Abstract
This Selected Issues paper and Statistical Appendix highlights that after eight years of decline, economic activity of Cameroon began to pick up following the January 1994 devaluation of the CFA franc, the accompanying upturn in world economic activity, and favorable international commodity prices. Real GDP, which had fallen by an annual average of 4 percent since the mid-1980s, began to recover, with the annual growth rate stabilizing at about 5 percent in the three years to 1997/98. In the policy area, the 1994 devaluation was accompanied by tax and trade reforms.
II. Impact of Competitiveness and Efficiency on Export Growth5
10. While total non-oil exports have recovered significantly since 1993/94, the realignment of nominal and real exchange rates after the 1994 devaluation of the CFA franc has not had as major an impact on export volumes as expected, and, in constant prices, non-oil exports are estimated to be little higher in 1997/98 than in 1992/93. The performance of Cameroon’s exports is explained to a large extent by factors additional to exchange rates. In particular, many Cameroonian manufacturers face a variety of infrastructure constraints and domestic price distortions which have raised the costs of getting their products to market and weakened the impact of international price signals on domestic production.
11. This chapter looks at price and cost competitiveness as well as nonprice factors affecting exports highlighting how, within the context of the ESAF-supported program, the government is addressing the constraints restricting private sector development. The first two sections briefly take stock of price and cost developments following the 1994 devaluation, including the impact on exports (the devaluation and related issues such as the underlying equilibrium real exchange rate have been dealt with extensively in the literature and are covered only in summary form). The main focus, however, is on nonprice factors inhibiting Cameroon’s competitive potential. The key nonprice factors continuing to limit export growth after the 1994 devaluation are described in Section C, as well as the reforms that are being implemented by the authorities under the ESAF arrangement to address these constraints.
12. A sharp deterioration in the terms of trade, substantial real appreciation of the currency, and continuous decline in oil production combined to reduce Cameroon’s real per capita income by roughly 50 percent between 1986 and 1993. Despite some improvements in the terms of trade, Cameroon’s economic situation continued to deteriorate in 1993, indicating that the internal adjustment strategy of the 1980s had failed to bring positive results in terms of competitiveness and, in many respects, had aggravated existing domestic distortions. It had become clear by 1993 that a more comprehensive approach was required, and that an adjustment of the exchange rate was an essential part of any strategy to restore the external competitiveness of the Cameroon economy. However, while the overvaluation of the real effective exchange rate was one of the reasons for Cameroon’s loss of competitiveness, the cost disparity between Cameroon and many of its competitors was far greater than the overvaluation alone could explain. Rather, a host of regulatory, legal, infrastructural and institutional factors also contributed and added to the cost of doing business at every stage in Cameroon.
A. Traditional Measures of Price and Cost Competitiveness
13. In January 1994, the CFA franc was devalued from 50 to the French franc to 100 to the French franc. It is widely agreed that the devaluation indeed changed the incentive structure, had a significant impact on export growth and was a necessary condition for the revitalization of the Cameroon economy. Post devaluation price and cost developments up to and including the 1998 financial crisis are summarized briefly below.
Impact on relative prices
14. The devaluation affected prices in the following areas:
The 50 percent nominal devaluation was partly offset by a sharp burst in domestic price inflation immediately after the devaluation, but it resulted in a cumulative real effective exchange rate depreciation of about 2 5. percent between 1994 and 1996. These real effective exchange rate gains were largely preserved through late 1998 despite the subsequent appreciation of the French franc against the U.S. dollar and the international financial crisis (Figure 1). Estimates of the extent of overvaluation prior to the devaluation vary (see, for example, Devarajan (1996).6
It is widely agreed, however, that the devaluation resulted in the desired increase in the price of tradables relative to nontradables, which, together with the pick-up in international commodity prices after 1993, should have substantially increased the incentives for domestic producers of exports and import substituting goods to expand output (Figure 2).
The devaluation also resulted in strong substitution effects, with a relative increase in “informal” manufacturing prices (market prices of largely lower-quality domestic products) attributed to compression in real incomes and substitution in favor of lower-cost products.
The devaluation, surprisingly, did not lead to a noticeable increase in the price of imports relative to locally produced goods. This outcome is attributed to the strong substitution effect in favor of low-quality local products, the accompanying tariff reform that lowered the overall cost of imports, and some element of compression of importers’, profit margins.
Overall terms of trade developments are shown in Figure 3. Despite the recent deterioration in Cameroon’s terms of trade, both oil and non-oil export prices in CFA francs remained well in excess of their predevaluation levels.
