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DE RUEHYD #0209/01 0641310
ZNR UUUUU ZZH
R 041310Z MAR 08
FM AMEMBASSY YAOUNDE
TO RUEHC/SECSTATE WASHDC 8645
INFO RUEHZO/AFRICAN UNION COLLECTIVE 0098
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHMFISS/HQ USAFRICOM STUTTGART GE

UNCLAS YAOUNDE 000209 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR AF/C 
LONDON AND PARIS FOR AFRICA ACTION OFFICERS 
EUCOM FOR J5-1 AND POLAD 
TREASURY ALSO FOR FRANCOIS BOYE 
STATE PASS MILLENNIUM CHALLENGE CORPORATION 
 
E.O. 12958: N/A 
TAGS: CM ECON EFIN EIND EMIN PGOV EINV ELAB PINR
ASEC 
SUBJECT: CAMEROON'S ECONOMY: BACKDROP TO A WEEK OF VIOLENCE 
 
REF: A. YAOUNDE 005 
 
     ¶B. YAOUNDE 199 AND PREVIOUS 
 
¶1.  (SBU)  Summary:  Cameroon's economic outlook portends 
continued tepid growth despite high oil prices, reflecting 
low levels of investment, poor execution of the budget, and 
the reduced competitiveness of agricultural exports.  Recent 
conversations with IMF and World Bank officials underscore 
frustrations with Cameroon's business climate and economic 
governance.  For the past year, many have perceived inflation 
to be rising; recent increases in the prices of fuel, beer, 
bread and many other commodities reinforce inflationary 
concerns and were a major factor in sparking a week of civil 
unrest.  While there is stated political will to jump-start 
the economy, the Government of Cameroon (GRC) appears 
unwilling to take bold moves to tackle the bureaucracy and 
corruption holding back growth.  The violence over the past 
week -- the worst in Cameroon in more than 15 years -- could 
undermine the investment climate and the overall economy, 
especially if it leads to further unrest.  Even without this 
potential impact, the economy appears set to continue to 
muddle along on a slow-growth path.  End summary. 
 
A Violent Week 
-------------- 
 
¶2.  (U)  Over the past week Cameroon has experienced the 
worst political violence since the early 1990s.  As reported 
ref B and through daily sitreps, transport workers went on a 
national strike on February 25 to protest high fuel prices 
(gas prices rose by 20 CFA in the previous week - about 4 
cents - to 600 CFA per liter, about $5.06 per gallon). 
However, this was the latest in a string of incremental fuel 
price rises, mirroring rising international oil prices.  The 
strikers were joined by masses of people in Douala, Yaounde, 
and the West, Littoral, South West and North West Provinces, 
who voiced a mix of grievances, from rising fuel prices to 
the high cost of other essential commodities and President 
Biya's announced plans to amend the constitution to eliminate 
presidential term limits. 
 
¶3.  (U)  Throughout the week, groups of people (many of them 
youths) barricaded roads, burned buildings (including many 
gas stations), set tires ablaze, and confronted security 
forces, who responded with force that left 16 or more dead 
and many others injured.  Commerce in the affected areas, 
which included Yaounde and Douala (Cameroon's two largest 
cities), came to a virtual halt. On February 26 the 
government and the transport union reached an agreement to 
cut the gas price by 6 CFA.  President Biya delivered a 
speech to the nation the night of February 27 in which he 
promised to use "all legal means" to restore order.  The 
speech was followed by a heavy deployment of security forces, 
bringing the violence to a stop (at least for now). 
 
¶4.  (U)  While the week's violence was not all about 
economics, the country's economic problems and growing 
poverty were a significant contributing factor.  Neither the 
government's deal with the union nor the President's speech 
to the nation addressed the country's underlying economic 
problems.  This message explores the economic backdrop of the 
past week.  We will report septel about the political 
dynamics at work. 
 
Weak Growth Outlook 
------------------- 
 
¶5.  (U)  In his New Year's speech to the nation, President 
Biya projected GDP growth at 4.5 to 5.5% in 2008.  A look at 
the economic data, however, suggests there is little to spur 
growth much above its 3% average over the past three years. 
The GRC has no control over monetary policy (which is 
determined by the regional central bank, BEAC) and can offer 
little fiscal stimulus.  The 2008 budget straight-lined 
overall spending (ref A), with only a slight increase in 
public investment and, in any case, execution of the budget 
is perennially weak.  The December 2007 Economist 
Intelligence Unit report on Cameroon predicts 2008 will bring 
increases in wages and capital expenditures, financed by 
marginal increases in revenue from higher oil prices, slight 
increases in oil output, and enhanced tax administration. 
This will reportedly have the overall effect of reducing the 
fiscal surplus from 5% of GDP in 2007 to 4.1% of GDP in 2008. 
 The government benefited from billions of dollars in debt 
relief under the HIPC program in 2006, but has not been able 
to re-channel much of this money into the economy, apparently 
because of bureaucratic bottlenecks. 
 
