Abstract
In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.
Structural Reforms and Economic Diversification for More Inclusive Growth in Mauritania1
Mauritania envisages boosting economic growth and its inclusiveness through structural reforms and economic diversification. While Mauritania has made great advances in the areas of macroeconomic performance, advances in structural reforms have lagged behind. This paper examines, based on other countries’ experiences, the type of structural reforms and economic diversification that could boost and sustain growth for Mauritania. It finds that yielding higher growth rates would require increases in total factor productivity through banking sector reforms geared at financial stability, investment in human capital, improving the business climate, strengthening the efficiency of public investment, improving governance and institutions, and developing a well-targeted export promotion strategy.
A. Introduction
1. Mauritania has achieved several milestones in terms of macroeconomic performance and advances in the structural reform area. Not only the economy has benefited from high growth performance supported by responsible macro policies and high commodity prices; but also from structural reforms that started in the 1990s identifying the need to create a supportive business environment for private sector development.
In the 1990s, reforms such as trade liberalization, exchange rate reforms, state owned enterprise (SOE) reform, and privatization were identified as priorities.
In the mid-2000s, the focus of reforms priorities shifted to the financial sector, capacity building and governance. A broad reform of the financial sector reform was envisaged to deepen financial intermediation and improve the functioning of the banking system. Key measures included the gradual correction of the high degree of credit concentration, improvements in supervision, a clean-up of commercial banks’ balance sheets, and modernization of the payments system.
In the late 2000s, reform emphasis was geared towards improving fiscal governance, monitoring and control of budget execution and civil service reform. The latest ECF program (2010-13), while calling for accelerated structural reforms to spur growth and foster private sector development, focused on fiscal reforms to promote fiscal consolidation, on a multi-pronged banking sector reform to support financial stability, on reducing cost of doing business and improving competitiveness.
Episodes of achievements and advances were also followed by episodes of relaxation of reforms amidst substantial political instability and external shocks; both having a negative impact on compounding reforms. Going forward, efforts to consolidate macroeconomic stability are to be accompanied by a comprehensive structural reform agenda to support economic diversification and job creation, ultimately aiming at poverty reduction and improving living conditions.
2. This paper explores the structural reforms needed to accelerate and sustain Mauritania’s economic growth and enhance its inclusiveness. Section A presents the consensus in the literature on the roles of structural reforms implementation in boosting higher growth economic and that of diversification in sustaining higher long run economic growth. Section B gauges the impact of selected reforms on productivity growth, based on the results of cross-country empirical analysis. Section C assesses the potential benefits of economic diversification for Mauritania in the long term-run, also based on similar countries’ experiences. Section D concludes by proposing an agenda of high-priority structural reforms for Mauritania.
B. Structural Reforms and Diversification for Enhancing Growth and Inclusiveness
3. Structural reforms help remove obstacles to a more efficient allocation of resources and a higher growth. There is broad consensus that structural reforms—together with improvements in institutional quality—create the conditions needed for better resource allocation, greater productivity, and faster income convergence. Both theory and recent empirical work argue that structural transformation—the dynamic reallocation of resources from less to more productive sectors—is a key ingredient of economic development. In addition, as noted in IMF (2014), structural reforms have led to diversification in exports and domestic production that, in turn, has been conducive to faster economic growth and lower output volatility in low-income countries (LICs).
4. Sustaining growth. There is broad consensus that the following structural reforms are important components of an overall strategy for raising incomes and sustaining economic growth:
Reducing rigidities in product and factor markets;
Liberalizing FDI;
Developing financial systems; and
Enhancing international trade.
The literature has also found evidence that sustaining growth is positively correlated with macroeconomic stability, the degree of equality of the income distribution, democratic institutions, and economic openness (higher propensities to export manufactures, greater openness to FDI, and avoidance of exchange rate overvaluation).
5. Quality of institutions. In addition to structural reforms, sound economic institutions that promote competition, entrepreneurship and innovation have been found to increase productivity growth at the cross-country, industry, and firm levels. At the same time, political economy literature has found that in weaker institutional settings, special interests and associated rent-seeking may block reforms that are beneficial for society at large. Also, the overall quality of countries’ institutions affects the willingness to reform as well as the timing and boldness of reforms. Most importantly, countries’ experiences in successfully implementing productivity-enhancing reforms and structural transformation show that success is largely influenced by the authority of the executive power (Ahmadov, 2012).
