Introduction
Cameroon is a significant player in the Economic and Monetary Community of Central Africa (CEMAC) region, with a harbor, which makes it a natural entrance into the landlocked region of Central Africa, which includes Chad, the Central African Republic, and the northern Congo. Cameroon has grown by 4% over the last decade, with trade contributing about 41% to its Gross Domestic Product (GDP). It’s poverty rate has fallen from 38.6% in 2021 and has since fallen to 37.7% in 2022, with around ten million people living below the poverty line in 2022, out of a total population estimated at around 27 million (INS, 2024). This situation can be accounted for by a series of factors, including insufficient economic growth, distortions relating to wealth redistribution, as well as multiple endogenous and exogenous shocks and fluctuations in the world prices of the main export and import products. Following the recession caused by the Covid-19 pandemic in 2020, GDP growth recovered with the help of the recovery of the non-oil industry and the overall global economic recovery, reaching 3.8% in 2022 and 4% in 2023. As the effects of Russia-Ukraine war abate and the withdrawal of fuel subsidies become apparent, the economy is recovering gradually. In 2023, inflationary pressures were principally driven by food prices and the removal of fuel subsidies, which resulted in a 15% increase in pump prices. Th central bank raised interest rates even as inflation continued to exceed the central bank’s 3% objective (at 4.8% in 2024) (INS, Feb 2024).
The Economy is Stabilizing
Fiscal reforms started in 2021 will continue through 2024 and the government is gradually implementing the IMF-approved program, which includes an Extended Fund Facility (EFF) and an Extended Credit Facility (ECF) totaling $689.5 million over three years. This includes efforts to increase revenue and broaden the tax base. This is relevant in the context where revenue loss equaled FCFA 70.5 billion over the last ten years once the EPA started being implemented. In July 2023, a disbursement of $73.6 million was authorized, increasing the total amount disbursed to $493.6 million. As part of the proposal, fuel subsidies have been reduced from 3.7% of GDP in 2022 to 2.6% in 2023 to reduce pressure on the government’s revenues. Strong economic growth and low fiscal deficits will reduce overall public debt in the medium term, which includes guarantees, arrears, and SONARA debt (or 2.6% of GDP), from 45.5% of GDP at the end of 2022 to 37.2% in 2025 (IMF, 2024). The fall in global agricultural prices is predicted to slightly relieve inflationary pressures in 2024.
Poverty Persists Underscoring the Need for Industrial Development
Notwithstanding the nation’s generally positive economic results, around 40% of people live in poverty. The rate of extreme poverty, which accounts for over 30% of the population, rose as a result of the Covid-19 pandemic (World Bank, 2021). The total number of impoverished people in Cameroon rose, and poverty is becoming more concentrated in the country’s North and Far North due to the poverty reduction rate lagging behind that of population growth. Meanwhile, while the unemployment rate is estimated at 3.8% even as a 2023 INS study states that the unemployment rate among recent graduates (those between the ages of 25 and 35) is five times greater than that of the general population (Institute of National Statistics (2024)). We find that employees in the informal sector have lower rates of unemployment.
In fact, only 6 workers out of 100 are wage earners in Cameroon. This low level of employment is more significant in industry (9.6%) than in services (4.7%) and trade (3.3%). Despite having very high levels of informality, Cameroon’s real economy has grown by 4% on average over the last 20 years (Fred St. Louis, 2024), driven in large parts by the export of commodities and the service sector, which now contributes over 60% of GDP. Meanwhile, over 90% of the country is trapped in the informal sector, hence the need to accelerate the implementation of trade agreements to ensure that small holders and small-scale farmers and other microentrepreneurs can fully benefit from trade agreements.
Main Sectors of Industry
Cameroon is a major global producer of goods like cocoa, coffee, bananas, tobacco, palm products, cotton, maize, and cassava because of its abundance of natural resources. 42% of the working population is employed in the primary sector, which generates 17% of the GDP (MINEPAT, 2023). The primary economic driver of the economy before oil was agriculture. Meanwhile, political unrest plagues the region, which affects the production of coffee and cocoa which is overwhelmingly focused in the English-speaking areas (CRTV Web, 2021). Two more noteworthy activities in the nation are forestry and fishing. There are valuable timber kinds in the nation. Conflicts and climate continued to have an impact on crop production in 2023.
