CAMEROON ECONOMIC UPDATE January 2011 l Issue No.1 71649 TIME FOR THE LION TO WAKE UP? AN ECONOMIC UPDATE ON CAMEROON With a Focus on Telecoms Poverty Reduction and Economic Management Unit Africa Region January 2011 Time For The Lion To Wake Up? An Economic Update On Cameroon With a focus on Telecoms Poverty Reduction Economic Management Unit Africa Region Table of Contents ABBREVIATIONS AND ACRONYMS ....................................................................................I TIME FOR THE LION TO WAKE UP? ................................................................................... 2 Introduction ...................................................................................................................................... 2 Background ....................................................................................................................................... 3 Recent Economic Developments ...................................................................................................... 8 Outlook for 2011 ............................................................................................................................ 13 Telecoms sector .............................................................................................................................. 14 REFERENCES .................................................................................................................. 20 List of Figures Figure 1: Comparative Indicators and Economic Structure, 1980-2009 ............................................. 4 Figure 2: Fiscal and Poverty Developments, 1996-2009 ..................................................................... 5 Figure 3: Potential Contribution of Infrastructure .............................................................................. 7 Figure 4: Sectoral Contribution to GDP Growth, 2005-10 (In percent).............................................. 8 Figure 5: Contribution to Credit Growth by Sectors, 2010 (In percent) ............................................ 8 Figure 6: Oil Production, 2002-10, ...................................................................................................... 8 Figure 7: Production of Selected Food Crops. 2005 – 10 (Index 2005=100)....................................... 9 Figure 8: Number of Subscribers, 2008-10 ....................................................................................... 10 Figure 9: Selected Price Indices, 2006-10 ......................................................................................... 10 Figure 10: Non-Oil Revenue Mobilization (average 2007-09, in percent of non-oil GDP) ................ 11 Figure 11: Non-Oil Revenue, 2005-10 (In percent of non-oil GDP) .................................................... 11 Figure 12: Budget Allocations for Priority Sectors, 2005-09 ............................................................... 12 Figure 13: Budget Allocations for Priority Sectors, 2010 .................................................................... 12 Figure 14: Budget Allocations for Priority Sectors, 2011 (In percent of the budget) ......................... 13 Figure 15: Real Per Capita GDP, 2009-35 ............................................................................................ 14 Figure 16: ICT Development Index Countries Rank, 2008 .................................................................. 16 Figure 17: Evolution of Herfindahl-Hirschman Index in Cameroon, 2005-09..................................... 16 Figure 18: Mobile Cellular Sub-Basket, 2009 ...................................................................................... 17 Figure 19: Fixed Broadband Sub-Basket, 2009 ................................................................................... 17 Figure 20: International Internet Bandwidth, 2008 ............................................................................ 17 Figure 21: Mobile Market Penetration, 2008 ..................................................................................... 17 List of Tables Table 1: Infrastructure Access in Cameroon ........................................................................................ 6 Table 2: Cost of Infrastructure Services in Cameroon ......................................................................... 6 Table 3: Fiscal Performance, 2009-10 ................................................................................................ 12 ABBREVIATIONS AND ACRONYMS ACE Africa Coast to Europe ANTIC Agence Nationale des Technologies de l’Information et de la Communication (national agency for information and communication) ART Agence de Régulation des Télécommunications (telecommunications regulatory agency) ASYCUDA Automatic System for Customs Data BEAC Banque des Etats d’Afrique Centrale (Central Bank of Central African States) CAMTEL Cameroon Telecommunication CAR Central African Republic CEMAC Economic and Monetary Community of Central Africa CFAF CFA Franc CIMENCAM Cimenteries du Cameroon (Cameroon’s cement company) COBAC Commission Bancaire de l’Afrique Centrale (Central Africa Banking Commission) CPI Consumer Price Index DSCE Document de Stratégie pour la Croissance et l’Emploi (Growth and Employment Strategy) GDP Gross Domestic Product GNI Gross National Income HIPC Heavily Indebted Poor Countries HHI Herfindahl-Hirschman Index ICT Information and Communication Technology IMF International Monetary Fund MDG Millennium Development Goals MDRI Multilateral Debt Relief Initiative MINPOSTEL Ministry of Posts and Telecommunications PPP Public Private Partnership SAT3 South Atlantic 3 SDR Special Drawing Rights SNH Société Nationale des Hydrocarbures (national oil company) SONARA Société Nationale de Raffinage (national refinery) SSA Sub-Saharan Africa WACS West Africa Cable System WASC West Africa Submarine Cable WiMAX Worldwide Interoperability for Microwave Access January 2011 l Issue No.1 Cameroon