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Country Commercial Guides for FY 2000: Cameroon Report prepared by U.S. Embassy Yaounde, released July 1999

CHAPTER II:   ECONOMIC TRENDS AND OUTLOOK

A.   MAJOR TRENDS AND OUTLOOK

Cameroon's abundant natural resources, favorable climate, and well-educated and skilled work force render it one of Africa's most potentially competitive economies. Following independence in 1960/1, the country embarked upon a quarter of a century as one of Africa's most prosperous and successful economies. The drop in commodity prices of its principal exports (oil, cocoa, coffee and cotton) in 1985/6, coincident with adverse currency exchange rates and economic mismanagement, started Cameroon on a decade-long recession. Investment and trade slumped, while real per capita GDP declined by more than 60 percent.

Although political maneuvering, economic uncertainty and managerial weaknesses continue to plague the government's efforts to implement the reforms required to overcome the country's low confidence rating, sustainable growth and inflation control are beginning to become the reality in the reformed and liberalized Cameroonian economy. The GRC professes a willingness to address fiscal, judicial and political weaknesses which significantly hamper full economic revival and restrict the confidence of foreign investors, yet the results of GRC rhetoric have yet to come to full fruition. Cameroon is unusual among French speaking countries in that the vast majority of its entrepreneurs are local rather than expatriate. Indeed, Cameroonians are the major commercial force in some neighboring countries, giving traditional Cameroonian entrepreneurship expanded meaning.

In 1990, Cameroon created a free trade zone to promote internationally competitive export industries, the outcomes of which have been relatively mitigated. Quantitative restrictions on imports, non-tariff protection and many import licensing requirements were lifted when a new tariff code was enacted in January 1994 to conform to the uniform CEMAC customs regulations. Also in 1998, the Organisation pour l'Harmonisation du Droit des Affaires en Afrique (OHADA) treaty harmonizing business practices and law in 15 African countries entered into force. With a secretariat in Yaounde, OHADA aims, inter alia, to guarantee international arbitration in trade and business disputes. The Council of Business Managers and Professional Associations (GICAM) of Cameroon has also taken up the issue of legal enforcement and arbitration. This association of 145 enterprises and 14 professional associations represents 70 percent of all formal sector business activity in the country. It decided in early 1999 to create an Arbitration Center for its members, in order to avoid the long judicial delays within Cameroon which are so common and are harmful to the conduct of business. In January 1999, a value added tax was introduced to replace the turnover tax at a unique rate of 18.7 percent. The investment code was further liberalized in 1998 to facilitate regional trade by eliminating duties on manufactured goods. The liberalization leaves only the value added tax in place, and, in theory, it should be standardized across all CEMAC countries

Corruption is still rampant in Cameroon. In his 1999 New Year address, President Biya castigated the magistrates and the police force for being responsible for the denial of justice and the corruption which is depriving the government of significant customs and tax revenues. On a positive note, assessment and collection of customs duties in Cameroon have become more efficient since pre-shipment inspection procedures were contracted to a private company in 1996.

Cameroon's policies, as defined by law, meet most elements of an open, liberal investment climate. Recent improvements to the country's privatization law, laying specific emphasis on the simplification of approval procedures, make it one of the best on the books and are supposed to guarantee, in theory, equity to both Cameroonian and foreign investors. However, GICAM's members have recently criticized some bidding prerequisites laid down by the GRC, as they feel the regulations exclude local business people from bidding, despite the fact that the parastatals were created with Cameroonian taxpayers' money. In addition, the privatization process has come under continued criticism for the apparent favoritism showed by the GRC toward French companies.

Tax and tariff reforms in 1994 simplified rates and eliminated some unfair exemptions, and these tax codes were further liberalized in the 1999 budget. Trade reforms also abolished all remaining qualitative restrictions on merchandise imports. A new labor code makes employer-employee relations more flexible, and the new investment code streamlines tax exemptions and provides guarantees and benefits to investors. Price controls were lifted in 1994 with the exception of those on water, electricity, collective passenger surface transport, pharmaceuticals, petroleum products, textbooks and manuals. In December 1997 auxiliary maritime and ports authority services, including maritime transportation of Cameroonian exports and imports, were liberalized. In December 1998, the Cameroonian parliament voted for a civil aviation law on open skies, aimed at partially liberalizing the air transportation sector. In addition, the U.S. Department of Transportation recently selected Cameroon as one of the eight African countries which can participate in the "Safe Skies" Initiative. This program of collaboration between the U.S. and Cameroon should help Cameroon create safer airports and safer air travel. A recent text by the Minister of Finances further liberalized the margin on the commercialization of the petroleum products.

