Cameroon: Cautious optimism in an uncertain environment

The Cameroonian economy has proved fairly resilient during the Covid-19 crisis and is now gradually recovering. The government has continued its historic cooperation with the multilaterals and donors, with several important financing deals agreed already this year.

With so much uncertainty in the global economy, it is best to be cautiously optimistic as growth will be precarious. But Yaoundé could help provide a more fertile environment for both domestic innovation and foreign investment by encouraging the development of badly needed infrastructure and maintaining fiscal stability.

Economic improvement on the cards

Most analysts expect economic growth in Cameroon and the wider Central Africa region to improve during the first half of this year. In its latest report, the Banque des États de l’Afrique Centrale (BEAC) said that optimism was mainly based on “favourable oil prices, combined with private demand benefiting from easing of Covid-19 restrictions as well as public demand supporting domestic activity”. 

Construction activity is also expected to increase, while in the service sector “activity should maintain good performance, with the telecommunications sector continuing to grow strongly, and hotels returning to a higher level of activity”.

However, the BEAC warns that demand for construction services could decline as a result of the completion of many projects associated with Cameroon hosting the 2021 Africa Cup of Nations. In addition, import prices have increased, which will create another headache for the current administration.

Finance minister Louis Paul Motaze says that the government aims to keep public debt below 50% of GDP during the current fiscal year, despite the Communauté Économique et Monétaire de l’Afrique Centrale (CEMAC) target threshold being significantly higher at 70%. This compares with a debt ratio of 98% in Congo-Brazzaville by the end of 2020.

The figure for Cameroon stood at 45.4% at the end of December 2021, up 2.2% on the previous year, a relatively small increase given the ongoing impact of Covid-19 restrictions and the effect of the Russian invasion of Ukraine on the global economy. However, it is important that the government does not tighten its fiscal belt too quickly, or it could face cutting off the nascent recovery.

Inflation reasonably low

Inflation in the CEMAC zone stood at 3.6% in the first quarter of this year, 0.6% above target but still reasonably low. However, the government has decided to act to curtail rapid price rises for some key commodities and processed products through a combination of price controls and export prohibitions.

Price controls have been introduced this year on some consumer products, including alcohol, margarine, sugar, refined vegetable oils, pasta and soap, in addition to some goods used in the construction industry, such as cement, tiles, electric cabling and paint. It is likely that preparations for the Africa Cup of Nations drove up the price of the construction materials. 

Prices for the listed commodities must now be submitted for official approval before any sale is allowed. However, existing price controls on bread, tea, coffee, paper and sanitary towels have been lifted, alongside those on hotel prices and social housing costs.

Export controls to combat shortages

The government has also introduced export controls on key products because of localised shortages. The minister of trade, Luc Magloire Mbarga Atangana, introduced a ban on the export of wheat flour, rice, cereals, refined oils and cement from the east and south of the country because growing exports to the Central African Republic, Equatorial Guinea and Gabon had resulted in “severe shortages of products on the local market”.

This follows the ban on the export of cereals and refined oils from the Far North to Nigeria that was introduced in December 2021. The Far North had been considered a special case because of crop failures in the area but Yaoundé has now decided to roll out the strategy more widely.

National wheat and refined oil production and supply problems have been exacerbated by the impact of the war in Ukraine. Seeds, oils, corn and wheat are Ukraine’s biggest exports and big falls in the volume of its shipments have driven up global prices, with the impact on Africa only likely to increase during the course of this year.

At the same time, cement prices are higher in states neighbouring Cameroon because unlike some neighbours, Yaoundé imposes price controls on production. This incentivises traders to export cement in much the same way as Nigerian fuel subsidies encourage diesel and petrol exports to its neighbours.

IMF engagement

As expected, in late February the IMF agreed to release another $116m in funding to the government of Cameroon under the existing Extended Credit Facility. The payment had seemed likely since a visit to Yaoundé by an IMF team in December. The money is intended to support the government budget in the wake of the Covid-19 pandemic, as well as the implementation of agreed economic reforms.

In return for the financing, the government has agreed to: 

• Mitigate the health, economic and social consequences of the pandemic while ensuring domestic and external sustainability; 
• Reinforce good governance and strengthen transparency and the anti-corruption framework; 
• Accelerate structural fiscal reforms to modernise tax and customs administration, mobilise revenue, improve public financial management, increase public investment efficiency, and reduce fiscal risk from state- owned enterprises; 
• Strengthen debt management and reduce debt vulnerabilities; and 
• Implement structural reforms to accelerate economic diversification, boost financial sector resilience and inclusion, and promote gender equality and a greener economy. 

The IMF described the medium-term economic prospects for the economy as “positive but with considerable uncertainty”, largely because of doubts over the health of the global economy. The biggest risks revolve around the impact of further Covid-19 variants, the war in Ukraine and oil prices. It stated that macroeconomic performance was broadly satisfactory, with efforts to promote good governance and transparency gaining momentum. Growth is expected to rise from 3.5% in 2021 to 4.5% in 2022 and 4.8% for the following year.

