Doing Business In Africa: Cameroon

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Written by Jeffrey Cavanaugh

Often referred to as “Africa in miniature,” Cameroon is a diverse country of roughly 22-million people situated on the Gulf of Guinea bordering Nigeria, Chad, Central African Republic, Congo, Gabon, and Equatorial Guinea.

Originally gobbled up by the Germans in the 1880s, France and Britain divided what was to become modern-day Cameroon after World War I. The country’s separate parts were not reunited until after independence in 1960 when the French-speaking Republic of Cameroun annexed its English-speaking counterpart in 1961.

For the next 20 years the country’s first president, Ahmadou Ahidjo, ruled with an autocratic, single-party political system that attempted to span the differences between free markets and central planning through an indigenous system of planned liberalism. While in some respects the scheme mirrored development plans in modernizing East Asia, the generally poor economic conditions of the 1970s, overreliance on state-run firms, and the increasingly corrupt and kleptocratic nature of Ahidjo’s rule led to the system’s collapse and Ahidjo’s ouster in 1982.

Under his successor and current president, Paul Biya, the country began political and economic reforms. With the assistance of the International Monetary Fund and the French government — a close ally of Biya — these reforms attempted to restructure the country along pro-democratic, neo-liberal lines.

Multi-party politics were introduced in 1990 and many state-owned enterprises were privatized as a result of this transition to a more liberal order, but corruption in economic and political spheres has greatly inhibited economic growth and more-or-less stopped democratization dead in its tracks.

Critics argue that the regime headed by Biya is democratic in name only, with sham elections periodically put on to justify his and his party’s continuing rule. Freedom House, the democracy activist group and think tank, categorizes Cameroon as not free due to its lack of political and civil rights. Other reputable outside observers note that the country is totally dominated by the president and his party, the Cameroon People’s Democratic Movement.

What’s more, the autocratic and corrupt nature of Ahidjo’s and Biya’s government are beginning to threaten the fragile nature of the Cameroonian state.

The French-speaking and a Christian, Biya has liberally salted French-speaking coreligionists into most economic and political institutions of importance in Cameroon, as is usually the case in such ethnically-divided crypto-democracies. This raises the specter of ethnic and sectarian violence if the demands aren’t met of excluded communities not benefiting from Biya’s rule. Further threatening stability, inequality and endemic corruption have led to the development of an increasingly militant labor movement which in 2008 led mass anti-government protests around the country.

Ease of Doing Business

According to the World Bank, Cameroon currently ranks 168th out of 183 countries on its Ease of Doing Business Index. The index is a measure created by the bank to gauge the degree to which commercial enterprises encounter regulatory hurdles, legal threats to property, and the time and money spent on things such as registering a business, ensuring right of title to property, and acquiring licenses. By way of comparison, the U.S. ranks fourth on ease of doing business, right after Singapore, Hong Kong, and New Zealand.

What does this ranking mean? Take, for instance, the bank’s measure of how easy it is to start a business, which is depicted in Figure 1 below. The bank defines business-creation costs as the time and money involved in a series of legal steps the entrepreneur must take to establish an in-country firm. Using this framework, the bank then tasks researchers to go through this process and establish in-country averages.

When this metric is applied to Cameroon, the bank finds that Cameroon ranks 131st out of 183 in ease of starting a business, making Cameroon one of the more difficult places on Earth to start a legal commercial enterprise. To start a business in Cameroon one has to complete six bureaucratic procedures that take a total of 19 days at a total cost of about $596, with a minimum capital requirement imposed by the government for the start-up of $2,244.

Figure 1:

How the World Bank Measures Ease of Starting a Business

          Fig 2 Ease of Business Graphic WB

Using similar metrics for other aspects of business operations, the bank has ranked Cameroon in a number of other areas. To obtain a construction permit, for instance, Cameroon is ranked 118th out of 183. It takes 14 procedures and an average 213 days at a cost of nearly $15,000 – around 12 times national income. Getting construction permits in Cameroon is a serious problem.

Continuing in its assessment, the World Bank has determined that for ease of obtaining and registering property, Cameroon ranks 149th out of 183 countries measured. Registering property in Cameroon requires completion of five bureaucratic procedures that take, on average, 93 days and cost 19.3-percent of the property’s financial value in fees and other costs to complete. This may not be insurmountable for foreigners, but it’s a steep price to pay for most Cameroonians and an indicator of just how hard it is to develop property in the country.

Cameroon does marginally better when it comes to obtaining credit. It ranks 138th out of 183. The bank examines the legal rights of creditors and borrowers in secured transactions and bankruptcy law as well as the strength of credit information bureaus and exchanges. When lenders have strong legal rights and easy access to a wide variety of information about the client’s creditworthiness, the more available credit will be. When information on borrowers is significantly lacking – as is the case in most of Africa – legal protections for creditors must in turn be very strong. Unfortunately, in Cameroon creditor rights are weak and there is scant coverage of the adult population by either public or private credit information bureaus.