Cameroon: Real and Nominal Effective Exchange Rates, 1990:Q1-1998:Q3
(Indices, 1990=100)
Citation: IMF Staff Country Reports 1999, 046; 10.5089/9781451808018.002.A002
Source: IMF staff estimates.Cameroon: Real and Nominal Effective Exchange Rates, 1990:Q1-1998:Q3
(Indices, 1990=100)
Citation: IMF Staff Country Reports 1999, 046; 10.5089/9781451808018.002.A002
Source: IMF staff estimates.Cameroon: Real and Nominal Effective Exchange Rates, 1990:Q1-1998:Q3
(Indices, 1990=100)
Citation: IMF Staff Country Reports 1999, 046; 10.5089/9781451808018.002.A002
Source: IMF staff estimates.
Cameroon: Developments in Relative Prices, Dec. 1993 - Aug. 1998
Citation: IMF Staff Country Reports 1999, 046; 10.5089/9781451808018.002.A002
Sources: Cameroonian authorities; and IMF staff estimates.Cameroon: Developments in Relative Prices, Dec. 1993 - Aug. 1998
Citation: IMF Staff Country Reports 1999, 046; 10.5089/9781451808018.002.A002
Sources: Cameroonian authorities; and IMF staff estimates.Cameroon: Developments in Relative Prices, Dec. 1993 - Aug. 1998
Citation: IMF Staff Country Reports 1999, 046; 10.5089/9781451808018.002.A002
Sources: Cameroonian authorities; and IMF staff estimates.
Cameroon: Terms of Trade, 1984/85-1998/99
(Indices 1984/85=100)
Citation: IMF Staff Country Reports 1999, 046; 10.5089/9781451808018.002.A002
Source: Cameroon authorities, and Fund staff estimates.Cameroon: Terms of Trade, 1984/85-1998/99
(Indices 1984/85=100)
Citation: IMF Staff Country Reports 1999, 046; 10.5089/9781451808018.002.A002
Source: Cameroon authorities, and Fund staff estimates.Cameroon: Terms of Trade, 1984/85-1998/99
(Indices 1984/85=100)
Citation: IMF Staff Country Reports 1999, 046; 10.5089/9781451808018.002.A002
Source: Cameroon authorities, and Fund staff estimates.
Cameroon: Growth of Units Costs, 1992/93-1994/95 1/
(Logarithmic growth rate)
Citation: IMF Staff Country Reports 1999, 046; 10.5089/9781451808018.002.A002
Source: Tybout et al.1/ GICAM survey of 38 firms weighted by output.Cameroon: Growth of Units Costs, 1992/93-1994/95 1/
(Logarithmic growth rate)
Citation: IMF Staff Country Reports 1999, 046; 10.5089/9781451808018.002.A002
Source: Tybout et al.1/ GICAM survey of 38 firms weighted by output.Cameroon: Growth of Units Costs, 1992/93-1994/95 1/
(Logarithmic growth rate)
Citation: IMF Staff Country Reports 1999, 046; 10.5089/9781451808018.002.A002
Source: Tybout et al.1/ GICAM survey of 38 firms weighted by output.Impact on labor and imported costs
15. Labor and cost developments following the devaluation can be summarized as follows:
The devaluation and accompanying adjustment measures compounded the wage compression that had begun in the late 1980s, resulting not only in a substantial reduction in domestic labor costs but also a severe cut in household incomes and a weakening of wage incentives. According to data from the Cameroon manufacturer’s association, SYNDUSTRICAM, unit labor costs fell by about 5 percent in real terms in the 12 months following the devaluation. The compression of domestic wages is clearly seen in the government sector, where the wage bill fell from 8.7 percent of GDP in 1992/93 to 4.7 percent in 1994/95, with a strong impact on incentives (see Chapter IV).
Other nonlabor costs also fell in 1994/95 as most publicly controlled prices and tariffs were not adjusted to reflect the full impact of the devaluation in nominal terms (for example, electricity tariffs fell on average by 40 percent in 1994/95, gasoline prices by 35 percent, and railway freight charges by 35 percent).
There were sharp sectoral differences in unit cost developments following the devaluation (Figure 4). Improvements were concentrated, as would be expected, in sectors where the share of labor in total costs was relatively high and the share of imported inputs was low. A study commissioned by the UDEAC7 and the World Bank shows relatively large increases in unit costs in food industries, mainly because of large 1 increases in the cost of intermediate inputs.8 Textiles surprisingly also showed rapid unit cost increases (despite low material price effects), attributable to flat output prices with rising labor costs. Costs actually fell in metal products and especially in wood products. In contrast to the food and textile industries, most of the firms in these sectors were exporters with a relatively low import component.
Data on unit labor costs are not readily available for Cameroon, but information from the private sector organization, GICAM, available from 1995/96, indicate that the cost gains resulting from the devaluation have been consolidated through 1997/98 (Table 1). Unit labor costs, defined as wage costs per unit of output, fell by 8.7 percent for the industrial sector as a whole between 1995/96 and 1997/98, with costs falling more slowly in the manufacturing sector. However, increased production has not resulted in increased employment in the formal sector, the total labor force having fallen during this period according to the GICAM data.