6. Distance to frontier and productivity. Neo-Schumpeterian growth theory suggests that the economic development process is influenced by country’s income gap, with advanced economies that defines the global technological frontier (GTF). The main growth driver for economies further away from the GTF is the adoption of existing technologies. The closer countries approach the GTF, the higher the relative importance of innovation, rather than imitation, for sustaining productivity and output growth. Policies aimed at sustaining productivity growth and fostering convergence depend on countries’ stage of development; that is, they are, i.e. country-specific to their own context and to the distance from the GTF.
7. Economic diversification. Recent work has found growing evidence of the macroeconomic benefits of diversification in supporting higher economic growth and lower output volatility. Diversification is especially important in the early stages of the development process. Cross-country analysis and case studies shows that diversification in production, exports, and trading partners typically plays an important role in encouraging growth. Diversification is also closely related to structural transformation, particularly in countries in the early stages of economic development.
C. Structural Reforms to Boost Productivity
8. The analysis borrows the results of the empirical analysis of Dabla-Norris and others (2013) to gauge the role of structural reforms and institutional factors in driving productivity growth for Mauritania. The paper uses the conceptual framework of the distance frontier, a sample of 100 countries (advanced, emerging, and developing) with 40 years of data (1970–2010), to estimate the impact of a wide range of structural reforms and institutional factors on countries’ growth productivity (see Annex I for model specifications and list of reforms).
9. The note then uses the empirical results of Q1 countries to gauge Mauritania’s potential productivity payoffs from undertaking considered structural reforms. The model divides countries into four income quartiles (Q1 to Q4) according to their distance frontier approximated by each country’s productivity gap with the United States. Mauritania falls in the first income quartile (Q1) and does share characteristics with other countries in this group: per capita GDP, structural bottlenecks, and institutional character (Figure 1).
Selected Countries Relative GDP
(With respect to United States)
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Source: Dabla-Norris and others, 2013.10. Mauritania’s recent growth acceleration has not been fueled by productivity gains. Learning from other comparator countries’ experiences, where growth dynamics have been fueled by productivity gains, could inform on which reforms are likely to boost Mauritania’s productivity.
Mauritania TFP Growth, 1981-2011
(In percent)
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Source: IMF, Dabla-Norris and others, 2013.Mauritania and Selected Comparators: TFP Growth, 1980-2011
(In percent)
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Source: IMF, Dabla-Norris and others, 2013.Which policies for enhancing total factor productivity?
Domestic financial reforms
The importance of financial sector reforms for increasing productivity, namely banking system reforms and capital market development, varies by countries’ income group.
11. Banking sector reforms. The results show that overall banking sector reforms increase productivity for countries in the first and second quartiles, but more so for the latter (see Annex I, Table I). For countries in the first quartile, the most productivity-enhancing banking sector reforms are those that strengthen banking supervision. Given the magnitude and the highly statistically significant coefficient for these countries, which mostly have bank-based financial systems, these results suggest that prudential policies to prevent excessive risk-taking can support greater investment and efficiency in productive sectors. Reducing financial repression through restrictions on the price (interest rate controls) and quantity of credit can also help spur the movement of resources to their more productive uses for Q2 countries.
Banking Sector Reforms
(Potential productivity payoffs from 1 std of improvement in reform index)
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Source: Dabla-Norris and others, 2013.Implications for Mauritania: Mauritania has made great strides in the areas of banking supervision, particularly in: (i) strengthening banks’ capital and establishing provisions for nonperforming loans (NPLs); (ii) pursuing efforts to improve the quality of bank portfolios to reduce the share of nonperforming loans (NPLs); and (iii) enhancing the central bank’s supervisory capacity for more effective supervision. Going forward, more progress on the implementation of prudential, solvency, liquidity, and risk concentration measures will likely yield high productivity gains.2 Continued strengthening of the supervisory role and tools of the CBM for both offsite and onsite inspections will also improve the quality of supervision; while implementing a banking resolution framework will safeguard financial stability and the banking sector’s role in economic development.
12. Capital market development. Policies encouraging the development of equity, bond, and securities markets can be particularly effective for increasing total factor productivity (TFP): they can lower the cost of capital and facilitate the financing of new capital and innovation. In contrast with the banking sector reforms, capital market development is not significant in boosting productivity for the Q1 countries, but is highly significant for countries in the upper quartiles. The fact that the coefficient is not statistically significant while it is highly so for the other income groups, seems to suggest that capital market development requires certain preconditions to support economic development. These are likely to be related to a well-developed banking sector, deep and liquid interbank markets for money and foreign exchange, and a certain level of private sector development.
