Cameroon: Risk Assessment
Country Risk Rating
|C||A very uncertain political and economic outlook and a business environment with many troublesome weaknesses can have a significant impact on corporate payment behavior. Corporate default probability is high.|
Business Climate Rating
|C||The business environment is difficult. Corporate financial information is often unavailable and when available often unreliable. Debt collection is unpredictable. The institutional framework has many troublesome weaknesses. Intercompany transactions run major risks in the difficult environments rated C.|
Economy remains resilient despite fall in oil prices
Growth in 2015 was rapid, driven by increased oil production, the start of production at two new cement works and the continuation of major structural projects (phase 2 of the Kribi deep water port, construction of three dams and of a second bridge across the Wouri). The positive impact of investments already made, new public investments and the strong performance of the services sector should continue to drive growth in 2016 even if oil production stabilizes.
The primary sector continues to play an important role and generates significant earnings from its export agriculture (wood, cocoa, bananas, cotton, etc.). Thanks to the discovery of new fields and the use of new extraction technologies, oil production recovered, at least for a few years. The business climate however remains difficult and this is holding back the growth of the private sector. The economy also remains seriously exposed to climatic events and movements in world commodity prices, and growth is not very inclusive. Inflation in 2016 should ease slightly following the rise in 2015, a result of the delayed impact on the cost of transport and food of the rise in fuel prices at the pump in 2014. This will be due to the fading effect of these price rises, as well as to the pegging of the CFA franc to the euro, low world commodity prices and the government’s price control policy.
Public account and external account deficits deepen, increasing danger of over-indebtedness
Fiscal performance has deteriorated. Revenues have suffered from the fall in oil prices (the proportion of oil revenues in total government revenues has dropped to 14%), even if this decline was partly offset by a reduction in fuel subsidies. There has been a large increase in capital goods expenditure, linked with the implementation of major infrastructure projects and the fight against the Boko Haram terrorist group in the far north of the country. Efforts to regenerate this region are likely to significantly worsen the budget deficit in 2016.
Lower oil prices and increased imports associated with the implementation of major investment projects are also factors in the worsening of the external accounts. The proportion of oil exports in total exports declined from 45% to 39% between 2013 and 2015, with these latter likely to stabilize in 2016. Earnings from other commodities, such as wood, cocoa, aluminum and cotton, are likely to benefit from moderate increases in their production. The trade and services balances are likely to remain in deficit. This is also the case for the income balance, as a result of the repatriation of profits by foreign firms. The balance of current transfers should however continue to be in slight surplus thanks to the strength of expatriate worker remittances. The country benefited from a major debt relief in 2006 as a result of reaching the completion point of the HIPC initiative. However, in the space of a few years it has again become seriously indebted. The rapid increase in external debt, contracted on increasingly onerous terms (in particular with China), combined with lower levels of oil exports, represents a danger to the long-term sustainability of this debt. In addition, the poor financial performance of public sector companies could create contingent liability risks for the government.
Continuing insecurity in the far north of the country and ongoing uncertainty over President Biya’s succession
Cameroon has been experiencing a complex security situation since 2013 with incursions by the Nigerian terrorist group Boko Haram in the far north. The military capacity of the terrorists has been reduced following combined operations by Nigeria, Cameroon, Chad and Niger, which has however not prevented them from carrying out, from July 2015, a campaign of suicide attacks in this part of the country. On top of this there are the uncertainties surrounding the succession of the President, Paul Biya, who has held power since 1982 and whose sixth term of office runs until 2018. The Head of State has proven able, so far, to maintain a degree of balance between the country’s various ethnic and linguistic communities. His leaving office could trigger power struggles within the ruling party and endanger this fragile balance. The Presidential party is likely however to hold on to power given the lack of a credible alternative.