¶6.  (U)  There is very little industry (less than 3% of GDP) 
or growth in domestic investment.  IMF figures estimate gross 
investment as a percentage of GDP dropped from 19.1% in 2005 
to 16% in 2006.  This figure is expected to rise back to 
18.6% in 2007. An expected strong performance in the 
construction, forestry and (possibly) mining sectors, as well 
as likely continued moderate growth in agriculture, could 
help improve the results in 2008.  However, a steady erosion 
of trade preferences with the European Union, combined with 
the appreciation of the currency (FCFA), is expected to limit 
new investment in the cash crop sector.  While there is no 
good data on foreign direct investment (FDI), there is no 
question that FDI is limited by Cameroon's difficult business 
environment and lack of knowledge about business 
opportunities. 
 
¶7.  (U)  The real growth of private consumption in 2008 is 
expected to remain at about 4%.  Export volume growth between 
2006 and 2007 dropped significantly from 8% to 3%, with no 
real diversification and a reduction in exports of cotton, 
coffee and bananas, three of the mainstays of the non-oil 
economy.  The Economist Intelligence Unit forecasts a 
significant worsening in Cameroon's trade balance from $363 
million in 2006 to $195 million in 2007 and negative $65 
million in 2008.  The overall current account balance is 
predicted to slide more precipitously, from a deficit of $290 
million in 2007 to a deficit of $662 million in 2008. 
 
The IMF's Review 
---------------- 
 
¶8.  (U)  The IMF Executive Board completed its fourth review 
of Cameroon's economic performance in December 2007.  The 
Board praised Cameroon's fiscal performance and "structural 
measures to strengthen public finance management."  It called 
for greater efforts to implement reforms in investment 
execution, rural finance, and public enterprise performance. 
It noted the need to expand the tax base, improve execution 
of public spending, ensure prudent debt management, improve 
the business climate, strengthen the financial sector, and 
pursue anti-corruption efforts.  The Board approved a $4.1 
million disbursement, for a total of $20.7 billion disbursed 
out of the $29.1 million (18.57 million SDR) committed under 
the 2005-2008 Poverty Reduction and Growth Facility (PRGF) 
that will end in June 2008. 
 
¶9.  (SBU)  Malangu Kabedi-Mbuyi, the IMF's Resrep in 
Cameroon, gave a decidedly downbeat assessment of the 
Cameroon economy in a recent meeting with Pol/Econ Chief. 
Since the start of the PRGF in 2005, the GRC had increased 
transparency in monitoring government expenditures (with 
better data) and made some progress in revenue collection, 
she said.  However, she was discouraged by the low execution 
of the investment budget and the concomitant implications for 
future economic growth.  On civil service reform, the IMF 
believes a census and broad-based reform are needed to remove 
ghost workers and irregularities in the personnel system 
before contemplating salary increases, she said, questioning 
the GRC's political will on this issue, given its glacial 
movement on reform.  She was also discouraged by the lack of 
progress in privatizing CAMAIR (whose annual losses total 36 
billion CFA, or around $80 million) and CAMTEL, noting that 
the SONARA refinery is also a major drain on government 
coffers.  She was also concerned about the potential for 
Cameroon to take on new commercial debt. 
 
¶10.  (SBU)  Given these issues, the problems in the business 
climate, and poor infrastructure investments, Kabedi-Mbuyi 
 
thought the GRC's GDP growth projections for 2008 could be 
unrealistic.  An IMF/World Bank assessment team in Yaounde 
last week gave a similar review of the economy to the 
Ambassador, noting improvements in budget management but 
highlighting poor performance in the social sector, 
frustrations with CAMAIR, and concerns about government 
pressures to subsidize fuel prices. 
 
