2016 Cameroon Country Economic Memorandum Markets, Government, and Growth Report No: 110907-CM CAMEROON Country Economic Memorandum Markets, Government, and Growth December 2016 Macroeconomic and Fiscal Management Global Practice Africa Region Exchange rate as of June 30, 2016 US$1 = 590 CFAF FISCAL YEAR January 1–December 31 Data used in this report are as of June 30, 2016 ABBREVIATIONS CAMTEL Cameroon Telecommunications CBF Cameroon Business Forum CEMAC Central African Economic and Monetary Community CET common external tariff CTPL Commission Technique de Privatisation et de Liquidation CTR Technical Commission for Rehabilitation DSF tax return data (déclaration statistiques fiscales) ENEO Cameroon Electricity Company EU European Union FDI foreign direct investment GDP gross domestic product GESP Growth and Employment Strategic Paper, 2010–2020 ICT information and communication technologies IMF International Monetary Fund INS National Institute of Statistics (Institut National de la Statistique) ISSEA Sub-Regional Institute of Statistics and Applied Economics MINEPIA Ministry of Livestock, Fishing, and Animal Industry MINFI Ministry of Finance OECD Organisation for Economic Co-operation and Development PPP public-private partnership PSI preshipment inspection agency RGE General Census of Firms (Recensement General des Entreprises) SME small and medium enterprises SOE state-owned enterprise TFP total factor productivity WBES World Bank Enterprise Survey WEF Word Economic Forum WTO World Trade Organization iii Contents ABBREVIATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Chapter 1: Constraints to Growth in Cameroon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1  The Determinants of Productivity in Cameroon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2  The Saving-Investment Nexus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.3  Allocative Inefficiencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Chapter 2: Constraints to Competitiveness in Cameroon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.1  Limited Local Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.2  Limited Regional Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.3  Limited Global Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Chapter 3: The Role of the State in Constraints to Growth and Competitiveness . . . . . . . . . . . . . . . . . . . 18 3.1  Poorly Playing Its Role of Economic Regulator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 3.2  Poorly Playing Its Role of Economic Promoter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.3  Too Heavily Involved as Economic Actor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Chapter 4: Policy Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 4.1  Promoting Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 4.2  Fostering Competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 4.3  Revamping the Role of the State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 BIBLIOGRAPHY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ANNEX: Selected Manufacturing Products Using the Product-Space Analysis . . . . . . . . . . . . . . . . . . . . . 33 v vi Cameroon Country Economic Memorandum LIST OF FIGURES Figure 1: Reaching Upper-Middle-Income Status in 20 Years Is Daunting . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 2: Unit Labor Cost 2008–2009 or Latest Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Figure 3: Average Wage 2008–2009 or Latest Available (2013 US$ per Worker) . . . . . . . . . . . . . . . . . . . 3 Figure 4: Labor Productivity 2008–2009 or Latest Available (2013 US$ per Worker) . . . . . . . . . . . . . . . 4 Figure 5: Resource Misallocation in Cameroon vis-à-vis Other Countries . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 6: Taxing the Good and Coddling the Bad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 7: The Baseline Estimates Appear to Be a Lower Bound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 8: The Potential Productivity Gains Differ across Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 9: Competition Intensity and the Extent of Market Dominance (2014–2015) . . . . . . . . . . . . . . . . 10 Figure 10: Number of Firms in Each Sector or Subsector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 11: Manufacturing Firms by Market Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 12: Market Concentration in Selected Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Figure 13: Sugar, White (1 kg) (Supermarket) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Figure 14: Average Retail Rice Prices in Cameroon, Chad, and Nigeria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Figure 15: Intensive vs. Extensive Export Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Figure 16: Survival Rates of Export Relationships (1990–2015) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Figure 17: Quality of Electricity Supply and Cost of Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Figure 18: Mobile Phone and Internet Access in Cameroon (2013) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Figure 19: Costs of Fixed Telephony across Selected Countries (2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Figure 20:  Restrictions on Foreign Ownership of Equity in New Investment Projects (Greenfield FDI) and on the Acquisition of Shares in Existing Companies (Merger and Acquisition) . . . . . . . . 22 Figure 21: SOE Turnover and Net Profit/Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Figure 22: Estimated Tariff and Nontariff Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 LIST OF TABLES Table 1: Public Savings in Cameroon and Benchmarks (Average 2010–15, % of GDP) . . . . . . . . . . . . . . . . 5 Table 2: Checkpoints and Costs on Cameroon Road Corridors to Nigeria . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Acknowledgments A team led by Souleymane Coulibaly, Lead Economist ◆◆ Charles Udomsaph (World Bank Consultant) for the (MFM) and EFI Program Leader (AFCC1), prepared this background paper on employment and productivity; report under the overall supervision and guidance of Elisa- ◆◆ Xavier Cirera (Senior Economist, GTCIE), Roberto Fat- beth Huybens (Country Director, AFCC1), Mark Roland tal (Economist, DECMG), and Hibret Belete Maemir Thomas (Practice Manager, MFM) and Seynabou Sakho (World Bank Consultant) for the background paper on (Practice Manager, MFM). resource misallocation and manufacturing productivity; The peer reviewers at the concept stage were John Litwack ◆◆ Alphonsus Achomuma (Senior Financial Sector Special- (Lead Economist, MFM), Paul Brenton (Lead Economist, ist, GFM01) and Patrick Elat (World Bank Consultant) T&C), and Martin Melecky (Lead Economist, F&M). The for the background paper on the financial sector, with peer reviewers at the decision meeting stage were Indermit inputs from Ousmane Kolie (Sr. Financial Management Gill (Director of Development Policy, DEC), John Litwack Specialist, GGO13) on subnational public finance man- (Lead Economist, MFM), Hans Hoogeveen (Lead Econo- agement issues; mist, Poverty), and Gozde Isik (Economist, Trade). Sona ◆◆ Elisabeth Ruppert Bulmer (Lead Economist, GPSJB) for Varma (Lead Economist, MFM), Yanina Budkin (Lead Com- the background paper on structural transformations; munication Officer, MFM), Odilia Hebga (Communication ◆◆ Michael Woolcock (Lead Social Development Special- Officer, AFCC1), Mick Riordan (Senior Economist, MFM) ist, DECPI) and Audrene Eloit (World Bank Consul- and Hinh T. Dinh (Consultant, MFM) provided valuable tant) for the background paper on managing social comments on this synthesis report. Janine Walz (Consultant, transformations. MFM) provided an excellent research assistance support to fine-tune the graphs. Inputs were also received from The core team included ◆◆ Jens Kristensen (Lead Public Sector Specialist, GGO19), Monique Courchesne (Senior Private Sector Special- ◆◆ Steven Pennings (Research Economist, DECMG) for the ist), Moise Ekedi (World Bank Consultant, GTCAF), background paper on macroeconomic performance and Jake Robyn (Health Specialist, GHN07), Viviane prospects; Ondoua (Institut Superieur de Management Public), ◆◆ Kizito Ngoa (World Bank Consultant) for the back- Olivier Nkounga (World Bank Consultant), Marius Talla ground paper on infrastructure constraints to growth, (World Bank Consultant), Kjetil Hansen (Senior Public with inputs from Jerome Bezzina (Senior Regulatory Sector Specialist), Joaquin Zentner (World Bank Consul- Economist, GTI11); tant), and Kabemba Lusinde Wa Lusangi (World Bank ◆◆ Abel Bove (Governance Specialist, GGO13), Tania Consultant) for the background paper on institutions Begazo Gomez (Senior Economist, GTCTC), and Shiho and growth; Nagaki (Senior Public Sector Specialist, GGO13) for ◆◆ Chimene Fouthe (World Bank Consultant) for the back- the background paper on institutions and growth, with ground paper on employment and productivity; guidance from Peter Ladegaard (Lead Private Sector ◆◆ Alberto Portugal (Senior Trade Economist, GTCTC) Development Specialist, GGOGS) and Martha Martinez and Rick Tsouck Ibounde (Economist, GMFDR) for the Licetti (Lead Specialist, GTCTC); background paper on structural transformations; vii viii Cameroon Country Economic Memorandum ◆◆ Emanuela Di Gropello (Program Leader, AFCC1) and des contrats de partenariat [CARPA]), Mr. She Etoundi Guy Atou Seck (Senior Education Specialist, GED07) for the (Directeur Général Adjoint, Institut National de la Statis- education and demography inputs; tique [INS]), Mr. Nkou Jean Pascal (Chef de Division, Direc- ◆◆ Carlo Maria Rossotto (Lead ICT Policy Specialist) and tion de l’Analyse et de la Politique Economique, MINEPAT), Charles Pierre Marie Hurpy (ICT Policy Specialist) for Mr. Nanga Ernest (Chef Cellule Grands Projets, MINEPAT), ICT related issues; Dr. Viviane Ondoua Biwole (Institut Supérieur de Manage- ◆◆ Justin Ndoutoumou (World Bank Intern) for the spatial ment Public), Mr. Nkou Guy Raymond (Direction de la transformation background paper; Programmation des Investissements Publics, MINEPAT), Mr.  Fotie  II Hermann (Chef de Cellule des Analyses ◆◆ Sylvie Munchep Ndze and Marie-Agnes Ndour Huchard Sectorielles en Charge du Suivi du Climat des Affaires, assisted the team and formatted the document. MINEPAT), Dr.  Fouda Martin (Ministère de la Recher- The team acknowledges and is grateful for the collabora- che et de l’Innovation Technologique), Mr. Mendo Paulin tion of the Cameroonian authorities, especially Mr. Bon- (MINEPAT), Mr. Djoubeyrou Roland (Direction Générale doma Dieudonne (Director General of the Public Private de la Planification, MINEPAT), and Mr. Talom Alain (INS). Partnership Advisory Board, Conseil d’appui à la réalisation Executive Summary To become an upper-middle income country by 2035, as a. Recommendations to address growth constraints targeted in its Vision 2035 document, Cameroon will have along the accumulation-reallocation-innovation to increase productivity and unleash the potential of its continuum: private sector. Specifically, Cameroon’s real GDP must grow i. Increasing Productivity by around 8 percent and 5.7 percent in per capita terms over ii. Harnessing Savings 2015–2035, which in turn will require the investment share iii. Reducing Allocative Inefficiencies of GDP to increase from around 20 percent of GDP in 2015 to 30 percent of GDP in 2035 and productivity growth to b. Recommendations to increase local, regional and reach 2 percent over the same period, from its average rate global competitiveness: of zero growth over the past decade. These are daunting yet iv. Promoting Domestic Competition doable challenges. v. Supporting Regional Trade and Transport Facilitation To make it happen the public sector would need to rein- vi. Pursuing a Comprehensive Diversification vent itself and change its nature: reduce distortion, pro- Strategy mote innovation and increase allocative efficiency; and more competitive markets would be needed to promote c. Recommendations to refocus a heavy-handed state productivity gains. Based on the rigorous analysis of the to its core functions: Cameroonian economy using five main sources of data,1 vii. Reinforcing Backbone Services Regulation the report will address the following topics: Chapter 1 ana- viii. Reinvigorating Economic Promotion lyzes constraints to growth, Chapter 2 explores constraints ix. Restructuring SOEs’ Governance and With- to enhance competitiveness, Chapter 3 examines the role drawing Progressively from Production played by the Cameroonian state on these constraints, and Chapter 4 derives from these analyses a set of actionable pol- icy recommendations. Underpinnings of the Cameroonian Economy Affecting Growth Potential The abstract contains the following structure: More competitive markets would promote productivity 1. Underpinnings of Cameroonian economy affecting gains. Various factors hold back competition in Camer- growth potential oon. High market concentration, state ownership of many 2. Recommendations on nine major areas of collaboration of the largest firms, and government regulations tend to between the government and the private sector. The rec- limit competition. Widespread state participation in com- ommendations are divided into three areas and include mercial activities that compete with the private sector deters investment. While government involvement in the economy is underpinned by the desire to promote social objectives 1 Data for this report comes from two macroeconomic sources (the (creating jobs, reducing commodity price volatility, etc.), government macro-fiscal data, and the World Bank World Devel- in the process of doing so, externalities to state ownership opment Indicators), and three microeconomic sources (the World Bank Enterprise Survey data, the Cameroonian 2009 firms Census arise that affect economic efficiency, productivity growth, data (RGE), and the Cameroonian Tax Return data (DSF)). and fiscal sustainability using value-for-money principles. ix x Cameroon Country Economic Memorandum Cameroon’s limited competitive environment leads to con- Cameroon tends to disproportionately export to traditional siderable resource misallocation, where more productive markets and expands exports mainly by introducing exist- firms are 10  times more productive than less productive ing products to new markets and diversifying its export mix firms on average. to established markets. Yet, the product-space methodology indicates that Cameroon is capable of producing new high- Widespread state involvement in the productive sector potential products. To pursue these high-potential products, tends to limit domestic competition. Cameroon ranks 109 the import and export efficiency of the main entry point out of 144 countries in terms of local competitive intensity, must be significantly improved. Currently, cargo takes longer 65 in terms of the extent of market dominance, and 78 in to exit from Douala after ships arrive there, than the same terms of the effectiveness of competition policy. Only a few cargo takes to travel across the ocean from the original port large firms operate in most sectors and subsectors of the of departure, with an average dwell time for import cargo in economy: 31 percent of manufacturing firms operate in oli- Douala of 20 days for containers and 30 days for noncontain- gopoly, duopoly, or monopoly markets, whereas in Kenya and erized cargo. Furthermore, this average dwell time compares Ghana, only 25 percent and 22 percent, respectively, operate unfavorably with that of other African ports like Mombasa in such markets. In subsectors that are key inputs for other (11 days), Dar es Salam (12 days), and Durban (4 days). activities—telecommunications, transport, and electricity— Minimizing the port of Douala’s total dwell time is essential, only one firm is in operation. Government participation in requiring the support of both port operations and customs multiple companies tends to increase market concentration clearance. To foster development of new products further, limiting rivalry among firms. This is the case for electricity Cameroon may also want to consider other approaches such generation, palm oil, and bananas. Even when the govern- as plug-and-play industrial parks and cluster development, ment does not have shareholder control, it often has special anchoring it in the short term on the country’s two leading rights that increases its influence on business decisions. High cities (Douala and Yaounde) and in the long term in Kribi. market concentration and state ownership are among factors limiting domestic competition. The Cameroonian economy’s limited competitiveness at the domestic, regional, and global level points to the dis- An inefficient logistics service sector and poor trade tortive role of a heavy-handed state. Ideally, a state estab- transport facilitation limit regional competition. Trans- lishes and enforces rules to achieve social and economic port costs are very high in Cameroon and Central Africa: goals, while creating incentives for firms to expand and per- In 2008, they were 11 U.S. cents per ton-kilometer on the form better, and creates mechanisms to maximize regulatory Douala-Bangui-N’Djamena corridor compared with 8 in efficiency, transparency, and accountability. It monitors the Eastern Africa, 6 in Southern Africa, 5 in France and China, private sector in different markets, punishes anticompeti- 4 in the United States, and 3.5 in Brazil. In addition, the over- tive behavior, regulates sectors with natural monopolies, and all quality of road infrastructure along regional corridors is contains other market failures. It also ensures that business poor, and poor road maintenance and weak enforcement of procedures are