Cameroon: Unit Labor Costs, 1995/96-1997/98
(Indices 1995/96=100)
Cameroon: Unit Labor Costs, 1995/96-1997/98
(Indices 1995/96=100)
| 1995/96 | 1996/97 | 1997/98 | ||
|---|---|---|---|---|
| Total Industry | 100.0 | 96.2 | 91.3 | |
| Manufactures | 100.0 | 96.4 | 93.8 | |
| Nonmanufactures | 100.0 | 95.1 | 88.2 | |
Cameroon: Unit Labor Costs, 1995/96-1997/98
(Indices 1995/96=100)
| 1995/96 | 1996/97 | 1997/98 | ||
|---|---|---|---|---|
| Total Industry | 100.0 | 96.2 | 91.3 | |
| Manufactures | 100.0 | 96.4 | 93.8 | |
| Nonmanufactures | 100.0 | 95.1 | 88.2 | |
B. Cameroon’s Trade Performance to 1997/98
16. The beneficial effects of the devaluation on competitiveness were helped by the recovery of world economic activity after 1994 and the strengthening of international primary commodity prices. The initial impact on overall export volumes was offset in part by declining oil production, while the full impact on non-oil exports was felt only with a long lag. The only major export sector to show an immediate response was cocoa, with the other sectors such as coffee, cotton, and forestry, showing no appreciable impact at first (Figure 5). In the case of coffee, it takes several years to prune and raise the output of even the existing tree stock. In the other sectors such as cotton, the weak pass through of international prices to producers may have contributed to the delayed export response, as export volumes picked up only in 1996/97. In the forestry sector, other factors, such as international demand and concession rights, have had a more significant impact on exports than international prices.
17. While non-oil exports generally appear to have grown significantly in volume terms since 1994, non-oil export volumes are estimated to have been little higher in 1997/98 than in 1991/92. The pass-through of prices to production has also been slow despite the major improvement in export prices. Given the long lags involved, overall export volumes in 1998/99 are not expected to be significantly affected by the recent deterioration in the terms of trade. The main exception is forestry where exports have been hit by a sharp fall in demand in the Asian markets (which has only been partly offset by higher exports of higher-value logs to Europe).
18. In the industrial sector, much of the subsequent growth in export volumes after 1995/96 reflects trade reforms rather than the 1994 devaluation.9 One reason may be that the devaluation was insufficient to change the incentive structure decisively and that firms are still shackled by the institutional environment and infrastructure problems. Detailed information on the response of the manufacturing production is again limited, although available data from a survey of 39 manufacturing enterprises show that exports destined outside the CEMAC region increased by 10.1 percent in volume terms in 1996/97, and by 5.1 percent in 1997/98 before falling by 18.5 percent in the first quarter of 1998/99 (mainly owing to weak international prices of Cameroon’s main exports, notably oil, logs, cotton, cacao, and aluminum). The growth of exports to the CEMAC countries has been more dramatic, mainly because of the impact of tariff reductions and, possibly, some trade diversion away from non-CEMAC markets. Based on the GICAM survey, exports to the CEMAC countries increased by 12.3 percent in 1996/97, 54.8 percent in 1997/98, and 29.8 percent in the first quarter of 1998/99.
Cameroon: Non-Oil Export Volumes and Prices, 1989/90-1997/98 1/
(Indices 1989/90=100; volumes (bars), left axis; prices (lines), right axis)
Citation: IMF Staff Country Reports 1999, 046; 10.5089/9781451808018.002.A002
Sources: Cameroon authorities and Fund staff estimates.1/ Fiscal year begins in July.Cameroon: Non-Oil Export Volumes and Prices, 1989/90-1997/98 1/
(Indices 1989/90=100; volumes (bars), left axis; prices (lines), right axis)
Citation: IMF Staff Country Reports 1999, 046; 10.5089/9781451808018.002.A002
Sources: Cameroon authorities and Fund staff estimates.1/ Fiscal year begins in July.Cameroon: Non-Oil Export Volumes and Prices, 1989/90-1997/98 1/
(Indices 1989/90=100; volumes (bars), left axis; prices (lines), right axis)
Citation: IMF Staff Country Reports 1999, 046; 10.5089/9781451808018.002.A002
Sources: Cameroon authorities and Fund staff estimates.1/ Fiscal year begins in July.19. Studies of manufacturing behavior in Cameroon have indicated that virtually all of the export expansion in both traditional and nontraditional export sectors can be attributed to existing firms.10 Sullivan et al (1996), using a model of exporting behavior that controls for unobserved heterogeneity, has shown that start-up costs play a substantial role under virtually any assumption.11 That is, exporters that have already established themselves in foreign markets, set-up distribution networks, and learned to deal with port authority and customs officials, will be more inclined to export than those that have not (qualifying for free trade zone status also involves considerable effort). More generally, production in Cameroon appears to be concentrated in medium- and large-scale production facilities with little indication of growth in smaller and micro-sized firms. The dynamics of firm growth in African economies has received a good deal of attention in recent years, as small firms are regarded as a source of entrepreneurial dynamism and employment creation. Recent information on firm growth is scarce, however, although a World Bank study in 1993 showed that less than 25 percent of large firms in Cameroon (employing over 100 workers), had their origin in small firms (with less than 50 workers). This number is well below that in comparable countries, comparing with 55 percent in Kenya and 40 percent in Ghana.12 Some of the constraints that may have impeded the “graduation” of small and medium-sized firms are looked at in the following section.
