a. Accounting(i) Studies Evaluation of new

accounting norms

(ii) Revision of Evaluation ofAccounting Plan reference manual

and final report

(iii) TrainingEvaluaLion of finaltraining programdesign

2.b. Support to Evaluation ofChamber of trainingCommerce.

Purchase ofequipments

2.c. Legal Reform(i) Revision and Review of draft

elaboration of codesCodes

(ii) Estab. of Review ofcommercial register application of

procedures

(iii) Legal Training Review ofcandidates'language training

(iv) Journal Off7ciel Review of formatdesign

2.d. Tax Free Discussion ofRegime proposed regulatory

._____________________________________________________________________ texts (if applicable)

7 3 ANNEX TVPage 4 of 5

Approx. Activity Expected SIlUs Required |Staff lnput Comp. ActivityDate I I Supervised0 + 13 Supervision 3.a. Private

(July 1996) Investmentin the MiningSector

(i) Policy Dialogue * Revised tax code* Revised mining

code

(ii) Institutional Revised proceduresReform and at MinistryUpgrading ofMining Sector

(iii) Training Evaluation ofsemainars abroadand in country

4a. Fishing component Follow-up of exportmonitoringmechanism and oftechnical support toCNROP

O + 19 Supervision * Financial sector specialist 7 weeks I.b. Bank training(Jan. 1997) 'Legal expert (i) Training Ist cycle in

* Private sector expert (diploma course) progress* Mining expert

2.a. Accounting(ii) Training of 1st cycle in

accountants progress2.b. Support to Evaluation of the

Chamber of functioning bodyCommerce and of studies.

2.c. Legal Reforn(ii) Estab. ofcommercial register Review of register

(iii) Legal Training Review of Phase I

(iv) Journal Oficiel Review of issue ofJournal Officiel

2.d. Free Trade Adoption ofRegime regime, if

applicable3.a. Private

Investmentin the MiningSector

(i) Policy dialogue Review of newcodes

(ii) Institutional Evaluation andreform & upgrading application of newmining cadaster procedures

(iii) Training Completion oftraining courses

74 ANNEX IVPage 5 of 5

ApproL Activity Expected Skills Required Staff Input Comp. ActivityDate Supervised

0 + 25 Mid-term review * Financial sector specialist 5 weeks Ib. Bank training(July 1997) * Legal expert (ii) Training Ist year completed

* Financial analyst - Economist (diploma course)2.a. Accounting(i) Training of 2nd cycle launched

accountants2.b. Support to Evaluation of the

Chamber of functioning bodyCommerce and of studiies.

2.c. Legal Reform(iii) Legal Training Final review of

Phase I2.d. Free Trade Follow-up (if

Regime applicable)4a. Fishing component Follow-up of export

monitoringmechanism and oftechnical support toCNROP

5. PCU Mid-term review

Evaluation ofcommunicationscampaign

0 + 37 Supervision * Financial sector specialist 8 weeks I .b. Bank training(July 1998) * Accounting expert (ii) Training 3nd year of studies

* Legal expert (diploma course) completed

2.a. Accounting(iii) Training of 2nd cycle

accountants completed2.b. Support to Evaluation of 2nd

Chamber of year of functioningCommerce body

2.c. Legal Reform Evaluate overall(iii) Legal Training training program.

2.d. Tax Free FoUow-up (if__________________ ____________________________________________________________ Regime applicable)

0 + 48 Closing uission * Legal expert 8 weeks I b. Bank training Evaluation of Bank(June 1999) * Financial analyst-economist staff skills

e Financial sector specialist2.a. Strengthening of

Accounting andAuditing

(iii) Training Evaluation ofaccounting andauditing skills

2.c. Legal reform(i) Legal texts Evaluation and

application of newcodes

(iii) Training Evaluation of legaland judiciary skills

2.d. Free Trade Follow-up (ifRegime applicable)

3.a. Private invest. in Evaluation ofthe mining sector regulatory and

(ii) Institutional supervisoryreform & upgrading framework andmining cadaster application

Organigramme et Circuit d'Information(Composante 1)

Gouverneur dela Banque Centrate de

Mauritanie

Cellule de Elaboration de la 26 me phase deGestion la strate gie de de veloppement

financier

l.a. l. b.Renforcement de la Centrale des Formation Bancairerisques et Centrale des lmpay6 s

i. FormationProfessionnelle

LEGENDE:

I I ii. Formation xConscillcr Cours 1Employ lca .

Consul. Diplomante o

F?IGIJRE I

CIRCUIT D'INFORMATION(Composantes 2 A 5)

Direction de I'lad.,

5 Miitr de t 'utree

Cellule du Suividu Projet

(PCU)

Coordinateur du Direction des MinesProjet Ministlre de l'lndus. etProjet des Mines

| Coorinater de la |_Formalion | I Conseiller Lr d

Coordinateur de la |_.Juridique CoIL osant Mines I

Direction des AffalresJudicla. Min. de la _ Secretariat

Justice

2.a Mwclin. des

Finances)2.c.iv Direction de la LUgislation 2.c.l. (.Iao Buroeu Conscille Technique 42.c.v et de Journ. Olficiel duPirmierMinlstioat Min. des P8chcs

Secr6tariat Gdn6. du utres MInlst6res)

Gouvernement 2.c.ii.

