VZCZCXRO3062
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHYD #0073/01 0281340
ZNR UUUUU ZZH
R 281340Z JAN 08
FM AMEMBASSY YAOUNDE
TO RUEHC/SECSTATE WASHDC 8505
INFO RUEHZO/AFRICAN UNION COLLECTIVE 0069
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 YAOUNDE 000073 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
STATE ALSO FOR AF/C 
STATE ALSO FOR OPIC 
STATE ALSO FOR USTDA 
STATE ALSO FOR EXIM 
STATE ALSO FOR EEB 
 
E.O. 12958: n/a 
TAGS: EFIN ETRD ECON EINV EMIN CM
SUBJECT: TALKING FINANCE IN CAMEROON'S COMMERCIAL CAPITAL 
 
 
¶1.  (U)  Summary.  Despite billions of dollars in excess liquidity 
in central African banks, much-needed investment in Cameroon is 
hindered by a lack of long-term capital, underdeveloped capital 
markets, and a challenging business climate, according to 
Douala-based bankers and businesspeople.  Private banks are moving 
ahead with new investment tools, and there is some hope that the 
Government of Cameroon (GRC) will finally move to issue 
long-promised Treasury Bonds, thereby offering another financial 
instrument to the market.  The promise of the Douala Stock Market 
remains unfulfilled and is undercut by the competing exchange in 
Libreville.  Douala businessmen are interested in the President's 
African Financial Sector Initiative and we believe Cameroon could 
benefit from these funds.  End Summary. 
 
Words, but Little Action 
------------------------ 
 
¶2.  (U)  President Biya and Prime Minister Inoni have promised quick 
action to improve Cameroon's economic growth (which the GRC predicts 
at between 4.5-5% for 2008) and create much-needed jobs.  The Prime 
Minister has formed an Investment Council, in parallel with a 
similar World Bank-supported private sector effort.  During a 
January 15-16 trip to Douala, Cameroon's largest city and commercial 
capital, financial contacts told Poloff they were highly skeptical 
of GRC investment-promotion initiatives.  Cameroon's financial 
sector is many years behind similar economies in West Africa, they 
said, expressing frustration that political leaders in Yaounde were 
unwilling or unable to set the necessary policy course for improved 
economic growth.  The CEO of one international bank said "they have 
known what needs to be done for years.  Why should I believe them 
now, when they say they want to do it?" 
 
Cash, Cash Everywhere, but Not a Dollar to Loan 
--------------------------------------------- -- 
 
¶3.  (U)  According to the financial experts with whom we spoke, the 
overriding problem is the lack of long-term capital.  Although 
Central African banks are bulging with between $1 and 3 billion, 
very little of those funds are made available to the private sector 
in a meaningful way.  Regional banking regulations require that the 
terms of a loan must be aligned with the terms of the deposit, 
meaning that banks are effectively unable to make loans for longer 
than six years, a time period that is untenable for most significant 
industrial investments.  According to one investment banker, the 
only feasible investments in Cameroon these days are hotels and 
commercial real estate, where returns are quickly realized and where 
tax officials have less leverage to squeeze the investor. 
Investment in industrial facilities like factories, he said, has 
been effectively killed by a regulatory environment where tax 
officials are given rein to harass and extort commercial operators. 
 
Unfulfilled Potential of the Stock Exchange 
------------------------------------------- 
 
¶4.  (U)  The Douala Stock Exchange (DSX) opened in April 2003 to 
provide a source of financing for business investment in Cameroon 
and the region, but so far it has only one listing (bottled water 
company Tangui).  Cameroonian businesses regularly rank difficulty 
accessing long-term capital as one of the major restraints on 
growth, but too few are willing to list on the DSX because either 
they receive cheaper capital from their home offices (for foreign 
subsidiaries) or they are unwilling to provide the stringent 
transparency required for listing.  According the Chairman of the 
DSX, the GRC plans to finance a series of new projects through the 
exchange, including bond issues for a $1.6 billion expansion of 
domestic power production (dams and gas powered facilities) and $150 
million in investments through the state-owned National Investment 
Company (Societe Nationale d'Investissement, or SNI in the French 
acronym).  Within that $150 million, $30 million will reportedly 
finance the GRC's stake in the cobalt mining project to be 
undertaken by American firm GEOVIC. 
 
¶5.  (U)  According to private sector financial contacts, however, 
the DSX has failed to live up to its promise to develop capital 
markets in the cash-rich central African region in large part 
because of its continuing feud with the regional stock exchange 
based in Libreville and the underlying competition between the 
respective Heads of State.  Cameroonians wishing to buy into the 
Government of Gabon's recent $200 million bond offer reportedly had 
to undergo arduous procedures, strewn with processing fees, which 
ended up undermining many of the benefits of such an offer 
(including the tax-free status).  Equatorial Guinea and other 
regional players with excess capital would be better able to invest 
if the Douala and Libreville stock exchanges coordinated in a system 
 
YAOUNDE 00000073  002 OF 002 
 
 
like EURONEXT in Europe, according to our contacts.  Cameroonian 
businesses have capital they want to invest long-term, including in 
much-needed infrastructure projects like roads and power production, 
argued one industry representative, but they simply need the 
vehicles to do so. 
 
Waiting for T Bonds and the Fruits of Privatization 
--------------------------------------------- ------ 
 
¶6.  (U)  When asked for identifiable "next steps" the GRC could take 
to spark the financial markets, the financial experts with whom we 
spoke identified two easy wins: the GRC could issue Treasury Bonds 
and could follow through on promises to float equity in privatized 
parastatals.  Bemoaning the fact that Cameroon lags behind other 
African economies that have issued substantial Treasury Bonds and 
illustrating the demand for such financial instruments, one 
international banker said he had set aside more than $1 million in 
expectation that the Ministry of Finance would issue the long 
awaited bonds in FY2008.  When Cameroon undertook privatization of 
some parastatals, including banking institutions and agricultural 
plantations, the deals included commitments (sometimes by the 
company, sometimes by the GRC) that certain shares would be made 
available to local investors.  The GRC has never enforced or abided 
by these provisions.  As a result, Cameroonian investors have been 
unable to partake in the growth of these enterprises and some of the 
entities have suffered for lack of available capital. 
 
Comment: Is the GRC Serious about Economic Reform? 
--------------------------------------------- ---- 
 
¶7.  (SBU)  Our Douala contacts were skeptical that Yaounde-based 
politicians would follow through on their promises to make reforms 
to spur economic growth.  The GRC's professed desire to grow the 
economy makes political sense.  With mounting national frustration 
over stagnating standards of living and limited employment, the need 
for economic growth is increasingly obvious and urgent.   The 
question is whether GRC leadership is prepared to move beyond 
speeches to get down to the actual business of reforms or whether 
they will continue to be distracted by other "priorities" (such as 
constitutional reform and the national soccer team).  We will seek 
to use our contacts with Finance Minister Essimi Menye (who received 
high remarks from everyone we questioned) and other top officials to 
help push for meaningful next steps. 
 
¶8.  (U)   The financial institutions with whom we spoke were 
pleasantly surprised to learn of President Bush's Africa Financial 
Sector Initiative (AFSI).  All were excited to learn about the 
specific funds benefiting from OPIC's $250 million financing and 
expressed interest in meeting with any officials who would visit 
Cameroon to explore possible investments.  Despite the challenges of 
doing business in Cameroon, many U.S. companies are doing good 
business here, as highlighted in our recent Investment Climate 
Statement.  We see a role for the OPIC-supported funds to play in 
the region, especially in financing long-term capital projects.  End 
comment. 
 
GARVEY