simple, predictable, accessible, and universal axle weight regulation in Cameroon also contribute to high to prevent unnecessary bureaucratic hurdles and level the transport costs. For example, large segments of the nine road playing field. Finally, it can intervene in specific markets to corridors that connect Cameroon to its land-border cross- supply goods and services, through state-owned enterprises ings with Nigeria are dirt and gravel roads that are difficult (SOEs) or as direct shareholders in firms if a clear economic to cross in the dry months, but impossible to pass in the rationale exists, or indirectly through price/import controls rainy season. Poor transport facilitation and limited multi- or public procurement. However, these legitimate roles can modal transport services also constrain regional trade. Rail have a distortive effect on an economy’s contestability if service is limited. Checkpoints and roadblocks on roads performed by a heavy-handed state poorly playing its role and highways, averaging as much as one checkpoint every of regulator and economic promoter while at the same time 20 kilometers, exacerbate high inland road transport costs heavily involved in production, which stifles competitiveness and long travel times. Finally, the trucking cartel operating and constrains growth. in the Central African Economic and Monetary Community (CEMAC) adds to inefficiencies. Indeed, as a result of the freight allocation scheme, a few large freight forwarders at Policy Recommendations Douala collaborate with a few large trucking companies to fix prices with excessive markups along regional corridors To enhance competitiveness and growth, a coordinated and to allocate available transit cargo among truckers. These set of policies is needed. Growth happens through three regulatory constraints (formal and informal) are the root main drivers: factor accumulation; factor reallocation to its cause of limited regional competition, poor service, and high most productive use; and innovation. In a perfect market transport prices. economy, the rational decision of consumers and produc- ers can trigger such multipronged growth process. In Cam- Heavy reliance on traditional products and partners eroon, markets are distorted by too much state involved in together with an inefficient port limit global competition. production. Distorted markets allocate production factors Executive Summary xi inefficiently, hence constraining growth. For example, the financial inclusion and facilitate the collection of savings full benefit of an increasing stock of infrastructure is not cap- from households and firms in areas underserved with tradi- tured because of too little state where needed, in regulation. tional banking. Poorly regulated backbone infrastructure services (power, transport and telecommunication) keep production factor An aggressive FDI attraction strategy is needed. The gov- costs high, hence constraining competitiveness. In Camer- ernment must target and attract to Cameroon multinationals oon, red tape overwhelms the private sector. An unfriendly operating in sectors with the potential for high employment business environment discourages private investment, con- and export to anchor private sector growth on a bigger exter- straining growth. There is therefore a need to revamp the nal demand. A fundamental step toward such a policy could role of the state to enhance competitiveness and productivity. be the clarification of the legal regulatory framework of for- To this end, nine major areas of collaboration between the eign investment promotion. In certain sectors, restrictions government and the private sector are recommended. on foreign ownership still apply, including mining (95 per- cent of foreign ownership is allowed), power transmission Three recommendations directly address growth constraints and distribution, railway freight, domestic air, international along the accumulation-reallocation-innovation continuum: air, airport and port operation (49 percent of foreign owner- ship is allowed), and television broadcasting and newspapers 1) Increasing Productivity (49 percent of foreign ownership is allowed). The Investment Code of 1990 establishes requirements for at least 35 per- Policies impacting the determinants of firm productivity cent Cameroonian equity ownership for enterprises under should be urgently implemented. Involvement in activities the SME regime. Combined with a weak legal system, this such as training workers, certification, Internet utilization, reduces the willingness of foreign firms to enter the market and licensing of foreign technology are found to increase pro- of Cameroon. The government should tackle these issues ductivity in Cameroon. Some of these actions are straight- head on as part of an aggressive FDI attraction strategy. forward (certification, Internet utilization and licensing of technology) and require the strengthening of institutions 3) Reducing Allocative Inefficiencies mandated to deal with them, and seeking of feedback from the private sector to adjust them as needed. The training of The government needs to urgently take measures to dis- workers should however be a joint responsibility between continue price controls and production monopolies in the government and the private sector. The education and contestable markets to help reduce allocative inefficiencies vocational training system of Cameroon need to be aligned of production factors. The government direct intervention with the skills demanded by sectors with growth potential in markets through import controls and bans, and price con- such as agribusiness, wood products, textile and garments, trol on a number of products, affects the entry of newcomers leather products, and chemicals. A shift to more techni- and prices to end consumers. A cross-country comparison cal and engineering studies versus humanities is needed. shows that although prices in Cameroon are controlled, they A vocational training system allowing students to alternate are higher and increasing compared to international prices. between the training and work environment will also help, The government should just trust the market and lift all price but this requires a full collaboration with the private sector and import controls. The most effective way to protect the speaking with one voice. This is all the more important given poor and vulnerable during price hike periods is to set an the upcoming tougher competition from European imports effective and well-targeted cash transfer system. following the entry into force of the Economic Partnership Agreement between Cameroon and the EU in August 2016. Three recommendations aim to increase local, regional and global competitiveness: 2) Harnessing Savings 4) Promoting Domestic Competition Financial inclusion and financial deepening is needed to harness more domestic savings to finance the private sec- The various factors coinciding to create a poor domestic tor. The Central Bank (BEAC) should help banks to better competitive environment should be systematically tackled assess the creditworthiness of firms (through the establish- by the government. To level the playing field, state owner- ment of credit bureaus and collateral registries for instance) ship should be withdrawn from all companies operating in to increase access to finance. The government can also sup- an unregulated sector where the private sector is already suc- port SMEs and rural nonfarm businesses by facilitating the cessfully operating. This is the case for agribusiness and tex- development of financial products such as factoring, leasing, tile sectors. For network sectors such as utilities (energy and and warehouse receipts. The government could also adopt water), transport and telecommunication where state own- the regulations needed to make mobile financial services ership is not uncommon, the regulatory agencies need to be available to the general population, in order to increase strengthened to protect the rights of consumer on quality of financial inclusion and make mobilizing domestic savings service and price, and the standard of management of these easier. Mobile banking and agent banking will increase SOEs would need to be lifted. For example, in the case of xii Cameroon Country Economic Memorandum railways, infrastructure services and transport services are not showing positive results in many developing countries. The separated, and an access policy that could allow other compa- government should explore these innovative ways to sustain nies to use their own rolling stock to provide transportation road maintenance. services is lacking. In goods markets (such as sugar, palm oil, and cement), price controls and import restrictions exacer- Road checkpoints should be limited to the strict minimum bate the effects of a concentrated market and should both be to reduce informal payments. Removing road checkpoints abolished to take advantage of cheaper imports. Finally the to accompany better roads and a more competitive trucking playing field on paying tax should be leveled between formal industry is key. If complete removal is not possible, the num- and informal firms by systematizing and intensifying the tax ber should be drastically reduced and regularly monitored, administration’s current efforts to encourage informal firms and clear terms of reference should explain the purpose of to register by providing incentives such as a discount on the such roadblocks. But for this measure to be sustainable, the minimum tax (1.1 percent instead of 2.2 percent for informal root cause of the problem of informal payment should be firms that register in a tax center) and providing good public addressed: a fragmented transport sector dominated by infor- services to newcomers to maintain momentum. mal and small players relying on obsolete and old trucks and vehicles. Greater efficiency of transport services will imply 5) Supporting Regional Trade and Transport Facilitation new measures and mechanisms to improve transparency of transport prices. In this regard, the government should con- Without deregulating the trucking industry, it will be sider establishing a robust and transparent market informa- hard to reduce delays and costs of transporting goods or tion system to manage transport flows and services. improve the quality of trucking services. Historically, logis- tics prices have been very high on the two corridors Douala- 6) Pursuing a Comprehensive Diversification Strategy N’Djamena and Douala-Bangui due to significant supply constraints (poor infrastructure, noncompetitive behaviors To develop new products, Cameroon may want to follow in the transport industry, and operational limitations in the the experience of East Asia in the development of clusters. railway sector). The situation has however changed signifi- In it, the government’s role is to nurture and support exist- cantly over the past years with a drop of the transit demand ing clusters rather than trying to create clusters from scratch. for Chad and the slowdown of the Chadian economy, the Entrepreneurs, rather than governments, create clusters. improvement of road conditions along the corridor and the Once clusters expand, the public sector can develop general entrance of new actors with transport capabilities (e.g., in the infrastructure (roads, utilities, land) and target facilities to cement industry). This has increased competition between meet the specific requirements of emerging clusters (market rail and road transport services and produced a decrease of structures, financial institutions, training programs, qual- logistics prices. These positive developments confirm the ity control mechanisms, and so on). This needs to be done importance of competition for effective and efficient truck- in sync with the FDI attraction strategy already mentioned ing services. In parallel with scaling up road investments, the to make sure sectors with growth potential are stimulated government should continue the deregulation of the trucking through the technology transfer that generally accompanies industry to increase further competition and thereby reduce a well-managed FDI operation. further transport prices for shippers and enhance the qual- In parallel, the management of the Port of Douala (and ity of services. One way to generate reform momentum for later, the Port of Kribi) should be strengthened, using breaking the regulatory status quo could be to build in finan- data-based performance monitoring. The current poor cial support for affected parties during the transition period management of the Port of Douala contributes directly to and announce it as part of the deregulation reform program. a quarter of the average dwell time and indirectly to more Government measures to create an enabling environment through its cargo storage rules. The Port Authority should for transporters to access finance to renew their fleet are also adopt measures identified as part of the trade and trans- needed to unleash the sector’s potential. port facilitation policy dialogue supported by the CEMAC Chronic road maintenance underfunding and weak Transport and Trade Facilitation Project to improve the implementation capacity are negatively impacting the current situation. The government should also subject the quality and sustainability of the road network. Funding for Port Authority to performance monitoring, using detailed the rehabilitation of roads remains insufficient. To improve data as was done in customs. Detailed data should be com- road asset management, the second generation Road Fund piled, with the cooperation of shipping lines on times of ship created in 1998 and abolished in 2007 needs to be reinstated. arrival, entry to quays, and cargo discharge for all 1,200 ships Furthermore, roads maintenance activities need to be better that discharge cargo at Douala during the year. These data planned to optimize the life cycle of road assets. Simulations should be used to monitor changes in the Port Authority’s conducted by CARPA show that the use of PPP could allow performance, and the Port Authority should do the same to fund and implement a routine maintenance of a stretch with the private contractor managing the container terminal. tarred with a fixed toll of 500 CFA Francs for several years. This performance-based approach should be applied to the Long-term performance-based road maintenance is also Port of Kribi when it starts operating. Furthermore, because Executive Summary xiii many importers prefer cheap storage in port, a straightfor- the development of the private sector. The 2016 and 2017 ward way to improve efficiency is to amend the rules for free Doing Business data indicate that the three weakest areas are time and storage fees. This will induce these firms either to trading across borders, paying taxes and registering property. find alternative arrangements or alter their business model The government needs to urgently adopt a reform agenda such that they can benefit from shorter dwell times. focusing on these three areas to demonstrate to the business community its commitment to reduce allocative inefficien- Three recommendations aim to refocus a heavy-handed cies. This will go a long way to stimulate the industrializa- state to its core functions: tion of the country before more targeted interventions such as Special Economic Zones (SEZ) like the Kribi growth pole. 7) Reinforcing Backbone Services Regulation Moreover as long as first order issues such as ICT, electricity In ports and railways, three situations need close monitor- and transport costs are not addressed, it is hard to see how a ing and regulatory action to prevent restrictions on com- SEZ will help attract FDI. petition. Common ownership of the companies that operate 9) Restructuring SOE Governance and Withdrawing Pro- the port and the railway infrastructure requires attention to gressively from Production avoid hampering competition. A private monopoly, Cam- rail, operates the railway infrastructure and the rolling stock SOE portfolio management should be enhanced to incen- under a 20-year contract signed in 1999. Companies from tivize SOE performance, while mitigating the impact on the same economic group operate the Port of Douala (and competition. Cameroon’s SOE oversight model seems com- soon the Port of Kribi) and provide ancillary services (towing plex, with overlapping mandates and lack of clarity. The pres- and berthing; managing the container terminal, the vehicle ence of many principle-agent relationships tends to weaken yard, and transit operations; and handling and storage). The accountability and therefore the state’s ability to hold SOEs group also includes logistics companies that forward cargo accountable. First, the government should conduct a thor- through the port and railways. In this situation, monitoring ough assessment of all the existing SOEs to determine their competitive neutrality regarding the treatment of cargo that fiscal position as well as their economic contribution. Sec- is not handled by the group’s logistics company is important. ond, the government will need to develop and adopt a legal A fully integrated logistics chain improves the efficiency of and institutional frameworks that outline the objectives for cargo management, but it can limit competition and put other state ownership, clearly outlining the government’s objectives firms at a disadvantage. Under such conditions, the govern- for state ownership and each SOE’s main task, expectations ment will need to regulate fares and freights to ensure that for reporting, performance monitoring and transparency of firms do not exert their market power when setting tariffs. SOEs, board nomination processes, and remuneration prin- ciples. Third, the monitoring of SOEs