C. Export Constraints and Nonprice Competitiveness Measures
20. While the removal of the burden of an overvalued currency constituted a major step toward macroeconomic adjustment, the authorities recognized that vigorous complementary action was needed on a whole range of issues to recapture the confidence of the private sector and enhance the competitive potential of the country. In particular, many Cameroonian enterprises have faced a variety of infrastructure constraints that hamper their international competitiveness. These constraints may have contributed to the slow response of exports to improved price competitiveness, resulting in low supply elasticities and long lags in the response of investment and output to changing price signals. An important example of infrastructure constraints is the high cost faced by Cameroonian enterprises in getting their products to market, with freight charges several times higher than those in Asia. Another element of the cost of transportation is the issue of time, with the average passage time between the receipt and loading of a container being much longer in Cameroon than even in its African rivals. These constraints have tended to mitigate the advantages of increased competitiveness stemming from the 1994 devaluation and the compression of labor costs.
21. In this section, we look at the constraints impeding export growth following the devaluation in order to provide some perspective on the recent reforms undertaken under the 1997/98-1999/00 ESAF-supported program. Information on nonprice competitiveness is fairly limited, although a number of surveys of the constraints faced by manufacturing firms in Cameroon were carried out under the Regional Program on Enterprise Development (RPED) in 1993 and 1994, coordinated by the World Bank and financed by bilateral donors. The results of a 1993 RPED survey of 210 manufacturing enterprises immediately before the devaluation are shown in Figure 6. It should be noted that, in addition to the categories listed in the survey, governance issues were also ranked highly as an issue by firms when they were asked to indicate other factors of importance. Lack of credit, weak demand, and the tax system, were rated as the most important concerns. However, lack of infrastructure, weak government support, and utility prices (and more importantly supply) were considered to be even more important than import competition. Issues such as foreign exchange control and prices controls were not rated as major concerns.
Cameroon: Constraints to Private Enterprises
(Percentage of firms ranking constraint “moderate” or “major”)
Citation: IMF Staff Country Reports 1999, 046; 10.5089/9781451808018.002.A002
Source: 1993 Regional Program on Enterprise Development Survey.Cameroon: Constraints to Private Enterprises
(Percentage of firms ranking constraint “moderate” or “major”)
Citation: IMF Staff Country Reports 1999, 046; 10.5089/9781451808018.002.A002
Source: 1993 Regional Program on Enterprise Development Survey.Cameroon: Constraints to Private Enterprises
(Percentage of firms ranking constraint “moderate” or “major”)
Citation: IMF Staff Country Reports 1999, 046; 10.5089/9781451808018.002.A002
Source: 1993 Regional Program on Enterprise Development Survey.Constraints facing exporters after the 1994 devaluation and core measures for recovery
22. The survey results provide a useful summary of the constraints faced by the private sector in Cameroon prior to the recent reforms.13 Based on the surveys, the private sector in Cameroon was facing severe constraints in the following key areas: (a) the financial system, including lack of credit and crowding out by the public sector, (b) the legal and regulatory framework and the application and administration of laws, (c) the trade and tax system, which created serious distortions in the structure of incentives, (d) physical infrastructure, including air and sea transport, roads, telecommunications, electricity and water; and (d) lack of support services, including the absence of a dialogue between the government and the private sectors. These constraints are described below as well as the measures being taken by the Cameroonian authorities to address them within the context of the current reforms. Privatization, deregulation, and infrastructure improvement have been a major focus of the policy reforms implemented by the government to improve competitiveness commencing with the Fund staff-monitored program in 1996/97 and continuing under the current ESAF arrangement.
The financial system and access to credit
23. Constraints. Surveys of enterprises in Cameroon have shown that access to finance is viewed by firms as the major constraining factor, especially for small and medium-sized firms.14 The recurrent liquidity and solvency problems in the domestic financial system in the 1990s and widespread interference and crowding out by the public sector, have severely affected the depth of financial intermediation in Cameroon, with access of private firms to credit seriously limited (while more recent survey results are not yet available, monetary data show that private sector credit as a proportion of GDP continued to fall after the devaluation and has only recently picked up following the recent reforms). In particular, financial access has tended to be a function of firm size as larger clients in some cases account for over 75 percent of individual commercial bank’s business. This situation is clearly an indication of imperfections in financial markets and explains in part the lack of dynamism of enterprise growth observed in Cameroon (Table 2).
