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Country Report Cameroon

Country Report

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In 2012, the economic performance of Cameroon improved on the back of the oil sector, while the political risks persisted, despite milestones having been achieved.

Strengths (+) and weaknesses (-)

(+) Generous natural endowment

Ample hydrocarbon and mineral reserves, vast arable land and forests make Cameroon a resource rich country, which could provide a solid base for economic development.

(-) Vulnerability to external shocks

Cameroon is very susceptible to external shocks, because on the one hand, the extractive industry is an important source of FX and of revenues for the government and, on the other hand, the country relies on imports for fuel and food (together 58% of imports).

(-) A social environment prone to unrest

The Cameroonian society is characterized by rivalries along regional, linguistic, ethnical and religious lines, which can escalate into violence. Discontent due to low development and high unemployment and the large share of the young (60% is 24 or younger) also represent factors that could spark social unrest.

(-) Poor business environment

Persistent corruption and cumbersome regulation keeps investors away and hampers the development of the private sector. 

Key developments

1. Economic performance improving

Economic growth picked up in 2012, when it came in at 4.7%, up from 4.1% in 2011. The main driver was a rebound in oil output after several years of decline. Looking forward, increasing oil output as new fields come on stream and public capital spending is expected to sustain growth above 5% in the coming years. However, underperformance in the oil sector, already recorded in the first quarter of 2013, poses downside risks to the forecast. 

Figure 1: Fiscal deficit widens
Figure1: Fiscal deficit widensSource: EIU
Figure 2: Current account deficit increases
Figure2: Current account deficit increasesSource: EIU

2. Fiscal and external metrics worsen

Ever since falling in the red in 2010, the budget deficit has widened up to 3.6% of GDP in 2012 and an estimated 4.4% of GDP in 2013. Extensive and untargeted fuel subsidies, predicted to account for 3.2% of GDP in 2013, weigh heavily on the budget deficit. On top of that, they also contributed to an increase in domestic arrears to 4.7% of GDP in 2012, as there was insufficient budget allocation for a subsidy refund to state owned enterprises. Furthermore, contingent liabilities related to inefficient public enterprises and several distressed  banks pose significant downside risks to debt sustainability in the medium term. The low level of public debt, 16% of GDP in 2012, down from 55% of GDP in 2005, before debt relief, provides comfort. However, the public debt structure has changed as well, as the external non-concessional share increased significantly in recent years, leading to a higher risk debt profile for Cameroon. After a slight improvement in 2011, the current account widened again in 2012 to 3.8% of GDP and is expected to remain high in upcoming years, driven by imports for capital investments. Since FDI does not provide sufficient coverage, Cameroon will be reliant on external financing. The low level of external debt (13% of GDP in 2012) and the sound external position provide comfort though.

3. Elections finally held, but they do not reduce political risks significantly

The constitution of 1996 prescribed the election of a senate, but the first polls were held 17 years later, in April 2013, resolving an institutional vacuum. Namely, the head of senate will replace the president should he become impaired in exerting his function, not an unlikely situation given his 80 years of age. Considering the pivotal role of president Biya, such an event would cause a huge political vacuum. While president Biya’s strategy of co-optation kept entrenched rivalries in check, a battle for succession could reignite them and threaten stability. Hence, the senate appointment provides some mitigation, though the risks remain significant because the head of the senate is only one year younger than the president. 2013 also saw parliamentary and municipal elections being held in September, which decreased the tensions caused by repeated delays since July 2012. However, the landslide victory of the ruling RDPC has no consequences for the political situation, while the low turnout (1/3 of the eligible) seems to reflect the population’s discontent with the current situation.

4. Poor implementation of economic policies leads to poor results

In order to stimulate growth, one of the government’s priorities is to reduce the large infrastructural deficit. However, capacity limitations caused the government to miss its targets, which harms the prospects for potential growth. Only 35% of the investment budget was approved in 1H2013, forcing the authorities to revise economic growth projections from 6.1% to 5%. Another priority for the government is attracting investment, as indicated by legislation adopted in 2013. However, the implemented preferential treatment for investors was embedded in cumbersome procedures, as most legislation, and is therefore likely to have little impact. According to the Ease of Doing Business and WEF Global Competitiveness Indices the business climate has deteriorated in past years. Besides the direct negative effect on economic development, the government’s failure to meet targets and goals renders policy by the Cameroonian government unreliable, an additional deterrent for investors.

5. Milestones ease regional tensions, but security risks increase

Sovereignty of the oil rich Bakassi peninsula, the reason for 15 years of disputes with Nigeria, was fully handed over to Cameroon in August 2013. However, the weak position of the locals could lead to calls for secession and become a point of instability. In 2012, Cameroon signed several cooperation agreements with Equatorial Guinea, an important step to ease existing tensions. However, the agreements failed to address border security, an important reason for friction between the two countries. Moreover, developments in neighboring countries, such as the coup in the Central African Republic and the clampdown on Boko Haram militants in northern  Nigeria, increase the risk of Islamic insurgency spilling over the porous borders. Cameroon is also exposed to the increase in piracy in the Gulf of Guinea. Consequently, despite some progress, the security risks in Cameroon have actually increased. 

Factsheet of Cameroon
Factsheet of CameroonSource: EIU, CIA World Factbook, UN, World Economic Forum, Transparency International, Reporters Without Borders, World Bank.

Background information

Cameroon is an important oil exporter located on the West Coast of Africa, on the bay of the Gulf of Guinea. The extractive industry is very important for the country, as it accounts for roughly 9% of GDP and provides 30% of state revenues. Discoveries of iron on the border with Guinea and the nascent diamond industry could lead to some diversification from the current hydrocarbon dominance of the sector. A difficult business environment keeps economic activity in the informal sector, which is estimated at 90% of economic activity. Furthermore, despite recent privatizations, the government still has a strong presence in the formal sector. This is also reflected in the banking sector where, according to the IMF, the main risk stems from concentration on a few sectors and corporations and from public arrears to state enterprises, especially oil refinery SONARA. China is Cameroon’s main trading partner and also the most important financing source for infrastructure development. Despite a relatively low poverty rate for Sub Saharan African standards, the level of development is low. Cameroon is part of the Economic and Monetary Community of Central Africa (CEMAC). The union’s currency (XAF) is pegged to the Euro and therefore fairly stable, contributing to a stable inflation. Monetary policy is executed by the regional central bank (BEAC). Cameroon gained independence from France in 1960 and became a multi-party republic in 1990. However, the concentration of power in the president, his control of all relevant state institutions and the repression of the opposition and media render it a de facto dictatorship dominated by the 31 year rule of president Paul Biya and his party RDPC.

Economic indicators of Cameroon
Economic indicators of CameroonSource: EIU

Note: In September 2013 the IMF pointed out that data provision by Cameroon shows significant caveats, despite some improvement. It is therefore recommendable to interpret the data cautiously.

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Author(s)
Alexandra Dumitru
RaboResearch Global Economics & Markets Rabobank KEO
+31 30 21 60441

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