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Cameroon’s multi-pronged strategy to beat Covid-induced slump

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Cameroon’s multi-pronged strategy to beat Covid-induced slump

To counter the economic downturn caused by the Covid-19 pandemic, the government of Cameroon has announced measures to get the economy back on its feet. Neil Ford examines the plans and looks at measures taken to mitigate the loss of income for farmers. 

As elsewhere in the world, in Cameroon the Covid-19 crisis and associated lockdown have had a huge impact on government finances and unemployment, particularly in the informal sector. In order to counter the downturn, Yaoundé has announced plans to get the economy back on its feet: both in the short term through financial support for businesses, and longer term by strengthening trade with the rest of the world.

The consumption of most commodities fell sharply in the second quarter of this year, so demand for Cameroon’s main three exports – cocoa, oil and timber – has been greatly depressed. Research carried out by Cameroon’s National Institute of Statistics in Douala and Yaoundé concluded that the construction, hotel, catering, forestry and education sectors had been hardest hit, with about half of all people losing their jobs, particularly those freelance, part-time and employed by small companies or in the informal sector.

Governments around the world have adopted different strategies to ensure that their economies rebound as quickly as possible. Yaoundé has introduced VAT credits to support struggling businesses and suspended many business levies.

However, it has been far harder to reach the rural poor and those in the informal sector, who together make up the vast majority of the population. Indeed, the informal sector is estimated to be about the same size as the formal economy, with some sources claiming that up to 90% of Cameroonians are employed in the sector.

Import substitution

Plans for an import substitution programme have been drawn up by the Ministry of Finance to boost local businesses in the immediate future and strengthen the economy in the longer term.

The closure of borders across West and Central Africa has prevented a great deal of cross-border trade in foodstuffs and agricultural commodities, forcing Cameroon to become more self-sufficient. For instance, the government is keen to turn more of the country’s large tomato crop into tomato purée, either for domestic consumption, or, longer term, for export.

In order to reduce the national import bill and create more employment, the ministry wants to promote the consumption of goods and services produced within the country.

It has set a goal of cutting the trade deficit from 8.8% of GDP in 2018 to 3% by 2030. The Minister of Finance, Louis Paul Motaze, said: “Given the decline in government revenues, the state’s economic and financial outlook for the 2021-2023 period is mainly based on the ‘import substitution’ approach through the reduction or gradual abolition of exemptions on some products that are weighing on the trade balance, to encourage local production on a larger scale.”

The government has announced plans to create 100,000 new jobs over the next five years, including by promoting local procurement of goods and services. This is to be achieved by requiring certain projects to spend 70-80% of their budgets on locally produced raw materials and workers, although presumably, equipment and parts will be excluded from consideration where they are not manufactured within Cameroon. 

As well as promoting domestic consumption, the government has decided to encourage exports by creating an export promotion agency to take advantage of the African Continental Free Trade Agreement (AfCFTA). The agency has been planned since the turn of the millennium but not yet created.

The Minister of Trade, Luc Magloire Mbarga Atangana said: “It is imperative to revive the major cocoa, coffee, banana, cashew nut, pepper, etc export channels. The quantities are small so, let us set a special plan…based on the sacrosanct principle of economic patriotism.”

EU tariffs being dropped

The government is continuing to reduce its customs duties as part of a trade agreement with the European Union (EU), a process that began when its Economic Partnership Agreement (EPA) with Brussels began in 2016.

Tariffs are gradually being eroded each year up to 2029 to aid trade between Cameroon and the EU. This should benefit both sides but such arrangements always carry the risk that the larger economic power will benefit most. Tariffs are being reduced in different groups in stages, starting with seeds and fertilisers in 2016, and most recently, moving on to motor vehicles and fuels.

Cameroon may not produce anywhere near as much oil as neighbouring Equatorial Guinea, Gabon or Congo-Brazzaville but its position as the pre-eminent trading nation in Central Africa was strengthened in July when the International Chamber of Commerce (ICC) opened its regional headquarters in the country’s economic capital, Douala.