The World Bank Group, African Development Bank (AfDB) Group, European Community (EU) and Government of France have provided substantial external financing to Cameroon since 1989 in order to help reform the economy and restore sustainable economic growth. Contributions of external financing to the GRC increased to 320 billion CFA francs in FY1998 after dipping to 22.9 billion CFA francs in FY1997. In 1998 the Agence Francaise de Developpement (ex-CFD) group (including PROPARCO) has continued to be Cameroon's greatest provider of structural adjustment grants, loans and aid projects in its assistance program which amounts to 30.60 billion CFA francs. World Bank and AfDB projects, which have recommenced and should continue as long as Cameroon meets its IMF ESAF obligations, create additional contracting and investment opportunities for U.S. business people.

Cameroon has generally conformed to its triennial economic program, and the IMF has been willing to be flexible in considering Cameroon's economic performance in light of the changing international environment. In its February 1999 Article IV Consultations, the IMF express their satisfaction with the way the GRC has continued to dedicate roughly half of its revenues to servicing of foreign debt. The ESAF allows future revenues to be used for much-needed internal investment which should produce real growth. It also provides Cameroon with the possibility of purchasing the private debt carried in the London Club and makes Cameroon eligible for an IDA debt buy-back program.

The rate of coverage of Cameroonian exports to imports in goods declined from 139 percent to 124 percent between FY1997 and FY1998, due to a 24 percent increase in imports, versus only a 10 percent growth in exports. This was one contributing factor in the FY1998 worsening in Cameroon's overall trade deficit. France remains the primary supplier of Cameroonian imports (225.876 billion CFA francs), while Italy is now the primary importer of Cameroonian products (268.900 billion CFA francs) in FY1998. Over the past fiscal year, Cameroonian exports have increased slightly in volume (4.82 percent), yet decreased by 10.31 percent in value. While trade in industrial products increased by 15 percent, the value of primary products decreased by 21 percent and Cameroon's crude oil revenues declined by 31 percent. These factors account for the overall negative movement in the value of exports. On a sectoral level, the decreased revenues break down to declines in the sale of coffee (-40 percent), crude oil (-31 percent), natural rubber (-23 percent), logs (-29 percent), aluminum (-16 percent), and cocoa beans (-3 percent). The only sectors which saw significant increases were those of: cement (+217 percent), cocoa paste (+66 percent), and processed wood (+33 percent). Second hand clothing remains one of the main Cameroonian imports, in addition to crude oil, pharmaceutical products, cars, aluminum oxide, frozen fish, rice, tractors (1.8 percent). The volume of traffic handled at the port of Douala rose by 18 percent to 5,289,632 tons, thanks primarily to measures adopted by the GRC to reduce Port tariffs and setting of the National Committee in charge of facilitating the maritime traffic.

B. PRINCIPAL GROWTH SECTORS

Cameroon's prospects for continued economic growth are mixed. The economic outlook is complicated by factors which threaten further growth such as a plateau in oil production and a massive external debt. The river port of Douala which handles the vast majority of trade with the country, as well as with the region, is in need of constant dredging and major refitting. The ongoing restructuring of ONPC (Cameroon Port Authority) is going to create four autonomous ports and will offer an opportunity for the development of a deep sea port in Limbe. Although Cameroon's terms of trade have continued to deteriorate (-4.5 percent in FY1998), recent improvements in its macroeconomic situation are encouraging. Genuine efforts by Cameroon to meet its fiscal obligations have resulted in a reduction in excessive public sector employment and some increase in the collection of revenues.

Cameroon's economy is relatively varied and includes petroleum and gas (33% of exports), tropical woods exports (24%) and an industrial base of aluminum production (5.5% of exports) and other light industry. Cotton, coffee, cocoa, rubber, bananas, pineapples and soon tobacco provide an exceptional agricultural base. Cameroon is uniquely endowed as a potentially lucrative market in the region, as shown by the yet-to-be-exploited mineral wealth (bauxite, cobalt, chromium, gold, iron, nickel, sapphires, tin, titanium, uranium, and limestone), an under developed hydroelectric potential, and an under performing tourist market which has declined by 80 percent since the mid 80s. In recent years, the GRC has moved to partially address some of these areas of potential. It has revised and rationalized the hydrocarbons and forestry exploration codes and is presently developing a code for industrial mining exploitation that is to be completed by the end of 1999 and will be utilized to encourage investors to enter the mining sector. In addition, the GRC has begun to draw attention to the need to develop Cameroon's tourist potential, and it might be poised on act on improving this area of the economy.

