Cameroon Infrastructure Report Q3 2009

The construction sector in Cameroon is expected to decline by 1.6% in 2009. Cameroon, despite some setbacks in the latest quarter, managed nevertheless to show some signs of infrastructure development. The country’s rail operator is scheduled to start this year on an 11-year program of railroad improvements. Construction has reportedly begun on the road leading to the Lom Pangar dam project. The Japanese government approved its first loan to Cameroon since 1976.

But the problems that arose are serious ones. First, the economy deteriorated further in the latest quarter and the forecast now sees GDP growing less than 1% in 2009. Cutbacks in production at the Alucam smelter because of electricity shortages could try the patience of Rio Tinto Alcan, which only last quarter said it would stick to its plans to invest in Cameroon even as it cut capital spending elsewhere. In another blow for the country, the estimated cost of the Limbe Deep Water Port rose to twice its previous level.

Cameroon’s ability to overcome obstacles in the longer term may be dependent on companies and investors eager to tap into its mineral and energy resources. Projects depending on the Kribi Deep Sea Port, for example, include several participants, some of whom will take a long-term view of Cameroon’s potential.

Cameroon manages, in spite of its problems, to appeal to investors looking for opportunities in its key infrastructure sectors. Several projects have been proposed so far this year, although fewer in the latest quarter than the preceding one.

This interest bodes well for infrastructure development in the country over the next five years. Thanks to debt cancellation through the World Bank and the International Monetary Fund’s Heavily Indebted Poor Country (HIPC) initiative, public finances have been improved. The Cameroon government is collaborating with neighbouring countries and multi-lateral agencies, and the multi-national corporations in the country are tolerant of risk and have diversified their risks over many countries. The government itself appreciates the benefits of build, operate, transfer (BOT) transactions.

The country still suffers from corruption, a lack of transparency and insecure borders, but the problems are not getting worse.

Two infrastructure projects deserve - and are getting - especially close scrutiny. Both have the potential to influence significantly the country’s long-term economic performance. The Kribi Deep Sea Port could greatly enhance Cameroon’s ability to exploit its mineral resources, while the Lom Pangar Dam would give it the ability to increase and stabilise its electricity generation. Greater iron ore and aluminium production - and export - is likely to result if the construction of the two projects goes ahead as planned, which would reduce the country’s dependence on oil. The dam would reduce vulnerability to drought by ensuring that its hydroelectric generators, which account for more than 80% of electricity production in the country, have the water they need.

If the country can get those and other projects to completion, the resulting momentum is likely to bring further investment in infrastructure, including into roads, railroads and water and sanitation. The beginning of construction on a road leading to the dam site may be a small step, but it is progress.

The report is now forecasting real GDP growth in Cameroon to slow to just 0.5% in 2009 and to 2.0% in 2010.

That represents a sharp decline from our previous forecast of 2.4% growth in 2009 and 3.6% in 2010. We expect a real contraction of 1.6% in the construction sector in 2009 before growth resumes next year.

The report forecast is for 3.5% real construction growth in 2010 and 6.1% the following year.

Cameroon’s infrastructure activity, however, must be viewed in the context not just of the global economic climate, but specifically in the context of commodities prices. Oil prices and some metals prices have risen in recent weeks, and although the gains are not uniform across the commodities sector, any sign of price recovery should boost investors’ confidence about undertaking projects in Cameroon.