GDP growth will remain buoyant and the contributions from the oil and non-oil sectors will be better balanced
Over a long-term perspective, the rate of economic growth in Cameroon has been below the average for Africa. This is partly a result of the long-term decline in oil output (now partially halted), although expansion in the non-oil sector enabled GDP to grow by over +4% in 2012 and 2013. Within an overall programme of economic diversification away from oil, the construction (mainly through infrastructure projects) and agriculture and forestry sectors are being promoted. The two main agriculture sub-sectors, cocoa and coffee, are receiving state support to increase production.
EH expects GDP growth of +5% in 2014 and a similar rate in 2015, spurred by the non-oil sector but also as new oil wells are developed and output from existing ones is enhanced by use of new technologies.
Inflationary pressures remain subdued and the exchange rate system is stable
Growth in consumer prices averaged only 1.3% in 2010 but inflationary pressures built up through the course of the year and into 2011 through increases in energy and food prices, in particular. In addition to high international energy prices, the government‘s programme of gradual liberalisation in its petroleum-product pricing mechanism (effectively subsidy reduction) also increased inflationary pressures. However, annual inflation ended 2012 and 2013 at below 3% and EH expects inflation will remain relatively stable around that level in 2014 and 2015.
EH does not expect a change in the CFA franc mechanism, with the fixed peg to the euro remaining XAF655.957:EUR1 through to end-2015.
Current account deficits are comfortably covered
The non-oil sectors are being boosted by large public investment programmes aimed at improving and extending infrastructure (transport networks, water supply, dams and electrification) that are partly driven by inward investment necessitating capital goods and other imports. As a result, the current account registers deficits. EH forecasts that the current account will record deficits of -4.3% and -4.6% of GDP in 2014 and 2015, respectively. These deficits will be covered comfortably by inflows of foreign direct investment and also by long-term borrowing. At current levels, FX reserves provide a healthy import cover of over seven months, suggesting that problems should not arise in relation to trade payments.
External debt stock and associated ratios, together with repayment obligations, are all now low (although increasing again), following substantial debt relief, particularly through the HIPC initiative. Debt/GDP and debt/export earnings are around 15% and 25% of GDP, respectively, and servicing of external debt obligations is equivalent to only 3.5% of annual foreign currency earnings. FX reserves are around 10 times larger than the country’s short-term debt.
Cameroon will remain a member of the regional economic bloc that has a single central bank and unified currency system (in effect, backed by the French treasury)—the CFA franc will remain the country’s currency. Against this background, external liquidity provides an additional degree of support, in need. EH expects fiscal deficits of -6.1% and -3.7% of GDP in 2014 and 2015, respectively. Deficits are partially a result of continuing extensive fuel subsidies provided by the state.
Reforms are yet to improve markedly perceptions of a generally weak business environment…
The government rationalised and reorganised the Investment Promotion Agency but the business environment remains challenging. Independent international agency assessments suggest that the overall regulatory environment is relatively weak, the judiciary is perceived as prone to political interference and protection of property rights is poor. The World Bank’s Doing Business 2014 survey ranks Cameroon 168 out of 189 countries in relation to the overall ease of conducting business operations. The survey indicates that contract enforcement takes substantially more time than the regional average and the cost and recovery rate in insolvency resolution are markedly worse.
…but infrastructure improvements and extensions will spur activity
The government is actively seeking to boost economic development, increase job availability and spur overall growth through large projects to develop infrastructure. In a country larger than Sweden and almost the size of Spain, weak transport infrastructure, in particular, is a severe impediment to overall growth. Foreign investment, particularly from Asia, is now driving transport-related projects. One example is South Korea’s investment in updating and extending the port facilities at Limbe, through which exports of oil, minerals and other resources are transported to export markets.