The ICC is greatly increasing its presence in Africa and has become involved in trying to make the African Continental Free Trade Area a reality. 

Yaoundé secures AfDB support

Cameroon is not having to cope with the financial impact of the coronavirus crisis entirely on its own. The African Development Bank (AfDB) has provided a €88m loan to the government to support its Covid-19 Crisis Response Budget Support Programme (PABRC).

The money has been supplied by the AfDB’s Covid-19 Rapid Response Facility, which is a $10bn fund designed to help African governments minimise the impact on their economies.

Yaoundé has set up the PABRC to achieve two goals: to stem the spread of the virus while also cushioning the economic impact. The government is particularly keen to increase the number of tests carried out, as early detection has been shown to be one of the best methods of reducing the number of infections.

Some of the money is also being used to pay family allowances to the employees of companies that are unable to pay social security contributions.

The AfDB acting director-general and the country manager for Cameroon, Solomane Kone, noted: “Women play a key role in the fight against the spread of Covid-19 as wives, mothers, caregivers and community resource persons. The social protection and economic resilience actions under this support will particularly target women and the households and businesses headed by them.”

Support for farmers

In common with most other African states, the Cameroonian agricultural sector has been badly affected by the impact of the coronavirus crisis.

The closure of international borders across the West and Central Africa region has prevented the country from exporting food to neighbouring states. This has hit producers hard but greatly reduced food prices within Cameroon, providing some benefit for consumers at a time when many have lost their incomes because of lockdown restrictions.

The price of many basic foodstuffs fell by 50-70% in the second quarter of this year. Distribution firms that previously exported food to wholesalers in neighbouring countries, plus restaurants and hotels in Cameroon, switched their business models to selling food directly to local people within Cameroon.

Minister of Finance Louis Paul Motazé has announced financial support for farmers in the form of subsidies and tax breaks, while consumer taxes have already been lifted on basic foodstuffs.

Greatly restricted trade across the region means that it is more difficult to ensure that the food that is produced reaches those who need it. Shortages in parts of the country can often be satisfied by surpluses elsewhere, but restrictions on cross-border haulage and the movement of people have created supply and demand problems that are exacerbated by the severe financial problems experienced by people across Cameroon.

Production of foodstuffs has been hit

There have been calls for the government to intervene to force banks and other lending institutions to renegotiate the terms of loans for farmers. Aside from the fact that a huge rise in the proportion of non-performing loans would destabilise the entire banking sector, there have been reports of farmers committing suicide over their inability to repay loans because they have been cut off from their main markets.

Producers of foodstuffs in which Cameroon is a net exporter, such as tomatoes, have been particularly badly hit. The government has proposed providing direct support to the estimated 330,000 tomato producers in the form of subsidised or possibly even free seeds and fertilisers, plus financial support to bring mothballed processing plants, including for the production of tomato purée – otherwise known as tomato paste – back into operation.

Rapid growth for coffee

In better news for farmers, coffee production and processing volumes have increased markedly over the past year. The country produced 7,418 tons of arabica and 27,797 tons of robusta coffee in the 2018-19 season, up a massive 39.1% on the previous year. According to the National Coffee and Cocoa Board of Cameroon (NCCB), there are now 104 coffee-processing plants in operation around the country.

In addition to increasing total output, some effort is being put into improving the quality of Cameroonian coffee. The ‘Taste the Harvest’ competition was launched at the start of this year, with each region invited to submit an entry to be judged against each other.

North-Western region won the 2020 prize for its entry produced in Belo in the Boyo département. The industry has traditionally been concentrated in the Western, North-Western and Littoral regions of Cameroon but it has expanded rapidly in the Eastern region over the past few years. 

Read more about Cameroon

Cameroon: the beating heart of Africa

Cameroon: A balanced economy

Cameroon: All Africa in one country

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