However, the multilateral warned that “progress on structural reforms is slow”. In addition, Cameroon already has the most diverse economy in the region but relatively little progress has been made on broadening this diversity over the past decade. As elsewhere on the continent, telecoms and digital technology could create much-needed new companies and jobs but innovation needs government support and the required infrastructure.

Minim Martap bauxite project moves forward

Progress is also being made on developing iron ore and bauxite mining projects, partly on the back of higher international demand and prices, with agreements to transport ore to the Cameroonian ports of Yaoundé and Kribi now in place. The Minim Martap bauxite project took another step closer to the start-line in February when developer Canyon Resources struck a deal with the government over use of the existing railway that runs 800km to the Port of Douala. 

Canyon subsidiary Camalco Cameroon said that key financial parameters for the project had been set, enabling it to enter binding agreements with financing and offtake partners and logistics providers. Funding for the project will be provided by Canyon and its partner Zhongye Changtian International Engineering Corporation. First production could be as early as the end of 2023 but 2024 seems more likely.

In a statement, Canyon said the fact that the existing line runs within 50km of the mine gives the project “a low capex, low opex solution to deliver high grade, low contaminant, seaborne bauxite to market to fuel the large and growing aluminium industry”. There are three main stages in turning bauxite into aluminium: mining, processing the bauxite ore into alumina, and using alumina to produce aluminium.

The railway is operated by Camrail, which is owned by Bolloré Africa Logistics, although the latter has just been taken over by shipping line MSC. An engineering assessment of the line has shown that existing concrete bridges will not have to be strengthened to cope with the very heavy trains that will be required.

Production will be ramped up to 5m tons a year but this can be greatly increased when a spur line is built from the existing railway to the new Port of Kribi to the south. Kribi is far deeper and so can serve much larger vessels but financing for the spur line has not yet been secured.

Road funding

In March, the UK government announced that UK Export Finance (UKEF) will provide £113m ($141m) of export finance for the government of Cameroon. The money, which was arranged by Standard Chartered Bank, will be used to support road construction and improvement by British contractors. In the year since the UK and Cameroon governments signed a new Economic Partnership Agreement, bilateral trade between the two has increased by 40% to £231m ($288m) as a result of the lifting of some tariffs.

The money will take the form of both buyer credit and direct lending support with the project to improve Douala East Entrance Road set to benefit from the funding. The work will be undertaken by Magil Construction, supported by UK suppliers, and aims to ease the transport of goods between the Port of Douala, Yaoundé and landlocked Chad and Central African Republic.

The executive director for structured export finance at Standard Chartered Bank, Mustafa Sajjad Hussain, said: “The newly restored road will bring social and economic benefits to Douala’s inhabitants and communities in the surrounding areas, helping to build long-term sustainable growth in central Africa. UKEF has up to £2bn available to support UK exports to Cameroon and can continue to back projects in Cameroon with its financial support.”

Other road improvements in Douala include the construction of new roads around the long-congested port of Douala, to improve both port access and security. Despite the completion of Kribi, Douala remains the most important port in Cameroon, because of better road and rail links with the rest of the country.

The managing director of the port authority, Port Autonome de Douala (PAD), Cyrus Ngo’o, said that easing transport to and around the port could help in the fight against fraud and corruption. The work could result in the eviction of people living on what PAD says is port property.

Resource conflict

The Far North of Cameroon remains as unstable as ever. The area has been affected by attacks by militant group Boko Haram and the United Nations High Commissioner for Refugees (UNHCR) reported in November that the region had seen its worst-ever intercommunal fighting between farmers, fishermen and herders.

In common with most other sources, the UNHCR attributes the violence to the impact of climate change, which has seen Lake Chad rapidly decrease in size, affecting the climate over a wide area of Nigeria, Chad, Cameroon and Niger. 

Some communities have resorted to digging deep holes to reach fresh water for their cattle but they have caused a big increase in accidents for cattle. One battle between farmers and herders resulted in 45 deaths, with at least 19 villages burnt down and more than 23,500 people forced to flee across borders. Crops have failed across a wide area, as the lack of rain affects a wide swath of the Sahel.

Projects to tackle desertification have been set up in many areas, with even refugees working to build what has been termed the Great Green Wall, a continent-wide barrier of vegetation designed to combat land degradation, desertification and drought. Communities are encouraged to use charcoal rather than wood as cooking fuel to protect tree cover.

On a more negative note, the government has been criticised for providing tax exemptions to palm oil producers. Some palm plantations have been set up on denuded land but others have required trees to be felled.

To take one example, Greenpeace Africa and Cameroon’s Green Development Advocates (GDA) have complained that Camvert is developing a massive €363m palm project on 60,000 hectares of land in the south of the country, resulting in local deforestation. Camvert says that it has set aside 5,000 hectares for local communities to use, plus 10,000 hectares for conservation.