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Cameroon - Economy

Cameroon boasts one of the highest per capita incomes (by purchasing power parity) in sub-Saharan Africa, at $2,300 (2007). The country's wealth of natural resources include a rich potential in agriculture, forestry, and mining. Cameroon is largely a cash economy. The local currency is the Central African Franc (CFCA). US dollars and Euros are widely accepted at hotels and exchangeable for local currency. Credit card facilities are not widespread. Travellers cheques and credit cards are accepted at major hotels in Yaoundé.

For a quarter-century following independence, Cameroon was one of the most prosperous countries in Africa. The drop in commodity prices for its principal exports--oil, cocoa, coffee, and cotton--in the mid-1980s, combined with an overvalued currency and economic mismanagement, led to a decade-long recession. Real per capita gross domestic product (GDP) fell by more than 60% from 1986 to 1994. The current account and fiscal deficits widened, and foreign debt grew.

Cameroon's economic development has been impeded by economic mismanagement, pervasive corruption, and a challenging business environment (for local and foreign investors). Cameroon remains one of the lowest-ranked economies on the World Bank's annual Doing Business and similar surveys and regularly ranks among the most corrupt countries in the world.

Cameroon faces significant development challenges. About 50% of the population live on $2 a day or less and life expectancy at birth is 46. According to the 2005 UNDP Human Development Index, Cameroon ranked 148 out of 177 countries. Crop failure, especially in the north, often leads to food shortages. The major urban centres, especially Douala, suffer from serious problems of overcrowding and sanitation. Cameroon is a major recipient of donor funds, from both multilateral and bilateral donors, of which the biggest is France. The UK has a long standing bilateral development program in the forestry sector, and contributes to Cameroon’s development through the European Union and UN agencies.

The government embarked upon a series of economic reform programs supported by the World Bank and International Monetary Fund (IMF) beginning in the late 1980s. Many of these measures have been painful, including the government’s slashing of civil service salaries by 50% in 1993. The CFA franc--the common currency of Cameroon and 13 other African states--was devalued by 50% in January 1994. The conjunction of these two events meant an overall drop in purchasing power of nearly 65%. The government failed to meet the conditions of the first four IMF programs. A three-year Poverty Reduction and Growth Facility (PRGF) approved by the IMF in October 2005 ended in 2008. Cameroon has not negotiated any new IMF program but is continuing cooperation with the Fund under Article IV consultations. In 2009, the IMF disbursed $144 million to Cameroon under its Exogenous Shocks Facility to help with the effects of the global economic crisis. In 2010, Cameroon issued its first sovereign bond, raising, approximately $400 million for special projects.

Inflation remains low in Cameroon, as many basic commodities, including fuel and food items, are either subsidized or subject to government price controls. Public frustration over rising prices was partly to blame for an outbreak of social unrest and violence in many Cameroonian cities in February 2008. In March 2008, the government announced a reduction in food import tariffs and other measures designed to reduce the cost of basic commodities. The government also began subsidizing fuel at the retail level in 2008, leading to massive yearly government expenditures. Experts estimate the fuel subsidy will consume ten percent of the government budget in 2011. The global economic crisis has seriously impacted Cameroon’s oil, cotton, timber, and rubber sectors, depressing exports, growth, and overall consumption.

Despite the collapse of oil prices, the government of Cameroon expected the economy to grow by 4.7% in 2016 (a slow-down from about 5.5-to-5.9% in 2015) and inflation to average 2.7%. Cameroon planned to earmark 33% of the national budget to critical transport, communication and power infrastructure. In 2015, the government was able to raise funds from its first Eurobond issues and also secured loans from donors, notably China. U.S. companies alone invested over $1.2 billion dollars in utility, energy, sports, and housing infrastructure. The country planned to generate more revenues for investment from domestic taxation and by attracting more foreign direct investments.

To meet the goal of becoming an emerging economy by 2035, Cameroon would have to double its growth rate and keep a lid on a widening fiscal account deficit (5.6% of GDP in 2016). The government was trying to address governance issues in the public service, which continue to undermine economic efforts by creating a deleterious business climate. These reforms would send a strong positive signal to foreign investors. Although Cameroon laws enable foreign investors to create, own and operate their business without limitations, the public administration remains an important player in the economy with a large portfolio of State-owned companies, which create virtual monopolies in many economic sectors and contribute to the distortion of the competitive landscape.

In addition to risks stemming from oil prices, Cameroon also faced a number of internal risks. The first stems from concern surrounding the upcoming political transition as longtime President Paul Biya prepared to leave office. There were also deepening social tensions stemming from the country’s widening generational gap, as Cameroonians under 25 years make up to 50% of the population but feel excluded from the socio-economic and political process. In a 2014 report, the World Bank argued that the growing army of disenchanted and unemployed youth is probably already serving as recruiting ground for Boko Haram in the Far North of Cameroon. These internal risks were exacerbated by the spill-over crisis from neighboring countries, Central African Republic and Nigeria, which is bringing an influx of refugees and internally displaced people as well as violence. The World Bank noted that this continued influx is putting pressure on natural resources, land, water, housing and health facilities.

Cameroon has for decades relied on agriculture and timber for its export earnings, including extensive cocoa and rubber plantations in the south of the country. Petroleum has been exported from the 1970s and now accounts for about 50% of export earnings by 2008. However, production has now levelled off at around 85,000 bpd, despite some new but small production sites coming on stream. Exploration for new off-shore reserves continues, but unless new discoveries are made, current reserves could be depleted by 2020.

While Cameroon’s agricultural exports are subject to the vagaries of the international market, exchange rate stability and manageable inflation rates are maintained through its membership of the Franc Zone. Cameroon is currently just over half way through its current 3-year Poverty Reduction and Growth Programme negotiated with the IMF.

Cameroon became heavily indebted in the 1980s. In October 2000 the country became eligible for debt relief under the Heavily Indebted Poor Countries Initiative (HIPC). HIPC completion point was achieved in May 2006 after several lengthy delays. These delays were due to concerns over the Government of Cameroon’s financial management which have been partly addressed by a series of reform drives, including moves against corruption. Achievement of HIPC has led to significant debt relief, including £106m cancellation of bilateral debt from the UK Government.

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