Capital Market Developments
(Potential productivity payoffs from 1 standard of deviation of improvement in reform index)
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Source: Dabla-Norris and others, 2013.1/ Statistically not significant.Implications for Mauritania: There is a need to diversify the sources of financing in Mauritania to support medium- to long-term economic growth opportunities, because the banking sector only finances short-term trade activities or consumer credit, and the Caisse de Depots et de Développement (CDD) finances some of the longer-term and riskier credits. Despite this need for diversified financing sources, Mauritania has a number of prerequisites to meet for stock market development. These include further deepening of the financial sector and strengthening of the monetary policy framework with a liquidity management framework. Furthermore, investor’s confidence should be strengthened with better governance and overall improvements in the business environment, which the authorities are aiming at. These improvements would help increase the potential pool of investable funds.
Investors’ Freedom
(Rating scale from 0 to 10, higher rating indicate less restrictions)
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Source: Fraser dataset on “Economic Freedom of the World.”Real sector reforms
13. Trade and FDI liberalization. Barriers to international trade and foreign investment are detrimental to productivity growth.
Reducing trade barriers. The economic literature has consistently found that more open economies have experienced higher growth (Wacziard and Welch, 2008). The empirical results suggest that reducing trade barriers is highly beneficial in raising TFP for Q1 countries (Figure 7). Tariff and nontariff barriers prevent efficient allocation of resources and technology transfer. The removal of nontariff barriers that limit regional integration can prompt agricultural productivity growth (Tombe, 2012).
Trade and FDI Liberalization
(Potential productivity payoffs from 1 std of improvement in reform index)
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Source: Dabla-Norris and others, 2013.1/ FDI liberalization not statistically significant for Q1s.Implications for Mauritania: As the authorities take steps to increase the value-added chain in agriculture and farming sectors to develop an exporting industry, they should be taking steps to reduce nontariff and other regulatory trade barriers (Figures 8a–8b). When compared to Q1 and Q2 countries, Mauritania compares favorably for tariffs barriers but not so well on nontariff barriers and ease of imports and exports (costs and time). Reducing these barriers through an improved business environment, could help open up new markets, facilitate export diversification, and improve the sectoral efficiency of the exporting industries. These would benefit from market access and deeper trade integration, cheaper imported inputs, and more robust competition.
Figure 8a. Trade Barriers
(Rating scale from 0 to 10, higher rating indicate less restrictions)
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Source: Fraser dataset on “Economic Freedom of the World.”Figure 8b. Regulatory Trade Barriers
(Rating scale from 0 to 10, higher rating indicate less restrictions)
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Source: Fraser dataset on “Economic Freedom of the World.”Liberalizing FDI. The results suggest that liberalization of FDI is not significant at boosting productivity growth for Q1 countries, whereas for Q2 countries and Q3s it can foster economy-wide productivity gains (Figure 6).
Implication for Mauritania: The authorities envisage attracting FDI through public-private partnerships (PPPs) to finance their large infrastructure projects in gas and power, and the Nouadhibou free trade zone. Although attracting FDI, which are long-term resources, would help meet their financing needs, the authorities acknowledge that they face tough competition due to weaknesses in the institutional environment and infrastructure. Continued macroeconomic and political stability and improved business climate will foster a better climate to attract FDI.
14. Agricultural reforms. Contrary to previous findings, the present empirical analysis suggests that agricultural reforms are not significant for Q1 countries, but are highly conducive to higher productivity growth for Q2 countries. Nevertheless, efforts to boost sector productivity through appropriate land reforms and improvements in physical infrastructure could yield economy-wide productivity gains including facilitating structural transformation in economies with still-high shares of agricultural employment.
Implication for Mauritania: During 2010–14, the government has scaled up public investment in agriculture, irrigation potential, improving roads and water infrastructure networks in agricultural areas. Arable land has increased by about 80 percent and irrigated land area rose from 9,000 to 16,000 hectares. This has helped achieve higher crop yields. The authorities have also started attracting FDI to develop large scale agricultural projects. Going forward, government intervention could be scaled back to allow for more private initiative.
Institutional reforms
15. Legal and property rights. Empirical results suggest that Q1 countries, even more than countries in higher quartiles, can bring in the most benefits in productivity gain by strengthening the quality of their institutional frameworks that protect property rights, including intellectual property, and facilitate private contracting (Figure 9).