should be improved A more predictable, consistent way of granting spectrum with proper expertise, capacity, and resources. At minimum rights would benefit the ICT sector and the country. Radio quarterly and annual audited financial statements from SOEs spectrum represents a scarce resource for a government, focusing on liabilities and risk should be produced. and spectrum rights are typically highly valued by telecom operators but also by the broadcasting industry.2 Spectrum The government should ensure proper regulation of management strategies are thus needed to coordinate the dominant SOEs, neutral treatment of competitors, and various uses of spectrum, maximize the benefits for citi- competitive selection of partners in PPPs. This will facili- zens (arbitrage of spectrum allocation between spectrum tate private investment and guarantee open markets. This is users), ensure fair competition in the telecoms and broad- particularly important for network sectors (electricity, ICT, casting markets (fair allocation of spectrum) and generate postal services, transport, and water services). Open access revenues for the state (e.g., sale of spectrum rights through to essential facilities such as transmission infrastructure for auctions and spectrum fees). For instance, the planned ana- electricity producers is critical for a well-functioning genera- logue television switch-off will free up important amounts of tion market to guarantee dispatch of electricity to the grid. spectrum, which will need to be efficiently reallocated. The Open, transparent and nondiscriminatory rules to access government needs to adopt a comprehensive, efficient and CAMTEL’s national high-speed network and international transparent approach to spectrum management to generate gateway, if properly enforced, could boost competition in significant benefits to citizen and fiscal revenues. telecommunication services (at the wholesale level), reduce retail prices of ICT services, decrease companies’ ICT cost, 8) Reinvigorating Economic Promotion and increase their competitiveness. Measures to improve the weakest points of the Camer- Finally, the government should withdraw from produc- oon business environment should be taken to promote tion in those sectors where the private sector is already successfully operating. The government should adopt a spe- cific timetable to withdraw from them, and hence consider- 2 Spectrum is also used by defense, public safety and emergency ser- vices, by commercial services, etc. ably reduce the number of SOEs. CHAPTER Constraints to Growth 1 in Cameroon Vision 2035 aims for Cameroon to become an upper- important macroeconomic determinant of Cameroon’s long- middle-income country by 2035. Upper-middle-income term growth: fast (around 2 percent) productivity growth, countries have a gross national income (GNI) per capita around the 90–95th percentile for TFP performance among (Atlas US$) above $4,036. As Cameroon’s GNI (measured in all countries in 1985–2010, is required to achieve the Vision the same terms) was $1,330 in 2015, Vision 2035 requires 2035 goal on time.3 growth of around 5.7 percent in per capita terms over 2015–35. As population growth is expected to average about 2.3 percent per year over this period, real GDP must grow The Determinants of Productivity 1.1  about 8 percent per year for 20 years—an ambitious target. in Cameroon This rate of per capita GDP growth is close to the long-run growth of East Asian countries like China, South Korea, and Econometric estimations point to technological capa- Vietnam; Botswana is the only Sub-Saharan African country bilities, access to finance, and foreign ownership as the to have grown this fast over such a long period. Although main determinants of firm productivity in Cameroon. Cameroon reached such annual growth rates in the past Ordinary least squares regressions of firm-level TFP on (Figure 1), they were never sustained over a long period and some firm characteristics and investment climate indica- were driven by commodity booms. tors show that the most compelling determinants of firm- level productivity include technological capabilities (TCI),4 Growth happens through accumulation of production access to finance and foreign ownership. Engagement in factors, innovation, and reallocation of production fac- one additional TCI activity (training workers, using e-mail tors to their most effective use. Accumulation is made possible through savings, domestic and foreign, private and 3 In the Long-Term Growth Model, Total Factor Productivity (TFP) public, that are transformed into investment. Growth is also growth, an increase in capital intensity or faster accumulation of driven by the increase in total factor productivity, through human capital (among other factors) can generate per capita GDP innovation (genuine or imitated). Finally, the reallocation of growth. These figures are calculated using a labor income share of production factors from less effective to more effective use 0.5 (taken from the Penn World Tables (PWT)); with a lower labor also drives growth. Cameroon can accelerate its growth to income share of 0.38 (using alternative data) Cameroon can achieve the 8 percent needed to reach upper-middle-income status the Vision 2035 goal with TFP growth of 1.5%. Human capital is only with bold measures to support accumulation, innova- assumed to grow at 0.8%, its 2001–10 average from PWT; an accel- tion and reallocation. eration in human capital growth could lower required TFP growth or investment rates. For Cameroon to fulfill its Vision 2035, productivity will 4 The World Bank Enterprise Survey (WBES) database captures have to sharply increase. Simulations derived from the eight identifiable TCI activities: training workers, using e-mail to Long-Term Growth Model based on Solow (1956), Swan communicate with consumers or suppliers, having a website, hav- ing capacity utilization at 90 percent or higher, obtaining ISO certi- (1956), Hevia and Loayza (2012) and Pennings (2016) show fication, licensing foreign technology, filing a domestic patent, and total factor productivity (TFP) growth rates to be the most filing a foreign patent. 1 2 Cameroon Country Economic Memorandum Figure 1: Reaching Upper-Middle-Income Status in 20 Years Is Daunting 4,000 Pr -oil Oil boom R c ssion Post-d v lu tion Vision 2035 rowth C m roon: GDP p r c pit lo sc l , const nt 2010 USD sc n rio 3,500 Upp r middl incom = $4,000 pc 3,000 2,500 2,000 1,500 1,000 500 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 Historic l Vision 2035 sc n rio Comp rison vision 2035 & 1980s oil boom (s m p r c pit rowth r t ) Source: World Development Indicators (NY.GDP.PCAP.KD). Notes: 2016 WB Upper-Middle-Income level is $4,036 pc (Atlas USD GNI) is expressed as $3,973 GDP per capita (2010 USD) assuming that GDP and GNI grow at the same rate. ­ ommunicate with consumers or suppliers, having a web- to c today or 20 years ago (as per GDP and GDP per capita), site, obtaining ISO certification, licensing foreign technol- resource rich and facing some conflict-related fragility.6 ogy, filing a domestic patent, or filing a foreign patent) is Among its income peers resource-rich countries that are fac- estimated to induce a 12.2  percent increase in firm-level ing some form of conflict-related fragility, today or 20 years TFP. A one standard deviation improvement in TCI induces ago, Cameroon appears to have a higher unit labor cost a 22 percent increase in TFP. Manufacturing establishments than Angola, Sudan, Ghana and Nigeria; it has a lower unit with an overdraft facility, line of credit or loan, or bank labor cost than Côte d’Ivoire, Yemen, Indonesia and Azer- financing for working capital or investment have, on aver- baijan (Figure 2). This reflects relatively high average wages age, 24 percent higher TFP. Foreign-owned manufacturing (Figure 3) in Cameroon (higher than in Nigeria, Indonesia, establishments have, on average, 25  percent higher TFP Yemen, Côte d’Ivoire and Ghana) for relatively low average than domestically owned firms. labor productivity (Figure 4) (lower than Azerbaijan, Yemen, Nigeria and Ghana). High unit labor cost also negatively affects Cameroonian firms’ productivity. Unit labor cost measures the average cost of labor per unit of output as the ratio of average wage to labor productivity. Unit labor cost in Cameroon at 0.261 per worker is high relative to the other 11 Sub-Saharan African 6 This is done using the “Find Friends” tools of the World Bank. For countries surveyed during the period 2008–2009,5 with unit today income peers, resource rich facing some form of conflict- labor costs ranging from 0.069 in Angola to 0.196 in Malawi. related fragility, Cameroon’s benchmarks are Côte d’Ivoire, Congo To better put the unit cost in perspective, we compare Cam- (Rep.), Nigeria, Papua New Guinea, Sudan and Yemen. Given the eroon to benchmarks systematically chosen: income peers peculiarity of Papua New Guinea (Pacific Island), we replace it by Ghana which is also an income peer, resource rich and facing some fragility in its northern region. For income peers 10 years 5 The latest World Bank enterprise survey in Cameroon was con- ago, resource-rich and that used to or are still facing some form ducted in 2009. We therefore initially compared Cameroon with all of conflict related fragility, Cameroon’s benchmarks are Angola, the countries that had a World Bank enterprise survey available for Azerbaijan, Indonesia, and Turkmenistan. Given Turkmenistan’s 2008–9. Then we focused on some benchmarks using the World peculiarity (the most closed former Soviet country), we replace it Bank “Find Friends” tool and compared Cameroon with these by Malaysia, a resource-rich country that used to face some regional countries for the latest available data. fragility and which Cameroon looks up to. Constraints to Growth in Cameroon 3 Figure 2: Unit Labor Cost 2008–2009 or Latest Available 0.35 0.30 0.25 0.20 v r Countr 0.15 0.10 0.05 0.00 A rb ij n Indon si Ym n Côt C m roon Ni ri Gh n Sud n An ol d’Ivoir Source: World Bank Enterprise Survey (WBES) data. Note: Median sample weights are used to compute country averages. Figure 3: Average Wage 2008–2009 or Latest Available (2013 US$ per Worker) 8,000 7,000 6,000 2013 USD p r work r 5,000 4,000 3,000 2,000 1,000 0 An ol A rb ij n C m roon Gh n Côt Ym n T n ni Indon si Ni ri d’Ivoir Source: WBES data. Note: Median sample weights are used to compute country averages. Countries identified as outliers are excluded, specifically those with average wage greater (less) than three times the interquartile range plus (minus) the 75th (25th) percentile of each respective sector (i.e., manufacturing and services): Argentina. Additionally, countries with no coverage of the services sector in WBES are excluded: Antigua and Barbuda, Bahamas, Belize, Dominica, Grenada, Guyana, St. Kitts and Nevis, St. Lucia, St. Vincent and Grenadines, and Suriname. Since wage data is missing for Sudan, it is replaced by Tanzania in this graph. 4 Cameroon Country Economic Memorandum Figure 4: Labor Productivity 2008–2009 or Latest Available (2013 US$ per Worker) 100,000 80,000 2013 USD p r work r 60,000 40,000 20,000 0 Gh n S n l Ni ri Ym n A rb ij n N mibi C m roon Indon si T n ni Source: WBES data. Note: Median sample weights are used to compute country averages. Countries identified as outliers are excluded, specifically those with mean labor productivity greater (less) than three times the interquartile range plus (minus) the 75th (25th) percentile of each respective sector (i.e., manufacturing and services): Samoa. Additionally, countries with no coverage of the services sector in WBES are excluded: Antigua and Barbuda, Bahamas, Belize, Dominica, Grenada, Guyana, St. Kitts and Nevis, St. Lucia, St. Vincent and Grenadines, and Suriname. Since labor productivity data is missing for Angola, Côte d’Ivoire, and Sudan, they are replaced respectively by Namibia, Senegal and Tanzania in this graph. Boosting productivity requires addressing markets and bottlenecks and red tape, smuggled goods, an unsuitable tax government failures impacting these determinants. With system, bank credit access restrictions, electric power ration- regards to technological capabilities, the training of work- ing, and rationing in utilities (water and electricity), trans- ers is constrained by a weak vocational training system; the port, and telecommunications that keep production factor use of e-mail and websites by firms is constrained by high costs high and reduce the attractiveness of the economy for Internet connectivity costs; obtaining an ISO certification is investors, domestic and foreign alike. An earlier study by the constrained by a weak agency for normalization; licensing Ministry of Finance in 2007 found that power rationing led foreign technology is constrained by the limited number of to a 40–50 percent reduction in industrial production capac- technology-prone multinationals operating in the country; ity utilization. filing a patent (domestic or foreign) is limited by the near zero spending on Research and Development by firms. A shallow financial sector dominated by risk-averse banks is 1.2  The Saving-Investment Nexus limiting access to finance, particularly for SMEs. The limited Aside from productivity, the investment rate is the second access to financial services stems particularly from deficient most important macroeconomic determinant of growth infrastructure, geographical isolation, and financial illiter- in Cameroon. The Savings-Investment nexus has been iden- acy, all of which result in very high costs of providing bank- tified since the Solow-Swan model as a major determinant of ing services. “Branchless Banking” is almost nonexistent in economic growth. After thoroughly examining the growth Cameroon. As for foreign ownership, the legal environment performance of the 13 countries that have experienced a relevant to foreign investment is characterized by a lack of growth rate of more than 7 percent per year over more than clarity, which currently discourages entry. Yet, a sound FDI two decades, the Commission on Growth and Development attraction policy can play a key role in introducing new (2008) identified one of the key ingredients for such growth imported technologies and upgrading or importing skills to performance to be high rates of saving and investment. The operate, maintain, repair and adapt capital investments. simulations from the Long Term Growth Model and govern- In Cameroon, these failures are intertwined with a heavy- ment’s “Vision” investment plans show that investment rate handed state and lead to distortions directly affecting firm must increase from around 21 percent of GDP in 2015 to productivity. A study conducted by the Ministry of Finance 33 percent by 2020 for Cameroon to reach its 2035 goal. This in 2014 found that distortions include administrative means that an additional 12 percent of GDP is needed to Constraints to Growth in Cameroon 5 complement the efforts to increase productivity for Camer- 12.6 percent of GDP. Total bank deposits in Cameroon are oon to reach upper-middle-income status by 2035. In 2015, higher than in Angola (9.9 percent of GDP), Congo (13.8 public investment represented nearly 10 percent of Cam- percent of GDP) and Ghana (13.7 percent of GDP), at par eroon’s GDP.7 To contain the debt burden, the additional with Côte d’Ivoire (20 percent of GDP), and lower than in investment needed will have to come from a combination of Nigeria (32.7 percent of GDP) and Malaysia (32.7 percent public savings to create fiscal space, domestic private savings of GDP). Increasing financial inclusion is essential to har- (households and firms) and foreign savings. ness household savings. Though mobile banking or agent banking offer an opportunity to serve the “unbanked” in Cameroon’s rate of public savings can be increased to developing countries, they both remain in their infancy in boost national savings. Over 2012–13 public savings fell Cameroon. Furthermore, Internet banking remains limited, by all measures to be slightly positive or slightly negative, due to low Internet penetration (11 percent in 2015 accord- depending on the measurement of certain public invest- ing to Internet Worldstats8 2016) that limits access to online ment expenditures. Using consistent figures across countries platforms. Scope exists for increased mobile banking ser- and averaging over 2010–2015, the rate of 3.7 for Cameroon vices penetration to boost financial inclusion, but this will compares to 5.8 percent for Malaysia, –3.3 percent for Ghana require establishing robust yet business-friendly mobile and 0.6 percent for Côte d’Ivoire (Table 1). Although public banking regulations. savings are higher in Cameroon than its West Africa income peers (Côte d’Ivoire and Ghana), Malaysia’s level of public With all these constraints to mobilize more domestic sav- savings show that Cameroon needs to further increase its ings, Cameroon needs to find ways to tap foreign savings public savings to change its income status within the next through inward FDI. UNCTAD data indicate that net FDI 20  years. However, delays in project implementation and inflows to Cameroon declined from 2.5 percent of GDP in variable project quality in Cameroon suggest a limited ability 2012 to 2.1 percent in 2015. This compares unfavorably to to substantially increase public savings via a large ramp-up of Cameroon’s higher income benchmarks: in 2015 Angola public investment. attracted 6.4 percent, Azerbaijan attracted 6.7 percent and Malaysia attracted 3.8 percent of GDP. More FDI is desirable With regards to domestic private savings, bank deposits because its flows are less likely to reverse during a crisis, and suggest that an equivalent of 13 percent of Cameroon foreign partners take an equity stake in projects, thus shar- GDP is saved by Cameroonian households and firms. ing some of the macroeconomic and idiosyncratic risks. In Bank deposits from households represent 38 percent of addition to closing the financing gap, FDI can also play a key total deposits, while private enterprises account for about role in introducing new imported technologies and upgrad- 29 percent. With total deposits representing 20 percent of ing or importing skills to operate, maintain, repair and adapt GDP (2015), households and firm savings sum up to about capital investments. 