LEGENDE

Conseiler e Conseliler LongCours Terme Employc local Terneet Consultants Terrne llrot

FcE

0

FIGURE 2

ORGANIGRAMME(Canposare 2 i 5)

| eIr hfinWlre |

| Mnis re di Comtnerc | FSile t de b k*e ta nlG t SMIMCI l Unwi n 1b Man | l nwis re I idde Isei t. kes WW WiXt d Pi dhesmus pecn clnde | Di Gmemetned el de IEcnomk lurbm

IIorMM A, I _ , I .1 c I I m1 ictA i tllc GtI ri rik IAcd j 1k 1 u dri l OrW OndEIK Pc n Mr

arrut~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ur h arc L)| it Inj PEr" 5A

I~~~~~~~~~~~~~~~~~di Io % It Ixmib IudI l J11k

d¢~~~~~~~~crk IFomlls I11 fIwi IASOW I Rioh4IuA1 rdwwvk du(tluzlP

|31 R lbXI t *im MAm d ado.fIi RiIUM^tAd*tIic3IC.

LEGENDE

Conseiller Cours ConscillerTermeet ConsultanIs Employd! I I ngTerme

(briI/ En collaboration avec le Ministre dc Finance t en coordination avec l'Ordre des Experts Comptables.I/ Sous gestion directe du Ministirc du Plan ct ep collabomtion avec la Secrelarial Gdn6ral du Gouverncmcnct et le Ministlrc de Justice. c

FIGURE 3

ISLAMIC REPUBLIC OF MAURITANIACAPACITY BUILDING PROJECT FOR THE DEVELOPMENT OF THE PRIVATE SECTOFI

IDA FISCAL YEAR ORIGINAL PROFILE/PROFILANNEES BUDGETAIRES IDA BY QUARTER CUMULATIVE CREDIT COUNTRY/PAYS ---- Capacity Bldg. -u-Country P!iI.

QUARTER PAR TRIMESTRE CUMULATIFTRIMESTRES (USS milrion) (USS mIfion) (in %) (in %) 100%

1995 IV 0.4 0.4 6% 2% 1996 1 0.8 1.2 17% 8%

If 0.7 1.9 26% 14%111 0.7 2.6 36% 20%IV 0.6 3.2 45% 26% 80% /

1997 1 0.6 3.8 53% 29%11 0.6 4.4 61% 32%

III 0.6 4.9 6S% 35% EIV 0.5 5.5 76% 38% u

199S 1 0.5 5.9 82% 42% 60/If 0.4 6.3 87% 46%111 0.4 6.7 93% 50% 00 /cIV 0.3 7.0 97% 54%

1999 I 0.1 7.1 98% 59% 4 U

11 0.1 7.2 100% 64% t 40%

III ~~~~~~~~~~~69%11 874% /

E2000 1 77%If 80%

III 83% 20%IV 86%

2001 1 89%

11 91%III 94%IV 96% 01

2002 1 98%

11 1009 Fiscal Year (Exerckel

OQ Z

FWSCCWO.XLS a_bQ-,'n2"6 %&es ~

79 ANNEX VIIPage 1 of 1

ISLAMIC REPUBLIC OF MAURITANIACAPACITY BUILDING PROJECT FOR THE DEVELOPMENT OF TE PRIVATE SECTOR

ESTIMATED PROJECT COSTS(in thousands US$)

LOCAL FORETGN TOTAI1. Financial Sector

Operating Expenses 209.6 177.1 386.7Consultant Services 6.0 590.6 596.6Equipment 10.0 21.0 101.0

Sub-total: 225.6 858.7 1,084.32. Private Sector

Operating Expenses 372.2 179.0 551.2Consultant Services 948.5 1,615.5 2,564.0Equipment 36.5 380.0 416.5

Sub-total: 1,357.2 2,174.5 3,531.7. Minin2 Sector


Sub-total: 399.0 738.0 1,137.04. Fishin2 Sector

Operating Expenses 6.8 6.5 13.3Consultant Services 210.0 280.0 490.0Equipment 0.1 O 5 0.6

Sub-total: 216.9 287.0 503.95. Proiect Coordination Unit

Operating Expenses 40.0 44.0 84.0Consultant Services 339.0 90.4 429.4Equipment 20 13.0 15.0

Sub-total: 381.0 147.4 528.4

6. Project AuditOperating Expenses 23.7 12.5 36.2

Consultant Services 0.0 159.5 159.5 ..

Equipment 2.0 8.0 10.0Sub-total: 25.7 180.0 205.7

7. Total Base Costs 2,605.4 4,385.5 6,990.9

Price & Physical Contingencies 225.8 305.7 531.5

8. Refinancing of PPF Advance 400.0 400.0

TOTAL: 2,831.1 5,091.2 7,922.3

80 ANNEX VIIIPage 1 of 1

ISLAMIC REPUBLIC OF MAURITANIACAPACITY BUTLDING PROJECT FOR THE DEVELOPMENT OF TEE PRIVATE SECTOR

FINANCING PLAN(in thousands US$)

IDA GOVERNMENT TOTAL1. Financial Sector


Sub-total: 1,027.9 56.4 1,084.3

2. Private Sector

Operating Expenses 458.2 93.1 551.2Consultant Services 2,365.3 198.6 2,564.0Equipment 407.4 9.1 416.5

Sub-total: 3,230.9 300.8 3,531.7

. Mining Sector


Sub-total: 1,003.5 133.5 1,137.0

4. Fishing Sector


Sub-total: 449.7 54.2 503.9

5. Proiect Coordination Unit


Sub-total: 433.2 95.3 528.4

6. Project Audit


Sub-total: 199.3 6.4 205.7

7. Total Base Costs 6,344.3 646.6 6,990.9

Price & Physical Contingencies 475.0 56.4 531.5

8. Refinancing of PPF Advance 400.0 400.0

TOTAL: 7,219.3 703.0 7,922.3

MAP SECTION

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