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Cameroon Business Forecast Report Q2 2011
Business Monitor International, March 2011, Pages: 34
Still Waters Run Deep While Cameroon may appear calm on the surface, long-simmering discontent could suddenly boil over. Aware of this and following the national uprising in Egypt, the government has acted to head off the biggest grievances before national elections later this year – nonetheless, we believe protests surrounding this election now have the potential to be larger than before.
Dissatisfaction with the status quo is related to weak economic performance, with real GDP growth projected to remain just below 3.0% this year before surging over the next two years on the back of mega-projects that will do little to improve the conditions of the wider populace. Government policy is expected to at least help contain inflation, the spark of previous protests, through both direct interventions in the markets for food and fuel and continued use of the euro-pegged CFA franc.
While it is important not to overstate similarities, Egypt and Cameroon share several worrying similarities: long-serving rulers up for re-election in 2011, corrupt governments, huge youth populations with weak economic prospects and almost no prospects for change through official democratic channels. We consider the chances of national protests in Cameroon elevated in the current climate, though still remote. At a minimum, protests against the national elections may be bigger this year than they otherwise would be, and government responses to protests will probably be swifter. The continued spread of protests internationally, or an opposition victory in Egypt, would further raise these risks.
Cameroon’s exchange rate and monetary policy are decided at the supranational, not domestic level, and looking to the wider central African economy, we see little in the way of changes over 2011. The extreme rarity of adjustments to the peg of the CFA franc to the euro has helped keep inflation and perceptions of exchange rate risk low, and in the absence of macroeconomic tensions and the promising outlook for oil prices, we see no adjustments to the peg over the next five years. Meanwhile, with inflation likely to remain subdued, we believe the regional central bank will similarly refrain from adjusting its policy interest rate this year, especially given the relatively weak outlook for growth.
The risk of a sudden shift in political stability following the retirement of President Paul Biya weighs on the business environment, which also suffers from widespread corruption, an inflexible labour market and questionable independence in the judiciary. The country’s growth strategy over the next several years hinges on new investment in natural resource extraction, and to help accomplish this, significant investment in infrastructure is planned. While we expect this to be largely successful, we are less optimistic about the prospects for taking on more institutional problems afflicting the business environment.
Beyond the next five years, if tackling these weaknesses proves too difficult, we believe the temptation to re-examine the benefits of a devaluation may mount.
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