Cameroon's economic growth will continue to depend on its commodity export sector which consists primarily of coffee, cocoa, cotton, rubber, timber, bananas and pineapples. The government marketing board for coffee and cocoa was dramatically restructured, and most restrictions on marketing and exporting those products were eliminated. In August 1997, the GRC licensed Société Générale de Surveillance (SGS), La Cordeler Cameroun, SA and L'Observatoire Camerounais de la Qualite (OCQ) to control the quality of Cameroonian coffee and cocoa. Reliant on international trade, Cameroon was affected by the Asian crisis in 1998. This has resulted in the loss of 40 billion CFA francs in anticipated exports revenues. Export of logs and rubber decreased by 50 percent when compared to only one year earlier. Cotton exports dropped by 7 billion CFA francs. Customs revenues have also declined due to the reduction or elimination of customs duties and other exports taxes, a policy which was aimed at improving the competitiveness of certain Cameroonian exports products. Cameroon has stepped his efforts to control and rationalize use of the forests. It has banned log exports for popular wood species, but this is supposed to go into effect starting June 30, 1999. One difficulty which looms on the horizon for Cameroon involves the recent decision by the WTO (World Trade Organization) concerning the ACP-EU (Africa Caribbean Pacific-European Union) banana agreement, a ruling which could adversely affect Cameroon's banana exports. Nonetheless, the volume and value of agricultural export commodities (despite recent price decreases) upon which Cameroon's long term well being depends are likely to increase during the coming years.

Cameroon's oil production declined for over a decade, before the GRC took steps in the mid to late 1990s to stop the decrease in oil revenues. Cameroon is currently the fifth largest producer of petroleum in sub-Sahara Africa (following Nigeria, Angola, Gabon and Congo-Brazzaville) with production at about 110,000 barrels per day. Petroleum development activities were revived in 1996 following government approval of new financial incentives for oil production from marginal fields with less than 20 million recoverable barrels over a 3-5 year economic life. In 1998 legislation was passed to encourage foreign investment in petroleum and gas exploration and production in joint venture with the GRC. Incentives link taxes to the risk taken in prospecting for new fields. These measures have led to newly opened oil and gas fields, which have compensated for the 10-15 percent decline in traditional sources. As an example, the overall production in June 1999 is forecasted at 43.8 million barrels, which represents a 4.5 percent increase compare to FY1998. Cameroon total crude oil production during the first semester of FY1999 amounted to 22.22 million barrels. The cumulative effect of the favorable legislation is that petroleum production levels have been sustained at about 110,000 barrels/day and may even rise with the new exploration. Thus, what was formerly a steady decline in known oil reserves has now been reversed, and the amount of known oil reserves is predicted to rise slightly, despite increased exploitation. Another major impetus to the current economic euphoria is the agreement to construct an oil pipeline from Chad through Cameroon, giving rise to renewed exploration in areas near the pipeline route, such as the Logone Birni basin on Lake Chad. Upgrading of the necessary infrastructure is already underway and cost USD 60 million up to mid-1998. While the two-year construction of the pipeline has been delayed as a result of environmental and compensatory concerns, the World Bank is predicted to give final approval to the USD 3.5 billion project.

C. GOVERNMENT ROLE IN THE ECONOMY

Although progress has been made toward reducing the government's role in the economy, the public sector is still the predominant force and sometimes constitutes a barrier in the country's economic development. Nevertheless, the GRC has undertaken a number of reforms since 1989 to reduce its own stake in the economy and to promote private sector development. Beginning in early 1997, the GRC initiated meaningful dialogue with the private sector through a series of town meetings. Subsequently, several ministers concerned with commercial, economic and financial issues responded candidly to questions put to them by the Cameroonian Association of Economic Journalists (AJEC) at public press conferences sponsored by AJEC and GICAM. In April 1997, the president of GICAM was invited for the first time to participate in GRC negotiations with the International Monetary Fund and the World Bank in Washington. This initiated a new partnership to help support privatization and promote initiatives between government and the private sector, most recently evidenced in the June 1999 joint trade mission to Switzerland, which followed a similar tour to France in April 1998. A long awaited reform of the Cameroon Chamber of Commerce, Industries and Mines (CCIM) is still expected. The GRC appointed a new President to the CCIM in November 1998, but its attempt to raise taxes to finance the Chamber of Commerce and the Chamber of Agriculture was halted by members of parliament during the June 1999 session of parliament. Thus the CCIM is still in need of major reform and modernization.