24. Reforms. The government has carried out a significant program of bank restructuring, with four banks restructured and two placed in liquidation. Two new banks (one local and one foreign) have since been established. With the privatization of the remained government-owned bank, BICEC, in 1999, the government will have divested itself of a controlling interest in the domestic banking system and will remain a minority shareholder in only three of the eight commercial banks operating in Cameroon. One of the beneficial effects of the restructuring of the banking sector has been a reduction in the cost of credit, as banks no longer need to pass on the costs of large nonperforming portfolios. The cost of loans (before taxes) to the best customers has declined to 9 percent in early 1999, compared with 14-16 percent 18 months earlier. There are also encouraging signs that access to credit has begun to improve. With increased macroeconomic stability and the strengthening of the fiscal position, there has been a sharp increase in private sector credit in 1998/99 (private sector credit increased by 23 percent in the 12 months to end-December 1998). The further deepening of the sector will involve strengthening competition to lower the price of services and to improve their quality and availability to medium-sized and smaller customers (one of the constraints noted earlier). Two recent decrees under the ESAF-supported program are a first step in this direction; the liberalization of bank commissions in June 1998 and a decree allowing the establishment of bureau de change at end-December 1998. The focus of the reforms is now on the cooperative, insurance and social security sectors and the strengthening of banking supervision.
Cameroon: Distribution and Importance of Bank Loans and Overdrafts by Firm Size
(Percent of firms receiving a bank loan or overdraft at least once in the past 5 years, based on KPED survey)
Cameroon: Distribution and Importance of Bank Loans and Overdrafts by Firm Size
(Percent of firms receiving a bank loan or overdraft at least once in the past 5 years, based on KPED survey)
| Firm Size | Average for all firms | ||||
|---|---|---|---|---|---|
| Micro | Small | Medium | Large | ||
| Percent of firms receiving a bank loan | 31 | 49 | 48 | 85 | |
| (As a percent of sales) | 17 | 27 | 25 | 15 | 22 |
| Percent of firms with access to overdrafts | 14 | 58 | 76 | 96 | |
| (As a percent of sales) | 8 | 10 | 8 | 7 | 9 |
| Average maturity of bank debt by firm size (number of months) | 25 | 36 | 55 | 60 | |
Cameroon: Distribution and Importance of Bank Loans and Overdrafts by Firm Size
(Percent of firms receiving a bank loan or overdraft at least once in the past 5 years, based on KPED survey)
| Firm Size | Average for all firms | ||||
|---|---|---|---|---|---|
| Micro | Small | Medium | Large | ||
| Percent of firms receiving a bank loan | 31 | 49 | 48 | 85 | |
| (As a percent of sales) | 17 | 27 | 25 | 15 | 22 |
| Percent of firms with access to overdrafts | 14 | 58 | 76 | 96 | |
| (As a percent of sales) | 8 | 10 | 8 | 7 | 9 |
| Average maturity of bank debt by firm size (number of months) | 25 | 36 | 55 | 60 | |
The legal framework
25. Constraints. The main problems with the application and administration of laws in Cameroon are that (a) the laws are often unclear and depend heavily on the implementation decrees for their interpretation; and (b) they are often inappropriately administered by civil servants and the judiciary. The result is that private sector confidence in the country’s legal institutions has been eroded. Laws regarding the formation and enforcement of contracts are sometimes well developed in theory, but in practice are difficult to enforce through the court system. Creating a company in Cameroon is a difficult and time-consuming process: it requires on average about five months to complete all the necessary steps—almost twice as long as in neighboring countries in the region. The most common form of commercial conflict results from the late or nonpayment of invoices by clients. While about 85-90 percent of conflicts are resolved at least in part through arbitration or negotiation, surveys of enterprises indicate that only about 35 percent of conflicts with clients are resolved in a manner that is regarded as being satisfactory by the firms involved. In recent discussions with the Fund staff, representatives of the Cameroon banking sector cited problems with the judiciary system as their primary concern.
26. Reforms. The range of reforms that is necessary in the legal environment in Cameroon is extensive and can be realized only in the long term. An in-depth reform of the judiciary has been launched as part of the third World Bank Structural Adjustment Credit (SAC III) with the objective of ensuring greater equity in the judicial process and, in particular with regard to contract enforcement. The judiciary reform will call for (a) institutional reforms; (b) improvement in the working conditions of the judiciary staff; (c) implementation of training programs and capacity building; and (d) modernization of dissemination of laws and enforcement of judgements. A start has been made with the reopening of training sessions for court clerks and other paralegal professionals, and a commitment to recruit 140 new magistrates over the next 2 to 3 years. The signing of international agreements such as the Organisation for the Harmonization of Business Law in Africa (OHADA) and the Code of the Interafrican Conference on Insurance Markets (CIMA) aimed at harmonizing business regulations in the region also reflects the willingness of the Cameroonian authorities to improve the business environment and increase transparency.
