Finances looking dismal
An interview with the General manager of the Cameroon Development Corporation (CDC), Mr Franklin Njie, reveals the finances of the second largest employer in Cameroon is in dismal condition. CDC employs over 22,000 staff and produces banana, rubber and palm oil for local and international markets.
Low rubber prices have stymied revenues
Some of the challenges highlighted by Mr Njie include (i) the impact of volatile weather patterns on productivity (ii) the inability to obtain long term financing (iii) the erratic nature of power supply and (iv) low international and domestic prices for its key commodities, rubber and palm oil which “negatively affects the cash flow”. Additionally, more than 50% of acreage needs to be replanted.
The CDC needs a suite of corrective measures
FrancTrade believes that the management of CDC is spot-on in identifying the problems. However, they must engage a suite of corrective measures, including engaging with financial markets, to improve the company’s fundamentals. This will make it more palatable to private investors. The recent change of its status from a development corporation to a public corporation should help refocus attention on the company’s financial ratios.
The CDC is a price taker, this is a core weakness
However, there is a core weakness with CDC’s business model in that it is a price taker on both domestic and international markets. This makes the CDC particularly vulnerable to exogenous shocks and price variations. Management may need to consider the suitability of international commodity derivative markets to hedge price risks for rubber.
Cameroon suffers from low oil palm yields
Current oil palm yields in Cameroon are relatively low, estimated at 2.3 tonnes per hectare for commercial farms like the CDC and 0.8 tonnes per hectare for small farms; this compares with a collective average yield of 4.2 tonnes per hectare in South East Asia. We believe that poor yields in Cameroon are compounding cash flow problems.
Mr Njie is right to flag the need for replanting old estates and we argue that given current low market prices, further downside risks to cash flow are limited should current old estates be replanted.