CAMEROON: BANKERS' VIEWS ON FINANCIAL CRISIS

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