A Strategy for the Privatization of the Nouakchott Port.

 By Mohamed  Mouknass  

For 
CD 691 MACD PROJECT
MA Commercial Diplomacy  
Monterey Institute of International Studies

Project  Advisors: 
Pro. Geza Feketekuty and Prof. William Arrocha

May 9, 2001

TABLE OF CONTENTS  

INTRODUCTION

BACKGROUND PAPER

COMMERCIAL AND ECONOMIC ANALYSIS

I-Excess labor before privatization
II-Surplus labor after privatization
III-Compensation plan  

INSTITUTIONAL ANALYSIS

I-The World Bank/IMF  
II- The World Trade Organization  
III- The World Maritime Organization  

LEGAL ANALYSIS
POLITICAL ANALYSIS
POLICY RECOMMENDATION
OVERALL STRATEGY

I-EXECUTIVE STRATEGY  
II-PRESIDENT STRATEGY  
III- LABOR STRATEGY  
IV-PARLIAMENT STRATEGY  

CONCLUSION
 LABOR REFORM
APPENDIX
ANNEX
BIBLIOGRAPHY

INTRODUCTION  

Since its inauguration in 1984, the port of Nouakchott Mauritania ) has been run as a publicly owned monopoly. Unfortunately, the absence of competition has led the port to overstaffing. Moreover, labor regulation has caused high labor costs.  The port has thus become costly and inefficient, and has lost market share to such West African ports as Dakar (Senegal) and Abidjan (Ivory Coast).  

Scenario : 
For the purpose of this Master project, I assume the role of a member of the Economic Planning Board in charge of developing a privatization strategy for the Port Authority of Nouakchott ( Mauritania ). This Economic Planning board is presided by the Finance Minister.  

Objective :
There are numerous aims for privatization. First, privatization would attract new foreign direct investments, which would increase productivity and competitiveness. The investments would bring the port service up to international levels of efficiency.  Second, privatization would increase trade at the national and regional levels, and directly or indirectly create jobs. Finally, introducing market based labor reform would reduce port labor costs on the public budget.  

Why is privatization of the port authority necessary?
There are many reasons for Mauritania ’s government to privatize the Nouakchott Port Authority. Since 1984, the Nouakchott port has posted a disappointing performance. To keep it operational, government bureaucrats have managed the port through public subsidies and preferential access to credit. In 1994, the port was given greater autonomy. However, such reform proved impossible to sustain; after initial improvement, the port deteriorated. It grew overstaffed and out of control. The challenge now is to bring sustainable improvements to port performance, and the Mauritanian government views private sector participation as the means to accomplish that. Another important reason for privatization is the government’s deep budget deficits and public finance crisis. Mauritania ’s government no longer has the financial resources to offset the port’s losses, much less provide capital increases for its development. Finally, Mauritania has committed to structural adjustment programs with the World Bank and the International Monetary Fund. They must reform to receive loans from these institutions to finance their economic and social plans.
 
STRUCTURE OF THE DOCUMENT
This paper begins with an overview of the project and its goal, followed by the Executive Summary. The background section introduces Mauritania , its economy, and its political systems. Following is the Commercial and Economic analysis which evaluates losses of the Nouakchott Port in this past decade and estimates surplus labor. Next, the Institutional and legal analysis describe domestic and international requirements of port privatization. The Political Analysis section describes the political environment and stakeholders. Finally, the recommendations section proposes reforms for the Mauritania Government to facilitate the privatization process. 

EXECUTIVE SUMMARY
The purpose of this project is to develop a strategy for the privatization of the Nouakchott Port in Mauritania . The privatization is intended to enhance trade, increase foreign direct investment in port activities, reduce the public budget deficit, and introduce labor reform. This report first gives a brief background of Mauritania and its political environment. Next, it describes the ports and their functions, identifying options for privatization of the top 100 container ports in the world. Advantages and disadvantages of each option are addressed. Following is the commercial and economic analysis, which evaluates surplus labor before and after port privatization. The analysis provides a compensation plan for surplus dock workers. The institutional and legal analysis describes domestic and international requirements of the port. The political analysis describes the political environment and stakeholders.. Finally, the recommendations section proposes initiative reforms for Mauritania ’s government to facilitate the privatization process. In the annex of this paper, market-based port labor reform is recommended for any port privatization. The annex provides the needs of commercially oriented port labor reform, the objectives of this reform, and consequences at the political, economic and social levels.  

