Insecurity along Sudan’s roads has taken a toll on the country’s trucking industry. According to an assessment conducted by the United Nations Joint Logistics Center (UNJLC) in Sudan, two out of nine land transport companies surveyed had discontinued their services to Darfur in 2008 due to increasing banditry and carjacking.

The Sudanese government recently inaugurated armed escorts to accompany truck drivers on their journey to Darfur. However, drivers sometimes wait for up to a week for the convoys to leave from the town of Wad Bandah on the road linking Al Fashir in North Darfur State with Khartoum. Because of these delays the overland trip from Khartoum to Darfur can sometimes require up to twenty days to complete. According to representatives of the Musa Fadl-Elseed Transport Company, “when long delays are encountered while waiting for government escort, perishable goods in transport are simply dumped.”

Despite these delays, Hawari Transport and Development Company in Omdurman has prohibited its drivers from traveling unescorted to Darfur. The company lost six fully loaded trucks to banditry this year and according to Yoines Ahmed Yoines, the company’s chairman, Hawari Transport may stop service to Darfur altogether if the security situation on the region’s roads does not improve soon.

Transport costs

Primarily as a result of ongoing insecurity, the cost of transporting goods from Khartoum to Darfur increased 10% during the 12-month period between January 2007 and January 2008. The UNJLC predicts that the cost will increase another 15-18% by January 2009, far more than Sudan’s annual rate of inflation of 5%.

The transportation of goods overland from Khartoum to the south of Sudan is hampered not by insecurity, but rather by mines, floods and poor roads. Although the main north-south routes remain open between July and November, when much of southern Sudan is inundated by floods, smaller roads become completely inaccessible. According to the United Nations, trucks weighing as much as 17 tons more than the recommended weight limit of 5 tons routinely travel along the South’s main highways, further damaging the country’s already fragile transportation infrastructure.

Insecurity and poor overland transportation routes have made air freight the only means of transporting goods quickly, reliably and safely within Sudan. Captain Adil A. Mufti of Swissport estimates that approximately 80% of goods are currently transported within the country by air freight. The constant demand for air freight services coupled with relatively simple procedures for registering an air freight company has resulted in a rapid increase in both the number and capacity of air transport companies in the country. Juba Air Cargo, which was established in 1996 and initially operated only eight flights per month to Juba using leased aircraft, now operates approximately 20 flights a month using its own fleet.   

Privately, however, representatives of some of Sudan’s commercial air cargo companies complain that the government of Sudan is crippling the country’s air freight industry. They assert that appointments to key positions at Khartoum International Airport, Sudan Airways and the Civil Aviation Corporation are made not based on merit, but in order to preserve links between these institutions and the country’s military and security establishments.

In-flight turbulence

Industry insiders also accuse Sudan’s Civil Aviation Corporation (CAC) of consistently and indiscriminately raising operating fees without considering the potential impact of these increases on the industry overall. Moreover, they claim that when CAC approves increases in landing, navigation and license fees for privately owned air freight companies, these same increases are not always applied to government-owned operators such as Sudan Airways. Many operators also fear that the opening of a new international airport in Khartoum in 2009 will translate into higher airport fees and yet another substantial increase in the cost of doing business.

Increasing fuel prices are also negatively effecting businesses’ bottom line. The price of A-1 jet fuel, which is set by Sudan’s ministry of energy and mining, has been steadily increasing in recent years. Just two months ago, the price of jet fuel in Khartoum jumped 100% to almost $5 per imperial gallon. In Juba, the cost of fuel is even higher. Approximately 3,000 tons of A-1 fuel are consumed daily by planes operating out of Khartoum International Airport and, although almost all jet fuel used within Sudan is now domestically produced, air freight companies complain that fuel prices were lower when the country was more reliant on imports for its supply.