7 This is from the government’s expenditure figures, not from the national accounts figures, which are much lower, as presented below. 8 www.internetworldstats.com/stats1.htm, accessed on April 8, 2016. Table 1: Public Savings in Cameroon and Benchmarks (Average 2010–15, % of GDP) Budget Balance Public Investment (2013) Public Savings Angola 0.8 14.1 14.9 Azerbaijan 4.6 8.3 12.9 Cameroon –3.1 6.8 3.7 Côte d’Ivoire –4.0 4.6 0.6 Ghana –10.0 6.7 –3.3 Indonesia –1.8 2.4 0.6 Malaysia –7.0 12.8 5.8 Nigeria –1.9 2.9 1.0 Yemen –7.0 4.9 –2.1 Source: IMF, National Accounts and Author’s calculation. Note: Public savings are calculated as budget balance (excluding grants) plus public investment. 6 Cameroon Country Economic Memorandum 1.3  Allocative Inefficiencies which translates the productivity gap into allocative inef- ficiencies. In a non-distorted economy, tax payments are On average in Cameroon, more productive firms have independent of the level of productivity of firms. In Camer- a total factor productivity ten times higher than less oon, plotting tax returns against the level of productivity of productive firms. The misallocation of capital and labor firms indicates that less productive firms tend to receive an at the firm level because of a poor business environment implicit subsidy while more productive firms tend to face a or a heavy-handed state can be very costly in terms of for- heavier tax burden (Figure 6). Therefore, the wide produc- gone productivity and hence limited domestic and exter- tivity gap among Cameroonian firms translates into an alloc- nal competitiveness. In principle, prices should equalize ative inefficiency. Inefficient firms command more resources productivity within sectors if competition is pure and than their productivity level warrants, which undermines perfect. Dispersion in estimated firm-level productivity aggregate productivity and growth. This is typically the within a sector therefore indicates the extent of misalloca- case for loss-making SOEs that continue to be subsidized. tion of production factors. Such dispersion can be due to Furthermore, this can also discourage firms to undertake government policies or regulations that allow some inef- productivity-enhancing investments, reinforcing the alloca- ficient firms to stay in the market. In a carefully crafted tive inefficiencies. Improving manufacturing productiv- paper using these principles, Hsieh and Klenow (2009) find ity therefore requires policies that encourage the flow of that credit and product market distortions tend to allocate resources toward more productive firms: leveling the playing scarce resources to relatively unproductive firms. Firm tax field in terms of tax liabilities by phasing out of the various returns data (DSF) confirm the same allocative inefficien- subsidies and exemptions. cies for Cameroon (Figure 5). While the extent of misal- location in Cameroon seems comparable to regional peers Removing the frictions in output and factor markets such as Ethiopia and Ghana, it is much larger than in other could increase manufacturing productivity by at least developing countries such as India and China. On average, 68 percent. Improving manufacturing productivity requires more productive firms in Cameroon have an estimated TFP reducing or removing underlying frictions that prevent effi- 10 times higher than less productive firms. This means that cient allocation of resources toward more productive pro- reallocating labor and capital from inefficient to efficient ducers. Simulations under alternative assumptions show firms would have a large positive impact on Cameroon’s that removing misallocation potentially increases productiv- aggregate productivity. ity between 68 and 101 percent (Figure 7). Manufacturing census data confirm the considerable potential gains from More productive firms tend to face a higher tax burden reallocation. Based on the 2009 manufacturing census data, while unproductive ones receive an implicit subsidy, the potential reallocation gain from eliminating distortions Figure 5: Resource Misallocation in Cameroon vis-à-vis Other Countries 2.0 1.5 Disp rsion of r v nu productivit 1.0 0.5 0.0 Indi US Chin Ethiopi Gh n C m roon K n Source: Tax return (DSF) over 2011–2013, World Bank staff calculations. Note: Misallocation is measured as the differences (ratio 90th to 10th percentile) in the TFP of firms within four-digit industries. Constraints to Growth in Cameroon 7 Figure 6: Taxing the Good and Coddling the Bad Distortion vs Productivit 4 2 95% CI Firm-l v l distortion Firm-level distortion 0 lpoly smooth –2 –4 –8 –6 –4 –2 0 2 Firm-l v l productivit kernel = epanechnikov, degree = 0, bandwidth = .81, pwidth = 1.21 Source: Tax return (DSF) for 2013, World Bank staff calculations. Note: The lines are fitted using a nonparametric local polynomial smooth. The red horizontal line represents equilibrium in the absence of distortions. Firm-level distortion is measured as the differences (ratio 90th to 10th percentile) in the TFP revenue of firms within four-digit industries. CI stands for “Confidence Interval.” Figure 7: The Baseline Estimates Appear to Be a Lower Bound B s lin Two-di it C nsus Si m = 5 0 20 40 60 80 100 120 Pot nti l TFP in (p rc nt) Source: Tax returns (DSF) for 2013 and 2009 firm census (Recensement général des entreprises—RGE) datasets. World Bank staff calculations. Note: Potential TFP gains are the estimated increases in productivity following removal of misallocation. 8 Cameroon Country Economic Memorandum Figure 8: The Potential Productivity Gains Differ across Sectors Nonm t llic Furnitur Printin Wood products Food products Ch mic l 0 10 20 30 40 50 60 70 80 90 100 Pot nti l TFP in ( stim t d p rc nt incr s ) Source: Tax returns (DSF) for 2013, World Bank staff calculations. Note: Potential TFP gains are the estimated increases in productivity following removal of misallocation. within an industry is considerably higher than the baseline Accumulation, reallocation, and innovation through trade results (95 percent versus 69 percent). Although the size of will drive Cameroon’s ascension to upper-middle-income the aggregate costs of misallocation differs depending on the status. To boost growth in Cameroon, this chapter suggests assumptions, the potential productivity gains from reversing that policy makers should focus on increasing firm-level pro- distortion are quite large. ductivity, harnessing domestic savings while tapping foreign savings through FDI and increasing the allocative efficiency Removing between-sector misallocation may have an even of production factors. Acting on these levers will strengthen larger effect on aggregate TFP. The extent of misalloca- Cameroon’s supply capacity. However, to boost broad-based tion differs greatly across sectors. Removing distortions is growth in Cameroon, a shift to tradable labor-intensive estimated to increase productivity by 8 percent in the non- products and services is needed to tap a larger demand from metallic minerals sector, 10 percent in the furniture sector, regional and global markets. This requires a more competi- 30 percent in the printing sector, 50 percent in the wood tive economy. Unfortunately, various factors relating to mar- products sector, 65 percent in the food products sector, and ket as well as government failures hold back competition in 92 percent in the chemical sector (Figure 8). The analysis Cameroon. The next chapter document these constraints. abstracts from aggregate productivity gains associated with reversing distortions between firms in different sectors, but the potential productivity gains from such reallocation is also potentially large. Constraints CHAPTER to Competitiveness 2 in Cameroon More competitive domestic markets will enhance produc- distort business decisions are perceived as contributors to tivity gains. However, various factors hold back competi- business risks. tion in Cameroon. High market concentration combines with state ownership of many of the largest firms and gov- Monopolies in key network sectors and manufacturing ernment regulations to limit competition. Widespread state markets are more prevalent in Cameroon compared with participation in commercial activities and competition with similar countries in the region. Although not the only the private sector deters investment. The limited competitive determinant, market structure affects the degree of com- environment leads to considerable resource misallocation as petition that a market can attain. In Cameroon, only a few highlighted in the previous section. To be more competitive large firms operate in most sectors and subsectors of the globally, Cameroon has to promote domestic competition to economy. Sectors that are key inputs for other activities— strengthen firm productivity, scale up its supply capacity by telecommunications, transport, and electricity—have only facilitating regional trade and transport services, and pursue one firm in operation (Figure 10) for quite a few subsectors a diversification strategy by improving the efficiency of its such as railway freight, port operation, power distribution, etc. ports and attracting FDI in promising sectors. This is con- In Cameroon 31 percent of manufacturing firms operate in strained by limited local competition, a weak regional trade oligopoly, duopoly, or monopoly markets, whereas in Kenya and transport facilitation regime and a global competition and Ghana only 25 percent and 22 percent, respectively, oper- limited by inefficient ports and a narrow production base. ate in markets with such characteristics (Figure 11). Important markets are highly concentrated, and govern- 2.1  Limited Local Competition ment participation in multiple firms in the same market increases concentration. Government participation in more Global competitiveness indicators rank Cameroon below than one company increases market concentration because income peers and the world average. The Global Competi- government influence limits rivalry among firms. This is tiveness Report of 2014–2015 ranks Cameroon 109 out of the case for electricity generation, palm oil, and bananas. 144  countries in terms of local competitive intensity, 65 in In many cases, even if the government does not have a con- terms of extent of market dominance, and 78 in terms of trolling share, it has special rights that impinge on business effectiveness of competition policy (a high rank indicates decisions. In the case of sugar, the government nominates poor performance). Furthermore, resource-dependent the director general, and in the case of the Cameroon Elec- countries with similar GDP per capita rank better than Cam- tricity Company (ENEO), the government has special voting eroon in terms of local competitive intensity. For example, rights. Of the 12 markets analyzed (Figure 12), 11 are highly Cameroon underperforms when comparing perceptions of concentrated based on the Herfindahl-Hirschman concen- the degree of local competition with Côte d’Ivoire, Indone- tration index (HHI). Rail transport services, port services, sia, Nigeria and Malaysia (Figure 9). Lack of freedom to set fixed telecom network services, and ginned cotton are out- prices, unfair competitive practices, and vested interests that right monopolies. 9 10 Cameroon Country Economic Memorandum Figure 9: Competition Intensity and the Extent of Market Dominance (2014–2015) 6 6 (1 = not int ns t ll; 7 = xtr m l int ns ) 5 5 f w busin ss roups; 7 = spr d mon m n firms) Int nsit of loc l comp tition Ext nt of m rk t domin nc 4 4 3 3 (1 = domin t d b 2 2 1 1 0 0 n n n n n n ir ol n si ol ri n si o o si si ir ri m m ro ro ij Ivo ij Ivo Gh Gh n n An An rb rb Ni Y Y do do l l d’ Ni m m d’ M M In In C C t A A t Cô Cô Source: WEF, Global Competitiveness Report 2014–2015. Note: CEMAC is calculated averaging Cameroon, Gabon, and Chad. Various factors coincide to create a poor competitive envi- Cameroon and its CEMAC neighbors is a “one-way trade” ronment. High market concentration, state ownership of the dominated by Cameroonian exports of agricultural com- largest firm in the market, and government regulations work modities (Nkendah 2013). As agricultural and horticultural to limit competition (data collected by ISSEA in 2014). In products dominate this informal trade, seasonal patterns the case of network sectors, regulation is needed to facilitate due to production cycles and the usability of road connec- competition. For example, in the case of railways, infrastruc- tions affect its magnitude. Indeed, this informal regional ture services and transport services are not separated, and an trade relies on poor roads and a poor trucking sector. These access policy that could allow other companies to use their conditions raise inland road transport prices and reduce the own rolling stock to provide transportation services is lack- quality of service. One ton-kilometer costs 11 U.S. cents on ing. In goods markets (such as sugar, palm oil, and cement), the Douala-Bangui-N’djamena corridor compared with 8 in price controls and import restrictions exacerbate the effects Eastern Africa, 6 in Southern Africa, 5 in France and China, of a concentrated market. This is illustrated by the sugar 4 in the United States, and 3.5 in Brazil (Terravaninthorn and price differential between Cameroon and some benchmark Raballand 2008). countries (Figure 13). A World Bank study on cross-border trade between Cam- eroon and Nigeria (World Bank 2013) illustrates how the 2.2  Limited Regional Competition poor quality of road infrastructure along regional cor- ridors contributes to high transport costs. According to Informal cross-border trade is vibrant in Central Africa, this study, a truck takes as much as a week in the dry sea- especially in agricultural commodities, but poor trade and son to complete the 30-kilometer stretch between Limani transport facilitation limit its potential. With the relative and Mora, a key corridor to the Nigeria border in north- proximity of Garoua (north of Cameroon) and Kano (north ern Cameroon. Despite slow driving to safeguard vehicles, of Nigeria), increased informal trade of rice might explain trucks break down frequently. Large segments of the nine why prices in these two cities were closer (CFAF421/kg corridors that connect Cameroon to its land-border cross- in Garoua vs CFAF443/kg in Kano), compared to the price ings with Nigeria are dirt and gravel roads that are diffi- difference between the other regions of Cameroon and cult to cross in the dry months and impossible in the rainy Nigeria (Figure 14). More generally, the trade between On firm F w firms M n firms 0% 20% 40% 60% 80% 100% Int rn tion l irport op r tion Dom stic ir Tr nsport Int rn tion l ir Côt d’Ivoir Port op r tion R ilw fr i ht N wsp p r M di T l vision bro dc stin Source: World Bank, Investing Across Borders 2010. Minin Minin , oil & s C m roon Oil & s A ricultur A ricultur & for str For str Li ht m nuf cturin K n Figure 11: Manufacturing Firms by Market Structure Li ht M nuf cturin of food products M nuf cturin Figure 10: Number of Firms in Each Sector or Subsector Ph rm c utic l products Source: World Bank, Enterprise Surveys (latest available data for each country). Publishin Fix d-lin infr structur Fix d-lin t l phon s rvic s T l com Gh n Wir l ss/mobil infr structur Wir l ss/mobil s rvic s Pow r distribution El ctric pow r Pow r n r tion Pow r tr nsmission B nkin Fin nci l s ctor Insur nc Duopol Monopol Construction Mor th n 6 R t il distribution s rvic s Oli opol (3–6) Oth r s ctors Tourism H lth c r Constraints to Competitiveness in Cameroon W st m n m nt nd r c clin 11 12 Cameroon Country Economic Memorandum Figure 12: Market Concentration in Selected Sectors (unit: Herfindhal-Hirshman Index) Unconc ntr t d Hi hl conc ntr t d Fix d t l com n twork R il tr nsport Port s rvic s El ctricit n r tion Ginn d cotton Su r Fro n fish C m nt Mobil t l com P lm oil (industri l) B n n Ric 0 2,000 4,000 6,000 8,000 10,000 Conc ntr tion b conomic roup Addition l conc ntr tion du to st t own rship in mor th n on firm Source: Data collected by ISSEA in 2014. Note: Figures correspond to 2013 or 2014. The figure for rice considers imported and locally produced rice part of the same market. The figure for cement assumes partial utilization of Dangote’s new capacity. season.9 Transport costs are considerably higher on the Poor road maintenance in Cameroon contributes to Cameroonian side, ranging from US$0.42 per ton-km for high transport costs. Distinct collection channels of a the Limani-Maroua corridor to US$0.72 per ton-km for the road user levy established in 1998 at the creation of the Bokoula-Guider section. In contrast, costs on the Nigerian Second Generation Road Fund have been abolished by side vary from US$0.11 and US$0.16 per ton-km. In terms the 2007 act, reverting to the pre-1998 situation when of travel time, crossing the 90  kilometers of the Limani- road maintenance resources were determined arbitrarily Maroua section takes 7–10 days and crossing the 190 kilome- under a force account regime. As a result of the budget ters of the Ekok-Bamenda segment takes as long as 14 days. controls imposed by the Ministry of Finance, only about By contrast, crossing the 710-kilometer stretch between 43% of the maintenance needs for the 27,000 km classified Kano and Limani on the Nigerian side takes only 3–4 days. road network are currently being met. This is despite the fact that fuel levies for road maintenance and rehabilita- tion have increased substantially over the last decade to 9 The 9 corridors are (1) Maiduguri-Bama-Banki-Limani- about FCFA100 billion (about US$213 million) per year Mora-Maroua; (2) Maiduguri-Bama-Banki-Limani-Bogo-Maga; of which only about 50% goes for road maintenance. Road (3) Maiduguri-Dikwas-Ngala-Fotokol-Maltam-Kousseri; (4) Maid- maintenance activities are also poorly planned and fail uguri-Bama-Gwoza-Touron-Mokolo-Maroua; (5) Mubi-Boukoula- Guider; (6) Jimenta-Demsa-Garoua; (7) Yola-Bardanké-Garoua to optimize the life cycle of road assets. A recent audit of (via the Benoué River); (8) Onithsa-Enugu-Abakaliki-Abong- maintenance contracts funded by the Road Fund revealed Abonshie-Ako-Nkambe-Ndu-Kumbo; and (9) Onithsa-Enugu- that only 45 percent of the civil works were judged satisfac- Abakaliki-Ikom-MfumEkok-Mamfé-Bamenda-Kumbo. tory or acceptable from a technical quality. Chronic road Constraints to Competitiveness in Cameroon 13 Figure 13: Sugar, White (1 kg) (Supermarket) 2.0 r, whit (1 k ) (sup rm rk t) in USD 1.5 1.0 0.5 Su 0.