BACKGROUND PAPER  

1-General context :
Mauritania is located at the western extremity of the Saharan desert. The population was estimated at 2.6 million people in 1999, with a growth rate of 2.6 percent per year (IMF Report, 1998). During the 1960 Independence movement, Mauritania was essentially a nomadic society; just 5 percent of the population lived in urban conglomerations near the Atlantic Ocean. Due to heavy rural-urban migration, particularly over the last two decades, over half of the population now lives in urban centers such as Nouakchott , the political capital, and Nouadhibou, the economic capital (World Bank Report, 1999). The ethnicity of the population is 50 percent Moors and 50 percent black Africans. Social indicators, like nutritional levels, food security, income, and access to water, are poor. Fifty percent of Mauritania ’s people live below the poverty line of one dollar a day (World Food Organization Report, 1999)  

Political environment: 
Government type: Republic
A new constitution was approved in mid-1991, after which political parties were legalized and voters registered. Presidential elections were held in early 1992 and Colonel Ould Taya was elected. He was re-elected for an additional six-year term in December 1997 with 90 percent of the vote.  

Executive Branch:
Chief of State: President Maaouya Ould Taya (since December 12, 1984)
Head of the government: Prime Minister Cheikh El Afia (since January 2, 1996 )
Cabinet: Council of Ministers, appointed at the pleasure of the Prime Minister.  

Legislative Branch:  
Bicameral legislature consists of the Senate, 56 members elected by the municipal leaders to serve six years, and the National Assembly, 79 members elected by popular vote to serve five years. The Senate assembly consists of 55 members from the political party of the government and 1 member of the opposition. The National Assembly includes 71 members from the political party of the government and 8 from the opposition.  

Economic Development: 
Mauritania ’s economy has become substantially liberalized since the early 1980s. The economic structure encompasses a relatively small modern sector and traditional subsistence sectors such as agriculture and breeding. Mauritania has a very narrow economic base. Its industrial sector is dominated by mining and fishery activities, which together provide all export earnings (IMF Report, 1998). The rural sector employs an estimated 64 percent of the labor force. Despite considerable changes since independence in 1960, Mauritania ’s economy remains vulnerable to external shocks such as climatic changes or fluctuation in the world price of its principal exports (IMF Report, 1998).  

Economic indicators:
GDP per capita in Mauritania is about $390. The average GDP per capita in Sub-Saharan Africa is about $500. In 1989, export earnings were approximately $438 million; by 1999 export income declined to about $333 million.  The annual iron income had decreased by 30% and the annual fishery earnings had decreased by 50% (World Bank sources). In 1989, foreign direct investment was about $4 million, and in 1999 the FDI was about $0 (World Bank Data, 2000). In neighboring countries, the FDI was about $169 million in Senegal and about $16 million in Mali .

In conclusion, the data analysis proves that Mauritania ’s economy needs structural changes to improve productivity and competitiveness and attract new investment in the global market. Structural reform could be accomplished through privatization of the state owned enterprises, including the port authority.
   

2- Important Facts:
Nationalization:
During the 1960s, many newly independent African countries, including Mauritania , applied socialist models to large nationalization programs. The new states took control of their productive assets from foreign companies, and based their development on state owned enterprises. In the 1960s Mauritania ’s government nationalized both the iron mining company from France and the national fishing company. The nationalization was linked to the rise of the nationalism.

Over the past thirty years, state owned enterprises have survived through tariff protection against competing imports, preferences in public-procurement, exclusive rights, preferential access to credits, government guarantees, tax exemptions and public subsidies. According to the World Bank, these practices led the governments to deep budget deficits and public finance crises. Many African states no longer have the financial resources to offset the losses of state owned enterprises, or to provide the capital necessary for development. Moreover, state owned enterprises have become overstaffed, inefficient and less competitive (Guislain, 1997, p.48).  