Meanwhile, 15% of workers are employed in the secondary sector, which contributes 26.3% of the GDP (INS, 2023). The manufacturing of cement, food processing, textiles, logging, and petroleum refining are important sectors even as the oil refinery sector focuses on refining, which contributes excessively to Cameroon’s industrial production. Another essential element is food processing, which is done by businesses that produce dairy products, drinks, and processed meals. Despite its difficulties, the textile industry is still important, especially when it comes to the manufacturing of cotton. Furthermore, the growth of infrastructure and construction activities is facilitated by the manufacturing of cement. Amidst sustainability issues and regulatory obstacles, logging and timber processing remain important drivers of the economy due to Cameroon’s abundant forestry resources. Approximately 20% of government revenue, 33% of exports, and 4% of GDP are derived from the extractive industry (EITI).
Finally, 14% of the working population is employed in the tertiary sector, which generates over 50% of GDP (INS, 2023), driven by retail, banking and finance, transportation, tourism, and telecoms. With higher internet and cell penetration rates nationwide, the telecommunications sector has grown significantly. With both domestic and foreign organizations involved, banking and financial services are vital for promoting trade and investment. Additionally, retail stimulates business activity and job creation nationwide due to urbanization and rising consumer demand. It is, however, important to note that the majority of employment in the sector is informal and relies on imported second-hand clothes from Turkey and Europe (CEPI, 2024).
Cameroon has liberalized its trade
After the commodity shock in the 1980’s Cameroon embarked on trade liberalization, creating a customs union in the CEMAC region where import duties ranged from 3-14%, while import duties for third countries were decided on a country-to-country basis (Business in Cameroon, 2023).
Furthermore, to obtain duty-free and quota-free access to the European market in exchange for the progressive elimination of taxes and quotas for European goods entering Cameroon, the government signed an interim Economic Partnership Agreement (EPA) with the EU in 2009, which began being implemented in (ITA, 2024). It is currently being implemented and is in Phase 7 of removing tariff barriers. Phase 7 consists of reducing import duties on 90% of products in the second group like transport automobiles, car parts, fertilizers, and iron to name a few.
More recently, Cameroon signed the African Continental Free Trade Agreement (AfCFTA), which aims to progressively eliminate tariffs and non-tariff barriers to boost trade. The AfCFTA will liberalize 90% of tariff lines within 5 years for non-least developed countries (LDCs) (10 years for LDCs). Tariffs for sensitive products (7% of tariff lines) are to be eliminated within 10 years for non LDCs (13 years for LDCs) (African Union, 2024). The AfCFTA Agreement preserves 3% of the tariff lines for excluded products. AfCFTA also addresses the elimination of Non-Tariff barriers (NTBs) (which have been found to have an even more detrimental effect on intra- Africa trade than tariffs). Article 13 of the AfCFTA Agreement obligates state parties to set up institutional mechanisms to identify, report on, resolve, monitor, and eliminate NTBs in member countries. AfCFTA also provides for an online mechanism for reporting and resolving non-tariff barriers experienced by businesses.
There have been a great deal of reports that reiterate the positive contribution of free trade agreements to economic development. However, it is important to measure and quantify the projected impact of trade agreements on our economies to understand when and how to adjust. To our knowledge, there is currently no study quantifying the impact of both trade agreements on economic growth, wages, incomes, savings, and investment.
Objective of this Report
This report seeks to measure the impact of the EPA and AfCFTA on the Cameroonian economy, by illustrating how Gross Domestic Product (GDP), employment, wages, savings, and investment will be impacted over the long run when Cameroon reduces tariffs to near zero for most products that are imported and exported under these agreements.
Breakdown of Report
Chapter 1 outlines important aspects of the Economic Partnership Agreement (EPA) & Cameroon’s trade with the EU, while Chapter 2 provides an overview of the AfCFTA and an overview of Cameroon’s trade with African countries. In Chapter three, we discuss the methodology section and the results and analysis follow in Chapters Four and Five. This is followed by actionable recommendations and a conclusion thereafter.
Key Findings
- Cameroon is the largest economy in the Economic and Monetary Community of Central Africa (CEMAC) region. Since embarking on a trade liberalization program in the1990s and reforming its common external tariff, it has signed several free trade agreements worldwide.
- The European Union (EU) and Cameroon concluded negotiations on an interim Economic Partnership Agreement in December 2007, approved by the European Parliament in June 2013 and ratified by Cameroon in July 2014. The EPA allows duty and quota-free trade, gradually removing duties and quotas over 15 years on 80% of EU exports to Cameroon over a 15-year period.
- The African Continental Free Trade Agreement (AfCFTA) progressively eliminate tariffs and non-tariff barriers in order to boost trade. It removes import duties on 90% of products for non-least developed countries (LDCs) over 10 years for LDCs. Meanwhile, tariffs for sensitive products (7% of products), will be eliminated within 10 years for non-LDCs (13 years for LDCs).
