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Tracking extractives revenues in Mauritania

Tracking extractives revenues in Mauritania

16 December 2016

Mohamed Said Ould Ahmed, director of research and statistics at Mauritania’s Treasury, and Stephan Eggli & El Hadramy Mohamed Mahmoud, technical advisors at GIZ, on Mauritania’s efforts at mainstreaming EITI reporting. 

Government extractive industries revenues present an important challenge in terms of their economic weight, their impact on the national budget and on good governance in public management more generally. In 2014, the extractives sector contributed 17.2% of GDP and 29.5% of state revenues, of which 80% came from the mining sector, primarily exported iron ore. 

Not merely a blessing: managing extractive revenues

Resource-rich countries like Mauritania are often confronted with three major macroeconomic challenges: the so called “Dutch disease” (extractive revenues strengthen the national currency which in turn hampers exports from other sectors, strong short- and medium-term fluctuations in the government’s annual budgets (“pro-cyclical spending”) and longer-term volatility due to dependency on commodity prices. Each of these challenges can lead to a waste of public funds or to the emergence of cycles of economic expansion and slowdown. Increasingly aware of these destabilisation risks, many countries have set up natural resource funds or sovereign wealth funds. Yet these funds are not a guarantee of sound macroeconomic management in themselves, which explains the current global consensus on the need to establish, through the legislation or regulations, strict budgetary rules for the management of these funds.

In light of these challenges, Mauritania created its sovereign petroleum fund, the FNRH (Fonds National de Revenus des Hydrocarbures), in 2006 and has taken further measures to improve the management of extractives revenues. Implementing the EITI since 2005, Mauritania recognized that, instead of treating the EITI as an ad hoc and distinct process, mainstreaming the financial reporting on the extractive sector into key government reports such as the Table of State Financial Operations (TOFE) and the Budget would increase transparency, facilitate EITI implementation and, ideally, ensure more timely reporting.

Overcoming accounting challenges

Data collection for the EITI has been up to this point a tedious and time-consuming process, requiring a lot of people filling a lot of forms and then other transferring that data on to computers. The current accounting and IT systems do not allow users to see what taxpayers have paid nor how much has been collected by revenue stream.

Fortunately, Mauritania has already started to implement good practices in reporting.  Less than a week after the end of each month, the Treasury publishes a Table of State Financial Operations (the TOFE) which includes, amongst others things, information on mining revenues and dividends from state-owned enterprises. In the same timeframe, the Treasury also publishes monthly reports on petroleum revenues and volumes produced, obtained from the FNRH that collects all oil revenues.

The aim is to perpetuate existing good practices, and to systematise their application in the mining sector. The Mauritanian government, in collaboration with the German cooperation, carried out a study to assess the feasibility of integrating EITI reporting into Treasury systems and enable spontaneous reporting. The following actions were identified:

  • Introduction of the Fiscal Identification Number (NIF) for companies in the scheduling, execution and accounting of their payments will make it possible to precisely identify each taxpayer without risk of error and therefore produce spontaneous reports by taxpayer and by payment type.
  • Updating of the nomenclature, applying GFS classifications to extractives revenue flows, developed jointly by the EITI International Secretariat and the IMF. This classification would make it possible to specify the nature of payments made and the identity of parties involved.
  • Training of public and private accountants on the new classifications and monitoring of implementation will be a priority.
  • Move towards electronic bank transfers for all payments in the sector which will further reduce delays and risks of error.
  • To ensure correct accounting and reduce delays, it is necessary to dedicate accountants to track extractives payments within the Tax Department, the Customs Department and possibly the Cadastre Department.
  • In the past, the Customs Department has regularly published export values and volumes for mineral commodities on its website, although this has since ceased. It is encouraged that this practice be reintroduced.
  • Incorporating FNRH revenues and mining revenues into the budget and ensuring better accounting of these revenues by the Treasury.

Next steps

The Mauritanian government shared the study’s results with relevant partners, including civil society and development partners. Through these consultations, it was decided that in order to set up the conditions for spontaneous reporting of revenues from the extractive sector, Mauritania will take the following steps:

  • Create within the Tax Department an accounting position dedicated to the taxation of extractives companies, from 2017.
  • Introduce the NIF to customs clearance and receipt metadata, from 2017.
  • In consideration of the GFS classifications to extractives revenue flows, revise the accounting nomenclature to allow precise identification of all extractives revenues, from 2018.
  • Create a specific classification of mining revenues, in the same way as the existing oil and gas classifications, which would support the automatic imputation of transactions and their isolation within the Treasury’s books. This will be key to allow automated financial reporting on the extractive sector at any given point in time, from 2018.

Once the first two measures are implemented, and with minor interventions in the IT systems, reporting will be far easier. By developing ways of extracting such revenue information in real-time, it will be possible to produce timely extractives-specific TOFE in line with requirements of the IMF’s 2014 Government Finance Statistics Manual. It is with this catalogue of measures that Mauritania aspires to join the most advanced countries in extractives revenue reporting, while progressing towards the objective of improved extractive industry governance for the benefit of all Mauritanian citizens.