Globalization of the economy:
In a world where open economies and globalization are the rule, state owned enterprises in general and public port authorities in particular continue to be operated with outdated models. Development has proceeded more in accordance with sociopolitical criteria than commercial ones.  

Accelerated technological innovation and growing integration of markets have forced private enterprises to form foreign alliances in technology, investment, and trade.

State owned enterprises are ill-placed to forge such alliances (Guislain, 1997, p.8).

The growing globalization of the economy and the end of the Cold War have pushed many states towards privatization and other economic reforms.  

Nouakchott Port Authority:

The Nouakchott Port was inaugurated in 1984. The Republic of China built the Port of Nouakchott at no cost to the government of Mauritania. China financed many infrastructure projects in Mauritania in the name of helping the newly socialist independent African country. As a result, Mauritania does not recognize Taiwan and supports China ’s policy in the United Nations.  

The port of Nouakchott consists of two quays, one for small vessels (Whart Quay) with draft of less than 5 m and the second for larger vessels with a max draft of 10.5 m.

The second quay is known as the ` Port of Friendship Quay ’ stretching 585 m and split into four berths, three for cargo handling and one for serving vessels.

Source: Port Focus.  

3-The role of port privatization management around the world:
Defining private sector participation in port activities requires attentive analysis. In this section, I will describe the functioning of ports, their roles and responsibilities, various models of port privatization, the benefits and objectives of each model, and the advantages and disadvantages of privatization. Moreover, I will analyze private sector participation of the top 100 ports in the world and determine which type would be best for the port of Nouakchott . Finally, I will describe lessons learned from port privatization in Latin America .  

A- The elements of port activities:
There are three essential elements of port activities: port operations, port land, and port regulations (Baird, 1995, p.1). Port operations are concerned with the physical transfer of goods and passengers between sea and land. Port operations may also include warehousing, storage, and packaging. Manufacturing or product assembly activities within the port estate are considered port operations. 

Port land responsibility includes the management and development of port estate. It also includes conceiving and implementing port policies and development strategies. Port land authority supervises major civil engineering works, provides and maintains berths, piers, and road access to the port complex (Baird, 1995, p.2). According to the Journal of Maritime Policy & Management, besides municipal authorities, ports are often the largest landowners within a city. For example, Antwerp port authority controls some 125 km of berth length and occupies a land area of 14,000 hectares. The Los Angeles port has 45 km of waterfront covering an area of 3,000 hectares.  

The third essential element of port activities is regulation, which includes maintaining the conservancy function and insuring navigable approaches to the port. Port regulation also includes providing pilotage services, vessels traffic management, and ensuring the safe passage of vessels within the defined area of jurisdiction of port. The port regulation power enforces laws relating to health and safety and controls pollution levels within the port estate. Finally, the port regulator monitors the performance of the port, coordinates policy making with local and national government bodies, plans future expansion, and promotes the entire port and its facilities to users (Baird, 1995, p.3). 

B-Options for port privatization:
An analysis of the top 100 ports in the world reveals four models of ports. The first model is the public port with no private sector involvement. All three elements; operations, regulations, and land, are the responsibilities of the state. Public ports are still found in Singapore , India and all African states.  

The second model, which I call model II, is the port that transfers port operations to the private sector. In this model, port land remains in public ownership and regulatory activities are also the responsibilities of the public sector. According to Mr. Cass, a specialist of port privatization, there are many examples of this type of arrangement in North America and European ports, with terminals leased to the private sector. 

The third type of port, which I call model III, is the port where two elements, operations and property rights, are controlled by the private sector. The public sector via port authority still controls regulations matters such as navigable approaches (Baird, 1995, p.7). This type of privatization usually corresponds to single user ports such as oil ports or mineral ports, but is not appropriate to multi-user ports.  

The last model of port, which I call model IV, is a port where all three elements, operations, land, and regulatory, are the responsibility of the private sector. In this model the government has no involvement in port activities other than control of sub-standard vessels, pollution or accidents. In this port model the market determines opportunities for new private sector investments. Only the United Kingdom has a fully privatized port.   

Models of Port Privatization:

Eighty-eight of the top 100 container ports fit Model II, where port operations are carried out by the private sector, with the public sector retaining property rights over port land and regulatory functions. Model II is by far the most common arrangement for private sector participation in port activities.  

