Cameroon: A balanced economy
Cameroon has a relatively balanced economy, which grew by a healthy 4.2% in 2019. However, more needs to be done to turn the country into an attractive investment destination.
Cameroon has a relatively balanced economy by regional standards, with oil and gas production; timber, coffee and cocoa exports; mining potential; and a growing service sector.
Manufacturing and processing make a modest contribution to national wealth but the sector is more important in Cameroon than elsewhere in Central Africa. The new industrial zone at the port of Kribi should help to attract export-orientated businesses.
The country has the biggest economy in the Central African Economic and Monetary Community (CEMAC) region, accounting for 39% of the block’s money supply and 24.7% of intra-community trade. It could also benefit from the planned merger of the Cameroon and Gabon stock exchanges later this year. Inflation stood at 2.4% in 2019, below the CEMAC limit of 3%, and it remains one of the least aid-dependent countries in Sub-Saharan Africa.
The African Development Bank (AfDB) estimates that the economy grew by a reasonably strong 4.1% last year. Growth was driven by rising gas production; the completion of the new floating liquefied natural gas project (see below); and higher investment in construction, industry and housing. However, more effort needs to be put into developing the country’s agricultural potential without inflicting too much environmental damage.
That said, much more needs to be done to turn Cameroon into a more attractive investment destination. It ranked just 166th out of 190 economies in the World Bank’s Doing Business 2019 report and 152th out of 180 countries in Transparency International’s corruption perceptions index.
The World Bank says that the country’s “poverty reduction rate is lagging behind its population growth rate”, so the overall number of poor people is still increasing. The government’s Growth and Jobs Strategy Paper set a target of reducing the official poverty rate from 37.5% in 2014 to 28.7% this year, with workforce underemployment to decline from 76% to 50% over the same period.
The oil price plummets
Although Cameroon is not as oil-dependent as other countries in the region, such as Gabon, Congo-Brazzaville and Equatorial Guinea, oil and gas still make a big contribution to the economy.
According to the Ministry of Finance, oil revenue actually increased by 25.6% in the first nine months of 2019 to 431.7bn CFA francs ($0.71bn) in comparison with the same period in 2018, despite an 11.9% fall in international oil prices. This was achieved because of a big recovery in oil production. Although last year’s average production of 72,000 b/d was a lot lower than the 95,000 b/d achieved in 2015, it is about average for the first two decades of the new millennium.
However, like most oil producing countries, Cameroon is set to struggle with the massive drop in oil prices caused by the coronavirus crisis. In the short term, this is likely to result in much higher levels of borrowing and possibly external support from the IMF and others but will probably require spending cuts unless prices recover quickly.
Government finances have improved, as the fiscal deficit fell from 3.8% of GDP in 2017 to 2.3% in 2019, but the IMF says that Cameroon continues to have a high risk of debt distress. Debt as a proportion of GDP increased from 12% in 2007 to 39% in 2018.
An African first: Golar FLNG
Cameroon’s gas potential went unexploited for many years. A variety of projects were proposed to tap reserves either for domestic consumption or export projects but the size and distribution of the fields deterred development.
Much of the gas was scattered across different areas in relatively small volumes, which made it expensive to build the pipeline infrastructure needed to bring the gas onshore for domestic distribution or to an onshore liquefied natural gas (LNG) plant.
It is usually expensive and difficult to export natural gas over long distances by pipeline, so liquefying gas reduces its volume by a factor of 600, allowing it to be loaded onto ships called LNG carriers for transport around the world. As a result, LNG has become an increasingly important part of the global energy mix.
Although it generates high carbon emissions in comparison with renewable power generation technologies, such as wind, solar and geothermal energy, it produces about half of the greenhouse gas emissions of coal and oil-fired power plants and avoids much of the dangerous air pollution associated with coal plants.
Cameroon had 4.77 trn cubic feet (tcf) of natural gas at the latest estimate, close to the 5 tcf that is needed to justify the construction of a traditional LNG plant with a single production line, known in the industry as a train.
However, the fact that the gas is not concentrated in a single field made such a project impossible, although Victoria Oil and Gas has developed its Logbaba gas and condensate project to pipe some gas to industrial consumers in Douala, including for the production of compressed natural gas and liquefied petroleum gas for distribution around the country.
However, technological breakthroughs did turn Cameroon into an LNG exporter in 2018, when the Hilli Episeyo floating LNG (FLNG) vessel began production. While there was insufficient gas in the Sanaga South field to justify the construction of a large onshore plant, there was enough to supply an FLNG, which is a ship with on-board liquefaction facilities and the ability to store and offload the LNG on to waiting tankers.
It is the first FLNG vessel ever used in Africa, just the second to be deployed anywhere in the world and the first to be converted from a standard LNG carrier, showing the rest of Africa how stranded gas reserves can be developed.
At 300m long and with a gross tonnage of 120,000t, it is an enormous vessel. Total production capacity on the Golar LNG project is 1.2m tonnes of LNG a year. Only half of that is currently in use, although operator Perenco plans to drill more wells this year to increase supplies to the vessel. Most of the gas is sold to Asian countries, while the scheme also produces LPG and condensate for local customers.
