Cameroon: What business wants
Cameroon has Central Africa’s most diversified economy, but it remains one of the continent’s most difficult operating environments for businesses due to a range of issues, from poor electricity supplies to generalised corruption. Economic growth is slowing because of the recent drop in oil prices, the weakness of local demand and the security crises in the north and Anglophone regions of the country.
Oil is Cameroon’s top export, representing more than half of total exports. To cope with the downturn, the government signed a deal with the International Monetary Fund (IMF) to help it to implement a programme of economic and financial reforms. In 2017, the country’s gross domestic product dropped to 4%, down from 6% in 2015.
Despite the downturn, the government in Yaoundé has big plans for the economy. In 2009, Cameroon launched the Document de Stratégie pour la Croissance et l’Emploi (DSCE), with the goal of making the country an emerging economy by 2035. Analysts and donor governments doubt Cameroon’s ability to meet that target, as economic growth is falling. The DSCE calls for economic growth of at least 5.9% from 2016 to 2020 in order for the economy to create enough jobs and wealth. The government is now forecasting growth of 4.2% for 2018. The IMF predicts that growth will rise from there but still not reach the target of 5.5% until 2021.
Doing business in Cameroon is a headache for many company executives due to several long-standing problems. The operating environment was worse in 2017, according to to the Groupement Inter-patronal du Cameroun (GICAM), the country’s top business lobby, and it is not due to be any better this year. Many local small and medium-sized enterprises (SMEs) had been counting on winning contracts and subcontracts for the work needed to prepare for Cameroon’s hosting of the 2019 Africa Cup of Nations football tournament, but most of the projects to build new stadiums and rehabilitate old ones went to foreign firms.
Room to improve
The World Bank’s 2018 Doing Business report ranked Cameroon 163rd out of 190 countries. Even though it climbed three places since the last survey, Cameroon remains in the bottom 30 countries in terms of the ease of doing business. The survey is based on 10 measures (see graph), from how long it takes to create a business to how difficult it is to pay taxes.
One area of improvement was in terms of setting up a business, but there is a lot of room for improvement in many other fields. Célestin Tawamba, GICAM’s president (see profile), told local media last year: “Doing Business has shown its usefulness as a knowledge tool, but it is still not able to capture the global business environment and the ease of doing business” in a country like Cameroon. He complained that the Doing Business rankings do not take into account “critical variables like legal security, corruption levels, macroeconomic stability, the quality of the workforce, the quality of infrastructure and many others”.
There are many problems that give entrepreneurs headaches, but top on that list is finance. “It is a permanent problem,” explains entrepreneur Pius Bissek. Analysts estimate that the private sector would require additional financing of 1trn CFA francs ($1.9bn) each year in order for the country to become an emerging market by 2035.
In Cameroon, “banks do not finance the economy” as they should, complains Bissek. In a country like South Africa, banks finance nearly all of the private sector’s needs, he adds, saying: “But in Cameroon, it is maybe 20-30% at the best of times.”
Former banker Eric Eloundou explains: “Most of the loans issued by banks are for big companies, which is normal since they are less risky.” He now runs a firm that connects banks and companies, and says that SMEs – which account for about 90% of Cameroon’s companies – get about 15% of loans by value. Most of those loans are short term.
“Forty-five per cent of loans to SMEs are not paid back. That is an extremely heavy burden when you know that the maximum ceiling for non-performing loans that banks aim for is 5%,” Eloundou continues. That is why banks are often “wary of SMEs”.
Eight years ago, Olivier Mapouré, a young agronomist, set up a company to grow maize and raise chickens and pigs. He developed a business plan that called for an investment of 350m CFA francs to create an agro-industrial centre on more than 100ha near the centre of the country. In 2013, he started applying to banks for the start-up capital but has still not managed to get a loan.
Mapoure tells The Africa Report: “I did not get anything yet because I do not meet their criteria. The first thing that they asked me for was the land title, which I did not have. The second thing was collateral, like the title for a car or a house, for example.” He complains that bank procedures generally “take very long” and that interest rates are “quite high”. Microfinance institutions can charge interest of 2.9% per month, while commercial banks can charge 2%.
Mapoure says that banks have not adapted their procedures to the needs of the business community. “Banks do not take into account the reason why you are asking for a loan. They do not let you have a grace period and insist that repayments start the month after the loan is issued.” He continues: “For example, if you are raising chickens, it is impossible to launch production and sell the first offspring within a month in order to reimburse the loan.” When Mapouré asked financiers to consider the specific risks and details of his business, they told him: “The bank’s model is based on monthly repayments.”
Bissek shares the same point of view about the way that Cameroon’s banks are working: “They should not lend you money in the morning in order to turn around and say that you have to pay it back in the afternoon.” He argues that the regional central bank, the Banque des Etats de l’Afrique Centrale, needs to implement policies that will help national banking systems to issue more medium- and long-term loans.