In Sudan there are no organizations with the capacity or membership to demand a more consultative process between air cargo operators and government representatives on decisions that directly impact the growth of the country’s air freight industry. For now, Sudan’s air cargo companies have no choice but to pass on the increasing costs of doing business to their customers. Air freight companies recently raised the price of transporting goods from Khartoum to Darfur from SDG2.50 ($1.14) to SDG3.50 ($1.60) per kilogram, not including VAT. Despite these price increases, however, air cargo companies are not reporting any reduction in the demand for air freight services. Those businesses and international humanitarian agencies that need to transport goods safely and quickly within Sudan have no alternative. 

In three years, Khadija Boutarbash’s life has been transformed. Once an economically vulnerable ambulant seller of handicrafts, she is now a proud entrepreneur who has expanded her family-run small enterprise into four retail outlets in Casablanca, having rented her first storefront with a microcredit loan of MAD25,000 ($3,000) in 2005. The lending agency provided training to help her diversify her offer and better identify and adapt to seasonal consumption patterns. Today she travels to rural areas near Marrakech, Taroudant, and Fes to restock her supply of paintings, teapots and knickknacks, relying on verbal agreements with mostly illiterate sellers, achieving daily sales of up to MAD1,000 ($120) per day.

In Morocco, microfinance has quietly flourished in recent years, becoming something of a benchmark for the development of microfinance services throughout the MENA region. The country’s 13 microfinance institutions (MFIs) have so far loaned to over 1.7 million clients, at a 97% rate of repayment. Forbes Magazine’s 2008 ranking of the top 50 MFIs in the world listed no fewer than four Moroccan MFIs, with three of these making it into the top twelve (FONDEP at five, Al Amana at eight, and the Banque Populaire Foundation for Microcredit at 12). The IFC calls Morocco the MENA region’s leading market for microcredit institutions, with the country’s MFIs awarding half of all regional microloans.

It is unclear why microfinance, which spread rapidly through developing countries in Asia and South America during the past decade, has grown so slowly in the MENA, with Nobel laureate and microfinance pioneer Mohammed Yunus identifying it as the region with the lowest penetration rate. Over time, microcredit’s positive social impact and nearly perfect rate of repayment, in Morocco and other developing countries, have silenced early skeptics, who had warned that loans to the poor carried too high a risk. Now, as countries like Syria and Lebanon take the first steps towards creating microfinance institutions, industry insiders are using the Moroccan example to study the challenges and advantages of introducing MFIs to the region.

The Moroccan means

To guarantee repayment and results, MFIs actively supervise and guide the development of small enterprises, also offering leadership training and technical assistance. “With microcredit institutions, lending is not impersonalized in the way it is at a bank, where you create a credit file and the client has a relationship with the institution, not with this person or that person. But when a client comes to us, he is taken into our care from the beginning to the end by a single agent who knows him well, who he knows well,” said Mustapha Bidouj, secretary general of the Banque Populaire Foundation for Microcredit.

This carefully nurtured intimacy between Moroccan MFIs and their clients has proven remarkably effective in guaranteeing repayment and stimulating small business growth. However, the extra effort drives up operational costs for the institutions. “In order to arrive at the same volume of clients as a bank, we must have four times the personnel, because it’s not the same relationship, or the same practice at all,” Bidouj said.

High operational costs have generated concerns for the financing of Moroccan MFIs, which must raise interest rates to absorb these costs. “Interest rates for microloans are quite high compared to bank loans. The trips, the politics of building bridges between the organization and the client, these cost money. And it’s the interest rates that cover these costs,” said Mohamed Asri, director and founder of the International Agency for Economic and Social Development. Competition among the thirteen MFIs does put some downward pressure on interest rates, however.

Access to some form of credit, even at elevated interest rates, represents a significant step forward in incorporating Morocco’s population into a formal economy. The IMF reported in October that only 10% of Moroccans currently have access to bank credit and just 37% of the population has a bank account. Microcredit has brought about the fast growth of well-adapted financial services among the ‘pre-bankable’ majority of Moroccans. Access to credit has given Khadija Boutarbash and others like her a new lease on life. Microcredit shows that even among the least educated and marginalized communities there exists industriousness, resourcefulness and a sharp eye for business, if given the opportunity.