Figure 2:

How the World Banks Conceptualizes Credit Acquisition

 Fig 1 Ease of Business Graphic WB

When it comes to protecting investors and minority shareholders, Cameroon improves. The country ranks 120th out of 183 countries. It got this score because Cameroon requires a moderate level of conflict-of-interest disclosure and is only a moderately difficult place to bring a shareholder lawsuit. Directors, however, are not held liable in most instances.

Cameroon does poorly in the area of taxation. The World Bank estimates that pleasing the tax man in Cameroon requires a total of 44 payments over the course of a year taking up to 654 hours to complete. This can consume up to 49.1-percent of a company’s profits. Accordingly, Cameroon’s tax burden is ranked 169th out of 183 nations.

When it comes to engaging in cross-border trade, Cameroon also does very poorly. Import goods into the country requires 12 documents for customs officials to inspect. On average, it takes 26 days to import goods into Cameroon at a cost of $1,978 (excluding tariffs) per container.

The cost to export goods is somewhat lower. Cameroon requires 11 documents to be inspected by customs officials costing (excluding tariffs) $1,379 per container. Delivery takes up to 23 days from point of origin. Compared to global averages this nets Cameroon a ranking of 155th out of 183 on ease of engaging in cross-border trade.

Cameroon is generally terrible place to do business when it comes to contract enforcement. It ranks 173rd out of 183 countries. On average, World Bank analysts report it takes a total of 43 legal procedures to take a contract from dispute to resolution. These can take 800 days, or 2.2 years, spent in court or otherwise attending to legal issues. The cost of pursuing a contract claim typically accounts for 46.6-percent of the value of the claim – clearly a huge deterrent to the legal enforcement of contracts.

Finally, in terms of closing or liquidating a business Cameroon ranks 141st out of 183 countries. It takes 3.2 years to close a business at a cost of 34-percent of the value of thed estate, for a recovery rate of 13.6 cents on the dollar.

Table 1 presents a summary of these rankings as well as Cameroon’s overall ease-of-doing business rating.  By these measures, Cameroon is a poor place to do business. It does best at granting construction contracts and protecting investors, but does miserably on most other measures. Clearly, more reforms of the country’s legal institutions, property and business law are needed.

Table 1:

World Bank Ease of Doing Business

Assessment and Rankings: Cameroon

Table 1 Cameroon Ease of Business

 

Prospects

Like much of Francophone Africa, it would seem Cameroon isn’t fulfilling its economic potential. Cameroon is an oil producer that regularly puts 100,000 barrels a day on the market. It has huge reserves of natural gas waiting to be tapped and brought to market. Bauxite – the precursor mineral to aluminum – is found in commercial quantities, as is cobalt, gold, iron ore, and various rare-Earth minerals. Cameroon’s forests provide a rich source of lumber for export while its fertile agricultural land produces cocoa, coffee, and cotton.

Cameroon should be a rich country. That it is not is largely due to a political and legal system that monopolizes resources and opportunities for its ruling elite. So far, the lack of interest this elite has had in allowing its own people to develop fully has been papered over by anti-colonial rhetoric meant for a domestic audience and oil revenues that have kept the state, and its elite afloat. The recent boom in global commodity prices and the unrelenting Chinese appetite for African natural resources has, for Cameroon’s rulers, been a godsend as the resulting high prices have kept the economy growing.

Figure 3:

 Cameroonian Economic Growth,

Percent Increase, 2003 – 2013

 Cameroon GDP Growth

 

This growth, however, is unimpressive by African standards. More liberal, business friendly and less-corrupt countries have been experiencing growth rates far in excess of Cameroon’s relatively anemic 2 percent-to-4-percent annual growth rate. In addition to the country’s ongoing misrule, or, rather, because of it, membership in the CFA franc currency union, with its vastly overvalued currency that mostly benefits elite consumers, hurts exports and creates an additional obstacle to sustainable, widespread growth across all sectors of the economy. Add in difficulties associated with maintaining fiscal discipline – problematic even in well-functioning democracies – and the need to invest in badly needed infrastructure, and Cameroon’s problems grow worse.

Still, not all is bad news in Cameroon. There are many areas of opportunity in the country for those looking to invest. In banking, for instance, the potential exists to bring mobile banking to Cameroon’s largely unbanked population.

The country’s diverse climatological and geographic regions offer well-heeled Western tourists a variety of places to explore. Infrastructure, too, holds potential. Upgrading roads, ports, and railways has become a top priority for the government.

Cameroon is much like the rest of Africa in that it holds opportunities and risks, problems and potential. Economically, the country’s rich natural resources are literally begging to be developed, but, as usual, vested political interests have gotten in the way of sharing the country’s riches more widely. If these vested interests can be overcome, Cameroon’s future could be very bright indeed.