Although a General Statute of Public Enterprises was enacted in 1995, launching the GRC's privatization process, progress toward the privatization of Cameroon's remaining public sector enterprises has been slow. The World Bank and IMF continue to press for speedier and more transparent action through IBRD-monitored investment bidding opportunities in response to studies on the viability of specific industries. The disengagement of the State from the productive sector through the announced privatization of most of the country's parastatals could be a precursor of excellent investment opportunities in the near future. In this sense, FY1999 saw the privatization of CAMSUCO (national sugar company) and the selection of a successful bidder for SOCAPALM (the palm oil complex). In addition, a government tender was issued for investors interested in pre-qualifying for the privatization of CDC (agricultural plantation complex), and the privatization strategy for the cotton development project was adopted. The pre-qualification tender for the electricity parastatal is expected to be out before the end of July 1999. In the privatization of the water parastatal, four companies have been short-listed, and final bidding documents are being prepared for submission. The last bank which is majority-owned by the state (BICEC) is supposed to be privatized by August 1999. The insurance company SOCAR was bought by the French insurance Chanas et Privat, and the GRC is looking for a suitable buyer for the National Insurance and Reinsurance Corporation (CNR). Parastatals that are still scheduled for privatization include the national airliner (CAMAIR), the telecommunication companies (CAMTEL and CAMTEL-MOBILE), and the National Insurance retirement fund (CNPS). The process is expected to be completed by August 2000, the end of the third year of the triennial economic program.

Currently, there are nine licensed (eight operating) banks in the country. The GRC currently retains interests in only three of the banks and that interest has been reduced to less than controlling except in the one scheduled to be privatized soon. The completion of the banking sector rehabilitation program provides hope that the banking system's credibility can be restored. Money supply rose by 57.7 billion CFA francs. This 9 percent increase follows the 16 percent increase in the circulation of fiduciary money and a 6 percent increase in banks deposits. Net internal interest decreased by 39.2 billion CFA francs, or 4 percent, following a decline in Government Net Position of 16.6 billion, and an increase associated with the credit allocated to the private sector that amounts to 20.2 billion. Net external interest rose to 36.7 billion CFA over past years, and the deficit in the operations account balance shrank by 40.9 billion CFA francs. In an attempt to stimulate competition among banks, the Minister of Finance in 1998 published the conditions for opening manual exchange windows and liberalized the setting of banking fees. Future reforms will aim to harmonize and improve the legal framework of exchange policy.

D. BALANCE OF PAYMENTS SITUATION

In 1997, the volume and value of Cameroon's major exports increased for the fourth consecutive year and resulting in an overall trade surplus. Primary trade balance excess stands at 4.6 percent of GDP in FY1998. Non-petroleum receipts, however, did not meet expectations, resulting in an overall budget deficit equivalent to 0.4 percent of GDP. The budget proposed for FY2000 (July 1999 to June 2000) was increased by 67 billion CFA francs (USD 111.6 million) to 1,297 billion CFA francs (USD 2,16 billion). This new budget attempts to put a special emphasis on government priorities which include repayment of public debt, national education, public health, maintenance of basic infrastructure and funding of the police and armed forces. This year's budget attempts to bring more of the informal economy into the revenue producing GRC mainstream through the new VAT. Capital input into the Cameroonian economy is limited, as in most of Africa, by the three scourges of an inadequate judicial environment, the lack of infrastructure, and market limitations. The economy has started showing signs of "fragile economic activity." This is due primarily to the Asian crisis of the past 18 months, which has reversed the former competitive advantage which Cameroon enjoyed as a result of the 1994 devaluation of the CFA franc.