The sector’s evolution

Microfinance was introduced in Morocco by local NGOs in the mid-1990s, as part of a joint government-civil society effort to develop the country’s vast informal economy. The 1999 Microfinance Act provided the sector with a legal and regulatory framework, bringing it under the authority of the minister of finance. The ministry was also charged with determining interest rates, though it has yet to act on this point. It did, however, put a ceiling of MAD50,000 ($6,000) on all loans; it also restricted the scope of microfinance services by only authorizing microcredit loans destined to income-generating activities.

These early measures effectively encouraged the development of the sector, which grew out of large-scale donations by private individuals, banks, and the government. Moroccan MFIs praise the government’s support in the early stages of the sector’s development. “We are lucky to have a central bank and minister of finance who understood very well the needs of the microcredit sector. They have accompanied us and also urged us to proceed slowly, as if to say, ‘We will not get in your way, but let’s move forward step by step.’ That is what has allowed us to have this controlled development,” said Bidouj. 

Now, as Moroccan MFIs grow up and encounter the limits of their own capacities, they are reflecting on new ways to develop. Upcoming sector reforms will probably include the introduction of various microfinance services, such as micro-savings and deposit programs, micro-insurance, and microcredit loans earmarked for cars or housing. Adding these financial services to the current offering of microcredit loans to develop small enterprises will enable Moroccan MFIs to tap into a large potential demand, as well as to diversify their product.

This diversification is crucial for Morocco to extend microfinance services to those most in need. According to one estimate, in Morocco as few as 20% of potential demand for microfinance is being met. In urban areas, agencies have benefited from word-of-mouth and high population concentration to build a strong clientele base. In rural areas, however, where poverty rates are higher and access to potential clients may be complicated by geographical isolation and lack of infrastructure, Moroccan MFIs have expanded slowly.

Asri piloted a recent study to advise Moroccan MFIs on diversifying their offer, to more effectively penetrate rural areas. “The rural world can only generate the resources to pay back the debt after a certain delay,” he remarked. “If we take a woman in the mountains who makes carpets, she wants a microcredit to buy wool to make carpets, and then it (the weaving) will take 15 days. Then, she will either sell the carpet to a reseller, at a loss, or take it to the souk herself. This could take another two weeks — that makes one month. Today, the associations impose repayment by day, week or month, but the activity in the rural world needs a particular service with more attention and services that are better adapted.”

Commercial Investment

Another potential reform of the microcredit industry in Morocco would allow commercial finance to invest in the microcredit industry for profit, seen as a way to avoid an upcoming crisis. Moroccan banks require MFIs to maintain a certain relationship between their capital stock and loans. With several Moroccan MFIs already at that limit, many want the option of augmenting capital stocks through a public offering.

The global microfinance sector is concerned that ‘making profit on the backs of the poor’ represents a significant departure from its own foundational goals. The mainstream finance industry, seeing the expansion of microcredit as an opportunity for growth, is ready to seize upon opportunities. Have Moroccan MFIs reached the limits of what they can do on their own? “We are in an evolutionary stage,” Bidouj said. Asked whether he thought reforms would permit the entry of private investment, he responded: “That is the essential question for us, and will probably motivate the transformation of MFIs from the status of a non-profit to the status of a company.”

The question forms the central problematic of a study currently being conducted by the ministry of finance, with a grant from the American Millennium Challenge Corporation. If the government does open up MFIs to commercial investors, the next step will be to choose between local and foreign shareholders. In accepting foreign investment, MFIs expose themselves to the risk associated with foreign currency. However, foreign capital has the advantage of being mainly loaned at lower interest rates than local currency.

As Moroccan MFIs mature, they face new pressures to expand. The government has so far maintained a nurturing environment for the sector, to good effect. To minimize risk, the government and MFIs must work together to guide the country’s microfinance sector through this transition period and into its next phase. 