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 A rb ij n: B ku, m tro C m roon: Dou l , m tro Côt d’Ivoir : Abidj n, m tro Indon si : J k rt , m tro 2.5 2.0 Pric in 2016, USD 1.5 1.0 0.5 0.0 o o o o n o tro o o o tr tr tr tr tr tr tr tr ri P to ,m i, m ,m m m ,m ,m ,m ,m om r , n, :P ku os bi hn no t ur rt l iro Ci dj :P ou sb c B :H bi k fri h :L :D :N n: in :A di hA nn :J m M on bo ri ij ir ut tn hi si oh ro n m rb vo oC Ni So n :J K d'I Vi m C do :H A c In C t fri m Cô hA tn ut Vi So Source: The Economist Intelligence Unit. 14 Cameroon Country Economic Memorandum Figure 14: Average Retail Rice Prices in Cameroon, Chad, and Nigeria 1,000 800 Nomin l monthl pric s, CFAF p r k 600 457 443 421 400 200 0 K no Enu u Moussoro B fouss m U o M kurdi Ow rri Port-H rcourt Y ound Gomb Umu hi N'Dj m n B m nd Dou l G rou Ch d C m roon Ni ri Source: Cameroonian and Chadian prices come from FAO website (data retrieved in 2015). Nigerian prices come from Nigeria agricultural market information service (NAMIS). maintenance underfunding and weak implementation in 2011 and 1,544 in 2012. As high as 99 percent of the over- capacity are negatively impacting the quality and sustain- loads are below 5 tons. Despite these advances the general ability of the road network. view within the sector and among road users is that man- agement of excess load control still requires improvements, Some progress has been made in enforcing axle weight notably to render it more efficient and sustainable. regulation but this needs to be sustained. The percentage of overloaded trucks has decreased steadily from 85 per- Many checkpoints and roadblocks exacerbate high inland cent in 1998 to 9.5 percent in 2012 (13 percent in 2011). road transport costs and long travel times. Available data The network of weighing scales is still being extended (18 on the corridors connecting Cameroon to Nigeria indicate are currently operational, all managed and maintained by an average of as much as one checkpoint every 20 kilome- the private sector) and the number of trucks effectively con- ters (Table 2). These excessive controls not only increase trolled has increased remarkably from 606 in 2010 to 1,178 travel time but also financial costs as trucks can rarely pass Table 2: Checkpoints and Costs on Cameroon Road Corridors to Nigeria Number of Average Cost per Corridors Distance (km) Checkpoints Truck (US$) Size (tons) Southwestern Corridors Ekok–Mamfe–Bamenda 250 12 633 20 Abonshie–Kumbo–Bamenda 220 11 581 20 Northwestern Corridors Maga–Limani 150 13 521 40 Boukoula–Guider  80  7 290 40 Demsa–Garoua  45  4 676 40 Source: World Bank (2013). Constraints to Competitiveness in Cameroon 15 them without negotiating informal payments.10 Agencies in areas (World Bank 2014). Little direct contracting occurs charge of these checkpoints try to justify them on grounds where shippers negotiate contracts with truckers of an of security and/or preventing illegal movement of unauthor- uncompetitive transport sector. These regulatory constraints ized goods or persons, but checking all trucks so often on (formal and informal) are the root cause of limited competi- the same corridor inside the same country is certainly inef- tion, poor service, and high transport prices. ficient. These checkpoints are a clear disincentive to border trade. 2.3  Limited Global Competition High transport prices also result from higher vehicle oper- ating costs. Poor road conditions, old trucks, and payments Cameroon exports disproportionately more commodi- and stoppages at many road checkpoints imply higher vehi- ties to traditional markets. Comparing Cameroon’s actual cle operating costs and long and variable travel times. Road exports in 2010–2015 to predicted exports for each destina- infrastructure quality is a key determinant of the variable tion based on various country characteristics (including con- component of a truck’s operating cost.11 The cost is propor- tiguity, common language, common colonizer, geographical tional to how far and/or how often the vehicle travels and distance, etc.), Cameroon appears to export disproportion- its age, and comprises mainly fuel, tires, regular mainte- ately more to its CEMAC neighbors and to global markets nance and repairs, driver subsistence, and road user charges. such as Japan, the European Union [EU], and the United Recent cross-country estimates confirm that Cameroon has States, particularly for commodity exports. Although Cam- the highest ratio of variable-to-fixed costs at 70:30, com- eroon exploits demand in emerging markets such as Brazil, pared with 60:40 for countries in Eastern Africa and 45:55 in Russia, China and South Africa—the BRICs, market penetra- Western Europe (Teravaninthorn and Raballand 2008). tion is relatively higher for commodity exports and close to predicted levels for noncommodity or differentiated products. Ultimately, the most binding constraint in regional trade and transport facilitation is the existence of a trucking Cameroon also expands exports mainly by introducing cartel. The trucking market in Cameroon (and CEMAC) existing products to new markets and diversifying its is regulated as part of the transit cargo allocation system export mix to established markets. The largest source of for Cameroon, Chad, and the Central African Republic.12 export growth since 1990 was through the introduction of As a result, a few large freight forwarders13 in Douala col- existing products into new markets and diversification of the laborate with a few large trucking companies to set prices export mix within established markets (Figure 15, panel A). on the Douala-Bangui-N’djamena corridor and allocate tran- In 2009–2015, a shift to growth on the intensive margin sit cargo among Cameroonian truckers. The prices include occurred through increased volumes of existing export excessive markups on cost, and regulatory barriers to entry products to established markets (Figure 15, panel B). of new operators, and the de facto power of informal trans- The survival rates of export relationships indicate the port associations and freight bureaus restrict market access. challenges facing Cameroonian producers seeking to The same price-setting system also applies to import cargo export. Survival rates are how long a newly exporting firm destined for different places inside Cameroon, though sys- continues to export, whether to the same or new markets, tematic data on trucking prices and truck cargo are not yet or whether the same or different products. Export survival available, except for information on trucking in the border rates shown in Figure 16 for Cameroon suggest that, on aver- age, new exporters have a 30 percent probability of continu- 10 Studies find that formal payments at checkpoints in the border ing to export the following year, and this probability falls to region between Cameroon and Nigeria are significantly higher than about 12 percent by the third year. For comparison, note that comparable charges in East Africa. Informal payments at control survival rates are slightly better in Ghana, Côte d’Ivoire, and points, and those at the border can account for more than 50 per- Tanzania, and worse in Benin. cent of the total transfer costs along the Enugu (Nigeria)-Bamenda (Cameroon) corridor. A feasible strategy for increasing Cameroon’s global com- 11 Operating cost per km = (fixed costs per month/monthly distance petitiveness includes moving to “nearby” products, classi- 3 load factor) + variable costs per km. fied as new high-potential products. Over time, Cameroon 12 The freight bureaus (government agencies) of the three countries can accumulate the capacity to shift to highly sophisticated were involved in this allocation, but with Chad and Central African products. Given the underlying objective to raise and sustain Republic truckers failing to utilize their quotas, this allocation sys- tem is not really enforced. Due to the opacity of the quota-sharing GDP growth by increasing the sophistication of Cameroon’s mechanism, it is difficult to assess how Cameroonian trucks use export basket, the product-space methodology identifies high- these unused quota or what unofficial payments may be made to potential products that can use capabilities Cameroon already the Central African Republic or Chad transporting companies/ possesses. The selection criteria are sectors with a revealed associations. comparative advantage (RCA>1) and a sophistication level 13 Four freight forwarders control more than half of all transit cargo higher than Cameroon’s current average sophistication but not traffic. 16 Cameroon Country Economic Memorandum Figure 15: Intensive vs. Extensive Export Growth Panel A (1990–2015) 46.6 34.9 Int nsiv m r in Ext nsiv m r in 13.6 9.0 3.2 –3.4 –3.8 Incr. xistin D cr. xistin Extinction of Introd. n w Introd. n w Introd. Prod. div rsif. prod. in prod. in prod. in prod. in n w prod. in xistin prod. in st blish d st blish d st blish d st blish d mkts. st blish d in n w mkts. mkts. mkts. mkts. mkts. mkts. Panel B (2009–2015) 171.2 Int nsiv m r in Ext nsiv m r in 37.8 8.9 0.0 0.1 –51.0 –67.0 Incr. xistin D cr. xistin Extinction of Introd. n w Introd. n w Introd. Prod. div rsif. prod. in prod. in prod. in prod. in n w prod. in xistin prod. in st blish d st blish d st blish d st blish d mkts. st blish d in n w mkts. mkts. mkts. mkts. mkts. mkts. Source: Trade outcomes module of World Integrated Trade System (WITS) and World Bank staff calculations. Constraints to Competitiveness in Cameroon 17 Figure 16: Survival Rates of Export Relationships (1990–2015) 0.4 0.3 Prob bilit 0.2 0.1 0 0 5 10 15 20 25 An l sis tim GHA CIV BEN CMR TZA Source: World Bank staff computations using data from WITS. Note: Country codes: GHA = Ghana; CIV = Côte d’Ivoire; BEN = Benin; CMR = Cameroon; TZA = Tanzania. too far from existing products. This gives rise to many promis- and 30 days for noncontainerized cargo.14 Cargo took lon- ing product categories because Cameroon can relatively easily ger to exit from Douala after ships arrive there, than the diversify into these more sophisticated products (see Annex for same cargo took to travel across the ocean from the origi- list of products). Additional filters can be applied to narrow this nal port of departure, which was estimated at an average of large set of promising products, such as the availability of the 19 days (Diarra and Tchapa 2014). Douala’s average dwell necessary skills mix within Cameroon or at the CEMAC level. time for containers compares unfavorably with other Afri- can ports like Mombasa (11 days), Dar es Salam (12 days), For private sector firms to pursue any of these high- and Durban (4 days) (Raballand et al. 2012). This situation potential paths, the main entry/exit point for trade, reflects the current inability of the state to properly regulate namely the port of Douala, must be efficient. Minimiz- the sector. More generally, the state plays a central role in ing the total dwell time at the Port of Douala is essential. It all the constraints identified in Chapters 1 and 2. The next requires two key subsystems, port operations and customs chapter  documents how the Cameroonian state constrains clearance, whose efficiency determine the total dwell time. growth and competitiveness. A study commissioned by the World Bank in 2014 (Diarra and Tchapa 2014) found that in 2013, the average dwell time for import cargo in Douala was 20 days for containers 14 The longer average time for non-containerized cargo is due pri- marily to rice and maize whose average dwell time is 56 days. This is largely because rice has a free time of 90 days according to port rules. The Role of the CHAPTER State in Constraints 3 to Growth and Competitiveness Private-sector perceptions in Cameroon identify public a natural monopoly and permit competition. In the case of policies and service delivery quality as a major business ports, inter-port competition can create competitive pres- constraint. In the 2014 World Economic Forum report sure and help regulate the current monopoly of the Autono- (WEF, 2014), firms identify the four most problematic factors mous Port of Doula. In the electricity sector, competition is (out of six) for doing business in Cameroon as corruption, generally feasible in the generation segment. In Cameroon, inadequate infrastructure, tax regulations, and inefficient investments are under way to allow for competition in the government bureaucracy. The World Bank Cameroon future. However, given the vertical integration in the sector, Enterprise Survey undertaken in 2006 and 2009 and the strong regulation is needed to ensure competitive neutrality Business Climate Survey 2011 confirm similar constraints: between independent power providers and the state-owned fiscal pressures and harassment (e.g., high tax rates, multi- providers, all related to the transmission and distribution plicity of taxes), lack of finance (e.g., high interest rates, dif- network. ficult access to credit), red tape and bureaucracy (e.g., slow administrative procedures, harassment by state agents, lack The quality of service and cost of electricity in Cameroon of transparency), and unfair competition (smuggling, fraud, causes concerns, although the latest Doing Business data and counterfeiting). Assessing how the state enhances or show significant improvement. Perceptions about the qual- impedes well-functioning markets, and thus affects growth, ity of electricity services, as measured by the Global Competi- is therefore important. This chapter examines how the Cam- tiveness Report, have worsened over 2006–2015. Cameroon’s eroonian government is performing its regulator, promoter, ranking on the quality of electricity service deteriorated from and economic actor roles within the Cameroonian economy 107 in 2006–2007 to 126 in 2014–2015. In 2014, electricity and how this constrains growth and competitiveness. prices for residential use appeared to be higher than in Nigeria, Azerbaijan, Malaysia and Côte d’Ivoire (Figure 17). However, the 2017 DB data suggest that the situation has significantly Poorly Playing Its Role of Economic 3.1  improved, with rank of the ease to getting electricity decreas- Regulator ing from 114 in DB2016 to 89 in DB2017. According to these data, getting electricity requires 4 procedures, takes 64 days, Given their economic characteristics, network sectors are and costs 1,597.4 percent of per capita income all which com- regulated to mimic the outcomes of a competitive environ- pare favorably to the Sub-Saharan Africa average of 5.1, 115.4 ment in markets where competition is not feasible. Mar- and 3,711.1% respectively. Globally, Cameroon ranks 114 out kets with characteristics of natural monopoly are generally of 189 economies on the ease of getting electricity in DB2016. regulated. Regulations are designed to enable competition in other markets of the vertical chain. It is possible, however, for In the telecom sector, penetration is lower in Cameroon an industry that is initially a natural monopoly to change as than in peer countries and the cost of the service (particu- a result of changes in technology or demand. This requires larly fixed telephony) is relatively high. According to the reassessing the regulation to turn it more pro-competition. 