Mauritania: small but mighty

BEING one of the smaller economies in Africa, with a GDP of $10 billion, Mauritania can be overlooked by international financial providers, with many unable to balance the perceived risk against potential reward. The country has suffered from political instability, widespread poverty, and vulnerability to the impacts of climate change.

Mauritania is one of many African nations whose growth is hampered by the continent’s trade finance gap – estimated at $81 billion by the African Development Bank. As with many similar nations it is in the early stages of diversifying its economic base, relying heavily on commodities exports -Mauritania was the 11th largest exporter of iron ore in 2021 - to drive growth. Yet this entrepreneurial nation with a strong export-based economy and numerous opportunities for economic diversification beginning to come to fruition, may offer fresh possibilities to investors.

Iron ore, amongst other metals, is one of the main exports for Mauritania, worth $1.33 billion annually, while gold exports provide a further $820 million of income. When combined with discoveries in gas, uranium, and hydrogen, Mauritania is not without opportunity for those looking to invest.

Like many frontier markets, the economy is largely focussed on primary natural resources, with less capability in refinery and production. Some of this is due to a lack of skilled labour. Fortunately, opportunity is on the horizon for the iron ore industry. The Societe Nationale Industrielle et Miniere (SNIM), Mauritania’s largest mining company, recently launched an ambitious strategic plan aimed at lifting exports into the global top 10, by doubling iron ore production. Furthermore, Emirates Steel – the UAE’s largest non-oil company – has signed a preliminary agreement with SNIM to establish a joint venture company to produce iron oxide pellets.

Projects such as this are particularly important for emerging economies, which tend to rely on exporting unrefined primary resources. By entering value-add industries, emerging economies can diversify their offerings on a global stage, while injecting infrastructure, technology, and expertise domestically.

Mining – and iron ore in particular –has also been vulnerable to volatile prices in recent years. In order to remain resilient, Mauritania is focusing on diversification, reinvesting income from its existing commodities trade into new projects and improved infrastructure.

With the recent discovery of an offshore field containing almost 2.26 billion cubic metres of natural gas, Mauritania could be primed to become a major exporter to the gas-dependent EU as the block pivots away from Russian exports.

Furthermore, with the energy transition monopolising climate change talks,

Mauritania could lead in the region on renewables such as hydrogen power. In November 2022, global energy giant BP signed a Memorandum of Understanding to explore green hydrogen opportunities in Mauritania, assessing the commercial and technical details necessary to embark on the project.

A 2022 report sponsored by European Investment Bank, International Solar Alliance and African Union named Mauritania – and neighbouring Morocco –as key players in a North African hub for hydrogen production. The report also found that Africa’s green hydrogen potential stands at around $1.5 trillion – presenting a huge opportunity to Mauritania should it act as a hub.

Hydrogen is not the only renewable power option available to the nation. With an average of just 7 days of rainfall per year, and an abundance of desert Mauritania has significant potential for solar power development. The Mauritanian electricity grid already receives 10 percent of its power from solar energy, with the Sheikh Zayed Solar Power Plant providing 25,409 megawatt hours of clean power.

Mauritania already aims to increase the share of renewables in its energy mix to 50 percent by 2030, meaning it could well lead the charge on clean energy in North Africa – and export this energy to other countries. Projects such as the Desert to Power G5 Sahel Facility, supported by the Green Climate Fund, African Development Bank, and other private sector partners, have already committed around $1 billion to boost the solar capacity of the region.

Other mineral deposits such as uranium present opportunities for the nation. Australian mining company, Aura Energy, has recently entered negotiations with authorities to obtain an operating license for a site in Tiris mining uranium. The site is projected to produce up to 6200 tons of uranium over 15 years.

However, to support such a transition, investment is vital to develop infrastructure, with a particular focus on improving roads and railways in the rural desert. With support from the World Bank, the Mauritanian government is now enlisting the private sector to help upgrade its infrastructure. Collaboration with other nations is also contributing to improvements. For example, in July of 2022, an agreement was signed between the governments of Mauritania and Algeria to construct an improved road link between the two countries, boosting transport connections with its neighbour.

With road networks already under construction – and regional infrastructure improvements taking place in nations such as Cote D’Ivoire and Senegal – capitalising on trade with its immediate neighbours will allow Mauritania to bolster its export capabilities without high transport costs and other trade barriers. The removal of trade barriers will be supported by the IntraAfrican Continental Free Trade Agreement (AfCFTA), officially implemented in January 2021, allowing countries to capitalise on the benefits, which include lower tariffs and the removal of other nontariff trade barriers.

The potential opportunities of trade extend into the fishing industry, Mauritania’s fisheries bring in a further $710 million to the economy. Lower transportation costs associated with distance means that, in combination with reduced tariffs, exporting these products to nearby African nations could be more attractive than to Europe – currently the biggest market.

Trading in frontier markets is no simple matter. Perceived risks limit the number of international banks that choose to enter certain areas, specialist banks who operate in the region leverage their on-the-ground market knowledge, and strong relationships with local banks, to facilitate safe and sustainable trade flows.

Banks like BACB also provide capacity building, helping local partners improve their regulatory and compliance processes. In February and March 2023, BACB visited Mauritania, meeting with commercial banks, the Minister of Finance and the Governor of the Central Bank. During the visit, the team organised a training seminar focused on Compliance and Anti-Financial Crime. The event saw representatives from across the Mauritanian financial sector attend, demonstrating the local desire to level up compliance functions and operate in line with international standards. Held in the capital Nouakchott, in partnership with Banque Nationale du Mauritanie, the training was incredibly well-received by attendees, serving to strengthen understanding of regulatory standards, in turn making trade finance in the region safer and reducing transactional friction for traders operating there.

While risk perception issues still exist, banks such as BACB can leverage their longstanding relationships and expertise in these regions to provide access to global markets, while meeting UK regulatory standards and ensuring compliance at every level. This work helps to build greater appetite for regional trade credit risk, providing access to much needed liquidity and ultimately helping to bridge the trade finance gap.

There are plenty of opportunities on the horizon for Mauritania. And as the market begins to grow, it will likely become increasingly attractive to investors, particularly in the green hydrogen space and wider renewable energy transition. Alongside the growth in intra-African trade, the future is bright for the North African nation.

With specialist markets like Mauritania often categorised as high risk, international banks can play a key role in bringing credibility to crossborder trade flows, guaranteeing and financing international transactions. One way BACB achieves this is by applying strict transaction monitoring procedures. For international banks operating outside North Africa, it can often be challenging to identify their counterparties, build a profile on their operations and take a decision on deals using only the limited information that can be retrieved online.

Specialist trade finance banks, with on-the-ground knowledge, support this process by carrying out risk assessments of their customers – providing a system of checks and controls that reassures all sides of a transaction. By fostering a dialogue with customers, and actively soliciting customers’ queries on how to improve processes and procedures, banks can also help inform local partners on how to improve their profiles, raising them to an international standard.