Legal and Property Rights
(Potential productivity payoffs from 1 std of improvement in reform index)
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Source: Dabla-Norris and others, 2013.Implications for Mauritania: Measures aimed at strengthening all aspects of governance could be highly beneficial in improving productivity, because Mauritania scores low in many governance indicators such as property rights, protection of minority shareholders, strength of auditing and reporting, and government transparency (Figure 10). In particular, Mauritania should ensure that all the preconditions for market-based economic activity are in place. In particular, property rights and the ability to enforce contracts are two critical elements of a country’s institutional and legal framework that help create solid foundations for market based economic activity. They could help promote private investment including through FDI and entrepreneurship, and could help foster financial sector development.
Institutions
(Rank)
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Source: World Economic Forum, Global Competitiveness Index.16. Business and labor market regulations. Heavy regulatory burdens can discourage international participation and severely limit a country’s ability to benefit from knowledge transfers, economies of scale, and production-reallocation efficiencies. The empirical analysis suggests that although for Q1 countries reforms aimed at improving business regulations do not significantly raise the aggregate productivity growth, they are significant for Q2 countries’ productivity gains (Figure 11). For labor regulations, the analysis suggests that removing excessive labor market rigidities is not positively associated with higher aggregate productivity for Q1 countries, though it is for Q2 countries. Nonetheless, policy reforms to reduce informality can also be important avenues for enhancing productivity.
Business and Labor Market Regulations
(Potential productivity payoffs from 1 std of improvement in reform index)
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Source: Dabla-Norris et al. (2013).1/ Business regulation not statistically significant for Q1s.Implications for Mauritania: Mauritania scores low in most of the World Bank’s Doing Business indicators (Figures 12–13). To address Mauritania’s low rankings, the authorities are taking steps such as the launch of the one-stop shop to reduce the number of procedures and the cost for creating a business; the elimination of the minimum required capital to open a business; and improvements in access to finance with a modernization of the centrale des risques at the CBM (including all financial transactions above UM 3,000). Other measures such as the revamping of the code of commerce and the revision of the procurement code are regulatory steps in the right direction. Measures aimed at reducing administrative burdens, simplifying regulations, strengthening competition, improving the dialogue with the private sector, and cutting red-tape will further help to boost productivity growth.3
Business Environment in International Perspective
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Sources: World Economic Forum, Global Competitiveness Index; and World Bank, Doing Business.The Most Problematic Factors for Doing Business
(In percent of responses, lower is better)
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Source: World Economic Forum, Global Competitiveness Index.Boosting productive capacity
The following aspects, though not explicitly accounted for in the analysis, are also important for boosting productivity growth.
17. Human capital development. Education is a fundamental determinant of economic growth and long-term living standards. Accumulation of human capital can foster the development of skill-intensive industries and new technologies, and also boost a country’s productivity performance by facilitating technological diffusion between firms. Though not explicitly accounted for in this empirical exercise because of data limitations, evidence from Aghion and Howitt (2009) suggests that primary and secondary education matters more for a country’s ability to imitate the frontier technology (which is the case for lower-income and lower-middle-income countries), while tertiary education has a larger impact on a country’s possibility of innovating (advanced economies). Lower-income countries will need to improve the quality and coverage of education to facilitate the shift of labor into higher-productivity industries and services. As countries move up value chains, technology transfers tend to be more skill-intensive, requiring sufficient research and development in the recipient country to adapt new technologies to local conditions.
Implications for Mauritania. Mauritania is a factor-driven economy (Figure 14). As Mauritania embarks on structural transformation to diversify its economic structure and export base, its economy will need to move its technology frontier toward higher efficiency. Among other things, this transformation will require additional educational skills, as the authorities acknowledge. They have started tackling the low retention rates in primary and secondary education, and are increasing the provision of specialized training in mining, public works, fishing, agriculture, and farming to enhance skills.4
Stages of Development
(Score)
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Source: World Economic Forum, Global Competitiveness Index.18. Improving the quantity and quality of infrastructure. Investment in infrastructure has a positive long-term impact on a country’s income level. As noted in Dabla-Norris and others (2013), empirical evidence shows that insufficient physical infrastructure is a major drag on productivity growth for emerging market economies (EMs) and even more so for LICs. Inadequate infrastructure is a key determinant of low productivity growth in the agriculture and manufacturing sectors, when compared with more advanced economies. In addition, improved quality of public investment is equally important because inefficiencies in public investment management and weak governance often distort the impact of public spending on capital accumulation. This is particularly pertinent for many resource-rich developing countries, where public investment rates have increased during the recent resource boom but investment quality suffers from relatively weak capacity in comparison with other countries.