World Bank Views 
---------------- 
 
¶11.  (SBU)  World Bank Chief Economist Abdoulayi Seck shared 
many of the IMF's concerns in a separate conversation with 
Pol/Econ Chief.  He highlighted the GRC's inability to 
adequately spend its investment budget as a result of 
procurement bottlenecks, bad planning, bureaucratic 
constraints, and even weather patterns (Cameroon's several 
rainy seasons make construction difficult).  He was 
discouraged by a legion of business climate challenges, 
including arbitrary taxes, and the difficulties in opening 
and closing businesses, as reflected in Cameroon's low 
ranking in the Bank's annual Doing Business report (154 out 
of 178 economies worldwide).  Private companies lose 5% of 
turnover to power problems and 5% to corruption, making 
industry highly inefficient, he said.  Unless reforms are 
implemented and investment picks up, he predicted overall GDP 
growth of 3%, roughly the same as the 2006 non-oil GDP growth 
of 2.9%.  This is about equal to estimated population growth 
and slightly below what he estimated as the accumulated 
inflation of around 7% over two years (or 10% over 5 years). 
This suggests essentially zero or slightly negative real per 
capita GDP growth, he said. 
 
Perception of Rising Poverty 
---------------------------- 
 
¶12.  (SBU)  Both Seck at the World Bank and Kabedi-Mbuyi at 
the IMF agree that Cameroon's relatively high per capita 
income of $1,080 belies a perception of growing poverty.  The 
most current poverty data comes from the household survey in 
2001, which showed a 13% drop in the numbers of Cameroonians 
below the poverty level, from 55 to 42%.  New household 
survey data expected in the next few months should help paint 
a better picture.  The 2007/8 UNDP Human Development Index 
(using 2005 data) ranked Cameroon slightly above the African 
average and 64th out of 108 developing countries.  However, 
it was toward the bottom of the Medium Human Development 
category, and 144th out of 177 countries in the index (on a 
par with the previous year), just above Papua New Guinea and 
Haiti. 
 
¶13.  (SBU)  We have heard for a long time from a variety 
sources of growing frustration among the poor.  Cameroon 
scores below the median on all of the Millennium Challenge 
Account's Investing in People (health and education) 
indicators.  Most of the country's college graduates are 
unemployed and overall unemployment and underemployment is 
estimated at close to 80%.  The perception of price rises is 
higher than the official 4.4% inflation rate would indicate. 
This may be because of data problems or the baskets of goods 
used in measuring inflation, or it could just be that prices 
are rising faster than incomes, heightening the perception of 
inflation.  Recent price rises in foodstuffs like rice and 
wheat, as well as items like beer and soft drinks -- not to 
mention fuel -- have heightened inflationary pressure and its 
negative impact on the poor. 
 
Comment 
------- 
 
¶14.  (SBU)  With high oil and other commodity prices, high 
liquidity in the banks, significant debt relief, and several 
major power and mining projects in the works, this should be 
a window of opportunity for Cameroon to boost itself onto a 
higher growth path.  Moreover, senior levels of the 
government appear seized with the need to jump-start the 
economy.  The President has highlighted the imperative for 
economic growth, the Prime Minister formed an Investment 
 
Council and talks of creating a truly one-stop shop for 
investors, and the Minister of Finance is overseeing steps to 
improve budget implementation.  The Minister of Territorial 
Administration recently convoked the nation's governors to 
Yaounde for a pep talk on boosting the economy.  However, 
despite a wealth of stated good intentions, no one can see an 
easy path out of the stultifying bureaucracy and corruption 
holding the economy back.  When Pol/Econ Chief recently asked 
why the investment climate is not improving, despite 
apparently substantial political will, the Director for 
Economic Affairs at the Presidency threw up his hands and 
said "that's the million dollar question."  He then urged 
patience, noting the government's need to balance economic 
growth with other priorities like preserving peace and 
stability. 
 
¶15.  (SBU)  If there is no further violence and the 
government can regain some focus on economic growth, we 
expect the economy will move forward, with possible new 
investments this year in mining, energy and other sectors, 
although the pace is likely to be frustratingly slow. 
However, there is a very real possibility that the past 
week's violence will heighten tensions within the government 
and sharpen the focus on internal politicking, to the 
detriment of progress on economic reform.  Although many 
observers highlighted the pocketbook grievances of the 
protesters, in public remarks the GRC essentially dismissed 
these.  The Minister of Commerce explained that commodity 
prices were high because of global conditions which the 
government could not affect.  The President made no mention 
of economics in his February 27 speech, leaving the 
impression that he was insensitive to these problems.  At 
this point, he gives no indication of using this crisis as a 
platform to accelerate economic reforms, though we expect he 
will soon try to address some of the immediate cost of living 
issues.  The options will be limited.  For example, the GRC 
already subsidizes fuel by 100 CFA, costing the exchequer a 
total of $77 million in 2007.  There is no doubt that the 
image of Cameroon's stability -- one of its strongest selling 
points to foreign investors -- has been damaged and will be 
further hurt if there is more civil unrest. 
GARVEY