With a 46% poverty rate and slack security situation, Mauritania is an at-risk nation whose significance to global investors and statesmen is at an all-time high.

The sparsely populated Islamic Republic of Mauritania straddles Arabo-Berber and black Africa and is bounded by a 700 km Atlantic coastline and the southern stretch of the Sahara. Once composed entirely of nomadic tribes, prolonged drought and famine in the 1970s and 80s forced a hasty mass sedentarization. Half of all Mauritanians still depend on agriculture and livestock for their livelihood, and the nation’s economic outlook is dismal enough by international standards to qualify for the last-resort Heavily Indebted Poor Countries Initiative (HIPC). The political and security situations in the country have been highly unstable since independence in 1960, with regular coups d’etats unseating power often enough to cripple any earnest initiatives for economic development.

In the latest of these coups, on August 6 of this year the military seized power from the nation’s first democratically-elected government. International observers will be paying close attention to the junta’s next moves, looking for signs of its political and economic orientation. For this notoriously closed country, where the press is tightly controlled, is at a crossroads that is both political and economic. The Mauritania that has just been usurped is both a contested front in the war on terror and a trove of unexploited natural resources within a world of dwindling supplies.

Economic mirages

What is really at stake in the constant shifting of power among Mauritania’s Mauresque elite is control over the nation’s extensive natural resources. Mauritania’s coastal waters are among the richest fishing grounds in the world, and are full of the coveted king prawns, among others. The country also has a thriving iron ore mining industry, with one of the world’s longest trains (2.5 km) carrying rich deposits from the Zouerat mines across the Sahara to Nouadhibou on the Atlantic coast. Iron mining and commercial fishing are key sources of revenue and accounted for 19% of GDP in 2005.

But the revenue earned from fish and iron ore is small change compared to the wealth the country’s vast oil reserves could generate. There are varying accounts of just how large Mauritania’s reserves of oil really are, and estimates by the Australian company Woodside, which was the first to discover oil in Mauritania in 2001, have been downsized from 120 million barrels of Proven and Probable (2P) reserves in 2001 to 53 million barrels in 2006, with another downward adjustment to 34 million barrels in 2007. While it is hard to find a reliable number for the country’s reserves, what is known is foreign oil companies including Total, CNPC, and Petronas have all invested in exploration measures in recent years.

Allegations of a lack of transparency in the incorporation of several amendments to Mauritania’s first oil contract, signed by Woodside and former oil minister Zeidane Ould Hmeida, prompted an Australian investigation into the company and the arrest by Mauritanian authorities of Hmeida on charges of “serious crimes against the country’s essential economic interests.” The Australian investigation was dropped in 2008 due to insufficient evidence, but the events have damaged the credibility of the state’s management of its oil reserves among Mauritanians.

Driss Choukri, a Moroccan social science researcher specializing in Mauritania, expressed the collective disappointment, stating “they said they discovered huge reserves of oil in northern Mauritania and it was very promising. People were waiting for it to be exploited, and we were saying that one day you would find Mauritanians being like Kuwaitis.” He views the recurring political upheavals as a struggle for control over awarding highly lucrative oil contracts. “The coup is related to the wealth that is in the country — in the fishing, in the iron, in the reality that whoever is in power is going to exploit the oil. I think the transitional government did not go far enough into the issue of oil in the north because they are waiting for the situation to get stable. But it never stabilizes.”

Mauritania began producing crude oil in 2006 at the Woodside Chinguetti field, which is now controlled by Malaysia’s Petronas, but this field’s output has since dropped off from 75,000 bpd to 11,500 bpd. Nevertheless, judging by Mauritania’s sudden popularity among foreign companies and diplomats, hopes remain high for the exploitation of considerable oil reserves. Foreign companies like Total, Exxon, and the China National Petroleum Corporation (CNPC) are currently conducting geo-physical studies and preparing seismic tests in the desert region of the Taoudenit basin, according to energy minister Mohamed El Moctar Ould Mohamed El Hacen, who called this basin one of the greatest in the world. South Africa is using diplomatic relations to cozy up to Mauritania in the hopes of winning an eventual supply contract on the African continent. Total, which holds 60% share in permits to explore the Taoudenit basin after ceding 20% of permits to Algeria’s Sonatrach and another 20% to Qatar Petroleum International, plans to begin drilling exploration wells in 2009.

