Cameroon

Low growth, mounting discontent

Country Rating C3

Strengths

  • A degree of political stability has been recorded under the lengthy rule of the current leadership, although this may mask some infringements on liberties.
  • Relatively good relations with donors and IFIs.
  • Membership of the CFA franc zone provides a relatively stable background of monetary policy .It also reduces exchange rate and transfer risk to a lareg extent.
  • An ever more diversified export basket has boosted economic resilience. 

Weaknesses

  • Underdeveloped infrastructure and lack of decentralization limit service provision.
  • Cameroon’s business environment ranks among the worst in the world. 
  • Relations with Nigeria and the Economic Community of Central African states remain uneasy due to border and trade disputes. 
  • President Biya’s health has been a concern and there are associated uncertainties over succession.
  • Increased risk of social unrest because of rising public frustration with perceptions of weak improvement in living standards.

Economic Overview

 

Growth is resilient but weakening

As many oil exporters, Cameroon’s growth experiences more volatility than regional average. Despite the slump in oil prices and the security crisis, the economy proves more resilient than regional counterparts. Diversification in the non-oil sector is the key. Large infrastructure works and increased support to the agricultural and forestry sectors drove the performance of the non-oil sectors. This led to a more sustainable economy, which in turn boosts resistance to external shocks. The country also managed to limit the revenue losses related to the slump in oil price by increasing its supply. As a result, the Cameroonian economy grew by +4.5% in 2016. EH expects GDP growth to reach +4% in 2017 and +4.5% in 2018. Cameroon’s business environment still needs to improve for performance to rise above current levels. While the country managed to slightly improve its ranking in the 2017 World Bank Doing Business survey (166th out of 190 up from 172nd in 2016) its record on property registration and contract enforcement remains poor.

 

Debt, twin deficits and lower liquidity: still manageable 

The non-oil sectors benefit from large public investments in transport networks, water supply, dams and electrification. These are partly driven by inward investment necessitating capital goods and other imports. Along with China’s economic slowdown, this results in a current account deficit of -3.6% in 2016. EH estimates it will reach -3% in 2017 and 2018. In addition, Cameroon has a fiscal deficit which is projected to slightly decrease to -3.5% in 2017 and -3% in 2018.The latter was exacerbated by increased defence spending associated with the regional security crisis. This structural twin deficit has raised the need for fresh financing. In June 2017, the IMF approved a US$666.2 million extended credit facility, in support of structural reforms aimed at curbing the twin deficit and public debt. The import covers of foreign exchange reserves were halved within a year from 8 months in 2016 to 4 months in 2017. While reserves are still in the comfort zone liquidity issues could arise if FDI dries up.

 

Political Uncertaitity 

The 20% that make up the Anglophone component of Cameroonian society has been raising claims about exclusion. This crisis that troubles the country since October 2016 could lead to more violence by radicalized separatists and federalist groups in the medium term. The government will have to adequately respond, before the 2018 elections. The continued threat by the terrorist group Boko Haram in northern Cameroon weighs on the agriculture and tourism sectors. 

Last review: 11/15/2016