Implications for Mauritania: Mauritania compares favorably with peers in quality of electricity supply, but improvements in the quality of air transportation, roads, railroads and port infrastructures will be needed to boost productivity (Figure 15a). Similarly, on public investment efficiency, though Mauritania scores well compared to peers in the quality of appraisal, selection, and evaluation of projects, the index of public investment management practices suggests that the quality of implementation and management of projects within government investment portfolios could be improved (Figure 15b).
Mauritania has in recent years scaled up its public investment not only to enhance basic infrastructure networks such as roads, water, port, airport, and electricity, but also to decisively support key sectors such as agriculture. Continuous progress on this front, together with better implementation and management, would help improve connectivity to markets, both domestic and foreign, boost prospects for labor-intensive manufacturing and agriculture and thus generate positive economy-wide productivity and growth effects. In addition, addressing the infrastructure gap will also help transform the country into a more efficiency-driven economy. Given the magnitude of the infrastructure gap and the limited public resources, however, a viable strategy to develop infrastructure would require attracting private investment. Reforming the regulatory environment for infrastructure and promoting PPPs would help catalyze private investment.
Infrastructure Quality Index
(Score, 1-7)
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Source: Fraser dataset on “Economic Freedom of the World.”Public Investment Efficiency
(Public investment management index (PIMI)) 1/
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Source: Dabla-Norris and others, 2011.1/ Higher PIMI values indicate better investment planning and implementation; 4 is the highest value.Fiscal policy efficiency. Although not explicitly included in the empirical analysis of Dabla-Norris and others (2013), fiscal reforms could help ensure that provision of public services in education, training, and infrastructure are more efficient and better targeted, thereby fostering productivity growth. In general, the composition and quality of taxation and public spending can have significant productivity, growth, and labor market impacts (IMF, 2013; IMF, 2012).
Implications for Mauritania: Tax collection efforts in Mauritania have improved remarkably in the past years. Policymakers should seek the right balance, in mobilizing revenues with alternative revenue raising measures and tax incentives (a common practice to attract FDI and promote research and development), because tax policies (for example, corporate taxes) can affect productivity by creating disincentives for firms to engage in innovative activities. By the same token, cutting back spending in nonproductive areas such as distortionary and poorly targeted energy subsidies, and improving the efficiency of public spending in priority areas, including strengthening public financial management, could yield important productivity gains.
D. Diversification to Sustain Long-Run Growth
Export diversification
19. This section borrows the empirical results of IMF (2014) on the “Diversification and Transformation in LICs,” which investigates the effect of diversification on growth for a sample of 84 countries, including Mauritania. The empirical analysis focuses on understanding whether the development of diversified export structure and broad-based comparative advantages are beneficial to growth.
20. The results show that export diversification has a decisive impact on growth for LICs once nonlinearities are introduced in the specification of the model.5 A one standard deviation increase in LICs’ export diversification raises their growth rate by about 0.8 percentage points in the long term, suggesting that export diversification is crucial for growth in LICs. The growth determinants identified by the model are initial GDP, government quality, investment, population growth, and government expenditure. The results provide support for both the neoclassical growth model as well as new growth theories that emphasize productive government expenditures and the quality of institutions.
21. Export diversification in LICs could yield 0.4 to 0.8 percentage points in growth rates. The model also predicts that for LICs export diversification by expanding to new products lead to similar results for the LICs and could yield 0.4 to 0.8 percentage points in growth rates. Thus, LICs can stimulate growth by diversifying their exports at the extensive and intensive margins.
Implications for Mauritania: Even compared to other mining resource-rich countries, Mauritania’s export base is narrowly focused on exports of raw mining and fishing products (Figure 16). In addition, export diversification quality has declined since the 70’s similarly to most LICs within the resource-rich group (Figure 17). Mauritania’s long-term growth can benefit from export diversification of products, along the payoffs consistent with the average LIC. A more diversified export base will help reduce vulnerabilities to external shocks and growth volatility, and would promote more sustained growth. This will help create jobs and ease the path to more inclusive growth. In addition, diversification, if coupled with reforms geared at greater trade openness and competitiveness, will open Mauritania’s access to new markets.
