Cameroon Infrastructure Report Q4 2009

Cameroon’s economic performance this year looks slightly better than it did three months ago, but the country is still handicapped by its poor infrastructure. The government did sign a key agreement involving some of its most ambitious projects, but the immediate future will still include serious threats to its economic strength.

The report is now forecasting GDP growth in 2009 of 0.8%. That is better than the 0.5% we were previously forecasting, but still far below the 4.8% growth of 2008. The economy should grow even faster in subsequent years. We are forecasting 2.4% growth in 2010 and then a surge to 5.8% in 2011. The main reasons for our reassessment of 2009 are higher gross fixed capital formation and stronger than expected consumer spending.

But nobody should overlook the problems in this resource-rich country. Electricity outages became a popular joke this summer. The power went down so often that the country’s aluminium smelter was forced to halt production in August. The highway leading into and out of Bamenda collapsed, preventing heavy goods from being transported across the gash. The government replaced the energy minister and sacked the general manager of the Electricity Development Corp. The changes in personnel might be reasons for optimism, but the country’s difficulties run deeper than a handful of officials.

Rio Tinto Alcan, which along with the government owns the Alucam smelter, has not given up on Cameroon. The company and the government signed an agreement this quarter on a US$5.36bn hydroelectric dam, an aluminium smelter, and the Kribi deep seaport. Cameroon’s ability to overcome obstacles in the long term depends on companies and investors being willing to help build the infrastructure, a reality that government officials openly acknowledge. The reward is access to the bauxite, iron ore, gold and other mineral resources the country has to offer.

Investors’ interest in the country bodes well for infrastructure development 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 multinational 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 and transfer (BOT) transactions.

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

The Kribi seaport is one of two infrastructure projects that have the potential to influence the country’s long-term economic performance. The Lom Pangar Dam, on which work has now reportedly begun, is the second. If the two projects go ahead, Cameroon should be able to greatly expand its iron ore and aluminium production, reducing its dependence on oil. The dam would reduce vulnerability to drought by ensuring that the hydroelectric generators, which account for more than 80% of electricity production, have the water they need. Deep sea ports would be a gateway not only to Cameroon’s resources, but also to those of neighbouring countries.

If the country can take these and other projects to completion, the resulting momentum is likely to bring further investment in infrastructure, including into roads, railroads and water and sanitation.

Growth of 3.1% is now expected in the construction sector in 2009, accelerating to 3.5% in 2010 and then 6.1% the year after. 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 been moving up this summer, 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.