- This report measures the impact of the AfCFTA and the EPA on economic growth and related variables. It employs a Regional Dynamic Computable General Equilibrium (RDCGE) model and applies Social Accounting Matrices (SAM) across 51 countries and regions including 43 African countries and 8 other aggregated regions in the world and 65 sectors.
- GDP Growth: When both agreements are applied, we observe a GDP increase of US$918.93 million in 2020 against US$1,102.29 million in 2030 which represent GDP growth rates of 2.40% and 2.45% respectively. In 2030, if Cameroon’s GDP were 5%, both trade agreements would boost GDP to 7.45%.
- Exports: By 2030, agricultural commodities to the EU will increase to $6.55 million while exports from the industrial sector increase by US$282.07 million. However, its exports toward Africa are not affected under the EPAs even though 43.3% of its agricultural products against only 8.0% of its industrial products are sold in Africa. Under the AfCFTA, its exports toward Africa (US$14.01 million for agriculture, US$63.43 million for industry, and US$1.01 million for services. Imports will increase, pushing down import prices and benefiting consumers.
- Domestic Demand: Domestic demand increases under the EPAs (0.01% for agricultural products, 0.59% for industrial products, and 0.03% for services). Meanwhile, the AfCFTA negatively affects domestic demand (-11.03% for agricultural products and -17.98% for industrial commodities). But importantly, we note a deep increase in the demand for services of 49.84%.
- Investment and Firms’ Profit: Under the EPA investment in industry increases (0.2%) but falls for agriculture and services by 0.1%. Under the AfCFTA in 2020 and 2030, investment increases by 2.90% and 1.60% in agriculture, 4.30% and 2.14% in industry, and 2.57% and 1.30% in services respectively. Meanwhile, profits increase by US$62.42 million and US$31.63 million in agriculture, US$361.74 million and US$183.07 million in industry and, US$1220.54 million and US$617.82 million in services respectively. Once, more these results show that EPAs mitigate gains from AfCFTA.
- Household welfare: Both Agreements improve household welfare by US$651.79 million corresponding to 3.11% while wages rise by 0.91% in 2020 and 0.88% in 2030. However, the EPA puts downward pressure on wages in Cameroon, but wages are increasingly centrally bargained and the prevalence of a minimum wage will slow the impact of the projected loss in earnings.
Policy Recommendations
- Strengthening Infrastructure to improve the benefits of the AfCFTA and EPA
Improved transportation and logistics systems will facilitate smoother trade flows and reduce costs for exporters. The EU has identified infrastructure development as a priority area for cooperation, which Cameroon should leverage to enhance its trade capabilities.
- Enhancing Agricultural Competitiveness
Support modern farming techniques and ensure equipment is tax deductible in future finance laws. Businesses should work with ANOR to boost the quality of products and ensure their products align with international standards.
- Improving the Business Environment to Boost Investment
This includes reducing bureaucratic hurdles, ensuring political stability, and fostering a more conducive regulatory framework for foreign investments.
- Utilizing Development Cooperation
Cameroon should actively engage with the EU’s development cooperation initiatives aimed at improving trade-related infrastructure and capacity. This includes seeking technical assistance and funding for projects that align with the goals of the EPA, such as enhancing trade facilitation and competitiveness.
- Monitoring and Evaluation
Establishing a robust monitoring and evaluation framework to assess the impact of the EPA and AfCFTA on the Cameroonian economy.
- Boost Manufacturing Output
Cameroon should aim to increase its manufacturing sector’s contribution to GDP to 25% in order to boost its export capacity and play a more active role in global supply chains.
- Develop a National AfCFTA Strategy
A comprehensive national strategy must be formulated to align with the AfCFTA’s objectives, focusing on creating credible regional value chains and enhancing intra-central African trade in intermediate and manufactured products.
- Strengthen Trade Regulations
Implementing effective regulations that facilitate trade, such as simplifying customs procedures and ensuring compliance with AfCFTA rules of origin, is essential for seamless trade operations.
- Sensitize the Private Sector
There is a need for extensive sensitization initiatives to educate businesses about the AfCFTA, its benefits, and how to navigate the new trade environment. This will enhance participation and competitiveness in the regional market, while reducing the cost of trade.
- Invest in Infrastructure
Improving transportation and logistics infrastructure will be vital for facilitating trade flows and reducing costs associated with moving goods across borders.
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AUTHORS
Mr. Henri Kouam
Executive Director
Dr. Nchofoung Tii & Mr. Haiwang Djamo & Dr. Rodrigue Tchoffo
Research Fellow in Economics Research Analyst Research Fellow in Economics
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