Political challenges

The ruling military junta is led by the enigmatic General Mohamed Ould Abdel Aziz, who has figured prominently in Mauritania’s ruling elite since the 2005 coup d’etat, which put an end to then-president Taya’s 21-year corrupt and dictatorial regime. In the case of the 2005 coup, the military junta held power for a brief period of time before winning international approval by organizing Mauritania’s first democratic elections in 2007. Since the same figures who organized the 2005 coup led the 2008 one, most are hopeful that Abdel Aziz will make good on his promises of elections and transition from military to democratic civilian rule.

“He will be president until things are stable,” said one Mauritanian businessman who is from the same tribe as Abdel Aziz and asked to remain anonymous. This source hopes to see democracy reinstated soon. “The people of Mauritania can elect their new president as soon as the prior president and his agenda have been reconsidered. There is some opposition, but only from ex-political figures, with hardly any followers among regular everyday people, who are living their lives regardless.”

But if the military succeeded in creating the appearance of democratic governance by holding fair elections in 2007, the 2008 coup, in which the military overthrew the very president it had backed in elections just one year prior, reveals that the military may not yet be ready to relinquish its power over key domains like security and the economy.

Abdel Aziz has leveled charges of corruption and failure to improve the country’s security situation against Abdellahi’s deposed democratic government. The country’s unchanging, extreme poverty has been blamed for the growing radicalization of its youth and numerous reports indicate that Al-Qaida in the Islamic Maghreb (AQIM), which grew out of Algeria’s GSPC among other groups, has flourished in this Wild West outlaw atmosphere. AQIM claims responsibility for a spate of recent attacks in the country, including the killing of four French tourists in 2007, attacks on Mauritanian soldiers in 2005, and an attack on the Israeli embassy in February 2008. During Ramadan of this year, in a meaningful warning to the military rule, AQIM abducted 12 Mauritanian soldiers and cut their heads off, making good on its promise to carry out a full-scale ‘holy war’ against the regime. Abdel Aziz has vowed the military junta will improve the security situation and organize the next round of democratic elections.

Just weeks after the coup, AQIM’s leader Abu Musab Abdul Wadud accused France, the US and Israel of secretly supporting the regime change, adding that Mauritania has become “a nest of foreign intelligence” controlled by Israel’s Mossad. Intelligence reports indicate that the Mauritanian military has received funding and training from the US government, which increased covert military operations in North Africa as part of its Trans-Saharan Counter-Terrorism Initiative. The Center for Defense Information reported that International Military Education and Training assistance and other programs to provide counterterrorism training and funding to the Mauritanian military increased six-fold in the five years after September 11, 2001.

In the wake of the most recent coup, the international community has been merciless in its condemnation of what it sees as an assault on democracy. The African Union has called for the reinstatement of Abdellahi, and the European Union, the US and World Bank have restricted aid, using the threat of economic sanctions to demand a return to constitutional rule. Commenting on these threats, Prime Minister Moulaye Ould Mohamed Laghdaf, appointed to head the interim government, told Reuters, “If that unfortunately has to happen, we’ll have to turn to other partners, the Arab countries and Arab social and economic development funds, or even the Islamic Development Bank — these have not suspended their aid.”

With AQIM and the US both zeroing in on Mauritania as a crucial new front in the ‘war on terror’, the legacy of the 2008 coup d’etat will have more to do with the battle between pro and anti-Western forces than an assault on the rule of a budding African democracy.

Tunisia’s creation of a small-cap alternative market is part of an overall strategy that aims to promote financial markets as a complementary alternative to stock market financing of small-and medium-sized enterprises (SMEs). The alternative market also aims to assist large firms looking to reconstruct or to finance new projects.