Mauritania and Selected Resource-Rich Comparators: Export Composition
(Percent of total exports)
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Source: United Nations Statistics Division.Mauritania and Selected Resource-Rich Comparators: Export Quality
(Index, higher is better)
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Source: IMF (2014), Export Diversification and Quality Dataset.1/ Includes the following resource-rich countries: Bolivia, Botswana, Congo, Guinea, Guyana, Lao P.D.R., Liberia, Mali, Niger, Uzbekistan, and Zambia2/ Includes the following resource-rich couOutput diversification
22. LICs can derive large benefits from diversifying their production structure, even more so than from export diversification. When looking at whether output diversification can boost growth, the empirical analysis found that when nonlinearities are introduced, one standard deviation in output diversification raises the average annual growth rate by about 1.4 percentage points. In addition, output diversification can help reduce output volatility and allow for more sustained growth in the long term.
Implications for Mauritania: Despite certain caveats, diversifying the production base and the export base could boost Mauritania’s average annual growth rate by 1.4 and 0.8 percentage point, respectively, a payoff similar to that for other LICs. In addition to greater trade openness, export diversification will help reduce growth volatility emanating from exogenous shocks. Mauritania’s production base is more diversified than those of other mining resource–rich countries (Figure 18), which could bring additional gains to growth potential.
Mauritania and Selected Resource-Rich Comparators: Sectoral Composition of Real GDP
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Source: United Nations Statistics Division.However, the production base lacks output diversification in terms of value added of real sectors, which also matters for growth (IMF 2014). The value added of the major economic sectors such as agriculture, farming, fishing, manufacturing, and services are low when compared with other resource-rich and Q1 countries (Figure 19). Diversification in output and exports are interlinked and can be considered as the outcome of structural transformation—the dynamic of allowing reallocation of resources toward more productive sectors. In addition, both output and export diversification help reduce output volatility, which helps sustain growth in the long term and creates more opportunities for job creation that promotes growth inclusiveness. The authorities recognize that the hopes of boosting and sustaining growth rest on their ability to transform and diversify the productive base away from sectors exposed to exogenous shocks, and to develop both human capital and physical infrastructure so as to accommodate planned changes in industrial structure. The authorities are therefore developing exporting industries in red meat, poultry, dairy products and fishing together with the development of supporting infrastructure; and setting up PPPs.
Mauritania and Selected Comparators: Value Added by Economic Activity
(Percentage share distribution)
Citation: IMF Staff Country Reports 2015, 036; 10.5089/9781498354226.002.A003
Source: United Nations Value Added Database.1/ includes average of resource rich countries.E. Conclusion and Recommendations
23. Meeting the challenge of boosting productivity, sustaining long-term growth and improving inclusiveness will depend crucially on the ability of the authorities to successfully implement an ambitious structural reform agenda in a manner that is mindful of their priorities and competitive advantage, while also strengthening institutional capacity. While acknowledging the difficulty of the tasks ahead, reforms to support economic productivity growth and diversification in Mauritania should be pursued, with the following items given priority:
Continue strengthening the macroeconomic policy framework;
Pursuing banking sector reforms to support financial stability using the roadmap of the recently concluded FSAP;
Invest in improving human capital development;
Continue improving the business climate to facilitate private sector development;
Strengthen the efficiency of public infrastructure investment, to ensure that quality infrastructure is put in place;
Improving governance and strengthening institutions to support policy predictability; and
Developing a solid export promotion strategy that encompasses all aspects of international trade (barriers to trade, competitive advantage, etc.).
24. Above all, countries’ experiences in successfully implementing productivity-enhancing reforms and structural transformation show that success is largely influenced by the authority of the executive power and broad ownership of reforms. Mauritanian policy makers will have to ensure that these elements of success are given due consideration.
Annex. The Model
Empirical framework assessing the role of structural and institutional factors in driving productivity growth.
- Model estimated using standard panel productivity growth equation.
Δyi,t: annual productivity growth rate.
yi,US,t−1: one-year lag of productivity gap with the United States; this captures convergence effects.
Xi,t−1: one-year lag of each reform indicator or institutional variable,
μi, vi: the year dummies and the country dummies. The country fixed effects control for any time-invariant country characteristics (such as geographical location, historical legacies, and legal origins) that could affect both productivity growth and adoption of reforms.
Reforms and institutional factors (Xi,t−1):
Financial sector reforms:
Banking system reforms: interest rate controls, credit controls, privatization, and banking supervision
Capital market development
Trade and FDI liberalization
Institutional reforms: legal system and property rights, sound money, freedom to trade internationally
Product market and regulatory reforms: agriculture, business regulation, and labor market regulations
Human and physical capital:
Human capital: years of secondary and tertiary education
Physical capital: electricity and roads
The scope of reforms is limited to the IMF de jure reforms and liberalization in the real and financial sectors (domestic financial systems, trade, liberalization of agriculture, and FDI).
