2009 Index of Economic Freedom

Quick Facts

Population:

• 3.0 million

GDP (PPP):

• $5.8 billion
• 11.4% growth
• 5.7% 5-year compound annual growth
• $1890 per capita

Unemployment:

• 20.0%

Inflation (CPI):

• 7.3%

FDI Inflow:

• $-3.4 million

Mauritania's economic freedom score is 53.9, making its economy the 127th freest in the 2009 Index. Its score decreased 1.2 points from last year, reflecting declines in six of the 10 economic freedoms. Mauritania is ranked 23rd out of 46 countries in the Sub-Saharan Africa region.

Mauritania scores relatively well in fiscal freedom, trade freedom, monetary freedom, and government size. The weighted average tariff rate is moderate, but burdensome non-tariff barriers still hinder overall trade freedom. Foreign investment is welcome in almost all sectors. High tax rates on income are balanced by moderate corporate tax rates, and overall tax revenue is fairly low as a percentage of GDP. The fiscal freedom score is one point higher than the world average.

Mauritania's overall economic development is hampered by serious weaknesses in business freedom, labor freedom, freedom from corruption, investment freedom, and property rights. Opening a business and related licensing and operational procedures are grueling, with long waiting periods and costly fees. Bureaucratic inefficiency and corruption burden the entire economy. Court enforcement of property rights and labor regulations is subject to pervasive political interference. An underdeveloped financial sector impedes the development of dynamic entrepreneurial activity in the private sector.

Background Back to the top

Centuries of migration have produced in Mauritania a mixed population of Moors and Black Africans in which ethnic tensions have flared. The country is predominantly desert and beset by drought, poor harvests, and unemployment. Mining and fishing dominate the economy. Oil production from offshore fields began in 2006. A military junta ruled Mauritania until 1992, when the first multi-party elections were held. President Maaouiya Ould Sid'Ahmed Taya won elections in 1992, 1997, and 2003. He was ousted in 2005, and a transitional government was appointed. Sidi Ould Cheikh Abdellahi was elected president in 2007 but was overthrown in a bloodless coup in 2008.

Business Freedom 53.6 Back to the top

The overall freedom to start, operate, and close a business is limited by Mauritania's regulatory environment. Despite an effort to streamline regulations, bureaucratic obstacles and delays linger. Starting a business takes about half the world average of 38 days. Obtaining a business license requires more than the world average of 18 procedures.

Trade Freedom 75.6 Back to the top

Mauritania's weighted average tariff rate was 7.2 percent in 2006. Import restrictions, import taxes, weak enforcement of intellectual property rights, inadequate infrastructure and trade capacity, and non-transparent customs administration add to the cost of trade. Ten points were deducted from Mauritania's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 75.4 Back to the top

Mauritania has a high income tax rate and a moderate corporate tax rate. The top income tax rate is 40 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax (VAT) and a tax on insurance contracts. In the most recent year, overall tax revenue as a percentage of GDP was 15.4 percent.

Government Size 65.9 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 33.7 percent of GDP. Because of rising energy and food prices, the government has increasingly intervened in the economy.

Monetary Freedom77.7 Back to the top

Inflation is relatively high, averaging 7.4 percent between 2005 and 2007. Most prices are determined in the market, but the government influences certain prices through state-owned enterprises and utilities, such as electricity. Five points were deducted from Mauritania's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom50.0 Back to the top

Foreign investment is welcome in most sectors. The 2002 investment code uses privatization and liberalization to encourage foreign investors, guarantees freedom to transfer most capital and wages abroad, and makes foreign and domestic investment legally equal. Foreign investment is prescreened. Certain financial activity, mining and hydrocarbons, telecommunications, and utilities are subject to additional restrictions. Reforms have been implemented, but complicated and burdensome bureaucratic procedures, corruption, and non-transparent legal, regulatory, and accounting systems inhibit investment. Residents and non-residents may hold foreign exchange accounts, but non-resident accounts are subject to some restrictions. Payments and transfers are subject to quantitative limits, bona fide tests, and prior approval in some cases.

Financial Freedom40.0 Back to the top

Mauritania's underdeveloped financial sector remains concentrated in urban areas. Limited access to credit and the high costs of financing keep more dynamic entrepreneurial activity from taking place. Lending to the private sector has been limited. The banking sector dominates the financial system, accounting for more than 80 percent of total assets. There are 10 commercial banks, one of which is 50 percent government-owned. Foreign banks are new to the system; two French bank subsidiaries opened in 2006 and 2007. In 2007, a new banking law was enacted to enhance competition, improve access to credit, and ensure bank liquidity. The law mandates separation of bank management and ownership and limits the percentage of loans that a bank can make to related parties. Capital markets are virtually nonexistent, and there is no stock market.

Property Rights25.0 Back to the top

Mauritania's judicial system is chaotic and corrupt. The judiciary is subject to influence from the executive. Poorly trained judges are intimidated by social, financial, tribal, and personal pressures. Mauritania signed and ratified the WTO's Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement in 1994 but has yet to implement it.

Freedom From Corruption26.0 Back to the top

Corruption is perceived as pervasive. Mauritania ranks 123rd out of 179 countries in Transparency International’s Corruption Perceptions Index for 2007—a significant deterioration from 2006. All levels of government and society are affected by corrupt practices. Affluent business groups and senior government officials reportedly receive favorable treatment with regard to taxes, special grants of land, and government procurement. Tax laws are routinely flouted. Widespread corruption weakens the government’s ability to provide needed services.

Labor Freedom50.2 Back to the top

Mauritania's restrictive labor regulations hinder employment and productivity growth. The non-salary cost of employing a worker is moderate, but the difficulty of laying off a worker creates a disincentive for new hiring. Restrictions on the number of work hours are rigid.