2011 Business Survey, only 24 percent of companies used to In Cameroon, rail transportation services could cease to be have a telephone connection, and 42 percent had an Internet 18 The Role of the State in Constraints to Growth and Competitiveness 19 Figure 17: Quality of Electricity Supply and Cost of Electricity 3.5 140 500 3.0 135 El ctricit bill for f mil of four, USD (2014) 400 130 2.5 Qu lit (6 = hi h st qu lit ) 125 126 300 2.0 124 122 120 1.5 120 118 200 115 115 1.0 112 110 111 100 0.5 105 107 0.0 100 0 o o 7 8 9 0 1 2 13 4 5 o tro o o 01 tr tr tr tr tr 00 01 01 01 00 00 01 0 –2 –2 –2 –2 –2 –2 –2 ,m ,m m ,m ,m m –2 –2 10 11 12 13 14 09 06 r, n, 07 08 ku os pu 20 20 rt l 20 20 20 20 20 20 20 dj u m B Do bi k :L Lu n: :A :J C m roon Sub-S h r n Afric R nk n: ri ij o l ir si ro rb vo u Ni :K n d'I m do A si In C t Cô l M Source: WEF, Global Competitiveness Report (GCR) Source: Economic Intelligence Unit (EIU) connection. More recent (2016) data from Telegeography reduction of corporate income tax (from 35 to 30 per- indicate a higher population penetration rate for wireless cent) and the adoption of a new regulation to reduce bur- (84.4 percent) but still limited household penetration for densome and uncoordinated inspections are examples of broadband (0.6 percent). Mobile phone and broadband positive reforms initiated through the Cameroon Business access is low in Cameroon compared with other resource- Forum (CBF) that were implemented by government. With dependent countries with similar GDP per capita (Figure 18). regards to taxation, we can also mention the following recent The monthly rental and call charges for fixed telephony are reforms: (a) diversification of the methods of payment of tax higher than in Indonesia, Malaysia, Côte d’Ivoire and Nige- returns (tele-declaration, mobile payment, bank transfer); ria (Figure 19). Poor performance in these indicators could and (b) improvement in tax regulations in the Finance Law be associated with weak regulations on fixed telephony and 2017 and a joint circular by Customs and the Tax Administra- broadband infrastructure that neither mimic competitive tion, which aims to reduce the frequency of controls within pressures nor enable competition. In the case of mobile ser- enterprises. Since its launch in 2010, 132 out of the 192 rec- vices, the entry of Viettel (Nexttel) to provide 3G services ommendations of the CBF have been achieved (60 percent), has improved market dynamics by lowering prices to attract including reforms in six areas covered by Doing Business: customers, but the playing field in ICT services in general is Starting Business (by establishing a new one-stop shop and still not level. abolishing the requirement for verifying business premises and its corresponding fees in DB2011; and by replacing the requirement for a copy of the founders’ criminal records with Poorly Playing Its Role 3.2  one for a sworn declaration at the time of the company’s reg- of Economic Promoter istration, and by reducing publication fees in DB2012; Get- ting Credit (through amendments to the OHADA Uniform Cameroon has implemented various reforms to improve Act on Secured Transactions that broaden the range of assets the investment climate since 2010, but more efforts that can be used as collateral (including future assets), extend are needed promote the economy. Reforms such as the the security interest to the proceeds of the original asset 20 Cameroon Country Economic Memorandum Figure 18: Mobile Phone and Internet Access in Cameroon (2013) 150 Mobil -c llul r t l phon subscriptions p r 100 h bit nts 120 90 60 30 0 n n n n ir si ol ri n si o m ro vo ij d Gh Su n An d'I rb Ni Y do l m M In t C A Cô 1.5 Fix d (wir d)-bro db nd subscriptions p r 100 h bit nts 1.2 0.9 0.6 0.3 0.0 on n n ir ol n si m ro vo d Gh Su n An d'I Y do m In t C Cô Source: International Telecommunication Union (ITU). and introduce the possibility of out-of-court enforcement possible for shareholders to inspect the documents pertain- in DB2012; and by passing regulations that provide for the ing to related-party transactions and to appoint auditors establishment and operation of a credit registry database in to conduct an inspection of such transactions in DB2015); DB2015); Dealing with Construction Permit (by reducing Enforcing Contracts (by creating specialized commercial the time it takes to obtain the building permit and strengthen divisions within its courts of first instance in DB2013); and the Building Quality Control Index by increasing transpar- Resolving Insolvency (by introducing a new conciliation ency in DB2017); Protecting Minority Investors (by intro- procedure for companies in financial difficulties and a sim- ducing greater requirements for disclosure of related-party plified preventive settlement procedure for small companies transactions to the board of directors and by making it in DB2017). Still, Cameroon’s overall DB2017 ranking is The Role of the State in Constraints to Growth and Competitiveness 21 Figure 19: Costs of Fixed Telephony across Selected Countries (2014) 15 0.5 2015 in USD T l phon lin , ch r p r loc l c ll from hom for 12 0.4 2014 in USD T l phon lin monthl r nt l, v r 9 0.3 3 mins, v r 6 0.2 3 0.1 0 0.0 A rb ij n: M l si : M l si : Indon si : J k rt , m tro B ku, m tro C m roon: Dou l , m tro Ku l Lumpur, m tro Côt d'Ivoir : Abidj n, m tro Indon si : J k rt , m tro Ku l Lumpur, m tro Côt d'Ivoir : Abidj n, m tro Ni ri : os, m tro C m roon: Dou l , m tro L Source: EIU. poor (166 out of 190) and the three weakest areas are: Trad- foreign ownership is allowed). The Investment Code of 1990 ing across Borders (186 out of 190), Paying Taxes (180 out established requirements for at least 35 percent Cameroonian of 190) and Registering Property (177 out of 190). equity ownership for enterprises under the SME regime. Such limitations could discourage entry from foreign firms and Lack of clarity also characterizes the foreign investment perpetuate concentration in certain markets. To illustrate, the legal environment, discouraging entry. Intending to attract proportion of firms that received foreign direct investment investors, Cameroon’s government replaced the Investment (FDI) in 2011 was negligible at 3.1 percent, and this FDI was Code of 1990, which included some restrictions on foreign concentrated in large companies. ownership, with the Investment Chapter of April 19, 2002, which permits 100 percent foreign equity ownership. How- Investment incentives granted only to select firms can ever, in practice, the Investment Chapter has not yet been affect competition. Such incentives facilitate anticompeti- fully implemented. Decree No. 2009/001 of May 2009 post- tive behavior. These include creating or protecting domi- poned the deadline for its implementation, setting the new nant players, unduly encouraging firm consolidation that date for 2014. In 2013, to promote and attract productive increases the risk of cartel formation, and creating barriers to investment, the investment code was supplemented with entry for future competition. They can also generate market Law No. 2013/004, which lays down private investment inefficiencies, discouraging beneficiaries from being more incentives in Cameroon. This “moving target” environment productive and innovative and driving out more or equally reduces interest in entering the Cameroonian market. efficient firms that do not benefit from such incentives. Exceptions can be granted to first movers in new fields, pro- Cameroon still restricts foreign ownership in some sectors, vided the selection criteria are transparent. The IMF (2011) which could affect new investor entry. According to the notes that although Cameroon’s tax codes are generally pre- World Bank database Investing Across Borders (Figure 20), cise, granting certain tax incentives is at the authorities’ dis- Cameroon restricts foreign ownership in these sectors: min- cretion. The Cameroon Business Survey 2012 found that, in ing (95 percent of foreign ownership is allowed), power trans- a survey of 539 companies, only 7.3 percent reported benefit- mission and distribution (foreign ownership is not allowed), ing from tax incentives. These were largely SOEs and para- railway freight, domestic air, international air, airport and statals, reflecting potentially unequal access to tax incentives, port operation (49 percent of foreign ownership is allowed), and increasing allocative inefficiencies (cf. Section 1.3). and television broadcasting and newspaper (49  percent of 22 Cameroon Country Economic Memorandum Figure 20: Restrictions on Foreign Ownership of Equity in New Investment Projects (Greenfield FDI) and on the Acquisition of Shares in Existing Companies (Merger and Acquisition) M di Tr nsport El ctricit Minin , oil & s H lth c r & w st m n m nt Construction, tourism & r t il Insur nc B nkin T l com Li ht m nuf cturin A ricultur & for str 0 20 40 60 80 100 Source: World Bank database Investing Across Borders for 2010. Note: Full foreign ownership allowed = 100. The incentives framework has been effective in committing SOEs15 and companies with government participation play a investments and jobs, but discretion in providing them is role in several markets and sectors in Cameroon. In a sample a concern. Since inception until March 2015, 28 companies of 51 countries, including five African countries, Cameroon were granted incentives. Committed investments reached has the second largest number of subsectors with SOE pres- US$557.5 million and committed jobs around 10,000. Most ence (World Bank—OECD Product Market Regulation data- committed jobs and investment came from the agriculture base). The presence of SOEs in infrastructure sectors is not sector. Many new or medium-size players have accessed the unusual in many economies, especially in sectors that require incentives. SOSUCAM is the only state-owned company that intensive capital investments (such as electricity transmission received incentives; it committed to invest US$171 million and road infrastructure). However, Cameroon also has SOEs and create 336 jobs. However, discretion enshrined in some in other sectors (including accommodation and production of provisions of the law should be managed carefully to avoid sugar and edible oil) that many other countries tend to leave favoring certain businesses. For instance, the law allows open to private companies. According to available informa- the state to extend the incentives to shareholders, promot- ers, and local contractors through contractual arrangements (Article 11). The incentives can also be extended beyond the 15 According to the Product Market Regulation database used for the initial period in case of force majeure and economic difficul- analysis in this sector, an SOE is defined as a company in which ties. Clear and transparent guidelines on when to extend the state or provincial governments (not including local governments benefits would be useful to prevent abuses. or municipalities) hold, either directly or indirectly through a government-controlled company, the largest single share of the firm’s equity capital. Public ownership is measured by the extent 3.3  Too Heavily Involved as Economic Actor to which the government participates and intervenes in markets through the scope and scale of its SOEs. Publicly controlled firms The state is directly involved in economic activities where also include government entities that are not organized as compa- private participation is possible and economically viable. nies, but operate in business activities. The Role of the State in Constraints to Growth and Competitiveness 23 tion, the government controls at least one firm in 20 subsec- for nearly 85 percent of total turnover of this sample of SOEs, tors out of 27 surveyed subsectors (Figure 20), as compared with a combined turnover of CFAF1.2 billion, some with sig- with an average of eight sectors in the five countries with the nificant losses, others with significant profits. smallest SOE footprint according to OECD Product Market Regulation (PMR) data.16 The Cameroonian government also SOEs have significant cross debts and outstanding claims/ has noncontrolling shareholdings in companies in other sub- accounts receivable from government and others, while sectors (such as metal products, cement, glass, and insurance). revenue paid to the state is low. Total claims/receivables reached 60 percent of total turnover in 2013. No information State participation in commercial activities, competing is available about how overdue these claims are and the share with the private sector, requires special attention to ensure of such claims that are subsequently written off, but clearly value for money, given the potential negative effects on such high levels of outstanding receivables would complicate attracting investment. Although the government may have the management of SOE finances. The trend of increasing other objectives (for example, boosting job creation, reduc- outstanding claims between 2010 and 2013 suggests that ing price volatility of commodities, or generating fiscal rev- these may be cumulative. Total debt by the SOEs for which enue), value-for-money principles can be applied to compare data are available reached 17 percent of GDP in 2013. Most the benefits of state ownership with the cost of impairing of this debt is short term and will be paid as planned. How- economic efficiency, productivity growth, and fiscal sustain- ever, not known is how much total long-term debt is guar- ability. Cameroon’s SOE sector is large, and its impact on the anteed by the state and hence would be contingent liabilities economy and the government budget is substantial. The com- that could be called on in case of debt default by the SOEs. A bined turnover of the 23 largest SOEs (out of approximately major concern is the high level of fiscal debts, or taxes owed 40 commercial SOEs) was CFAF1.4 trillion in 2013 (US$2.95 by SOEs to government. Despite an increase in taxes paid in billion), about 11 percent of GDP. The net result for 2013 recent years, fiscal debts reached CFAF175  billion in 2013 was a loss of CFAF13.7 billion (US$27.8 million). Despite (about US$318 million), nearly 7 percent of total govern- increased turnover since 2010, the net results have worsened, ment revenues. Social security debts are another concern moving from a CFAF23.9 billion profit in 2010 to losses in (CFAF35.8 billion in 2013, about US$65 million). Credit to 2012 and 2013 (Figure 21). The top five SOEs are responsible public enterprises went from CFAF113 billion in 2012 to 145 in 2013 and 170 in 2014 and is estimated to reach more than CFAF300 billion by 2018 (1.4 percent of GDP). Few SOEs 16 In these countries, SOE presence is limited to essential public utili- ties, mostly in infrastructure sectors such as electricity, gas, and water. pay dividends to the state. Dividends steadily decreased Figure 21: SOE Turnover and Net Profit/Loss 1,600 14 1,400 12 1,200 10 1,000 Billions CFA % of GDP 8 800 600 6 400 4 200 2 0 25 0 –7 –14 –200 0 2010 2011 2012 2013 Turnov r N t profit/loss Turnov r (I ft-h nd sc l ) Source: Authors’ compilation. 24 Cameroon Country Economic Memorandum between 2010 and 2013, from CFAF9.4 billion to 1.3 (about these privatizations. The CTPL itself accompanies the priva- from US$17.1 million to US$2.4 million).17 tization process only partway; the Office of the President takes over the latter stages of the process, including private- SOEs are accountable to multiple institutions with little sector negotiations. Line ministries are in charge of techni- clarity on performance targets and achievements. The cal oversight of SOEs operating in their sectors and select Ministry of Finance (MINFI) through the Commission Tech- SOE management. They nominate board members sub- nique de Rehabilitation (CTR) is on the boards of all SOEs ject to the approval of the President of the Republic who as an observer and produces an annual report on the SOE appoints the managing director on the recommendation of portfolio. However, neither the report nor any other SOE the responsible line ministries for the largest SOEs. The sec- data are publicly available. The CTR reports problems with retary general of the Presidency is generally the chairman of receiving regular financial statements from SOEs. Further- the board of the largest SOEs. more, CTR reports having no standard indicators to moni- tor SOE performance, and no companies have developed In addition to direct involvement in SOEs, the state plays results contracts/agreements. The Commission Technique an indirect role in the economy by controlling prices of de Privatization et de Liquidation (CTPL) is the secretariat several products and services. The Ministry of Commerce of an inter-ministerial committee in charge of the techni- (Directorate of Metrology, Quality, and Prices) is responsible cal preparation for privatization and liquidation of SOEs. for price control.19 How price controls are applied is unclear, Around 25 companies were fully or partially privatized and stakeholders suggest the controls are redundant. In prac- or closed in 1990–2015. There are still 127 SOEs remain- tice, no publicly available list of maximum prices is available. ing in Cameroon: 28 wholly publicly owned, 19 partially For some services, tariffs were never approved by the Min- owned, and 80 administrative agencies.18 However, the IMF istry of Commerce, mainly due to the existence of sector indicates no data are available on receipts to the state from agencies in charge of regulating them (electricity, ports, and hospitality services). In cases where a maximum price was set (for instance in sugar and cement), no specific methodol- 17 In 2013, only SODECOTON paid a total of CFAF1.4 billion in ogy for calculating the price was published. The Ministry of dividends. In 2012 SODECOTON and SOPECAM paid CFAF1.8 billion, in 2011 CAMAIR and SODECOTON paid CFAF97.9 mil- Commerce supervises compliance with a team of inspectors. lion, and in 2010 CAMPOST, the Port of Douala, and SCDP (a Depending on the value of the merchandise infringing the petroleum storage firm) paid CFAF9.4 billion. Government subsi- law, the penalties can be up to 50 percent of the realized ben- dies to the SOEs have increased from CFAF95 billion in 2010 to efit or 5 percent of the sales of the merchandise. In periods CFAF183.6 billion in 2012 (8 percent of government revenues) and with no inflationary pressures, controls become nonbind- decreasing again to CFAF137.4 billion in 2013. ing. However, they still create a business risk and increase 18 The Public Enterprise Sector (Secteur Parapublique) is organized the regulatory burden, especially for supermarkets that are into several categories: the usual target of inspectors. Furthermore, the Ministry 1. Societes d’economie mixte (SEM): Are companies with several of Commerce requires retailers to file their new price lists shareholders but where the majority of the capital is held by the 15  days before the sale in case of any increase. This regu- state (public agency). There are 19 SEMs in Cameroon. lation aims to foresee price surges, but in practice enforce- 2. Societes a Capital Publique (SCP) are companies owned entirely by the state. This category counts 21 institutions, including ment focuses on a few large market players, and the result is Etablissements Public Industriel a Caractere Commercial (EPIC). It increasing burden for firms and the Ministry of Commerce.20 includes the large utilities (Water, Electricity) but also some smaller institutions such as the national veterinary laboratory. 