Identifier
Created
Classification
Origin
08YAOUNDE1107
2008-11-10 15:50:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Yaounde
Cable title:  

CAMEROON: BANKERS' VIEWS ON FINANCIAL CRISIS

Tags:  EFIN ECON EINV ETRD CM 
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UNCLAS SECTION 01 OF 02 YAOUNDE 001107 

C O R R E C T E D C O P Y (TEXT PARA
UNCLAS SECTION 01 OF 02 YAOUNDE 001107

C O R R E C T E D C O P Y (TEXT PARA 1)

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EFIN ECON EINV ETRD CM
SUBJECT: CAMEROON: BANKERS' VIEWS ON FINANCIAL CRISIS

YAOUNDE 00001107 001.2 OF 002



1. (U) Summary: The global financial crisis has not significantly
affected Cameroon and the country will likely remain relatively
insulated in the short term. However, Cameroon's economy is heavily
exposed to international commodity prices in everything from oil to
cocoa and cobalt. Local financial contacts are concerned that
foreign investment and aid flows may be hurt over time. Given
Cameroon's sluggish growth (averaging 3 percent over the past few
years),the Government of Cameroon will be doubly pressed to foster
much needed growth (in incomes and jobs) in what could be more lean
years to come. End summary.

Economy Insulated in Short Term
--------------


2. (U) Cameroon's economy is reasonably well placed to withstand
the global financial crisis in the short term. GDP growth has
averaged 3 percent over the past three years, with higher public
investment and growth in construction and agriculture resulting in a
projected jump to 4.5% growth in 2008. Cameroon's balance of
payments are in a slight surplus, its level of debt is low (as a
result of significant debt forgiveness in 2006),and inflation is in
the single digits. Cameroon has a relatively low level of foreign
aid dependency and exports are predicted to account for less than
one percent of real GDP growth in 2007.


3. (U) In an October 21 statement to the press, the Yaounde-based
Governor of the Central Bank of Central Africa member states (BEAC),
Philibert Andzembe, predicted that economic growth in the Economic
and Monetary Community of Central Africa (CEMAC) would remain strong
despite the global financial turmoil and likely downturn in the
price of oil and other exports important to the region's economies.
Nevertheless, on October 21 BEAC's Monetary Policy committee
announced that it would lower interest rates in the CEMAC region
from 3.5 to 2.65 percent, and BEAC revised downward its growth
prediction for 2008, from 5.3 to 5 percent.


4. (U) Antoine Nkodia, Senior Economist and Director of Research
at BEAC told Emboff that Cameroon's banking system was largely
insulated from the turmoil in the American financial system and said

most Cameroonians banks were stronger since the sector was
restructured in the early 1990s. Nkodia opined that CEMAC economies
were well-positioned to deal with the crisis in the short term since
treasuries are still fat with higher-than-expected reserves in BEAC
and spending remained reasonable (largely because only Congo
Brazzaville has election-driven pressures to boost public spending).
The region will be further cushioned by excess liquidity (anywhere
from $1 to $3 billion) driven by oil receipts, especially from
Equatorial Guinea and Chad.

But Longer Term Concerns
--------------


5. (U) Foreign banking contacts believe that Cameroon cannot
escape the consequences of the global financial crisis in the medium
term. A global economic downturn or sluggish growth in Europe
(which accounts for 60 percent of Cameroon's trade) will have a
tangible impact on Cameroon's economy, which is heavily dependent on
primary exports like oil, cocoa, timber, coffee, rubber, and
cotton.


6. (U) The tightening of global credit markets threatens to dry up
funding for some of the large private development projects, like the
construction of a deep water port at Kribi, the expansion of power
production, and the inauguration of industrial mining projects in
cobalt, bauxite, iron ore and uranium. Foreign banking contacts in
Cameroon point out that support from their home offices may reduce,
making it harder to get financing for local projects, especially
given the risks and difficulty in doing business in Cameroon.


7. (SBU) Financial contacts here also believe the economic
downturn in developed economies portends a tightening of official
development assistance. The Secretary General of Cameroon's main
business chamber, GICAM, told Pol/Econ Chief that Cameroon may feel
a serious impact by June, 2009, with drops in foreign investment,
commodity prices and aid levels. The local World Bank ResRep
recently commented to Emboffs that donor funding to Cameroon may
reduce because of the financial crisis, especially given the
difficulty of implementing projects.

Comment
--------------


8. (SBU) The global financial crisis will likely hurt Cameroon
over the longer term, perhaps most significantly in its potential
negative impact on direct foreign investment. Cameroon's reputation
as a difficult place to do business has been a handicap for
attracting foreign investment in better global economic times. Even
before the crisis, Cameroon's growth has been below average for
African economies, with government policies focused on macroeconomic

YAOUNDE 00001107 002.2 OF 002


stabilization rather than on growth.


9. (SBU) Lower oil prices, buoyant government revenues, and a
highly liquid banking sector will help mitigate the impact of the
current global crisis on the average Cameroonian pocketbook.
Nonetheless, there is a high level of poverty, unemployment, and
discontent which, when compounded by world-wide economic troubles,
could contribute to future social or political instability. Global
food and oil price increases helped spark nationwide riots in
February; the socio-political impact here of future global economic
trends warrants careful monitoring.

GARVEY