Focus on SME activity
The many complaints of the SME sector led the government to launch a bank for SMEs, the Banque Camerounaise des Petites et Moyennes Entreprises. An administrator at the bank who requests anonymity says: “The bank has lost its focus on its most important mission. Instead of lending to SMEs, it is financing government projects by lending to people who have won government contracts.”
Former banker Eloundou says that he appreciates many measures that the government has rolled out to help that sector of the business community, notably the creation of an agency to promote the activities of SMEs, an office to help small companies with training and the SME-focused bank. But he lambasts the government for failing to create a framework to coordinate the work of all of these institutions in order to be able to provide a holistic package of help for SMEs. He says that the SME bank is “a good instrument but one whose activities do not meet the real needs” of the category of companies. He argues that the bank should “develop a specialised system for the financial analysis of small companies” that could also be shared with other financial institutions. Cameroonian banks do not have analytical tools focused on the activities of SMEs.
Eloundou’s company Cabinet Elesyst advises SMEs and is working on a project to create group deposits to address the issue of banks asking for collateral. Eloundou explains: “The mechanism is based on a security guarantee, with one part coming from the entrepreneurs themselves and another from partners like us or other financial partners that we could mobilise.” SMEs can get collateral worth up to 50% of the value of the loan they are requesting through the project.
As for the agronomist Mapouré, access to finance is not the only problem that he has faced. “It is not at all easy to get access to land. When there are questions of ethnicity, it becomes even more complicated,” he says. The young entrepreneur is from the western part of Cameroon and says that the price doubled once the seller found out that Mapouré was not from central Cameroon. Mapouré says the government should launch a series of agrarian reforms to identify people who want to put land to good use. “Those who own the land are not producing,” he complains. In Cameroon, ministers, members of parliament and military men own vast swathes of land. The government has simplified the procedures for getting land titles, but “you have to give lots of cash if you want it done quickly,” Mapoure says.
Many business leaders active in Cameroon and potential investors point to legal insecurity as one of the big obstacles to expanding economic activity. “What businessmen care about is time. But in Cameroon, judicial procedures can take between 10 and 15 years – like mine. It is not good,” says Bissek. In 2003, Bissek, owner of the sweetened condensed milk company Codilait, sued the Cameroonian subsidiary of Swiss agribusiness giant Nestlé for unfair competition. It was only in 2017 that the Cameroonian justice system ruled on the matter, 14 years after the case started. The supreme court found that Nestlé and other companies targeted by the suit were guilty of inappropriate business practices and ordered them to pay damages of 517m CFA francs to Bissek’s company.
‘Wiped me out’
Bissek says that the sum is a pittance when compared to what he lost. “I figured that it is 90bn CFA francs in lost income for these 15 years of lawsuits, seeing as my annual turnover before the devaluation was 3bn CFA francs.” He adds: “This unfair competition forced me to shut down my operations”, costing 200 employees their jobs. “The magistrates wiped me out.” He says that Cameroon’s judges regularly stop cases from going ahead.
As an example, he says: “A magistrate told me that if he is appointed to judge in a case and one of the parties goes to him with a briefcase filled with 100m CFA francs, he would take it. He said that in doing a rapid calculation, his salary would not pay him that much over 30 years of service. He said that even if you live with the Holy Spirit, you will ask the Holy Spirit to take a walk. And after you put the money in your pocket, you will ask the Holy Spirit to come back.” Bissek’s advice is for the government to impose stiff disciplinary measures for judges who make bad rulings.
Corruption also increases the cost of doing business. The non-governmental organisation Transparency International conducted a study in 2006 that found that companies in Cameroon on average spent 10% of their turnover on “non-official payments”. Business leaders often face demands for bribes in the judicial system and from the tax and customs authorities, and the police.
A finance ministry study reported in 2017 that the level of corruption was “very high” for clearing goods through customs and picking them up at the port. Officials in charge of clearing merchandise through customs have created their own system of bribes. In code, they ask businesses for ‘five glasses’, with each glass representing 10,000 CFA francs. Other officials, like those charged with inspecting documents, ask for bribes ranging from 50,000 to 200,000 CFA francs. And if a business tries to under-report the value of its merchandise, the officials will ask for a payment of a third of the undeclared value. In terms of taxation, the study found that taxpayer ID cards – which are officially free – are being sold from anywhere between 5,000 and 35,000 CFA francs. If the government does not invest the time and money in finding solutions to these and Cameroon’s infrastructure problems, Cameroon’s business environment is likely to dissuade many start-up founders and big multinationals from taking their chances on making investments in Cameroon.
This article first appeared in the April 2018 print edition of The Africa Report magazine