According to a study titled Process, Players and Progress, only seven of the top 100 container ports appear to conform to Model I, where the three elements of the port are under the government control. These include several ports in South Africa , Singapore and Israel . South Africa plans to transfer responsibility for cargo-handling operations to the private sector.  

Private sector participation in the top 100 ports:  

According to the same study, only two of the top 100 container ports conform to Model III: Tilbury and Felixstowe in Great Britain . These ports are owned and operated by the private sector, with public sector control over regulatory functions. Finally, only three of the top 100 container ports conform to model IV. These ports also are located in Great Britain .  In each of these three ports the private sector controls operations, land, and regulations. In conclusion, the United Kingdom is the only country with real port privatization. However, other countries offer private sector participation in port operations, which are the most important aspects of port activities for port users.

COMMERCIAL AND ECONOMIC ANALYSIS  

There is no doubt that privatizing port operations will increase port efficiency and improve competitiveness. Privatizing port operations will reduce port labor demand on the public budget and raise government revenues.  

For many years, Mauritania ’s government paid scant attention to deficits in Nouakchott Port in the belief that they would be corrected by bigger budgetary allocations or by higher port charges. These port deficits were seen simply as internal costs for the country with no major implications on foreign trade.  

The trade flow for Mauritania was US $747 million in 1998, and in 1999 declined to US $662 million. As we see, the import/export value decreased by more than 11%, which has negative consequences on port services, since the demand for port services depends on the volume of goods handled. Port costs factor into the final product price. If port costs are excessive, the competitiveness of the merchandise is affected. If sales decrease, demand for port services decline. 

In this section, I will try to estimate the surplus of dock workers in the Port Authority in Nouakchott before privatization. I will also estimate the excess of labor after privatization. Finally, I will estimate the amount of compensation for laid-off of dock workers. My sources used include the World Bank in Washington , D.C., and the International Maritime Organization in London . I will also apply knowledge from the Quantitative Tools Analysis of the Commercial Diplomacy Class.  

I-Excess Labor before privatization:
A-ASSUMPTIONS:

• All goods trade pass through the port.
• No services trade pass through the port.

• Loading and unloading ships requires the same effort per ton of product.

• Labor requirements per ton for different products are similar.
• Mauritania ’s port uses production technology from when it was built (1984).
• Initially there was no excess labor at the Nouakchott Port.
• The port has 150 dock workers.

B-Percentage Change in Trade Volume between 1989 and 1999:

1-Trade Volume in 1989:

Export Volume in 1989: Export/ Export Price= 438/97= 4.52
Import Volume in 1989: Import/ Import Volume= 382/103=3.71
Trade Volume in 1989: Export Volume + Import Volume= 4.52 + 3.71 = 8.22

2- Trade Volume in 1999:
Export Volume in 1999: Export/ Export Price= 333/79= 4.22
Import Volume in 1999: Import/ Import Price: 329/91= 3.62
Trade Volume in 1999: Export Volume + Import Volume= 4.22 + 3.62 = 7.84

The percentage change in trade volume between 1989 and 1999 is calculated thus:
(Trade Volume 1999 – Trade Volume 1989)/ Trade Volume 1989= -4.8%

Conclusion:  
The volume of trade in Nouakchott between 1989 and 1999 decreased by almost 5%. We can thus estimate the excess labor in the port of Nouakchott at 5%. The number of Dock workers is 150, so 7 to 8 people are redundant.

Before estimating the surplus dock workers at Nouakchott Port Authority after privatization, I would like to estimate the percentage change of trade volume in Dakar Port Authority, Senegal , between 1989 and 1999. Dakar Port Authority is considered a direct competitor in West Africa to Nouakchott Port Authority.  

Percentage change in trade volume in Dakar Port Authority:

Export Volume in 1989= Export/ Export Price = 7.3
Import Volume in 1989= Import/ Import Price = 13.7
Export Volume in 1999 = Export/ Export Price = 8.35
Import Volume in 1999 = Export/ Export Price = 14.35
Trade Volume in 1989 = Export Volume + Import Volume = 21 
Trade Volume in 1999 = Export Volume + Import Volume = 23

Percentage change in trade volume between 1989 and 1999 in Dakar Port :
(Trade Volume 1999 – Trade Volume 1989)/ Trade Volume 1989 = 10%
The volume of trade in Dakar between 1989 and 1999 increased by 10%.