The incentive and tax system
27. Constraints. Prior to the 1994 UDEAC trade and tax reform, Cameroon’s tax system combined a complicated array of production and sales taxes (effective rates were as high as 300 percent) with widespread exemptions, creating distortions in the incentive framework. The pre-reform regime was characterized by lack of transparency and accountability in the petroleum sector, various special tax regimes and case-by-case tax rate negotiations between individual enterprises and the tax authorities. Complications arising from the tax system were ranked third in the 1993 RPED survey of constraints facing private enterprises.
28. Reforms. Cameroon initiated trade and tax reforms in 1994, as part of the UDEAC initiative to promote regional economic integration. These reforms were intended to correct antitrade biases by reducing tariffs and increasing the weight of domestic taxes. The common external tariff (CET) comprised two taxes: a customs duty and a temporary surcharge tax. The customs code classified products according to the level of transformation with the rates fixed at 5, 10, 20, and 30 percent on January 11, 1994; The single tax system on intra-zone imports was replaced by a preferential tariff, fixed initially at 20 percent of the CET and eventually phased out in January 1998. The highly fragmented indirect tax system was initially replaced by a turnover tax (TCA) with two rates (normal and reduced) on imports and local production and services. However, the actual implementation of the TCA was less than optimal, with a negative impact on manufacturing enterprises and exporters, and it has recently been replaced in January 1999 by a value-added tax (VAT) (see below). In addition, as part of the trade reform, nearly all nontariff barriers—notably the elimination of quantitative import restrictions and export/import licenses—were eliminated immediately after the 1994 devaluation. Coffee and cocoa trade has also been completely liberalized.
29. The UDEAC reforms established the framework for a tariff and tax system that is transparent, closes many of the loopholes for tax evasion and improves the structure of incentives. This success, however, is closely linked to the management capacity of the tax administration and on further efforts to intensify the reforms. Incentive policies in the trade and tax area under the first and second annual ESAF-supported program have included:
increasing transparency in the oil sector with regular audits of the national oil company, SNH, to ensure that revenues are transferred to the government budget;
improving tax administration and compliance to raise the low level of non-oil tax revenues to GDP;
replacing the turnover tax with a VAT on January 1, 1999 (at a unified rate of 18.7 percent) to neutralize the impact of internal indirect taxes on trade;
reducing nonforestry export taxes (which were reintroduced after the reform with rates ranging from 30 percent for palm oil to 15 percent for sugar). The rates for nonforestry products were reduced to 5 percent on July 1, 1998; and
liberalizing the petroleum sector, with the reduction of the share of the national oil refinery (SONARA) of refined petroleum products to 80 percent of the domestic market, to be followed by the liberalization of distributor margins in 1998/99.
A detailed examination of the UDEAC (later CEMAC) tariff listing also reveals distortions as some rates appear to have been chosen without regard to economic considerations; the average rate for raw materials, for example, is significantly higher than for intermediate products, which is likely to affect adversely the competitiveness of local industries.
30. Finally, price and administrative control of margins has been abolished except for a few products and services produced by public enterprises (notably, water, and electricity). These charges will be further liberalized under the privatization programs targeted at these sectors.
Physical infrastructure
31. Constraints. The low efficiency of Cameroon’s physical infrastructure, including electricity, telecommunications, roads and air and sea transportation, continues to cause serious problems for Cameroon’s private sector, adding substantially to costs, particularly for enterprises located in the northeast which also face security problems on the roads. As reported in the 1994 RPED survey, electricity, road conditions, telephone services, and security were listed as moderate to major problems by at least 40 percent of firms. Among the larger firms, air/sea transportation and road transport were placed in this category by 71 percent and 57 percent of the firms, respectively. Road conditions, electricity, water services, waste disposal and security were all perceived to have deteriorated relative to previous surveys. Cameroon’s infrastructure development, in terms of number of telephones, installed power-generating capacity, and kilometers of paved road per inhabitant, was about half that of a group of comparable African countries (Table 3). Data for the telecommunications sector in 1997 shows little improvement with only 0.5 percent of the population having access to telephone lines. Moreover, only 43 percent were used owing to technical problems (Table 4). The Port of Douala is one of the most inefficient on the West African coast. A comparison of rates charged for ships of 55,600 cubic meters for a three day period in 1997 illustrates its lack of competitiveness (Table 5). It takes on average 21 days to unload a container in Douala, compared with less than 7 days on average for other ports on the West African coast. In the electricity sector, increased demand linked to the economic growth of the country has not been satisfied, leading to numerous power outages.