Economic Update TIME FOR THE LION TO WAKE UP? Introduction With this Cameroon Economic Update, the made in mobilizing greater non-oil revenues. In World Bank is launching a program of short, this regard, the recent successful issuance of crisp and more frequent country economic Cameroon’s first government bond to finance reports. These Economic Updates will analyze key infrastructure projects may be the harbinger the trends and constraints in Cameroon’s that the lion may be waking up. economic development. Each issue, produced The Cameroon Economic Updates are produced bi-annually, will provide an update of recent by the Poverty Reduction and Economic economic developments as well as a special Management Unit of the World Bank Country focus on a selected topical issue. Office in Cameroon by a team led by Raju Jan The Economic Updates aim to share knowledge Singh. The report’s special focus on the and stimulate debate among those interested in telecommunication sector was prepared by improving the economic management of Jerome Bezzina. The Team also included James Cameroon and unleashing its enormous Acworth, Simon Davies, Herminie Delanne, potential. The notes thereby offer another voice Amadou Nchare, Emeran Serge Menang Evouna, on economic issues in Cameroon, and an Menachem Katz, Faustin Koyassé, Peter Osei, additional platform for engagement, learning Gael Raballand, Rupa Ranganathan, Manievel and change. Seme, and Paula White. Mary Barton-Dock (Country Director for Cameroon) and Jan This first edition of the Cameroon Economic Walliser (Sector Manager) provided guidance Update is titled “Time for the Lion to Wake up? and advice, and have been an invaluable source – An Economic Update of Cameroon, with a of encouragement to the Team. special focus on telecoms�. This title reflects the country’s difficulties in translating its huge The Team also benefited greatly from economic potential into faster growth and consultations with Cameroon’s key policy poverty reduction. An unfavorable business makers and analysts, who provided important environment, particularly inappropriate insights, in particular the following institutions: infrastructure and weak governance, still holds the BEAC, the Ministry of Finance, the Ministry the country back. Despite the fiscal space of Economy and Planning, the Ministry of Posts provided by debt relief, budgetary resources and Telecommunications, ANTIC, ART and the remain constrained by the limited progress National Statistical Institute. January 2011 l Issue No.1 / Page 2 Cameroon Economic Update Background Cameroon is a linguistically and ethnically Indeed, poverty rates have not declined in diverse country whose geography ranges from recent years, notwithstanding the debt Sahelian semi-desert in the north through reductions obtained in 2006 under the HIPC and grassland to equatorial forest in the south. MDRI which have significantly improved the While this diversity favors varied economic and country’s debt sustainability and provided agricultural activities, in reality, 70 percent of additional fiscal space for focusing spending on the population depends on agriculture and poverty-reducing measures (Figure 2). Poverty pastoral activities for their livelihood. Cameroon rates in Cameroon virtually stagnated between has one of the highest proportions of land area 2001 and 2007 – at close to 40 percent. devoted to conservation in Africa, with some 14 Available data also illustrate large geographic percent of the country’s territory designated as and socio-economic disparities: while there was national parks, reserves, sanctuaries, and an improvement in poverty rates in urban areas, conservation concessions. the incidence of poverty in rural areas has increased. According to the latest household Cameroon is endowed with significant natural survey conducted in 2007, some 55 percent of resources, including oil, high value timber rural households are poor – compared with 12 species, and agricultural products (coffee, percent of urban households – and about 87 cotton, cocoa). Untapped resources include percent of the poor live in rural areas. natural gas, bauxite, diamonds, gold, iron, and cobalt. The Cameroonian economy is relatively On its current trajectory, Cameroon is not likely diversified, with services accounting for 44 to meet the Millennium Development Goals percent of 2009 GDP, agriculture and (MDGs), with the possible exception of universal manufacturing 19 percent each, and oil and primary education and gender equality. While mining 7 percent. primary education has improved, most key indicators relating to child health and nutrition, Nonetheless, economic growth has been lagging however, have worsened since 1990. The behind the average growth rate for sub-Saharan Northern regions are currently reporting countries (Figure 1). Poor infrastructure, an exceptionally high levels of child malnutrition unfavorable business environment, and weak and have experienced a recent cholera governance hamper economic activity and make epidemic. Nearly 70 percent of the urban it difficult to reach the growth rates needed to population, and all of the poorest urban reduce poverty in a sustainable manner. inhabitants, have limited access to public utilities or basic services. January 2011 l Issue No.1 / Page 3 Cameroon Economic Update Although Cameroon improved its ranking in the (including Cameroon’s) is the poorest in all of 2010 Doing Business Indicators, following the Africa. Despite major hydropower resources, simplification in the procedures for creating new Central Africa has the least developed power enterprises, the country’s business environment sector on the continent. At 4 kilometers per 100 remains difficult. On several key infrastructure square kilometers of land, paved road density is parameters, Central Africa’s infrastructure a fraction of already low levels in West Africa. Figure 1: Comparative Indicators and Economic Structure, 1980-2009 Figure 