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. - Source: Coface

Business Climate Rating

D
The business environment is very difficult. Corporate financial information is rarely available and when available usually unreliable. The legal system makes debt collection very unpredictable. The institutional framework has very serious weaknesses. Intercompany transactions can thus be very difficult to manage in the highly risky environments rated D.

Strengths

  • Agricultural, oil, gas and mineral resources
  • Diversified economy, compared to those of other oil exporting countries
  • Ongoing modernization of infrastructures

Weaknesses

  • External and public accounts dependent on oil and gas
  • Growth not very “inclusive” and business climate remains difficult
  • Heightened political risk: insecurity in the far north of the country, uncertainty surrounding the succession to Paul Biya (85 and in power since November 1982) and increasing tensions between the English-speaking minority and the regime (mostly French-speaking)

Current Trends

Upturn in Growth, Driven by Oil and Gas and Infrastructure Spending

Following two years of slowdown in growth, mainly due to declining oil and gas production, the economy is expected to pick up pace in 2018. The start of production at the floating liquefied natural gas unit off the coast at Kribi should help boost exports. The reduction in oil production is likely, however, to continue, a result of the low level of investment since 2014 in costly offshore projects. A public investment program will boost growth, especially in the construction and services sectors. The projects aimed at developing the country’s hydroelectric potential will be drivers of this growth. As of 2018, the production from the Memve’ele dam will help sustain hydroelectricity generation. Manufacturing industries (textiles and cement production) are expected to perform well. Projects aimed at developing the agri-foods sector should also help boost agricultural production (wood, cocoa, cotton). Growth in the sector will however remain limited by the lack of protection for property ownership and limited access to credit. These obstacles reflect the continuing difficult business climate, which is holding back private investments. It could also suffer because of a worsening in the political and security context. Whilst likely to continue on its upwards trend, household consumption will continue to be restricted by the minimal incomes from subsistence agriculture and the low level of financial inclusion. Weak local demand and membership of the franc zone are likely to help limit inflationary pressures.

Efforts to Rebuild the Public and External Accounts

Having suffered from the fall in oil and gas receipts, the public accounts are recovering, underpinned by work to consolidate the budget. Reductions in State expenditure, aimed at protecting social spending, will remain a priority. The rationalization of capital investment spending should make it possible to concentrate on those projects having the greatest impact. Higher oil prices and increases in gas production will help sustain the rise in revenues. At the same time, work on improving the collection of non-oil and gas revenues will continue. The introduction of a 5% export tax on certain agricultural products will in particular help broaden the tax base. The reforms to improve revenue collection and the effectiveness of spending will be supported by the USD 666 million Extended Credit Facility granted by the IMF.

The current account deficit is expected to stabilize in 2018. Despite the growth in revenues from oil and gas and the efforts to diversify the export base (wood, cotton, cocoa), the deficit in the balance of goods is likely to persist as a result of demand for capital goods. Demand for technical services will continue to support the deficit in the balance of services. Interest due on debt held by non-residents will remain a drag on the income account, whilst the surplus in transfers will continue thanks to immigrant workers’ remittances. The size of the deficit will probably require recourse, once again, to external borrowing.

Since the country’s inclusion in the HIPC debt reduction initiative in 2006, its debt, mainly external (75% of debt stock at the end of 2015), has expanded rapidly. The reforms to reduce the volume of borrowing and the increased rate of completion of the projects agreed in the context of the triennial program with the IMF, should help to restore control over the trajectory of the debt.

2018 Elections in a Worsening Security Context

 Paul Biya (85) and in power since November 1982, has yet to declare whether he wishes to stand, in October 2018, for his seventh Presidential term of office. In the event that the President decides, or is obliged, to withdraw, there are no obvious replacement candidates within Mr Biya’s party, the Cameroon People’s Democratic Movement (RDPC). The opposition appears fragmented: even before the candidate of the leading opposition party (Social Democratic Front or FSD) has been announced, around ten candidates have already emerged. Akéré Muna’s candidacy, lawyer and sons of former Prime Minister Salomon Tandeng Muna, could weaken the FSD.

The outbursts of violence in the English-speaking regions since the end of 2016 have increased the stakes for the presidential and parliamentary elections next October. Unrest within a linguistic minority experiencing a growing sense of political and economic marginalization represents a threat to political stability and security. This danger comes on top of that arising from the incursions, of Boko Haram, the Islamist terrorist group, in the north of the country, which remained a common occurrence in 2017. Whilst economic activity, mainly concentrated in the south of the country currently remains unaffected, the humanitarian situation is worrying. In addition, this increasing political risk could undermine perceptions of the economic climate which already suffers in an institutional and regulatory context that is not hugely favorable for the expansion of the private sector, as demonstrated by its 163rd (out of 190) place in the Doing Business 2018 ranking.

Source:

Coface (01/2018)
Cameroon