TFP Regression Results
Includes interest controls; credit controls such as directed credit, reserves requirements; privatization; and supervision reforms.
TFP Regression Results
| Q1 | Q2 | Q3 | Q4 | Full sample | ||
|---|---|---|---|---|---|---|
| Financial sector reforms | ||||||
| Banking system reforms 1/ | 2.939 | 6.365 | 5.933 | 0.459 | 3.272 | |
| [1.736]* | [1.545]1536 | [1.872]1536 | [0.639] | [0.656]1536 | ||
| Interest rate controls | 1.240 | 1.592 | 1.429 | 0.363 | 1.033 | |
| [0.964] | [0.737]** | [0.847]* | [0.304] | [0.307]1536 | ||
| Credit controls | 0.850 | 2.906 | 1.004 | 0.488 | 1.182 | |
| [0.986] | [0.819]1536 | [0.815] | [0.341] | [0.343]1536 | ||
| Privatization | 1.047 | 2.475 | 3.059 | −0.144 | 1.402 | |
| [1.011] | [0.863]1536 | [0.879]1536 | [0.372] | [0.363]1536 | ||
| Banking supervision | 4.011 | 4.079 | 4.926 | 0.628 | 2.206 | |
| [1.963]** | [1.251]1536 | [1.549]1536 | [0.443] | [0.473]1536 | ||
| Capital market development | 2.581 | 2.077 | 6.43 | 0.86 | 2.359 | |
| [1.843] | [1.224]* | [1.002]1536 | [0.431]** | [0.447]1536 | ||
| Trade and FDI liberalization | ||||||
| Freedom to trade internationally | 0.351 | 0.702 | 0.355 | 0.098 | 0.287 | |
| [0.167]** | [0.158]*** | [0.127]*** | [0.084] | [0.061]*** | ||
| Trade (tariff rates) | 4.196 | 0.190 | −0.670 | −1.434 | 0.497 | |
| [1.490]*** | [1.029] | [1.099] | [0.774]* | [0.542] | ||
| FDI liberalization | 1.513 | 2.799 | 1.668 | 0.249 | 1.472 | |
| [1.302] | [0.762]*** | [0.762]** | [0.351] | [0.338]*** | ||
| Institutional reforms | ||||||
| Legal system and property rights | 0.597 | 0.372 | 0.363 | −0.061 | 0.149 | |
| [0.220]*** | [0.178]** | [0.194]* | [0.101] | [0.082]* | ||
| Sound money | 0.405 | 0.477 | 0.097 | −0.010 | 0.185 | |
| [0.125]*** | [0.112]*** | [0.109] | [0.066] | [0.051]*** | ||
| Product market and regulatory reforms | ||||||
| Agriculture | 0.320 | 3.959 | −0.074 | 1.115 | 1.982 | |
| [1.065] | [0.880]*** | [0.938] | [0.834] | [0.458]*** | ||
| Business regulation | 0.044 | 0.704 | 0.965 | 0.493 | 0.491 | |
| [0.364] | [0.277]** | [0.214]*** [0.128]*** |
[0.115]*** | |||
| Labor market regulation | −0.872 | 0.762 | 0.165 | −0.149 | −0.244 | |
| [0.482]* | [0.458]* | [0.250] | [0.107] | [0.113]** | ||
Includes interest controls; credit controls such as directed credit, reserves requirements; privatization; and supervision reforms.