A consortium of New Age, Lukoil and Bowleven are due to take the final investment decision on the Etinde project this year.
With reserves of 1 tcf, it was originally expected to be a predominantly gas project, with yet another FLNG lined up for use, and although the focus is now on condensates, FLNG is still a longer term option, possibly by piping the gas to the Hilli Episeyo.
However, New Age signed a preliminary agreement in February to supply gas from Etinde to Victoria Oil & Gas. Then, in early March, Bowleven awarded Technip FMC a front-end engineering and design (FEED) contract to carry out engineering work on the field, including the development of onshore gas processing infrastructure.
The chief executive of Bowleven, Eli Chahin, said: “The award of a lead FEED contractor is a significant milestone for the joint venture partners, as we look to make a final investment decision on Etinde in 2020. We are excited about our plans for the initial phase of the proposed development and look forward to working with Technip to finalise our development concept for the field over the coming months.”
Yet another option for Cameroonian gas would be piping it to the Equatoguinean island of Bioko. The government of Equatorial Guinea is keen to develop a gas hub on the island that could be fed by natural gas from across the Gulf of Guinea in general and Cameroon in particular for LNG and LPG production, power generation and other industrial uses.
Vitol signed a strategic partnership with the government in December to develop the hub but it remains to be seen whether regional rivalries will prevent the project from taking off.
Yaoundé could be reluctant to support industrial development in a neighbouring state that is generally regarded as a smaller regional power, although not in oil and gas sector terms.
Ports and mining
The focus on improving Cameroon’s infrastructure is currently on the port sector. Aside from supporting exports and easing imports, the provision of modern, deep-water port capacity could strengthen the country’s importance as a regional trade hub by increasing transhipment volumes. Transhipment involves cargo that is unloaded from one ship, to be taken out of the same port on another vessel without being removed from that port first.
Shipping lines are using increasingly large container vessels and the world’s biggest, which are used on services between East Asia, North America and Western Europe, now exceed a 20,000 TEU capacity. A TEU is a twenty-foot equivalent unit, or standard-sized container. As a result, many vessels once considered large, around 10,000 TEU, are being switched to services elsewhere in the world, such as those that include African ports.
Douala is Cameroon’s traditional main port but with a draught – or water depth – of just 8.5m, it is unable to serve such container ships. As a result, the government decided to add a container terminal to the country’s only deep-water port, Kribi, which was originally built to export oil from the Chad-Cameroon Oil Pipeline.
The new container terminal at Kribi has a draught of 16.1m, making it one of the deepest in Africa, and is now operated by a consortium of French firms, Bolloré and CMA CGM, plus China Harbour Engineering Company. The terminal handled a volume of 165,000 TEU in its first year of operation.
The existing container terminal at Douala was managed by two big international port operators, APM Terminals and Bolloré, but their concession expired at the end of 2019. A tender to select a long-term replacement was launched in January 2018 and won by Terminal Investment Limited, an offshoot of Swiss firm MSC, but Bolloré challenged the ruling, so a Cameroonian company, Régie du Terminal à Conteneur, is now operating it as an interim measure.
In August 2019, the government announced plans for the development of a second container terminal at Douala but it remains to be seen whether dredging could allow access for larger vessels than the existing facility.
Aside from enabling general trade, Cameroon’s ports will be vital in enabling mining projects. Australia’s Canyon Resources plans to export bauxite from its Minim Martap scheme in Adamawa Region via Douala in the first instance, switching to Kribi once rail access is provided.
Cameroon could provide some competition to Guinea, which currently accounts for over half of all seaborne bauxite trade. The mineral is the main raw ingredient in aluminium production.
In November, Canyon increased its estimate of the scale of the Minim Martap deposit from 550m tonnes to 900m tonnes and the project pre-feasibility study is now underway. The deposit lies close to the existing Camrail railway, which gives access to the Edéa aluminium plant and Douala.
However, talks on building a 130km rail link from the current line to Kribi have begun. The government wants it to be a multi-user railway, which would avoid Canyon from having to finance the scheme and also encourage the development of other mining projects, including the nearby Ngaoundal bauxite deposit, for which Canyon also holds a mining permit.
A separate 510km railway will be needed to develop the Mbalam-Nabeda iron ore reserves, close to the border with Congo-Brazzaville at the other end of the country. Another Australian company, Sundance Resources, holds the exploration permit and had been instructed by the government of Cameroon to find a partner to develop Mbalam-Nabeda and the associated railway by the end of this year.
Sundance has agreed to sell a majority stake to yet another Australian company, AustSino, which will now develop the project and the two companies have been given until the end of June to reach a binding agreement on the deal. Project development costs were estimated at $4.7bn in 2013, partly because of the length of new railway required, but this figure must now be substantially higher. However, production of 40m tonnes/year would make it the biggest project ever developed in Cameroon.
Read more from our special report on Cameroon
Cameroon: The beating heart of Africa
Cameroon: All Africa in one country
This report was supported by Stratline Communications and Invest Cameroon. The editorial was commissioned separately and produced independently.