1. Cameroon: Comparative Indicators and Economic Structure, 1980-2009 Cameroon is one of the largest economies ... at the same time, the country has been in Africa ... relatively well diversified in recent years ... South Manufacturing, Africa 19.2 % Nigeria Services, Angola 44 % Construction & utilities, Ethiopia 4.7 % Kenya Oil & PPP valuation of country GDP, mining, Tanzania US$ billions, 2009 7.3% Cameroon Ghana Agriculture, Côte 18.9 % d'Ivoire Forestry & Equatorial livestock, Guinea 5.9 % 0 100 200 300 400 500 600 2009 GDP breakdown, percent of total ... and oil still plays an important role… … however its growth has lagged increasingly behind comparator countries. (End-2009) 100 100 1500 1500 Nonoil Per Capita GDP, 1980--2008 (2000 US $) Oil 80 80 1200 1200 Lower-middle-income 60 60 countries 900 900 40 40 20 20 600 600 Cameroon 0 0 GDP Government Export earnings 300 300 1988 1992 1996 2000 2004 2008 1980 1984 revenues Sources: Cameroonian authorities; IMF staf f estimates, and World Bank (WDI Indicators). January 2011 l Issue No.1 / Page 4 Cameroon Economic Update Figure 2: Fiscal and Poverty Developments, 1996-2009 The HIPC/MDRI initiative reduced public debt … allowing for an increase in public investments substantially in terms of GDP… 70 CFAF billions 60 700 600 50 500 40 400 30 300 20 200 10 100 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2004 2005 2006 2007 2008 2009 … but overall poverty has not fallen as a share of … and the gap between different regions has even population, increased. 70 Percentage Change in Poverty Rates 60 15 50 10 40 5 30 0 20 -5 -10 10 -15 0 1996 2001 2007 Cameron Urban Rural January 2011 l Issue No.1 / Page 5 Cameroon Economic Update Table 1: Infrastructure Access in Cameroon CEMAC SSA Benchmarks Indicator Units Cameroon LICs Resource Rich MICs Kms per 1,000 Classified road network density people 1.2 2.4 1.3 2.3 7.1 Classified road network in good condition % 36.0 32 35 29 48 MW per million Installed generation capacity people 12.6 16 20 43 799 Access to electricity % of population 46 30 33 46 50 Internet subscribers Per 100 people 3.8 2.8 5.7 11.8 8.9 Mobile telephone subscribers Per 100 people 32.3 28.9 25.6 37.4 57.3 Main telephone lines Per 100 people 1.0 0.7 0.8 0.8 4.8 Access to piped water % population 12.9 12 10.5 12 52.1 Access to flush toilet or septic tank % population 8.1 6 4.9 11.2 40.8 Sources: Africa Infrastructure Country Diagnostic; US Department of Energy; World Bank IC4D. Roads and ICT data for 2008; energy and water data for 2004/5; electricity access for 2001. Benchmarks are for latest year available in the period 2000/05. Table 2: Cost of Infrastructure Services in Cameroon Indicator Units Cameroon CEMAC SSA Other DC Power tariff rates US cents per Kwh 0.11 0.11-0.30 0.03-0.43 0.05-0.10 Container cargo handling charge US$ per TEU 220 120-320 100-320 80-150** Road freight tariff rates US$- per tonne km 0.13* 0.13 0.04-0.13 0.01-0.04 Monthly mobile basket US$ 14.4 13-18 2.6-21.0 9.9 Monthly Internet basket US$ 48 48-110 6.7-148.0 11 Sources: Banerjee et al. (2008); Eberhard et al. (2008); Minges et al. (2008); Teravaninthorn and Raballand 2008. Note: Ranges reflect prices in different countries and various consumption levels. Prices for telephony and Internet represent all developing regions, including Africa. * represents average for Central Africa; ** represents global best practice The two ports in Central Africa – Douala and due to cartelization and restrictive regulations in Pointe Noire – which serve as transshipment the trucking industry. In Cameroon, road hubs for the region lag significantly in transport tariffs are in the order of US$ 0.13 per performance well behind global port standards. ton-kilometer, compared with US$ 0.05 per ton- kilometer in southern Africa and well below US$ By global standards and when compared with 0.04 per ton-kilometer in much of the rest of the other parts of Africa, Central African consumers developing world. High freight charges, also pay exceptionally high rates for however, do not reflect high transport costs so infrastructure services. The monthly internet much as high trucking profits that can be traced basket in Cameroon is, for instance, four times to the lack of competition in the industry. higher than that in other developing countries. Infrastructure could contribute much more to Surface transport in Central Africa is the most economic growth in the future than it has in the expensive in Sub-Saharan Africa, in large part January 2011 l Issue No.1 / Page 6 Cameroon Economic Update past. Simulations suggest that if Central Africa’s croissance et l’emploi, DSCE). The principal infrastructure could be upgraded to the level of objectives of “Vision 2035� are to reduce the best performing country in Africa poverty to less than 10 percent, for the country (Mauritius), the impact on real per capita to become “a middle-income, industrialized economic growth would be in the order of 5 nation, and to consolidate democracy and percentage points of GDP. Improvements in national unity�. power can impact growth by around 2 The DSCE identifies weak productivity, a looming percentage points. Roads and telecom energy crisis, the adverse effects of the global infrastructure upgrades could contribute 1.5 financial crisis, food insecurity, stagnating percentage points each to growth. For poverty, and high unemployment as key Cameroon more specifically, the impact of challenges over the 2009-2019 period. It improved infrastructure on real per capita GDP envisions significant investment in infrastructure growth would be about 4½ percentage points to stimulate growth, notably in energy, roads, (Figure 3). port infrastructure, water supply, and Figure 3: Potential Contribution of Infrastructure Potential Contribution of Infrastructure information technology. Productivity increases (in percent of annual per capita GDP growth) 6 are sought in agriculture and livestock farming, 5 mining, key value chains (timber, information 4 3 and communication technology, tourism), and in 2 the business climate. It looks to strengthen 1 0 human development and create more robust Africa North West East Africa Southern Central Cameroon Africa Africa Africa Africa formal sector employment. The DSCE also places Source: Calderon (2009) important emphasis on regional integration and Against this background, Cameroon’s main on improving governance, including specific development challenges are to stimulate growth initiatives related to corruption, public and ensure its benefits are shared more procurement, business climate, and civic equitably among the different income groups in participation. order to reduce poverty sustainably. The As the country issued its first government bond Government’s development objectives are in December 2010, the question remains: will outlined in “Vision 2035� – an ambitious Cameroon’s new strategy have a more document that serves as the long-term anchor successful fate than past plans? Is it time for the for the country’s 2009 Growth and Employment lion to wake up? Strategy (Document de stratégie pour la January 2011 l Issue No.1 / Page 7 Cameroon Economic Update Recent Economic Developments Growth Cameroon has been hit by the global economic Figure 5: Contribution to Credit Growth by Sectors, 2010 (In percent) and financial crisis over the past two years, as reflected in steep declines in the price and demand for its export commodities including oil, timber, rubber, cotton and aluminum (Figure 4). Sectoral Contributions to GDP Growth, 2005-10 Figure 4: Sectoral Contribution to GDP Growth, (in (In percent) 2005-10percent) 5 4 3 2 Cameroon is a relatively small and mature oil 1 producer, where oil production is declining 0 -1 2005 2006 2007 2008 2009 2010 (Figure 6). Depleting reserves, aging equipment, -2 and – more recently – postponements of some Primary Secondary (excl. oil) Oil Sources: Cameroonian authorities development projects and investments because Tertiary GDP Growth and staff calculations of the financial crisis explain this profile. The contribution of this sector to GDP growth has However, following the upturn in the global been mostly negative in recent years: oil economy and measures taken by the authorities production is estimated to have contracted by a to stimulate domestic production, preliminary further 16 percent in 2010 (to 23.2 million indications suggest that economic activity is barrels). recovering. GDP growth in 2010 is estimated to Oil Production, Figure 6:Oil Production, 2002-102002-10, have reached 3 percent on the back of stronger (In million barrels) (in mio barrels) non-oil activities, which expanded by about 4 40 35 percent (particularly food crops, forestry, 30 construction, transport, and telecoms). Data on 25 20 private credit growth corroborate this 15 assessment (Figure 5). 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: SNH January 2011 l Issue No.1 / Page 8 Cameroon Economic Update Turning to non-oil activities, 2010 marks a Figure 7: Production of Selected Food Crops. 2005 – 10 Production of Selected Food Crops, 2005-10 (Index 2005=100) (Index 2005=100) rebound in the primary sector, with growth 180 160 projected at about 3¾ percent. The recovery is 140 led by strong growth in the timber sector, as 120 100 well as in food crops. Timber was the sector 80 2005 2006 2007 2008 2009 2010 most affected by the financial crisis. With the Rice Soya Sweet potato Maize Mil/sorgho Sources: Cameroonian authorities and staff calculations global economy recovering, demand is The non-oil secondary sector is estimated to increasing both in traditional markets in Europe have grown by about 3¾ percent in 2010, driven and North America, as well as the opening up of newer markets. Asian countries import mainly by a continued expansion in construction logs (around 25 percent of Cameroon’s timber activities and a rebound in food processing. Construction is expected to be stronger for the exports), while the EU imports mostly processed second year in a row with growth expected at 9 wood (about 55 percent). This pick-up in the percent. The slowdown in construction activities timber industry has translated into stronger in 2008, due to a shortage in the supply of activity in transport services, which are heavily cement has been reversed following reliant on logging. CIMENCAM’s (Cimenteries du Cameroun) The production of food crops such as rice, soya, creation of three additional production units. sweet potato, and sorghum has increased – Finally, services – the most important mainly a result of three factors (Figure 7): First, areas where these crops are produced have contributor to GDP growth in 2010 – have benefitted from a pick-up in timber-related experienced favorable weather conditions. transport and continued strong activities in Second, higher prices for food crops have encouraged farmers to expand production. For mobile telephony. Following a slowdown in instance, rice fields have been rehabilitated in 2008, the sector rebounded in 2009 registering a Yagoua, Lagdo, and Ndop. Finally, following the growth rate of about 3½ percent, with 2010 growth at about 4 percent. In mobile telephony, 2008 food and fuel riots, the government has greater use of fiber optic, promotional implemented a number of supply-side measures campaigns during the Soccer World Cup, and the to assist with the production of crops such as rice, corn, or potatoes. Increased efforts have roll-out of new products are expected to have been made to help farmers take advantage of led to a 14 percent increase in subscribers in business opportunities offered by sub-regional 2010 (Figure 8). markets and allow a greater involvement of the private sector. January 2011 l Issue No.1 / Page 9 Cameroon Economic Update Selected Price Indices, 2006-10 Figure 8: Number of Subscribers, 2008-10 Number of Subscribers, 2008-10 (12 month average) Figure 9: Selected Price Indices, 2006-10 20% 10,000,000 