Africa: Comparative Infrastructure Development 1/
Africa: Comparative Infrastructure Development 1/
| Per 000 capita | |||
|---|---|---|---|
| Telephone (number of lines) | Electricity capacity (000 kwh) | Paved roads (kilometers) | |
| Cameroon | 3 | 54 | 0.3 |
| Cote d’Ivoire | 5 | 100 | 0.4 |
| Madagascar | 3 | 20 | 0.9 |
| Ghana | 3 | 80 | 0.6 |
| Kenya | 8 | 30 | 0.3 |
| Zimbabwe | 13 | 210 | 1.3 |
| Senegal | 6 | 30 | 0.5 |
| The Gambia | 16 | 14 | 0.6 |
| Nigeria | 3 | 40 | 0.3 |
| Average | 6 | 80 | 0.6 |
Africa: Comparative Infrastructure Development 1/
| Per 000 capita | |||
|---|---|---|---|
| Telephone (number of lines) | Electricity capacity (000 kwh) | Paved roads (kilometers) | |
| Cameroon | 3 | 54 | 0.3 |
| Cote d’Ivoire | 5 | 100 | 0.4 |
| Madagascar | 3 | 20 | 0.9 |
| Ghana | 3 | 80 | 0.6 |
| Kenya | 8 | 30 | 0.3 |
| Zimbabwe | 13 | 210 | 1.3 |
| Senegal | 6 | 30 | 0.5 |
| The Gambia | 16 | 14 | 0.6 |
| Nigeria | 3 | 40 | 0.3 |
| Average | 6 | 80 | 0.6 |
32. The deterioration in Cameroon’s infrastructure is largely explained by the poor performance of the public enterprise sector. Until recently, all of the country’s public utilities and transport services, as well as its agro-industrial enterprises, have been in the public sector. Weak management, widespread government interference, and poor accountability have led to substantial financial losses and the accumulation of external and domestic debts, despite large subsidies and transfers and protection from competition. An analysis of the 1994/95 financial statements of 59 public enterprises shows that all enterprises accumulated losses, with the exception of three companies that were monopolies (the oil refinery and the cement and electricity companies). The efficiency of the transport sector has been hit particularly hard because of numerous institutional weaknesses and the poor performance of the public enterprises and ministries managing the railways, air transport, commercial shipping, ports, urban transport, and road maintenance.
Comparison of Telecommunications Indicators in African countries, 1997
Comparison of Telecommunications Indicators in African countries, 1997
| Cameroon | Cote d’Ivoire | Senegal | |
|---|---|---|---|
| Utilization rate (percent) | 43.2 | 72.7 | 68.5 |
| Waiting time for installation (years) | 5.5 | 2.5 | 1.2 |
Comparison of Telecommunications Indicators in African countries, 1997
| Cameroon | Cote d’Ivoire | Senegal | |
|---|---|---|---|
| Utilization rate (percent) | 43.2 | 72.7 | 68.5 |
| Waiting time for installation (years) | 5.5 | 2.5 | 1.2 |
33. Reforms. The privatization program implemented by the government under the ESAF-supported program seeks to improve competition and accelerate growth by attracting new investment and removing current bottlenecks, improving the availability and cost of services. The reforms have initially focused on the public utilities, transportation and agro-industry sectors. Since 1996/97, the government has engaged in a far-reaching reform of the transport sector (see Box 1), and it is currently intensifying its reforms in the port, road maintenance, and rail and air transport sectors. Reforms in the public utilities sector are also under way; bids have been launched for the establishment of a private cellular telephone service, and the launching of prequalification bids for the privatization of the public water company, SNEC (the second round has experienced some delays but is expected to take place at the end of June 1999 after the preparation of an audit). In the telecommunications sector, the reforms are to be accelerated with the launching of the prequalification tenders for the two newly created telecommunications companies, CAMTEL and CAMTEL-Mobile before the end of 1998/99, and with the selection of the successful bidder for the second cellular company. In the electricity sector, a new sectoral law and a new legal and regulatory framework were approved with the assistance of the IFC in December 1998, and a strategy for the privatization of the electricity company, SONEL, is being prepared, with prequalification bids to be •issued before the end of the year.
Comparison of Shipping Charges in 1997
(for a ship of 55,600 m3 for 3 days)
Comparison of Shipping Charges in 1997
(for a ship of 55,600 m3 for 3 days)
| Port | In millions of CFAF |
|---|---|
| Douala | 11.4 |
| Libreville | 3.7 |
| Abidjan | 3.3 |
| Dakar | 4.5 |
Comparison of Shipping Charges in 1997
(for a ship of 55,600 m3 for 3 days)
| Port | In millions of CFAF |
|---|---|
| Douala | 11.4 |
| Libreville | 3.7 |
| Abidjan | 3.3 |
| Dakar | 4.5 |
Strengthening Physical Infrastructure: Reforms in the Transportation Sector
Measures already taken by the government under the ESAF-supported program to improve performance in the transportation sector include the following:
adoption of a restructuring plan for the port of Douala, including the reduction of certain tariffs and costs;
adoption of an action plan to reduce delays at the port to 7 days for imports and 2 days for exports;
elimination of national preferences and cargo sharing arrangements for marine transportation;
selection of the successful bidder and signing of the provisional contract for the privatization, through concession, of the national railway system (CAMRAIL);
establishment a Road Fund, with private sector participation, for financing road maintenance; and
adoption of a more liberal regulatory framework for urban transport.