3. Etablissements Publics Administratifs (EPA): Numbering 80, 19 Order No. 00011/CAB/MINCOMMERCE of 5 May 2008, deter- these are mostly government regulatory agencies or specialized mining the list of products and services whose prices and rates are technical agencies, including the investment promotion agency, subject to the prior approval procedure. The prices of these products the national public administration school, and several hospitals. are subject to approval: Food products: sugar, milk, crude palm oil, These agencies are generally entirely reliant on transfers from the imported frozen fish, wheat flour, maize flour, imported rice, table state budget for their activities, although some make substantial salt, edible oils; Building materials: imported Portland cement, iron revenues from commercial activities, such as the Caisse Nationale bars; Other products: domestic, industrial or medical gas, medi- de Protection Sociale (CNPS). cines and hospital supplies, books and textbooks; Services: water, 4. Etablissements Publics Administratifs de Type Particulier. This electricity, ancillary maritime transport services, services provided category includes another 7 companies, including a Bank, a research by ports, public passenger transport (road and rail); and services center, and a roads fund. offered by hotels and tourist facilities, social housing, school and 5. Companies in which the state has minority interests and which university accommodation. does not fall into any of the above categories. This category includes 20 These products are subject to price filing: food products (sugar, approximately 30 companies, ranging from the Douala stock exchange, milk, crude palm oil, imported frozen fish, wheat flour, imported to shipping and oil companies. Shares are held either by the Minis- rice, salt, edible oils, alcoholic beverages, sardine in oil, tea, coffee, try of Finance, by the state investment company (Societe Nationale bread, butter, pasta), building materials (Portland cement; roofing d’Investissement), the national oil company (SNH), the national oil sta- sheets), and other consumer goods such as detergents and house- bilization fund (CSPH), or the national social insurance fund (CNPS). hold soaps. The Role of the State in Constraints to Growth and Competitiveness 25 The Ministry of Commerce also imposes import controls agreements.22 Cameroon is also perceived to impose high for several products, generally coupled with price con- nontariff barriers to imports. According to the Global Com- trols. Import controls are imposed indirectly through tariffs petitiveness Report of 2014–2015, Cameroon ranks 120 out on imported products to make them costlier or by nontariff of 144 countries in terms of prevalence of nontariff trade barriers (prohibitions and quantitative restrictions).21 Cam- barriers (Figure 22, Panel B). The rigid exchange rate com- eroon has one of the highest trade tariff rates in the world bined with high tariff protection is detrimental to export- and imposes high nontariff barriers. According to the Global ers, especially manufacturing exporters that need imported Competitiveness Report of 2014–2015, Cameroon ranks 132 intermediate products for inputs. A fast and effective way to out of 144 countries in terms of weighted average tariff rates reduce the domestic inefficiencies of the Cameroonian econ- (Figure 22, Panel A). According to World Trade Organization omy is to liberalize imports sequentially, beginning with raw Agriculture (WTO), agriculture is the most protected sector materials and intermediate products and then final products in CEMAC countries with an average tariff rate of 23.6 per- and consumer goods. cent. Cameroon applies some exceptions to the CET, includ- ing exemptions to the trade of live animals, animal products, A good investment climate is achieved when state involve- and vegetable products. Most products face an excise duty ment in business operations is neutral to competition and rate of 25 percent, the maximum rate provided in CEMAC does not hamper private sector participation. While each country determines the degree of state involvement in mar- kets, good practice is to limit state involvement to the extent 21 These are examples of import controls: For palm oil and oil, needed to address specific market failures and to when the imports are approved during periods of shortage. To import refined benefits of such intervention outweigh the costs. Cross- petroleum products, a “shortage certificate” drawn up by the fuel country comparisons show that although prices in Camer- price stabilization fund must be obtained. In the case of sugar, oon are controlled, they are higher than international prices rice, and cement, importers must obtain import licenses. Discre- tion in granting the licenses can also limit the number of import- and increasing. Import restrictions (through licenses and ers and import volumes. Sugar imports are subject to valuation bans) and limited competition in domestic markets contrib- determined at the administrative level (CFAF458,000/ton in 2012, ute to this result. A pro-competitive government will increase about US$830/ton), which, added to a customs duty of 30 percent, Cameroon’s growth prospects, improve competitiveness, and may reduce the competitiveness of imports. In the case of sugar, increase the chance of reaching emergence by 2035. The next SOSUCAM and other companies in the subsector can import at a chapter proposes concrete short- and medium-term policy 10 percent tariff instead of the 30 percent common external tariff recommendations to achieve this objective. (CET). Similarly, the special program for imports of fast-moving consumer goods such as petroleum products, palm oil, sugar, bis- cuits, beverages, or confectionery, allows sector operators to import goods at a lower tariff in case of a shortage. In some cases imports are completely banned. For instance, since 2006 the Ministry of Livestock, Fishing, and Animal Industry (MINEPIA) banned the 22 Fruit juices, aerated beverages, mineral waters, malt beers, ver- import of frozen chicken. Currently the government is evaluat- mouth and other wines made from fresh grapes, other fermented ing the establishment of an import ban on cement to protect the beverages, eaux-de-vie, whiskey, rum, gin and spirits, cigars, cigaril- domestic industry. These examples were obtained from interviews los and cigarettes, chewing tobacco and snuff, other manufactured conducted in Douala and Yaoundé and complemented with WTO tobaccos, foie gras, caviar and its substitutes, salmon, precious stones (2013), Trade Policy Review of CEMAC. and metals, and jewelry, are subject to a 25 percent excise duty. 26 Cameroon Country Economic Memorandum Figure 22: Estimated Tariff and Nontariff Rates 16 14 t riff r t s, % dut 12 10 8 Tr d -w i ht d v r 6 World v r 4 2 0 Indon si M l si Ym n A rb ij n Ni ri Côt d’Ivoir Gh n C m roon 5.5 Pr v l nc of tr d b rri rs (7 = b st) 5.0 4.5 World v r 4.0 3.5 3.0 C m roon Côt d’Ivoir Ym n Indon si A rb ij n Gh n Ni ri M l si Source: World Economic Forum. Policy CHAPTER Recommendations 4 The Cameroonian state plays its role of regulator and eco- upper-middle-income status, total factor productivity (TFP) nomic promoter poorly while at the same time being heav- has to grow by 1 to 1.5 percent a year, compared to 0 per- ily involved in production, thus stifling competitiveness cent over the past decade. The slower TFP growth, the more and constraining growth. Growth happens through three Cameroon has to rely on it investment rate to accelerate real main drivers: factor accumulation; factor reallocation to its growth to 8 percent, the annual rate needed to reach upper- most productive use; and innovation. In a perfect market middle income country by 2035. At 20 percent of GDP, the economy where competition is the rule, the rational deci- current investment rate already relies on increasing public sion of consumers and producers triggers such multipronged investment. To push the investment rate to 25–33 percent growth process. Although government is not needed in pro- (the level required to reach upper-middle income country duction, in Cameroon there is too much government in pro- 2035 depending on TFP growth), more savings have to be duction, which distorts markets. Distorted markets allocate mobilized, either through the public sector, households or production factors inefficiently, hence constraining growth. tapping foreign savings through FDI. Finally, the current In Cameroon, the full benefit of an increasing stock of infra- allocation of production factors among Cameroonian firms structure is not captured because of too little state where is inefficient, as illustrated by the fact that although most needed, in regulation. Poorly regulated backbone infrastruc- productive firms are on average 10 times more productive ture services (power, transport and telecommunication) than less productive firms within the same sector, they are keep production factor costs high, hence constraining com- subjected to a higher tax burden while less productive firms petitiveness. In Cameroon, red tape overwhelms the private receive an implicit subsidy. If this allocative inefficiency was sector despite the official talk about facilitating business. An addressed, aggregate productivity would increase by at least unfriendly business environment discourages private invest- 68 percent, bringing growth closer to the targeted 8 percent. ment, hence constraining growth. There is therefore a need This section proposes three sets of actions the government, to revamp the role of the state to enhance competitiveness in conjunction with the private sector, can undertake to pro- and productivity. To this end, this chapter focuses on nine mote growth in Cameroon by increasing productivity, har- major areas the government and the private sector need to nessing savings, and reducing allocative inefficiencies. collaborate on to promote growth, foster competitiveness and ensure value for money in any state intervention. This Increasing Productivity will in turn unlock Cameroon’s potential for accelerated Policies impacting the determinants of firm productivity inclusive growth. should be urgently implemented. Involvement in activi- ties such as training workers, certification, Internet utili- 4.1  Promoting Growth zation, and licensing of foreign technology are found to increase productivity in Cameroon. Some of these actions Growth in Cameroon is constrained by low productiv- are straightforward (certification, Internet utilization and ity, low savings and allocative inefficiencies. Chapter 1 licensing of technology) and require the strengthening documents that for Cameroon to reach its 2035 goal of of institutions mandated to deal with them, and seeking 27 28 Cameroon Country Economic Memorandum feedback from the private sector to adjust them as needed. Reducing Allocative Inefficiencies The training of workers should, however, be a joint respon- The government needs to urgently take measures to dis- sibility between the government and the private sector. The continue price controls and production monopolies in education and vocational training system of Cameroon contestable markets to help reduce allocative inefficien- needs to be aligned with the skills demanded by sectors with cies of production factors. The government’s direct inter- growth potential such as agribusiness, wood products, tex- vention in markets through import controls and bans, and tile and garments, leather products, and chemicals. A shift price control on a number of products, affects the entry of to more technical and engineering studies versus humanities newcomers and prices to end consumers. A cross-country is needed. A vocational training system allowing students comparison shows that although prices in Cameroon are to alternate between the training and work environment controlled, they are higher and increasing compared to inter- will also help, but this requires a full collaboration with the national prices. The government should just trust the market private sector speaking with one voice. This is all the more and lift all price and import controls. The most effective way important given the upcoming tougher competition from to protect the poor and vulnerable during price hike periods European imports following the entry into force of the Eco- is to set an effective and well-targeted cash transfer system. nomic Partnership Agreement between Cameroon and the EU in August 2016. 4.2  Fostering Competitiveness Harnessing Savings Financial inclusion and financial deepening is needed to Competitiveness in Cameroon is constrained by limited harness more domestic savings to finance the private sec- local, regional and global competition. Chapter 2 docu- tor. The Central Bank (BEAC) should help banks to better ments that market concentration is high in Cameroon and assess the creditworthiness of firms (through the establish- is exacerbated by the state participation in multiple firms. At ment of credit bureaus and collateral registries for instance) the regional level, the oligopolistic structure of the trucking to increase access to finance. The government can also sup- industry keeps transport costs high limiting regional compe- port SMEs and rural nonfarm businesses by facilitating the tition in product markets. Global competition is also limited development of financial products such as factoring, leasing, by an inefficient port and a relatively less diversified produc- and warehouse receipts. The government could also adopt tion base. These limited competitions are symptomatic of a the regulations needed to make mobile financial services state doing too much of what it is not expected to do (direct available to the general population, in order to increase participation in production), doing too little of what it is financial inclusion and make mobilizing domestic savings expected to do (regulation of backbone infrastructure ser- easier. Mobile banking and agent banking will increase vices) or failing to promote diversification. This section pro- financial inclusion and facilitate the collection of savings poses three sets of actions the government, in conjunction from households and firms in areas underserved with tradi- with the private sector, can undertake to promote domestic tional banking. competition, support regional trade and transport facilita- tion, and pursue a comprehensive diversification strategy. An aggressive FDI attraction strategy is needed. The gov- ernment must target and attract to Cameroon multinationals Promoting Domestic Competition operating in sectors with the potential for high employment The various factors coinciding to create a poor domestic and export to anchor private sector growth on a bigger exter- competitive environment should be systematically tackled nal demand. A fundamental step toward such a policy could by the government. To level the playing field, state owner- be the clarification of the legal regulatory framework of for- ship should be withdrawn from all companies operating in eign investment promotion. In certain sectors, restrictions an unregulated sector where the private sector is already suc- on foreign ownership still apply, including mining (95 per- cessfully operating. This is the case for agribusiness and tex- cent of foreign ownership is allowed), power transmission tile sectors. For network sectors such as utilities (energy and and distribution, railway freight, domestic air, international water), transport and telecommunication where state owner- air, airport and port operation (49 percent of foreign owner- ship is not uncommon, the regulatory agencies need to be ship is allowed), and television broadcasting and newspapers strengthened to protect the rights of consumer on quality of (49 percent of foreign ownership is allowed). The Invest- service and price, and the standard of management of these ment Code of 1990 establishes requirements for at least SOEs would need to be lifted. For example, in the case of rail- 35  percent Cameroonian equity ownership for enterprises ways, infrastructure services and transport services are not under the SME regime. Combined with a weak legal sys- separated, and an access policy that could allow other compa- tem, this reduces the willingness of foreign firms to enter nies to use their own rolling stock to provide transportation the market of Cameroon. The government should tackle services is lacking. In goods markets (such as sugar, palm oil, these issues head-on as part of an aggressive FDI attraction and cement), price controls and import restrictions exacer- strategy. bate the effects of a concentrated market and should both be abolished to take advantage of cheaper imports. Finally the Policy Recommendations 29 playing field on paying tax should be leveled between formal market information system to manage transport flows and and informal firms by systematizing and intensifying the tax services. administration’s current efforts to encourage informal firms to register by providing incentives such as a discount on the Pursuing a Comprehensive