15% 8,000,000 10% 6,000,000 5% 0% 4,000,000 -5% 2,000,000 -10% Apr-07 Apr-08 Apr-09 Apr-10 Feb-07 Feb-08 Feb-09 Feb-10 Jun-07 Jun-08 Jun-09 Jun-10 Dec-06 Dec-07 Dec-08 Dec-09 Oct-07 Oct-08 Oct-09 Aug-07 Aug-08 Aug-09 0 2008 2009 2010 Sources: CAMTEL, Mainline Mobile Orange, MTN Total (Headline) CPI Food Price Index Fuel Price Index Sources: Cameroonian authorities and Staff calculations Inflation Fiscal performance Price pressures remain contained (Figure 9). Budgetary resources available for 2010 have Average inflation in the first semester of 2010 fallen short of expectations, despite reform amounted to 0.4 percent, down from 4.4 efforts. As a result, a presidential decree was percent observed over the same period in 2009. signed in September 2010 amending the 2010 This development is partly attributable to the Budget, mainly reducing the capital budget. policy measures to improve food supply carried out by the authorities. The stability of retail Cameroon’s non-oil revenue effort is relatively prices for petroleum products has also modest, even when compared with other oil- contributed to the containment of inflation. producing countries (Figure 10). While revenues Food and transport CPI components have collected at customs have experienced positive increased on average by 0.4 percent and 0.5 developments, the mobilization of non-oil percent, respectively, over the first semester of revenue in general has been disappointing 2010. By year-end, inflation is expected to pick (Figure 11). The tax effort is expected to have up on the back of higher food prices but still continued its downward trend in 2010 on the remain below the regional convergence criterion back of increasing tax expenditure and unpaid of 3.0 percent. taxes. January 2011 l Issue No.1 / Page 10 Cameroon Economic Update Non-Oil Revenue Mobilization Figure 10: Non-Oil Revenue Mobilization Figure Non-Oil Revenue, 2005-10 11: Non-Oil Revenue, 2005-10 (average 2007-9, in percent non -oil GDP) (average 2007-09, in percent of of non-oil GDP) (in percent of non-oil GDP) (In percent of non -oil GDP) 25 14.4 14.2 20 14 15 13.8 13.6 10 13.4 13.2 5 13 0 12.8 Gabon Angola Congo, Rep. Algeria Cameroon 2005 2006 2007 2008 2009 2010 Sources: Cameroonian authorities and staff calculations The first government bond issue was delayed to management strategy that will guide budget late in the year. Cameroon’s debt situation has execution and debt management for 2011 and substantially improved in recent years and the ensure sustainability of public debt. A National country is working toward accessing capital Debt Committee has been instituted. markets. The most recent joint IMF-World Bank Despite these efforts, the government signed an low-income country debt sustainability analysis agreement with three commercial banks carried out indicates that Cameroon’s risk of (Afriland First Bank, Société Générale du debt distress remains low, opening the Cameroun, and Citibank) only in October 2010 possibility for some limited non-concessional to prepare the issuance of the first government borrowing. bond. The subscription for the bond carrying a Against this background and in light of the 5.6 percent coupon and maturing from 2012 and country’s infrastructure deficiencies, Cameroon 2015 closed end-December and successfully has stepped up efforts to strengthen its debt mobilized the targeted CFAF 200 billion (about management framework with a view to issue 1.8 percent of GDP). The proceeds from this government debt to finance public investment. operation will help the government finance key The authorities have formulated a medium-term infrastructure projects. debt management strategy for central Against this backdrop, the overall fiscal balance government debt, which has been annexed to (including grants and before arrears payments) the 2010 budget law. They have also started is estimated to have deteriorated from a near producing their own debt sustainability balance in 2009 to a deficit of close to one analyses. As part of the 2011 Budget, the percent of GDP in 2010 on the back of lower oil authorities have elaborated a national debt revenue and higher capital expenditure (Tab. 3). January 2011 l Issue No.1 / Page 11 Cameroon Economic Update The government used its SDR allocation (CFAF In terms of composition, the recently-released 103 billion) to pay off its obligations to the final accounts for 2009 indicate that allocations SONARA, the national oil refinery, to to sectors identified as priority in the DSCE have compensate the company for its losses seen their weight in the budget regain some stemming from the government’s policy to ground (Figure 12). Their shares in the 2010 freeze retail prices of petroleum products. At budget remain, however, short of the objectives the same time, new payment obligations are, presented in the DSCE (Figure 13). Public however, reported to have accumulated. Hence, spending in the health sector, for instance, the overall fiscal balance (before arrears remains low by international standards: the payments) is expected to be lower than share of the health sector in total current budgeted, with delays in issuing government spending is estimated at about 8 percent, well bonds likely to have translated into fewer below the Abuja norm of 15 percent. It appears arrears being settled and substantial pressure that households bear the brunt of the financial on the remaining government deposits at the burden of health care, both in terms of out of BEAC. pocket and poor value for money. Fiscal Performance, 2009-10 Table 3: Fiscal Performance, 2009-10 (in CFAF Billions) 2009 2010 Est. LFR Jan.