Introduction

An unsustainable debt burden, corruption, and in-existent levels of production have caused the government to withdraw fuel subsidies. In 2022, petrol subsidies on the products stood at about 1,000 Billion Francs CFA and in February 2023, the government still reduced the subsidies to 670 Billion Francs CFA representing a 33% subsidy reduction to increase the state budget to develop other sectors.  As such, the price of a liter of Super has risen from 730 FCFA (approximately $1.21) per liter to 840 FCFA (approximately $1.39 U.S) and gasoline increased from 720 FCFA (approximately $1.19) per liter to 828 FCFA (approximately $1.37).

This will increase the cost of transportation, reducing consumers’ ability to purchase other products while businesses may employ fewer staff to cope with higher prices or pass on the cost to consumers in the form of higher prices. The Cameroon Economic Policy Institute (CEPI) recommends that the government supports the most vulnerable in our society through lower import duties, lower value-added tax for some products, and a higher minimum wage of FCFA 70,000 to 80,000 for private sector employees.

“Fuel prices have risen due to years of mismanagement, corruption, and a failure to invest in a refinery. The price of mismanagement and under-investment are higher prices”. Now the government should envisage lower import duties to support domestic consumption for essential products like rice and pasta.

Impact on the General Population

Transportation costs will rise leading to higher expenses for commuting to work, school, or other essential places. Over 400,000 own cars (CEPI, 2023), and over 7 million people travel on any given day. So higher transport costs will reduce spending on other goods and services. Household consumption contributes about 88% of Cameroon’s GDP, so higher fuel prices could see consumers spend less on entertainment to reduce the impact of higher fuel prices. The economy could grow at a slower pace, as a result of lower domestic demand, especially as the government is reducing its spending in 2024.

Inflation and Economic Constraints

Soaring fuel prices can also have significant consequences for the nation’s economy. As fuel is a critical component in producing and transporting goods and services, its price hike has a cascading effect on prices across various sectors. This can lead to a surge in overall inflation rates, making it challenging for the central bank to contain price growth. Headline 12-month inflation is expected to moderate from 7.2% in 2023 to 5.9% in 2024 but higher imports and a weaker currency can amplify inflation and cause prices to rise.

Impact on Budget

The overall deficit is expected to decline from 1.1% in 2022 to 0.7% in 2023 while the non-oil primary deficit is expected to fall from 3.9 to 2.5% over the same period. At the same time, the stock of public debt is expected to fall from 45% of GDP at end-2022 to below 42% by end-2023. Budget execution will continue to be supported by non-oil revenues and the withdrawal of subsidies. The decision or remove fuel subsidies will cause the deficit and public debt-to-GDP ratios to fall further.

The budget faced pressures from fuel subsidies in 2022, which was substantially higher than expected and carried over to 2023. A substantial portion of the subsidy is also likely to be carried over from 2023 to 2024.

How will the Fuel Price Hike Impact Businesses

For businesses operating in Cameroon, the hike in fuel prices has a cascading effect on the economy and significantly impacts businesses through higher operating costs (higher electricity and raw material prices), lower profits, and the need to cut staff to protect profit margins in the case of transportation firms.

The fuel price hike will equally impact the tourism sector which is important to Cameroon. In 2021, Cameroon generated around 507.60 million US dollars in the tourism sector alone. This corresponds to 1.2% of its gross domestic product and approximately 76% of all international tourism receipts in Central Africa.

Impact on Travel and Tourism: The travel and tourism industry, a significant contributor to Cameroon’s economy, can also be severely affected. Higher fuel costs can lead to increased airfares, which may deter both domestic and international travelers. As a result, hotels, restaurants, and other businesses dependent on tourism may experience reduced demand, affecting their revenues and employment opportunities.

Foreign Exchange Rate Vulnerability: The devaluation of the currency could follow, but we are pegged to the Euro so the fallout will be limited. Should the FCFA depreciate, this could amplify inflation, which means more people will be left without access to food. This is a country where over 65% of people face some form of poverty, but we should not misdiagnose the problem.

We Must Invest Better and leverage our Fossil Fuel Reserves, Not Waste them via cheap exports

• CEPI is calling for the government to establish quantitative investments in natural gas and ensure that Cameroon produces and safely distributes natural gas to at least 50% of households directly by 2030. First, we must invest in refinery capacity even as we are the 52nd largest producer of oil in the world to ensure that we do not import forever. If there is no plan for SONARA to produce petrol, then we must prepare for more pain disguised as progress. The government must equally provide better support to our vulnerable women, families, and youths over the medium term.
• Finally, we must reduce import duties for a short period to bring down the prices of essential products like rice, pasta, and vegetable oil while ramping up domestic production under the “Made in Cameroon” Strategy.
• The increase in electricity prices should be better timed and a breakdown of how the receipts will be used should be outlined. 60% of the price increase should be used for investment and sent to the electricity fund, while 30% can be used for maintenance and expanding the grid. Cameroon is adjusting painfully because we failed to plan. More of the same will be economic suicide.

Don’t Blame the IMF for Higher Oil Prices

The fuel price increase and its ripple effects create economic uncertainty in the business landscape. Uncertainty often leads to cautious spending and investment decisions, potentially slowing economic growth and stifling business expansion plans. However, fuel price increases were expected and as we live through their impact, we should not misdiagnose the problem. The IMF isn’t the issue, but Cameroon’s inability to invest in an oil refinery 80 years after independence says more about our leaders and the people now subject to this price hike.

Media Article published in Cameroon Business Today No 349.

See Attachment above.