This is not a pat on the back
Last month the IMF approved a three year loan for USD666 million to Cameroon, the first such support from the Fund since 1999 and comes on the back of discussions with the IMF following the emergency December meeting of the Economic and Monetary Community of Central African States (CEMAC). While this is not a direct recompense for the country’s efforts to preserve the integrity of the CEMAC monetary union (which many will read to mean maintaining the status quo on the CFA franc). Cameroon’s role in maintaining stability in CEMAC has been cited positively by the Fund. The IMF acknowledges the impact of adverse oil prices and sustained security threats on Cameroon’s growth which is forecast to drop to 4.0% in 2017 from 4.7% in 2016 and 5.8% in 2015.
Franc Opinion: Diversification is not a dirty word
It is expected that the loan will help Cameroon accelerate economic diversification through private sector investment. While this might sound familiar to a lot of readers, in our view economic diversification is needed in copious amounts to support the country’s efforts towards sustainable long term growth. We hold a different opinion to the view that Cameroon’s large informal sector is a handicap to private sector growth but side with opinion that diversification will be hindered by a difficult business environment with Cameroon ranked 166th out of 190 countries in the 2017 World Bank Doing Business Index—corruption, access to finance, inadequate supply of infrastructure, tax regulations and tax rates previously identified as the main constraints to business in the country.
Cameroon tops EM bond yields in H1-2017
Still, money managers have been able to unlock the sweet spot on Cameroon’s foreign currency denominated debt which has grown from 12% of GDP in 2013 to an estimated 27% in 2017, part of which is due to Cameroon’s USD 750 million 10 year Sovereign bond issue in 2015. According to market data, money managers including AllianceBernstein LP and Ashmore Group benefited from high yields in Cameroon’s dollar bonds in the first half of 2017 which outperformed other emerging market (EM) sovereigns to be the top performing EM bond ahead of Mongolia and Costa Rica.
First a pipeline, now a railroad?
Although yields have come off due to strong multilateral support, which reassured investors and mitigated risk on Cameroon debt, not only from the IMF but from the French Development Agency which is redirecting USD153 million of previously paid debt into Cameroon’s agricultural sector. At the same time, the African Development Bank is funding a 900 kilometre Cameroon-Chad Railway project which should go some way to addressing the trade infrastructure deficit in the CEMAC region and provide a more dependable artery for agricultural products and other commodities between the two countries.