-Sept Proj. Revenue and Grants 1926 1932 1399 1936 Revenue 1839 1842 1346 1845 Oil revenue 507 407 340 461 Non-oil Revenue 1332 1435 1006 1384 Grants 87 90 53 91 Total Spending 1937 2151 1447 2044 Current Spending 1496 1552 1134 1545 Capital Spending 441 599 313 499 Overall Balance -11 -219 -48 -108 Arrears -17 -172 -153 -158 Overall Balance on a cash basis -28 -391 -201 -266 Sources: Cameroonian authorities, Staff's calculations Figure 12: Budget Allocations for Priority Sectors, Figure 13: Budget Allocations for Priority Sectors, 2010 Allocations for2005-09 Sectors, 2005-09 Priority Allocations for Priority Sectors, 2010 (in percent of the budget) (in percent of the budget) 50 30 25 40 20 30 15 20 10 5 10 0 0 Education, Training Health Rural Development Infrastucture 2005 2006 2007 2008 2009 and Research Education, Training, and Research Health Infrastructure DSCE 2010 Budget Sources: Cameroonian authorities and staff calculations Sources: Cameroonian authorities and staff calculations January 2011 l Issue No.1 / Page 12 Cameroon Economic Update Outlook for 2011 It is expected that most of the developments government bills and bonds in the amount of observed in 2010 will carry over into 2011. The CFAF 200 billion. economic recovery would continue with growth Figure 14: Budget Allocations for Priority Sectors, reaching about 4 percent. The main drivers Allocations for Priority Sectors, 2011 2011 (In percent of the budget) (in percent of the budget) would come from the non-oil economy 20 15 (expanding by about 4½ percent), while oil 10 activities would continue to decline (by about 11 5 0 percent). More particularly, growth in the Education, Health Rural Infrastucture Energy Training and Development Research secondary (excluding oil) and tertiary sectors is 2010 Budget 2011 Budget expected to remain strong. Sources: Cameroonian authorities and staff calculations Concerning the country’s fiscal position, the A continued high stock of unsettled payment 2011 Budget aims at returning to a near balance obligations will weigh on the execution of the (including grants and before arrears payment). 2011 budget. The reduced level of remaining This would imply an increase in the revenue government deposits at the BEAC – although effort, reversing the recent erosion in non-oil somewhat replenished by the proceeds of the mobilization. On the expenditure side, there government bond – will provide a limited buffer would be a substantial decrease in current to revenue shortfalls or delays in tapping capital spending with respect to the 2010 expected markets. Furthermore, with Presidential outcome, only partly offset by higher public elections approaching, pressure on spending investment. On the composition of expenditure, may become hard to resist. This implies that for health, rural development, infrastructure, and the coming year, the authorities should give energy see their weight in the budget increase, particular attention to (i) non-oil revenue while education loses ground (Figure 14). The mobilization, (ii) timely access to the capital settlement of payment arrears as well as debt market, and (iii) control on expenditure service will, however, require further issuance of commitments. January 2011 l Issue No.1 / Page 13 Cameroon Economic Update Telecoms sector telecommunication services, cross-border and international trade will continue to be very Simulations indicate that if the quality and prices costly and thereby negatively affect job creation for telecom services in Cameroon were to be opportunities as well as expansion of production brought to the level of Mauritius, real growth in of goods and services. GDP per capita would increase by 1.3 percent annually. One third of the gap between the The backbone infrastructure for information and country’s past economic performance (status communication technology (ICT) is still at an quo) and its aspirations (Vision 2035) would be early stage in Central Africa. Compared to other covered (Figure 15). The country’s reluctance to regional economic zones, CEMAC has the lowest adopt the needed reforms, notably those that access to internet and voice services in all of would allow greater competition, is Africa with Internet subscriptions standing at 2.8 unfortunately endangering those potential per 100 inhabitants. High tariffs may, in part, benefits. explain the low level of subscribers with the Figure 15: Real Per Capita GDP, 2009-35 price of a prepaid mobile basket at about US$ (In constant US $) 14, which is higher than in any other region. 3500 3000 2500 Relative to other parts of Africa, Central Africa 2000 1500 suffers from not being connected to any 1000 500 submarine fiber optic cable. At present, only 0 2009 2014 2019 2024 2029 2034 Angola, Cameroon and Gabon have direct access Scenario with Telecom reforms Scenario Statu Quo to the SAT3/WASC (South Atlantic 3/West Africa Scenario 2035 Vision Source: Staff calculations Submarine Cable) undersea fiber optic cable Regional Context which extends from Malaysia to South Africa The isolation and high cost structure of Central and then up the west Coast of Africa to Portugal African economies have held back the limited and Spain. The remaining coastal and landlocked availability of affordable telecommunications countries are completely bypassed and also lack infrastructure. Several Central African countries terrestrial fiber optic connections with the have started taking steps to reduce the cost of regional network which otherwise could enable domestic access through market liberalization some form of indirect access. and policy/regulatory reform. However, A number of cables are planned for the region, incomplete liberalization and lack of including Africa Coast to Europe (ACE) and the infrastructure has meant that the cost of West Africa Cable System (WACS), which would communication services remains high. Without provide direct access for most of the region’s access to affordable and high quality non-landlocked countries. Several additional January 2011 l Issue No.1 / Page 14 Cameroon Economic Update undersea cables are also planned, such that by Perspectives: The Central African Backbone the year 2012 Central Africa, in all likelihood, will (CAB) Project be served by several submarine cables. For The CAB network is a regional