Low Corporate Tax Rate Beckons Investors To Under-The-Radar Mauritania

By Kurt Davis Jr. AFKI Original Published: March 9, 2017, 10:24 am
low corporate tax rate MauritaniaTasiast gold mine, Mauritania. Photo: Kinross Gold Corp.

Mauritania, according to local storytelling, was not a drawn entity on a map until 1960. The French leadership viewed the territory simply as the dusty route between North Africa and present-day Senegal. Nomads passed through Nouakchott (“The Windy Place”), with a short stop for hydration – tea or water depending on your choice.

Nouakchott, the capital of Mauritania, is not the same today. The city is around 1 million people compared to a population of about 200-to-300 more than 50 years ago. The country has even shed the detrimental reputation as the ultimate safe haven to al-Qaeda in the Islamic Mahhreb. The terrorist group is still active in the region but has not carried out a successful attack in the country in more than five years.

Algerian and Moroccan investors accordingly are bidding their way into the country to make investments. But it should not stop with those two countries with plethora of opportunities in this quiet, under-the-radar location.

Oil and Gas, plus mining

These are hot sectors for the country with majors sniffing around, particularly after U.S.-based Kosmos Energy announced its major offshore gas discovery last year. Mauritania requires no royalty payments, which is not the norm and a benefit to explorers who have high anxiety over paying royalty payments in other African countries, given the unpredictability of commodity prices. Mauritania’s corporate income tax rate is low at 25 percent and other investment incentives are major positives in a region where the tax and fiscal systems can change any investor’s outlook on risk and reward.

By region, Africa has the highest simple corporate tax rate, averaging 28.77 percent, according to TaxFoundation.org. Europe has the lowest at 18.7 percent (26.1 percent weighted by GDP).

For many African countries, the tax rate is 30-to-35 percent. Oil and gas companies can normally negotiate lower taxes on their investments, but the trade-off in Mauritania is that the tax rate is already relatively low and no royalty payments are required. By comparison, Mozambique requires royalty payments regardless if you make a profit or not, which can kill some companies.

New discoveries of gas will have to support the country until other commodities regain strength in the market. Commodities exports account for nearly 40 percent of the country’s gross domestic product, GDP, with iron ore as the No. 1 mineral in the equation. Cement, copper, gold and gypsum are also important to the mining industry. Foreign investors pulled back in the past two-to-three years as prices plunged in 2014 and 2015. Yet, with a small reprieve in 2016 (albeit with prices about 30 percent off from early 2014), there is still potential in direct mining investment and the ancillary sectors supporting it as well as oil and gas.

Infrastructure and power

Mauritania’s oil and gas sector could use a boost from some infrastructure partners.

Mauritania already has plans to use gas from the Banda field, right off the coast of Nouakchott, in an 180-megawatt power plant with a 120-megawatt extension in the second phase. Power development is necessary for the local economy. But the profit may be in the country’s ability to build the infrastructure to export power to Senegal and Mali—two countries willing to pay a higher price for power.

Local Mauritanians are excited about the potential of the project and, on the surface, comfortable with export potential. Foreign investors and consultants worry that the bigger projects could challenge the policy and management apparatus of the Mauritanian government, and lean on government finances, which are still heavily tied to military spending and social infrastructure such as health and education. Pulling in foreign investors and development finance institutions (DFIs) is at the center of the leadership policy. Still, as many officials acknowledge the strategy and need for foreign investment, they note the biggest concern in implementation is their ability to find the best operators and contractors to satisfy foreign investors and local banks.

Agriculture

Agriculture and herding support more than 40 percent of Mauritania’s labor force. Yet they account for just 25 percent of GDP, as most farmers and herders are subsistence producers. The biggest crops are dates, millet, rice and corn. Herders raise cattle and sheep. The challenge is improving farming efficiency, capacity and production. Large government irrigation projects have aided production in the desert. Greater technical ability and capacity will drive development in the sector. Israeli-adopted technology and cropping strategies have had some success in other parts of Africa. There is potential here, according to one investor familiar with agriculture efforts in East Africa, but it requires time in educating local populations and investing in technology, which is not always the first thought for agriculture.

Kurt Davis Jr. is an investment banker focusing on the natural resources and energy sectors, with private equity experience in emerging economies. He earned a law degree in tax and commercial law at the University of Virginia’s School of Law and a master’s of business administration in finance, entrepreneurship and operations from the University of Chicago. He can be reached at kurt.davis.jr@gmail.com.

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