Since June 1997, Cameroon has been able to meet external payment obligations. As of January 31, 1999, Cameroon's public debt tallied at 5,531.3 billion CFA francs, of which 4,291.5 billion CFA francs is external debt and 1,239.7 billion CFA francs is internal debt. The overall public debt represents 102 percent of Cameroon's GDP. The forecasted debt service from January to June of 1999 is 325 billion CFA francs, of which 247 billion CFA francs is for external debt and 78.4 billion CFA francs is for internal debt. About 29 percent of Cameroon's yearly budget revenues go toward repayment of external debt, and Cameroon has expended great efforts to regain international confidence by diligent debt servicing, even to the detriment of development projects and payment of its internal debt. A combination of the IMF's ESAF, World Bank Structural Adjustment Credits (SAC), Paris Club debt relief, and substantial financial assistance from bilateral donors has helped Cameroon to deal with its unfunded balance of payments deficit. The GRC established the Development Aid Coordination Committee (CCAD) in September 1995 to promote more effective dialogue among donors.

The European Union remains Cameroon's main trading partner. In FY1998, 25 percent of Cameroonian exports are headed toward Italy, with France following at 17.7 percent. The U.S. stands as the 14th biggest purchaser, buying only 1.1 percent of Cameroon's total exports. France is still the major supplier of Cameroonian imports satisfying 22 percent of Cameroon's total needs, with Nigeria in second place at 8.4 percent. The U.S. is the third largest exporter to Cameroon, with Germany and Japan also being major sellers. While Cameroon produces and exports heavy crude, it imports 73.3 billion CFA francs of light crude oil (which is suitable for its refinery) from Nigeria, Equatorial Guinea, Ivory Coast, Angola, and Italy .

E. INFRASTRUCTURE

Cameroon's infrastructure for the distribution of goods is not fully developed but permits limited access to all ten provinces. Cameroon's main industrial and commercial port city, Douala, is linked to major cities in the seven southern provinces by good roads. It is also linked by rail to Yaounde, the capital and second major city, and to Ngaoundere in the north.

In terms of economic potential, Douala is the major entry point for imports not only to Cameroon but also to the entire central African region including the Central African Republic, Chad, Equatorial Guinea (Cameroon's eighth most important import/export trading partner) and the Republic of Congo. The Douala port currently handles about 95 percent of the total maritime traffic of Cameroon and more than 90 percent of the country's external trade. The port of Douala, however, is in need of general refitting and constant dredging. It is a bottleneck to trade and will not be able to handle the new vintage of post panamex ships. The ongoing restructuring of the Port system in Cameroon will eventually split the central port authority and create four autonomous ports, which should help alleviate or solve port management problems. The current port at Limbe is small by comparison to Douala, and it handles such products as coffee, cocoa, palm nuts, rubber, and timber. The other deep sea port, Kribi, handles timber for 80 percent of its total traffic, with the remaining part being cocoa, coffee, flour, and salt. To supplement the Douala port traffic, the GRC is seriously considering the creation of a second major port in Cameroon. Limbe, and to a lesser extent Kribi, have been considered for potential infrastructural transformation in the GRC's search for alternatives to the congested and severely silted Douala port. While the natural deep water harbors near Limbe could provide an ideal trans-shipping point for the region, the GRC has been slow to develop the port, despite the interest of international port development authorities and various foreign investors.

Distribution to northern provinces is mainly through the railroad station at Ngaoundere, where regional warehouses stock goods for onward road delivery to other northern cities and Chad. The railway line also links Douala to the East province, which serves as a transit point for goods bound for the Central African Republic. Three international airports at Douala, Yaounde and Garoua have facilities for airfreight. There are over 50 small airports and airstrips, of which only nine have permanent surface runways and only two (Maroua and Ngaoundere) are currently in use.

During the years of economic crisis, few major infrastructure projects were initiated, and this led to a major degradation of Cameroonian infrastructure. For this reason, future investment possibilities in maintenance and infrastructure rebuilding may offer opportunities for U.S. investors. Road projects financed by the European Union, Agence Francaise de Developpement and the World Bank to link Cameroon, C.A.R. and Equatorial Guinea by paved road will continue during 1999. Substantial road rehabilitation and road construction is also expected in conjunction with the construction of the Chad/Cameroon pipeline. Electricity, telephone and water services are available in Cameroon's cities, larger towns and some villages and rural areas. Utility and telephone services are available in the two largest cities, Yaounde and Douala, but they are not always reliable due to poor maintenance and mismanagement. The telephone company CAMTEL (formerly INTELCAM) was connected to the internet in April 1997, yet recent infrastructure construction in Douala has made it possible to by-pass CAMTEL as an internet provider. The GRC has created a committee to address and monitor computer difficulties related to the year 2000, and it claims that the public sector will enter the next millenium without difficulties.