example: WACS, linking South Africa with the telecommunications network consisting of United Kingdom passing by the west coast of terrestrial fiber connections to submarine fiber Africa, and ACE, running from France to Gabon, optical cable systems which link several Central are both expected to be operational in 2011. African countries and provide the region with digital broadband access to the global fiber In order to benefit from those new projects, network. In addition to the installation of coastal countries must establish an international approximately 2,200 km of new fiber optic gateway to the submarine cable while infrastructure, the planned broadband backbone landlocked countries require fiber optic would leverage the already existing 1,000 km of connectivity with their coastal neighbors. Efforts fiber optic infrastructure laying along the oil in this regard are already underway. The first pipeline between Kribi (Cameroon) and Doba phase of the Central African Backbone Project (Chad). (CAB), involving Cameroon, the Central African Republic (CAR), and Chad, aims to improve The pre-feasibility study, which provided the connectivity between the three countries by basis for the design and framework for the CAB leveraging fiber optic cables laying along the project, determined that in order for the project Chad-Cameroon oil pipeline. to yield the expected economies of scale and cost efficiencies, the CAB network should be a The arrival of new submarine infrastructure is shared infrastructure promoting an open access expected to reduce consumer charges for regime owned and operated according to Public- internet and other international Private Partnership (PPP) principles. In May communications. It will provide access to a 2007, based on the findings of the study, the cheaper technology and increase competition in CEMAC heads-of-states issued a declaration the supply of that technology. However, while calling for the establishment of the CAB under access to the submarine cable is a necessary open-access and PPP principles. precondition for the reduction of prices for critical ICT services, it alone will not suffice: The CAB structure calls for the establishment of increased levels of competition and access to new regional telecom operator(s) for reselling competitive gateways are also needed. international, regional, and national capacity to existing national operators and service providers in the targeted countries at discounted rates in comparison to current pricing. As such, the CAB January 2011 l Issue No.1 / Page 15 Cameroon Economic Update network will increase competition for the Figure 16: ICT Development Index Countries Rank, 2008 ICT Developmet Index Countries Rank, 2008 provision of international and national capacity 160 in the form of new alternative infrastructure, 140 120 fiber optic backbone, and competition with 100 satellite and microwave connectivity. 80 60 The role of the government is to provide the 40 20 incentives for infrastructure and services to 0 reach areas otherwise unattractive to the Botswana Gabon Nigeria Gambia Congo Cote Ivoire Cameroon Source: ITU 2010 private sector if adopting a purely commercial Due to the strong monopolistic situation in the approach. The private sector is expected to fixed line market and the duopolistic situation in participate in financing and in installing, the mobile market, the market structure has maintaining and operating the CAB network. been practically static since 2005, as indicated Challenges and Opportunities in Cameroon by the evolution of the Herfindahl-Hirschman Index (HHI Index)3. Despite the expansion of mobile phone penetration, Cameroon’s telecom sector Evolution of Herfindahl-Hirschman Index in Figure 17: Evolution of Herfindahl-Hirschman Index Cameroon, 2005 - 09 in Cameroon, 2005-09 continues to face many legal, regulatory and 0.52 operational challenges the impact of which has 0.51 0.50 been to worsen the country’s ranking in the ITU 0.49 1 ICT Development Index (IDI) from rank 132 in 0.48 0.47 2007 to rank 138 in 2008 out of 159 countries2 0.46 (Figure 16). 0.45 2005 2006 2007 2008 2009 Source: Wireless Intelligence CAMTEL currently retains a monopoly over long- distance service and is the main provider of most international bandwidth. The company is 1 The ICT Development Index (IDI) is a composite the only fixed line operator in Cameroon created index made up of 11 indicators covering ICT access, use and skills. It has been constructed to measure the 3 level and evolution over time of ICT developments The Herfindahl-Hirschman Index or HHI, is a taking into consideration the situations in both measure of the size of firms in relation to the developed and developing countries. industry and an indicator of the degree of 2 In the case of Cameroon (like all 159 countries competition among them. It can range from 0 to 1.0, included in the index), it should be noted that the moving from a very large number of very small firms latest IDI results show that between 2007 and 2008, to a single monopolistic producer. Increases in the the country improved its scores, confirming the HHI generally indicate a decrease in competition and ongoing diffusion of ICTs and the overall transition to an increase of market power, whereas decreases a global information society. indicate the opposite. January 2011 l Issue No.1 / Page 16 Cameroon Economic Update (decree No. 98/198, September 8, 1998) and subscribers at year-end 2008. The mobile owned by the government of Cameroon, and operators also provide broadband Internet operating under the supervision of the Ministry services through WiMAX (Worldwide of Posts and Telecommunications (MINPOSTEL). Interoperability for Microwave Access), a CAMTEL benefits from a monopoly on landlines, protocol that provides fixed and fully mobile the intercity transmission infrastructure and the internet access. international gateway. CAMTEL is a SAT3/WASC As a result of this market structure, consumers