Conclusion: Between 1989 and 1999, the trade volume through the Nouakchott Port Authority decreased by 5%, while the trade volume through Dakar Port Authority increased by 10%. Mali , which is a land-locked country, imports trough Nouakchott Port and Dakar Port. However, the Port of Nouakchott has become inefficient and highly costly. It is much cheaper for Mali to import through Dakar Port than Nouakchott Port.

II- Surplus Labor after Privatization:

A- Global Cargo Handling Productivity:

If the new private port operator uses the technology of 1996, productivity per worker will be 12.30 tons/ man-hour. However, the actual productivity is 6.25 tons/man-hour because the port uses the technology of the 1980s. Actual productivity is approximately one-half with the outdated technology.

Conclusion:

We can conclude that after privatization, port operations will use half as many workers as before privatization. The actual number of dock workers is 150. We already know that seven to eight dock workers are redundant. So the number of dock workers needed will be: (150-8)/2= 71 . Therefore 79 dock workers (150-71) are likely to be laid off.

III-Compensation Plan:

In this section, I will estimate the amount of money needed to compensate the laid off dock workers. For objective criteria, I hoped to analyze compensation for dock workers elsewhere in Africa . However, no single port in Africa has been privatized. Since many ports in Latin America have been privatized, I used their compensations for objective criteria on compensation in Mauritania . I selected three Latin American Countries: Chile , Colombia and Venezuela .

I convert all these dollar figures to year 2001 dollar figures:
Chile : US $14,300 X 1.71 = US $24,500 in the year 2001.
Colombia >: US $6250 X 1.613 = US $ 10,100 in the year 2001.
Venezuela : US $ 14,800 X 1.19 = US $ 17,650 in the year 2001.

To relate these figures to Mauritania , I will use the Purchasing Power Parity (PPP) factor.
Mauritania: PPP X GDP/per Capita= $832 
Chile: $ 24,500/ GDP per capita = $ 24,500/ 4,890 = 5
Colombia : $ 10,100/ GDP per Capita = $ 10,100/ 3380 = 3
Venezuela : $ 17,650/ GDP per capita = $ 17,650/ 7082 = 2.5  

Conclusion :
The range of compensation for Mauritania is: 2.5 X 837 to 5 X 837, or  $2,100 to $4,200 per dock worker.  The range for all surplus workers is: $165,900 to $331,800.  

Comments: 
The range for the compensation for a Mauritanian dock worker is between $2,100 and $4,200. These amounts are 5.25 to 10.5 times greater than the GDP per capita. If we consider purchasing power parity factor, these amounts are a lot of money. On the other hand, as a state employee, a dock worker is provided housing, electricity, water, health assurance, and even alimentation coupons for necessity products from the government. After being laid off, the worker will lose all these social benefits.  

How could the Nouakchott Port Authority increase its activities?
We know that:
First, the demand for port services is derived from the volume of goods handled. Port services are integrated into manufacturing and distribution systems, so port costs are added to the final product price, which affects the competitiveness of the final product.   

Second, 50% of Mauritania ’s export is fishery products to Europe and Japan . They compete with the same products from Senegal and Morocco at the same prices. We can presume that excessive cost of port facilities for any of these countries could mean the loss of both the European and Japanese markets. Let’s assume the privatization of Nouakchott port operations help cut the cost of handling fish exports (with a negative impact on fish exports from Senegal and Morocco to Europe and Japan ). Japanese or European fish brokers in Tokyo , Madrid or London will probably ask fish producers in Mauritania to provide them with greater volume once they realize that their fish can be obtained relatively cheaply. The fish brokers will continue to buy Mauritanian fish until volumes are insufficient to satisfy Japanese and European demand. The growth in the demand for Mauritania ’s fish will increase demands for workers, fish packing services, land and ocean transport services, and cargo handling services at port. The entire Mauritanian economy will benefit.

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