Tuesday, 24 November 2015

PGI Insight: Mauritania's political stability in doubt amid falling commodity prices

  • High production and transportation costs associated with a lack of adequate infrastructure has meant Mauritania is among the countries worst affected by the slump in global commodity prices.
  • Several companies have already scaled back operations and the resulting fall in state revenues presents significant political challenge for the government of President Mohamed Ould Abdelaziz.
  • The deteriorating economic outlook increases the risk of civil unrest and industrial action, exacerbating a looming succession crisis before Abdelaziz’s final term ends in 2019.
  • In this volatile political context there is a moderate risk of a military coup in the next four-year outlook, though this is partially mitigated by the president’s competent political management and security cooperation with the West.
High production costs and low commodity prices weaken mining outlook

Mauritania is among the most exposed countries in Africa to the fall in global commodity prices. The country depends on the mining industry for around 70 percent of its exports and 30 percent of its state budget. However, high production and transportation costs as a result of a lack of adequate port and rail infrastructure has cast doubt over the viability of many of the more complex mining projects, forcing several mining companies to scale back operations in the past year. In March, Swiss-based miner Glencore announced it had abandoned its Askaf iron ore project, saying it was not economically viable in current market conditions. The company had already spent USD 1 bn on rail and port infrastructure to support the project, highlighting the operational challenges associated with mining in Mauritania’s remote interior.

Mauritania’s gold mining sector faces similar difficulties. In September, Canadian mining company Kinross laid off 20 percent of its workforce at its flagship Tasiast gold mine in response to a 30 percent drop in gold prices since 2012. The company had announced in February that it had indefinitely postponed a USD 1.6 bn investment to increase annual production from 3,000 tonnes to 38,000 tonnes. In both cases, the company’s decision making was heavily influenced by the project’s remote location 300 km north of the capital Nouakchott that has driven up transportation and construction costs. The cost of producing an ounce of gold at Tasiast in Q2 of 2015 was USD 1,063, compared to USD 690 an ounce at Kinross’s Chirano mine in Ghana.

The drop in commodity prices has further implications for the government’s financial stability. The decline in mineral princes saw state income from the extractive industries fall by 24 percent to USD 408 mn in 2013, according to the latest data recorded by the Extractive Industries Transparency Initiative. These revenues are likely to have fallen even further this year with the slowdown in the Chinese economy. Iron ore prices hit record lows on 17 November, trading at USD 45.80 per tonne at the Chinese port of Tianjin, compared to a record high of USD 190 a tonne in February 2011. Mauritania is especially vulnerable to the slowdown in the Chinese economy as it produces a new iron ore product called TZFC, which European importers tend to avoid due to its high silica content, but is popular in China. Chinese iron ore prices are not expected to recover for at least two years as a result of long-term over-production at Chinese steel mills.

Reduced revenues threaten president’s position

The prolonged loss of mining revenues has potentially destabilising consequences for Mauritania’s weak and fractious political system. President Mohamed Ould Abdelaziz’s authority rests heavily on his ability to control the political elite, military and civil service through patronage, for which he depends on consistent revenues and a robust public sector payroll. Throughout his presidency he has made sure that military salaries have stayed high, while he has also sought to co-opt political rivals in both the political and business sphere by offering them lucrative jobs and contracts in return for their support.

The impact of commodity price fluctuations has already led to an increase in civil unrest and industrial action that will likely increase as economic conditions continue to deteriorate. The political opposition held frequent demonstrations in the capital Nouakchott and the second city of Nouadhibou during the first half of Abdelaziz’s presidency in protest of poor economic conditions and the restrictive political environment, while renewed protests have been reported this year. In the past unrest has typically spiked in reaction to price increases on staple goods and essential commodities, or in the event of budget cuts that affect public services or lead to redundancies in the public sector. Typical focal points for opposition demonstrations in Nouakchott have previously been the Ibn Abbas Mosque and Square, Avenue Gamal Abdel Nasser and the Presidential Palace in Tevragh Zeina.

The economic downturn has also seen growing levels of unrest in the mining sector. Workers at the state-owned Société Nationale Industrielle et Minière (SNIM), which provides around 15 percent of GDP, held a two-month strike at the beginning of 2015 to demand the implementation of scheduled pay rises. Further strikes were threatened in September when Kinross made 225 workers redundant at Tasiast, though so far these have not materialised. With lay-offs anticipated to continue as companies look to reduce costs, there is a high likelihood of further industrial action.

Competent political and economic management could alleviate pressures

Despite these challenges Abdelaziz has previously proven himself adept at managing political confrontations and is well placed to navigate the political challenges that now confronts him. The main opposition bloc, the Forum national pour la démocratie et l’unité (FNDU), comprises some 30 different political and civil society bodies, each with competing political agendas and has previously struggled to mobilise a sustained mass movement. Indicative of this, Abdelaziz was re-elected to a second term with 81.89 percent of the vote in the June 2014 election and he will likely continue to capitalise on opposition divisions for the remainder of his term.

The support of Western governments in the form of security cooperation and aid will also continue to underpin the president’s position. France and the US especially view Abdelaziz as an important ally amid an increasingly unstable security environment in the Sahel. During his presidency, incidents of Islamist violence have fallen significantly in Mauritania and Western powers will be reluctant to see political stability jeopardised in the country. The US donated two Cessna 208 Caravan aircraft worth USD 21 mn in June 2014 to support surveillance activities, while Mauritania is also hosting French troops as part of the regional counter-terrorism Operation Barkhane, launched in July 2014. Continued bilateral cooperation on counter-terrorism and military aid will continue to provide the government with an important source of revenue.

The emergence of new sectors could also alleviate economic pressures. Mauritania has had little success in diversifying the economy away from mining, but ongoing offshore exploration could offer new alternative sources of income. Exploration activities by Anglo-Irish firm Tullow Oil have so far been disappointing, but there are hopes the company’s Banda gas-to-power project could prove lucrative when production begins in 2016. Kosmos Energy is also operating off Mauritania and on 5 November announced its second major discovery at the Marsouin-1 well, where it hit 70 metres of net gas pay. Such fields are unlikely to be developed during Abdelaziz’s final term, however, and issues surrounding infrastructure and skilled labour could slow production, delaying future revenues.

Succession process marks potential flashpoint

A key consideration that could alter Mauritania’s political outlook surrounds the handling of the presidential succession process and the reactions of the military to this process. Abdelaziz is bound by the constitution to stand down at the end of his term in 2019 and there is currently no obvious successor to replace him. Many of the president’s critics, notably former president Ely Ould Mohamed Vall, have already accused Abdelaziz of plotting to remove term limits as part of a wider constitutional reform process. This would undoubtedly galvanise further protests as debate over the constitution intensifies, particularly towards the end of the president’s term.

The military has a history of intervention in politics, including in 2005 and 2008, but so far Abdelaziz has maintained broadly positive civil-military relations, by keeping close allies in senior ranks and maintaining high defence spending. The deteriorating economy, however, gives the president less flexibility to co-opt potential rivals within the military, increasing the possibility of a coup as his opponents attempt to exploit tensions relating to the succession process. A key indicator of worsening relations with the military would be if the president’s anti-corruption drive was directed at senior ranking officers of the armed forces. Public companies chaired by military officers have so far been spared public accounts audits, and attempts to prosecute senior officers would mark a notable shift in policy that is indicative of more hostile relationship with the military.

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