Other recent signs of this strategy’s ongoing materialization include the promulgation of a law on financial security, the creation of a Mutual Fund for Investment and Risk (Fonds Commun de Placement à Risques à Compartiments — FCPR) and the development of institutional savings. The Tunisian government wants financial markets to pass from a 7% financing of the Tunisian economy (2006) to a 20% financing by 2009.

Authorities, aware of the hard-to-meet conditions of listing on the Tunis Stock Exchange, decided to create an alternative market side by side with the principal market and the bond market. Inaugurated in 2005, the alternative market comes with an accompanying program, designed to welcome newcomers to the financial market.

So far, 30 industrial enterprises have joined the pilot program, demonstrating a solid interest to enter into the financial market. A steering committee will oversee these enterprises, which could draw up to 70% of the costs of introduction from the Fund for Competitivity Development (Fonds de Développement de la Compétitivité Industrielle — FODEC), with a platform of costs not to exceed $23,000. The pilot program aims to provide financing to 50 enterprises by 2009.

Easier entry

The requirement of $750,000 minimal capital for entrance to the principal market does not apply to entering the alternative market. The realization of profits during the years leading up to introduction is also not a condition for entry to the alternative market.

Since the listing conditions are less exigent for entering the alternative market than they are for the principal market, the Tunisian alternative market has put into place several new structures of support and control. For example, the ‘listing sponsor’ is a new function created to serve as a financial consultant for the enterprise. Listing sponsors also assist in preparing files and accompanying the enterprise, as well as overseeing transparency and financial divulgation.

So as to insure greater liquidity to the securities traded on the alternative market, the financial security law authorized ‘market makers’ to assist in the listing of securities on this market. The market maker is required to post the price of buying and selling for minimal quantities.

Up until now, Tunisian SMEs have been penalized by numerous constraints, linked in particular to size and sector of activity. Thanks to the alternative market, they may now benefit from access to moderately priced financing, while at the same time maintaining a high enough level of protection to win the confidence of investors. Admission to the alternative market could be sought after by companies being publicly offered, and any other enterprise that opens its capital to at least 100 shareholders or five institutions.

The Tunisian alternative market takes into account the reality of the country’s businesses and the necessity of a high-performing financial market. Aside from the guarantee of transparency, the market includes important measures like the listing sponsor, who provides for accompanying and material assistance to enterprises, and the market maker, which favors liquidity in the market. These professions have been created to respond to the needs of the alternative market.

The success of similar markets in the UK and France has paved the way for countries with emerging economies to push ahead with the development of their own alternative markets.

The Alternative Investment Market (AIM), for example, is remarkably flexible and counts on the dynamism of businesses for its success. The London market asks for neither public float nor history of accounting, and in certain cases does not even require a prospectus visa from the London Stock Exchange authorities. Since 1995, AIM has listed over 1,300 publicly traded enterprises

ALTERNEX, France’s alternative market, is considered in financial circles as “a market with rules, but no regulations.” ALTERNEX’ conditions include investment of securities equal to at least 2.5 million euro, presentation of an accounting history dating back at least two years, the presence of a listing sponsor and a prospectus endorsed by the Paris Stock Exchange authority (AMF).

The future of growth

When questioned about the limited financing options previously available to Tunisian enterprises, Zeineb Guellouz, president of the Financial Market Council, explained that the system of financing Tunisia’s economy is based on debt, with a banking system that has been the sole purveyor of funds for financing the economy’s needs for over 50 years.

Such a system undoubtedly played a crucial role in the historical first steps to create the economic foundations of modern Tunisia. Today, however, the system is running up against its own limits, as witnessed by a particularly high level of non-performing loans (NPLs). The Tunisian government’s efforts to promote wider access among businesses to financing, as well as to promote financial markets as an alternative means for financing the economy represent a sophisticated response, if not quite a solution, to the problems of its out-of-date banking system.