TFP Regression Results
| Q1 | Q2 | Q3 | Q4 | Full sample | ||
|---|---|---|---|---|---|---|
| Financial sector reforms | ||||||
| Banking system reforms 1/ | 2.939 | 6.365 | 5.933 | 0.459 | 3.272 | |
| [1.736]* | [1.545]1536 | [1.872]1536 | [0.639] | [0.656]1536 | ||
| Interest rate controls | 1.240 | 1.592 | 1.429 | 0.363 | 1.033 | |
| [0.964] | [0.737]** | [0.847]* | [0.304] | [0.307]1536 | ||
| Credit controls | 0.850 | 2.906 | 1.004 | 0.488 | 1.182 | |
| [0.986] | [0.819]1536 | [0.815] | [0.341] | [0.343]1536 | ||
| Privatization | 1.047 | 2.475 | 3.059 | −0.144 | 1.402 | |
| [1.011] | [0.863]1536 | [0.879]1536 | [0.372] | [0.363]1536 | ||
| Banking supervision | 4.011 | 4.079 | 4.926 | 0.628 | 2.206 | |
| [1.963]** | [1.251]1536 | [1.549]1536 | [0.443] | [0.473]1536 | ||
| Capital market development | 2.581 | 2.077 | 6.43 | 0.86 | 2.359 | |
| [1.843] | [1.224]* | [1.002]1536 | [0.431]** | [0.447]1536 | ||
| Trade and FDI liberalization | ||||||
| Freedom to trade internationally | 0.351 | 0.702 | 0.355 | 0.098 | 0.287 | |
| [0.167]** | [0.158]*** | [0.127]*** | [0.084] | [0.061]*** | ||
| Trade (tariff rates) | 4.196 | 0.190 | −0.670 | −1.434 | 0.497 | |
| [1.490]*** | [1.029] | [1.099] | [0.774]* | [0.542] | ||
| FDI liberalization | 1.513 | 2.799 | 1.668 | 0.249 | 1.472 | |
| [1.302] | [0.762]*** | [0.762]** | [0.351] | [0.338]*** | ||
| Institutional reforms | ||||||
| Legal system and property rights | 0.597 | 0.372 | 0.363 | −0.061 | 0.149 | |
| [0.220]*** | [0.178]** | [0.194]* | [0.101] | [0.082]* | ||
| Sound money | 0.405 | 0.477 | 0.097 | −0.010 | 0.185 | |
| [0.125]*** | [0.112]*** | [0.109] | [0.066] | [0.051]*** | ||
| Product market and regulatory reforms | ||||||
| Agriculture | 0.320 | 3.959 | −0.074 | 1.115 | 1.982 | |
| [1.065] | [0.880]*** | [0.938] | [0.834] | [0.458]*** | ||
| Business regulation | 0.044 | 0.704 | 0.965 | 0.493 | 0.491 | |
| [0.364] | [0.277]** | [0.214]*** [0.128]*** |
[0.115]*** | |||
| Labor market regulation | −0.872 | 0.762 | 0.165 | −0.149 | −0.244 | |
| [0.482]* | [0.458]* | [0.250] | [0.107] | [0.113]** | ||
Includes interest controls; credit controls such as directed credit, reserves requirements; privatization; and supervision reforms.
References
Ahmadov, Anar, 2012, Political Determinants of Economic Diversification in Natural Resource-Rich Developing Countries, Preliminary draft.
Berg, A., J. D. Ostry, and J. Zettelmeyer, 2008, “What Makes Growth Sustained?” IMF Working Paper 08/59 (Washington: International Monetary Fund).
Dabla-Norris, Era, and others, 2008, “Anchoring Growth: The Importance of Productivity-Enhancing Reforms in Emerging Market and Developing Economies,” IMF Staff Discussion Note 13/08 (Washington: International Monetary Fund).
Dabla-Norris, Era, and others, 2012, “Investing in Public Investment: An Index of Public Investment Efficiency,” Journal of Economic Growth, 17 (3): 235–66.
International Monetary Fund (IMF), 2012, “Structural Transformation in Sub-Saharan Africa,” Regional Economic Outlook: Sub-Saharan Africa, October (Washington: International Monetary Fund).
International Monetary Fund (IMF), 2013, “German-Central European Supply Chain—Cluster Report,” IMF Country Report No. 13/263 (Washington: International Monetary Fund).
International Monetary Fund (IMF), 2014, “Sustaining Long-Run Growth and Macroeconomic Stability in Low-Income Countries—The Role of Structural Transformation and Diversification.” IMF Policy Paper, March 2014.
Ostry, J., Prati, A., Spilimbergo A., 2009, “Structural Reforms and Economic Performance in Advanced and Developing Countries,” IMF Occasional Paper 268 (Washington: International Monetary Fund).
Prepared by Aminata Touré.
The 2014 FSAP update identified that the crisis prevention framework should be bolstered with the introduction of macroprudential surveillance, and the liquidity risk could be better managed with more qualitative requirements in the liquidity framework and focused onsite supervision.
For labor market reforms, see “Growth, Employment, and Socio-Demographic Challenges in Mauritania”
For education reforms, see “Growth, Employment, and Socio-Demographic Challenges in Mauritania”
If the existence of nonlinearities (that countries become less diversified after they achieve certain income level) is not introduced, the model predicts that export diversification does not have an effect on growth volatility in the global sample.