Although these measures will take time to reduce costs and improve competitiveness, the manager of the cotton company has already noted a reduction by as much as 20 percent in shipping costs after the liberalization of marine transportation.
34. Reforms are also well advanced in the agro-industrial enterprise sector, as the rubber company, HEVECAM was privatized in late 1996 (which resulted in a 30 percent increase in output and employment in less than a year, as well as investment that aims at almost doubling the acreage under cultivation). More recently the sugar company, CAMSUCO, was privatized. The privatization of the palm oil company, SOCAPALM, is scheduled to be completed before the end of 1998/99, and further progress is expected to be made in the preparation of the Cameroon Development Corporation (CDC) for privatization following the launching of prequalification bids in late December 1998. With these reforms, most of the agriculture sector will be in private hands, with the exception of the cotton sector, where privatization is pending the resolution of legal problems and the development of modalities to promote competition and improve the returns to farmers in the sector. (One of the reasons for the slow response of cotton exports to price signals observed in the previous section.)
The lack of support services
35. Constraints. The final area highlighted in the 1994 RPED surveys is the lack of support services, including lack of both information and an ongoing dialogue between the public and private sectors.
36. Reforms. The government has now intensified its dialogue with the private sector and has closely involved private sector groups in the development of its economic program. Notably, a Competitiveness Committee was created 1997/98, and a private sector representative has been included in the government’s technical supervisory committee (CTS) of the ESAF-supported program.
D. Challenges Ahead
37. While the devaluation of the CFA franc and accompanying improvements in international prices appear to have influenced export supplies, the reactions of exports to relative price signals are slow, and the growth in the number of exporting firms has been modest. One reason is the high start-up costs associated with becoming an exporter in Cameroon and, in particular, the substantial costs imposed by deficient physical infrastructure. As a result, export producers must be confident that the real exchange rate will remain favorable for sufficient time to justify establishing new processing facilities or expanding existing capacity. The objective of achieving an efficient and competitive market economy will therefore depend on a wide range of factors, not least efforts by the government to further improve the business environment for small and medium-sized firms and to enhance transparency and governance in the public sector. The structural reforms being implemented by the government will go a long way toward restoring the competitiveness of the Cameroonian economy. However, these reforms are still fragile and need to be strengthened by ensuring a stable macroeconomic environment, widening and deepening the structural reforms, rebuilding the infrastructure, and creating an environment that exposes the privatized enterprises to competition.
References
Biggs, Tyler and Pradeep Srivastava, “Structural Aspects of Manufacturing in sub-Saharan Africa: Fundings from a Seven Country Enterprise Survey”, World Bank Discussion Paper No. 346, Africa Technical Series, (Washington: World Bank, 1996).
Devarajan, Shatayanaa, “How Overvalued Was the CFA Franc? Estimates of Real Exchange Rate Misalignment with a Simple General Equilibrium Model”, (unpublished; Washington: World Bank 1996).
Roberts, Mark J. and James Tybout, “What Makes Export Boom?”, Directions in Development (Washington: World Bank, 1996).
Tybout, James and others, “Firm-Level Responses to the CFA Devaluation in Cameroon,” Journal of African Economies, No.1, December 1997, Vol. 6, pp.3–34.
World Bank, “Republic of Cameroon. The Challenge: Harnessing Unrealized Potential. A Private Sector Assessment” (June 28, 1996).
Prepared by Graeme Justice.
Shatayanaa Devarajan, “How Overvalued Was the CFA Franc? Estimates of Real Exchange Rate Misalignment with a Simple General Equilibrium Model”, (unpublished; Washington: World Bank 1996).
Union Douanière et Economique de I’Afrique Centrale (UDEAC) which was replaced by the CEMAC.
James Tybout et al, “Firm-Level Responses to the CFA Devaluation in Cameroon,” Journal of African Economies, No.l, December 1997, Vol. 6, pp.3-34.
Ibid.
Ibid.
Mark J. Roberts and James Tybout, “What Makes Export Boom?”, Directions in Development (Washington: World Bank, 1996).
Tyler Biggs, T. and Pradeep Srivastava, “Structural Aspects of Manufacturing in subsanaran Africa: Fundings from a Seven Country Enterprise Survey”, World Bank Discussion Paper No. 346, Africa Technical Series, (Washington: World Bank, 1996).
World Bank, “Republic of Cameroon. The Challenge: Harnessing Unrealized Potential. A Private Sector Assessment” (June 28, 1996).
Ibid.
