Cameroon Business Forecast Report Q1 2009

Living With Lower Oil Prices

Cameroon is not immune to the ongoing slowdown in global growth. The primary impact will be felt via the continued moderation in oil prices, in our view, given the dominant role of hydrocarbons in the economy. While the fiscal and current account will be dented somewhat, we believe the overall impact on the economy will be relatively mild, thanks to the moderate cushion built up by the authorities, as well as the maintenance of fiscal discipline. On the political front, Nigerias transfer of the remaining part of the oil-rich Bakassi peninsula to Cameroon may have taken place without incident, but a subsequent refugee exodus adds to long-term concerns about the political stability of the business environment in the Rio del Rey.

News that the government intends to submit the mining sector to the Extractive Industries Transparency Initiative (EITI) is welcome, given that the country is blessed with a rich array of natural resources. However, the recent record in promoting transparency and good governance has been more mixed. The 2008 report from Transparency International, which conducts an annual survey asking key stakeholders in countries about how bad they perceive corruption to be, makes disappointing reading. Given a highly restricted political environment dominated by the ruling Cameroon Peoples Democratic Movement, it is difficult to envisage where renewed impetus for a sustained government effort to tackle corruption in the countrys institutions will come from.

Amid the intensifying global financial crisis over October 2008, we have downgraded our forecasts for real GDP growth in Cameroon to 4.2% and 5.5% in 2009 and 2010 respectively, compared with a healthy 5.1% in 2008. Cameroons financial system is less exposed to the global credit crunch than many other countries, given the banking sectors low base of development, a lack of liquid financial markets and a low level of borrowing from the rest of the world. While the expected moderation in oil prices may negatively impact the oil economy, developments are more promising in non-oil sectors, particularly in agriculture and mining. It is the mining sector which offers some of the most bullish signals for long-term growth, helping to explain the strong forecast for 2010.

Cameroons business environment is likely to remain challenging for foreign investors over the coming years. While the government has pledged to tackle rampant corruption, graft and nepotism continue to represent a substantial problem, undermining the independence of state institutions and the judicial system. Furthermore, a weak transport system, worsening energy shortages and a relatively inflexible labour market are likely to impose considerable constraints on private sector investment going forward. The potential for further riots over rising food and fuel prices also represents a risk to stability over the medium term. While the protests are not directed towards foreign nationals, commercial property could sustain substantial damage, especially in urban areas.