CAMEROON ONE YEAR AFTER COMPLETION POINT

UNCLAS SECTION 01 OF 03 YAOUNDE 000599 SIPDIS SIPDIS SENSITIVE DEPT FOR AF/C, EB/IFD/OMA DEPT PLEASE PASS TO USTDA FOR PIERCE DAVIS EUCOM FOR J5-A AFRICA DIVISION AND POLAD YATES PARIS AND LONDON FOR AFRICA ACTION OFFICERS E.O. 12958: N/A TAGS: ECON EFIN ETRD EAID ENRG CM SUBJECT: CAMEROON ONE YEAR AFTER COMPLETION POINT Ref A Yaounde 132 Ref B Yaounde 372 Ref C Yaounde 511 Ref D Yaounde 442 YAOUNDE 00000599 001.2 OF 003 Marked paragraphs are sensitive but unclassified (SBU). Not for distribution outside the USG. ¶1. (SBU) Summary. April 28 marked the first anniversary of Cameroon's approval for debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative, which triggered an estimated $2.65 billion in debt relief between 2006 and 2015. While the Government of Cameroon (GRC) has undertaken some important steps, the overall balance is largely one of half-measures and as-yet unrealized potential. End summary. -------------- Completion Point: Financial Fallout -------------- ¶2. (U) According to the IMF, the forgiveness of USD 1.267 billion in debt (1999 terms) under the HIPC process reduced Cameroon's future debt service payments by about $4.9 billion in nominal terms. ¶3. (U) For the first time in many years, the Government of the Republic of Cameroon (GRC) is unquestionably in a financial position to implement its ambitious program to reduce poverty and generate economic growth. Cameroon's three-year economic program (Poverty Reduction and Growth Facility or PRGF),a HIPC-related conditionality, expires in June ¶2008. The GRC is currently in the planning stage for the next Poverty Reduction Strategy Paper (PRSP) which will focus on fighting poverty through economic growth. ¶4. (U) The most visible component of bilateral debt relief is the five-year Debt Cancellation and Development contract signed in June 2006 with the French Cooperation Agency (C2D) to direct $704 million to finance poverty reduction projects in five sectors: 1) health, and AIDS control, 2) basic education, 3) infrastructure, 4) agricultural development and food security and 5) environment. The impact of the C2D projects is already visible through a number of high profile infrastructure projects in Douala and Yaounde. ¶5. (U) To respond to public impatience to reap the benefits of debt forgiveness and to ease the burden of inflation, the GRC in September 2006 reduced taxes levied on certain imported staple commodities like rice, sugar, and fish. Also, the GRC reduced the charges consumers need to pay in order to connect to the water and power networks, contributing to improved living conditions through higher purchasing power. -------------- The Social Dividend -------------- ¶6. (U) The benefits of debt forgiveness are intended to boost pro-poor and pro-growth spending. Cameroon's FY07 budget (Refs A and B) includes significant increases to ministries providing critical social services; four of the five largest line items are for secondary education (up 12% to $333 million),public works (up 83% to $266 million),basic education (up 38% to $242 million) and health (up 60% to $210 million). The GRC has also announced it will add 13,300 new teachers at the elementary education level through regularized temporary contracts. In addition, the health sector will benefit from the recruitment of an addition 1,500 new personnel. -------------- YAOUNDE 00000599 002.2 OF 003 Macroeconomic and Private Sector Developments -------------- ¶7. (U) In line with President Biya's public promises to energize Cameroon's economy, the next PRSP will focus on the private sector as an engine of economic growth and poverty reduction. Prime Minister Inoni and Minister of Economy and Finance Polycarpe Abah Abah have undertaken initiatives to engage the private sector in plans to reduce the barriers and increase the stimulus for economic growth. These overlapping, and perhaps competing fora have yet to produce concrete results, but the Prime Minister has promised action to implement the recommendations that sub- sector working groups are supposed to submit to him later this year. ¶8. (U) Many are hopeful that the Douala Stock Exchange will play an important role in generating capital to involve local entities in a number of the privatization processes begun during the campaign for completion point and since stalled in the bureaucracy. To date only the shares of the Cameroon Mineral Water Corporation held by the National Investment Corporation (SNI) have been traded at the Douala financial market. ¶9. (U) The fate of national telecom provider CAMTEL is still unclear and made murkier by a number of agreements signed between the parastatal and multinational firms that would appear to contradict pledges that it will no longer draw on the public treasury. A technical partnership agreement with China's Huawei Company, for example, deployed CDMA (Code Division Multiple Access) technology to build a new QCT PhoneQ network to compete with other mobile operators, boosting the number of subscribers and perhaps making CAMTEL more attractive for potential buyers. Also, the availability of the INMARSAT undersea cable at the Douala port, in conjunction with the optical fiber laid along the Chad-Cameroon pipeline will provide develop Cameroon telecommunication infrastructure. ¶10. (U) The privatization of CAMAIR, also a completion point conditionality, will be re-launched after the April 4 announcement (Ref C) that an earlier tender process was Qunfruitful.Q National postal agency Campost, also tapped for reform by the IMF and World Bank, entered into a financial services agreement with the Canadian company Tecsult. The Inter-communal Investment Fund (FEICOM) which has been a locus of embezzlement in the past, has been restructured to focus on its core activity of lending to municipalities to finance infrastructure investments. Cocoa parastatal agency Sodecao activities received financial support to renew the aging nurseries and better seedlings that will be more disease resistant. ¶11. (U) The GRC has elaborated a long-term development plan to boost energy supply to about 10,000 megawatts to cater for the demands of a growing population and economic development. That plan hinges on a number of projects including: - The project to construct a new hydro-power plant at Nachtigal on River Sanaga - The construction of a thermal power station at Kribi with a capacity of 150 megawatts; - The project to build the Lom Pangar storage dams, the feasibility studies of which are underway; - The project to build the Memve'ele dam (The UK's Globeleq and China's Sinohydro have been short-listed to win this project). YAOUNDE 00000599 003.2 OF 003 -------------- On the Political Front -------------- ¶12. (U) The last 12 months have witnessed some important political developments, many of them linked to Cameroon's effort to attain completion point. During the June 2006 Parliamentary sessions, the deputies adopted landmark laws relating to the elections of senators and regional councilors as well as the declaration of assets and personal property in an effort to introduce greater transparency in public management, but the President has not yet issued the decrees needed to implement these laws. ¶13. (U) In an added effort to combat corruption, President Biya on March 11, 2007 appointed the twelve members of the National Anti-corruption commission (Ref D),but this body is not yet operational and its mandate remains undefined. A new criminal procedure code, generally lauded for successfully integrating the contradictory legal systems in the French and Anglophone regions, entered into force on January 1, 2007, but is still not fully implemented. -------------- Comment: Great Promise, Slow Delivery -------------- ¶14. (SBU) The tremendous resources freed by debt forgiveness have empowered Cameroon to undertake massive pro-poor investments. Broad initiatives have been launched in health, education and infrastructure. The HIPC process succeeded in relieving Cameroon's crushing debt burden and shifting the onus for financing development to the government. The ultimate test for the debt relief process, however, is the success in delivering concrete improvements on the ground. It is still too early to make the call in Cameroon's case, but pervasive problems of bad governance, weak political will and rampant corruption have thus far impeded more rapid progress. End Comment. MARQUARDT