Consortium member and controls the SAT3 in Cameroon face high prices for telecom access point in Cameroon, thereby wielding services (Figures 18 and 19). Mobile prices tremendous power over the market for measured by the cost of a mobile cellular sub- international bandwidth in the country. basket as a percent of GNI per capita are higher Only two private mobile operators, Orange and than in other countries with more mobile MTN, are currently operating in Cameroon, licenses (Kenya has four licenses, Nigeria nine, representing more than 96 percent of all Senegal three, Guinea and Ghana five each). Figure 18: Mobile Cellular Sub-Basket, 2009 Figure 19: Fixed Broadband Sub-Basket, 2009 Mobile Cellular Sub-Basket, 2009 Fixed Broadband Sub-Basket, 2009 (in percent of GNI per capita) (in percent of GNI per capita) 16.0 100 14.0 90 80 12.0 70 10.0 60 8.0 50 6.0 40 30 4.0 20 2.0 10 0.0 0 Cameroon Kenya Nigeria Senegal Guinea Ghana Cameroon Ghana Zambia Kenya Angola Cote Ivoire Senegal Source: ITU 2010 Source: ITU 2010 Figure 20: International Internet Bandwidth, 2008 Figure 21: Mobile Market Penetration, 2008 International Internet Bandwidth, 2008 Mobile Market Penetration, 2008 (Bit/s per Internet User) (in percent) 3500 100 90 3000 80 2500 70 60 2000 50 1500 40 30 1000 20 500 10 0 0 Cameroon Senegal Kenya Equatorial Rep. Cote Ivoire Gabon Gabon Senegal South Ghana Cote Rwanda Cameroon Guinea Congo Africa Ivoire Sources: Wireless Intelligence, December 2010, and staff calculations Source: ITU 2010 January 2011 l Issue No.1 / Page 17 Cameroon Economic Update The cost of international bandwidth is especially Within the frame of the preparation of the high – due to CAMTEL’s monopoly on access to second phase of the CAB Program which focuses the SAT3/WASC system. on the financing for the connectivity infrastructure of the CAB network (see above), The quality of telecom services is also at stake Cameroon is currently in discussions with Chad (Figures 20 and 21). International bandwidth and CAR regarding the establishment of a legal resources are scarce and penetration use is structure which will install and manage the CAB lower in Cameroon than its GDP per capita network in accordance with PPP principles and would suggest. In 2008, mobile teledensity in an open access regime. Cameroon (at 34.53 per 100 people) was below the performance of several Central African The expected benefits to Cameroon for adopting countries, such as the Republic of Congo (54.84), an open access regime under PPP to promote Equatorial Guinea (49.01), and Gabon (94.35). competitiveness and maximize the ICT potential so that the country can act as a regional hub From the legal and regulatory perspective, the could be the following: country has also been confronted with many issues including the need to (i) harmonize the  The award of a new mobile license to a private ICT institutional framework in order to provide operator should provide significant fiscal coherence in the operations of the regulatory revenues for the Government and put agency (ART), the national agency for considerable pressure on existing operators to information and communication technologies lower tariffs. (ANTIC), MINPOSTEL and all the other  The removal of any form of exclusivity like stakeholders in the sector, and (ii) overhaul the spinning off the SAT3 unit from CAMTEL and Telecommunications Act of July 1998 (98/014) in connecting to alternative submarine order to incorporate the tremendous changes international cable systems like ACE and WACS that have taken place in the sector and provide a would unleash the industry’s potential. forward-looking legal instrument that is comprehensive, stable and realistic pursuant to  The harmonization of regulatory policies which the industry can plan, build and develop. within CEMAC and even getting it to act as a On December 6, 2010, the parliament adopted a clearinghouse on telecoms regulation for new legal and regulatory package (Bill Central Africa just as the COBAC does for the Regulating the Electronic Communications in banking sector would provide the country with Cameroon) that is expected to be promulgated a leading role at the regional level and greatly shortly by the President. enhance the regional integration process. January 2011 l Issue No.1 / Page 18 Cameroon Economic Update  An active participation with the governments the financing needed for the implementation of CAR and Chad in the process to design a of CAB and the establishment of the special commonly agreed structure for CAB based on purpose vehicle to operate, maintain and PPP principles and open access would manage the designed network. facilitate and activate the process to mobilize January 2011 l Issue No.1 / Page 19 Cameroon Economic Update REFERENCES Calderón, C. 2009, “Infrastructure and Growth in Africa�, Policy Research Working Paper 4914, World Bank, Washington, D.C. Eberhard, A., V. Foster, C. Briceño-Garmendia, F. Ouedraogo, D. Camos, and M. Shkaratan. 2008. “Underpowered: The State of the Power Sector in Sub- Saharan Africa.� AICD Background Paper 6, Africa Region, World Bank, Washington, DC. Banerjee, S., Wodon, Q., Diallo, A., Pushak, T., Uddin, H., Tsimpo, C. and Foster, V. 2007, Access, Affordability, and Alternatives: Modern Infrastructure Services in Africa. AICD, Background Paper, World Bank, Washington, D.C. Teravaninthorn, S. and Raballand, G. 2008. Transport Prices and Costs in Africa: A Review of the Main International Corridors. AICD, Working Paper, World Bank, Washington, D.C. Minges, M., Briceño-Garmendia, C., Williams, M., Ampah, M., Camos, D. and Shkratan, M. 2008. Information and Communications Technology in Sub- Saharan Africa: A Sector Review. AICD, Background Paper, World Bank, Washington, D.C. http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTINFORMATIONANDCOM MUNICATIONANDTECHNOLOGIES/EXTIC4D/0,,menuPK:5870641~pagePK:6416 8427~piPK:64168435~theSitePK:5870636,00.html January 2011 l Issue No.1 / Page 20