Diversification minimum tax (1.1 percent instead of 2.2 percent for informal Strategy firms that register in a tax center) and providing good public To develop new products, Cameroon may want to follow services to newcomers to maintain momentum. the experience of East Asia in the development of clusters. In it, the government’s role is to nurture and support exist- Supporting Regional Trade ing clusters rather than trying to create clusters from scratch. and Transport Facilitation Entrepreneurs, rather than governments, create clusters. Without deregulating the trucking industry, it will be Once clusters expand, the public sector can develop general hard to reduce delays and costs of transporting goods or infrastructure (roads, utilities, land) and target facilities to improve the quality of trucking services. Trucking services meet the specific requirements of emerging clusters (market should be liberalized to improve quality and reduce trans- structures, financial institutions, training programs, qual- port prices. In parallel with scaling up road investments, ity control mechanisms, and so on). This needs to be done the government should deregulate the trucking industry to in sync with the FDI attraction strategy already mentioned increase competition and thereby reduce transport prices to make sure sectors with growth potential are stimulated for shippers and enhance the quality of services. One way through the technology transfer that generally accompanies to generate reform momentum for breaking the regulatory a well-managed FDI operation. status quo could be to build in financial support for affected parties during the transition period and announce it as part In parallel, the Port of Douala (and later, Port of Kribi) of the deregulation reform program. Government measures management operations should be strengthened, using to create an enabling environment for transporters to access data-based performance monitoring. The current poor finance to renew their fleet is also needed to unleash the sec- management of the Port of Douala contributes directly to tor’s potential. a quarter of the average dwell time and indirectly to more through its cargo storage rules. The Port Authority should Chronic road maintenance underfunding and weak adopt measures identified as part of the trade and trans- implementation capacity are negatively impacting the port facilitation policy dialogue supported by the CEMAC quality and sustainability of the road network. Funding for Transport and Trade Facilitation Project to improve the the rehabilitation of roads remains insufficient. To improve current situation. The government should also subject the road asset management, the second generation Road Fund Port Authority to performance monitoring, using detailed created in 1998 and abolished in 2007 needs to be reinstated. data as was done in customs. Detailed data should be com- Furthermore, road maintenance activities need to be better piled, with the cooperation of shipping lines on times of ship planned to optimize the life cycle of road assets. Simulations arrival, entry to quays, and cargo discharge for all 1,200 ships conducted by CARPA show that the use of PPP could allow that discharge cargo at Douala during the year. These data to fund and implement a routine maintenance of a stretch should be used to monitor changes in the Port Authority’s tarred with a fixed toll of 500 CFA Francs for several years. performance, and the Port Authority should do the same Long-term performance-based road maintenance is also with the private contractor managing the container terminal. showing positive results in many developing countries. The This performance-based approach should be applied to the government should explore these innovative ways to sustain Port of Kribi when it starts operating. Furthermore, because road maintenance. many importers prefer cheap storage in port, a straightfor- ward way to improve efficiency is to amend the rules for free Road checkpoints should be limited to the strict mini- time and storage fees. This will induce these firms either to mum to reduce informal payments. Removing road check- find alternative arrangements or alter their business model points to accompany better roads and a more competitive such that they can benefit from shorter dwell times. trucking industry is key. If complete removal is not possi- ble, the number should be drastically reduced and regularly monitored, and clear terms of reference should explain the 4.3  Revamping the Role of the State purpose of such roadblocks. But for this measure to be sus- tainable, the root cause of the problem of informal payment Growth and competitiveness are constrained by a state should be addressed: a fragmented transport sector domi- poorly playing its role of regulator and economic pro- nated by informal and small players relying on obsolete and moter while being too involved in production. Chapter 3 old trucks and vehicles. Greater efficiency of transport ser- documents that poor regulation of backbone infrastructure vices will imply new measures and mechanisms to improve services in Cameroon leads to unreliable and expensive ser- transparency of transport prices. In this regard, the govern- vice factors, which negatively affect competitiveness and ment should consider establishing a robust and transparent growth. The heavy hand of the state leads to an unfriendly 30 Cameroon Country Economic Memorandum business environment that discourages domestic and for- Doing Business data indicate that the three weakest areas are eign investors alike, which constraints a private sector-led trading across borders, paying taxes and registering property. growth. Finally, the Cameroonian state is found to be heavily The government needs to urgently adopt a reform agenda involved directly in production, even in some sectors already focusing on these three areas to demonstrate to the business championed by the private sector and with no consideration community its commitment to reduce allocative inefficien- for value for money. This section proposes three sets of cies. This will go a long way to stimulate the industrialization actions the government has to undertake to revamp its roles of the country before more targeted interventions such as of economic regulator, promoter and actor. Special Economic Zones like the Kribi growth pole. More- over as long as first order issues such as ICT, electricity and Reinforcing Backbone Services Regulation transport costs are not addressed, it is hard to see how an In ports and railways, three situations need close monitor- SEZ will help attract FDI. ing and regulatory action to prevent restrictions on com- Withdrawing from Production petition. Common ownership of the companies that operate the port and the railway infrastructure requires attention to SOE portfolio management should be enhanced to incen- avoid hampering competition. A private monopoly, Cam- tivize SOE performance, while mitigating the impact on rail, operates the railway infrastructure and the rolling stock competition. Cameroon’s SOE oversight model seems com- under a 20-year contract signed in 1999. Companies from plex, with overlapping mandates and lack of clarity. The the same economic group operate the Port of Douala (and presence of many principle-agent relationships tends to soon the Port of Kribi) and provide ancillary services (tow- weaken accountability and therefore the state’s ability to hold ing and berthing; managing the container terminal, the SOEs accountable. First, the government should conduct a vehicle yard, and transit operations; and handling and stor- thorough assessment of all the existing SOEs to determine age). The group also includes logistics companies that for- their fiscal position as well as their economic contribution. ward cargo through the port and railways. In this situation, Second, the government will need to develop and adopt legal monitoring competitive neutrality regarding the treatment and institutional frameworks that outline the objectives for of cargo that is not handled by the group’s logistics company state ownership, clearly outlining the government’s objectives is important. A fully integrated logistics chain improves the for state ownership and each SOE’s main task, expectations efficiency of cargo management, but it can limit competition for reporting, performance monitoring and transparency of and put other firms at a disadvantage. Under such condi- SOEs, board nomination processes, and remuneration prin- tions, the government will need to regulate fares and freights ciples. Third, the monitoring of SOEs should be improved to ensure that firms do not exert their market power when with proper expertise, capacity, and resources. At minimum, setting tariffs. quarterly and annual audited financial statements from SOEs focusing on liabilities and risk should be produced. A more predictable, consistent way of granting spectrum rights would benefit the ICT sector and the country. Radio The government should ensure proper regulation of spectrum represents a scarce resource for a government, dominant SOEs, neutral treatment of competitors, and and spectrum rights are typically highly valued by telecom competitive selection of partners in PPPs. This will facili- operators but also by the broadcasting industry. Spectrum tate private investment and guarantee open markets. This is management strategies are thus needed to coordinate the particularly important for network sectors (electricity, ICT, various uses of spectrum, maximize the benefits for citi- postal services, transport, and water services). Open access zens (arbitrage of spectrum allocation between spectrum to essential facilities such as transmission infrastructure for users), ensure fair competition in the telecoms and broad- electricity producers is critical for a well-functioning genera- casting markets (fair allocation of spectrum) and generate tion market to guarantee dispatch of electricity to the grid. revenues for the state (e.g. sale of spectrum rights through Open, transparent and nondiscriminatory rules to access auctions and spectrum fees). For instance, the planned ana- CAMTEL’s national high-speed network and international logue television switch-off will free up important amounts of gateway, if properly enforced, could boost competition in spectrum, which will need to be efficiently reallocated. The telecommunication services (at the wholesale level), reduce government needs to adopt a comprehensive, efficient and retail prices of ICT services, decrease companies’ ICT cost, transparent approach to spectrum management to generate and increase their competitiveness. significant benefits to citizen and fiscal revenues. Finally, the government should withdraw from produc- Reinvigorating Economic Promotion tion in those sectors where the private sector is already successfully operating. The government should adopt a spe- Measures to improve the weakest points of Cameroon cific timetable to withdraw from them, and hence consider- business environment should be taken to promote the ably reduce the number of SOEs. development of the private sector. The 2016 and 2017 Bibliography Diarra, G. and T. Tchapa (2014). Data Collection for Cargo Pennings, S. (2016). Long Term Growth Model—Model Delays At the Port of Douala, Mission Report, World Bank, Description, unpublished note. Washington, DC. Raballand, G., S. Refas, M. Beuran and T. Cantens (2012). Hevia and Loayza. (2012). “Savings and Growth in Egypt.” Why Does Cargo Spend Weeks in Africa: Lessons from Six Middle East Development Journal 4, 1. Countries, World Bank. Hsieh, C.-T., and P. J. Klenow. (2009). “Misallocation and Solow, R. (1956). “A Contribution to the Theory of Growth.” Manufacturing TFP in China and India.” The Quarterly Jour- Quarterly Journal of Economics, 70: 65–94. nal of Economics, 124(4), 1403–1448. Swan, T. (1956). “Economic Growth and Capital Accumula- International Monetary Fund (IMF). (2011). Cameroon tion.” Economic Record, 32: 334–361. Article IV Staff Report. Washington, DC. Teravaninthorn, S. and G. Raballand. (2008). “Transport International Monetary Fund (IMF). (2014). “Staff Report Prices and Costs in Africa” World Bank, Washington, DC. for the 2013 Article IV Consultation.” CR14/212, June 13. Vision 2035. (2010). Ministry of the Economy, Planning, and INS. (2015). “Evolution des Indicateurs sur les Conditions de Regional Development. Vie des Populations, 2001–2014.” World Bank. 2013. “Estimating trade flows, describing Ministry of Finance (MINFI). (2007). “2008 Finance Law: trade relationships, and identifying barriers to cross-border Report on the Nation’s Economic Social and Financial Situa- trade between Cameroon and Nigeria.” Washington, DC; tion and Prospects (2008 Fiscal Year),” Yaounde. World Bank. http://documents.worldbank.org/curated/en/ 2013/05/18018981/ Ministry of Finance (MINFI). (2013). “2014 Finance Law: Report on the Nation’s Economic Social and Financial Situ- World Bank. (2014). “Corporate Governance of State-Owned ation and Prospects (2014 Fiscal Year),” November 2013, Enterprises: A Toolkit.” Chapter 3. Washington, DC. See Yaounde. https://openknowledge.worldbank.org/handle/10986/20390 Ministry of Finance (MINFI). (2014). “2015 Finance Law: World Economic Forum. (WEF). (2014). Global Competi- Report on the Nation’s Economic, Social, and Financial Situ- tiveness Report 2014–2015. ation and Prospects (2015 Fiscal Year),” November, Yaounde. World Trade Organization (2013). Trade Policy Review of Nkendah, R. (2013). “Estimating the Informal Cross- CEMAC, Geneva. Border Trade of Agricultural and Horticultural Commodi- ties between Cameroon and Its CEMAC Neighbors.” Food Policy, 41: 133–144. 31 Annex: Selected Manufacturing Products Using the Product-Space Analysis Cameroon Exports (Formal) World Imports Value Change Value Change 2010–12 2007–12 2010–12 2007–12 SITC4 Product (US$ thousand) (%) (US$ billion) (%)   Chemicals         5121 Acyclic alcohols and their halogenated, derivatives 2,487 –11.0 120 7.0 5111 Acyclic hydrocarbons 224 9.2 78 8.3 Other inorg. bases and metallic oxid., hydroxid. 5225 1,174 –8.4 50 4.8 and perox. 5221 Chemical elements 974 10.2 62 10.2 Inorganic chemical products, not elsewhere 5239 870 2.9 12 6.6 specified 5232 Metallic salts and peroxy salts of inorganic acids 1,169 12.7 35 6.1 Tanning extracts of vegetable origin and 5322   4 9.4 derivatives 5621 Mineral or chemical fertilizers, nitrogenous 5,603 38.9 73 12.0 5629 Fertilizers, not elsewhere specified 7,040 143.1 64 16.9 5911 Insecticides packed for sale, etc. 1,811 144.9 19 9.8   Leather         6114 Leather of other bovine cattle and equine leather 69 46 –2.2   Rubber         Tires, pneumat., new, of a kind used on buses, 6252 796 –4.1 77 8.2 lorries Tires, pneumatic, new, of a kind used on motor 6251 233 41.5 123 8.6 cars   Wood         6342 Plywood consisting of sheets of wood 5,659 –36.0 30 0.7 Manufactured articles of wood, not elsewhere 6359 1,158 16.6 23 0.3 specified 6353 Builders’ carpentry and joinery 2,277 4.7 63 0.2 33 34 Cameroon Country Economic Memorandum Cameroon Exports (Formal) World Imports Value Change Value Change 2010–12 2007–12 2010–12 2007–12 SITC4 Product (US$ thousand) (%) (US$ billion) (%) Manufactures of wood for domestic/decorative 6354 51 –13.1 8 –0.2 use 6349 Wood, simply shaped, not elsewhere specified 47 16.0 1 0.1 6343 Improved wood and reconstituted wood 20 21 –1.9   Paper         6416 Building board of wood pulp or of vegetable fiber 9 28 –0.5 Paper and paperboard, corrugated, creped, 6417 26 38.7 14 2.9 crinkled, etc. Articles of paper pulp, paper, paperboard, cellular 6428 3,467 13.2 74 5.7 wadding   Textile fabrics         Twine, cordage, ropes, and cables and 6575 131 –34.7 12 6.6 manufactured thereof Traveling rugs and blankets, not knitted/ 6583 331 11 10.1 crocheted Other made-up articles of textile materials, not 6589 32 23.0 37 7.3 elsewhere specified Carpets, carpeting, rugs, mats, and matting of 6594 4 –5.4 wool, etc.   Iron and steel         6716 Ferro-alloys 130 3.8 87 1.1 Blooms, billets, slabs, and sheet bars of iron or 6725 399 –14.9 110 0.2 steel 6744 Sheets and plates, rolled >4.75mm of iron/steel 620 –19.9 71 –6.6 6731 Wire rod of iron or steel 40 57 1.9 6727 Iron or steel coils for re-rolling 56 20.9 136 –1.8   Metal products         6932 Wire, twisted hoop for fencing of iron or steel 8 –56.7 1 4.5 Casks, drums, boxes of iron/steel for packing 6924 2,313 17.0 43 3.1 goods 6931 Stranded wire, cables, cordages, and the like 397 –33.5 29 4.3 Structures and parts of structures, iron/steel 6911 5,143 11.4 125 4.6 plates   Electrical machinery         7711 Transformers, electrical 242 34.8 60 2.7 7752 Household type refrigerators and food freezers 203 41.7 58 2.6   Furniture         8219 Other furniture and parts 915 –3.3 213 3.5 8211 Chairs and other seats and parts 94 –16.2 171 4.9 Annex: Selected Manufacturing Products Using the Product-Space Analysis 35 Cameroon Exports (Formal) World Imports Value Change Value Change 2010–12 2007–12 2010–12 2007–12 SITC4 Product (US$ thousand) (%) (US$ billion) (%)   Apparel         8462 Undergarments, knitted of cotton 230 –8.7 103 –2.2 8422 Suits, men’s, of textile fabrics 148 –9.9 14 –5.6 8439 Other outer garments of textile fabrics 176 –13.8 125 1.0 8429 Other outer garments of textile fabrics 18 –57.3 55 5.6 8465 Corsets, brassieres, suspenders, and the like 23 1.7 8433 Dresses, women’s, of textile fabrics 0 31 10.8 8441 Shirts, men’s, of textile fabrics 21 36 –1.0 8452 Dresses, skirts, suits, etc., knitted or crocheted 3 37 13.8 8434 Skirts, women’s, of textile fabrics 11 –9.5 8432 Suits and costumes, women’s, of textile fabrics   7 –9.5 8431 Coats and jackets of textile fabrics 35 1.0 Source: World Bank staff estimates.