Sunday 25 September 2016

Ministry of the economy, planning and regional development

OPEN FORUM OF THE MINEPAT:
Biya’sdev’t vision in seven questions
1.            Why act now?
Louis Paul MOTAZE
In about three years, the first phase of implementation of our long term development Vision which is materialized by the Growth and Employment Strategy Paper (GESP) will be completed. Its implementation which our main partners considered as "overall satisfactory" contributed amongst others in the execution of major projects which should also be completed next year and are expected to improve the structure of our economy so as to make the private sector the economic growth driver.
                It is widely recognized that the first half of the 2010-2020 decade has been marred by various kinds of threats, and marked by the disquieting performance of Cameroon's economy. Indeed, while the national and global environment was less friendly as we are going to see later, its immediate consequences were effectively controlled thereby avoiding a fundamental upsetting of our growth objectives and jeopardizing our march towards economic and social progress. These headwinds which are far from fading out and which have sometimes compelled us to delay large-scope investments such as the Mbalam Iron Ore project (about 6 billion US dollars of deferred investments representing over CFA F 3,000 billion) shall be addressed more vehemently in the next years.
                This said, major first generation projects will reach their completion point by 2018. 2020 will usher in a new phase in the implementation of our Development Vision by 2035. In between these two periods, there are some gaps which absolutely need to be filled like investments in digital facilities, completion of certain roads indispensable to link production areas to markets or even projects of the Emergency Plan. On this particular issue, the Head of State himself said that "the primary aim of the Emergency Plan is to step up national economic performance and improve the living conditions of the Cameroonian people so as to achieve the objective of becoming an emerging country by 2035".  Moreover, some projects such as the Yaounde-Douala highway will not be completed in 2018. In order to avoid the consequences of a wait-and-see position which may ensue from the period of inactivity between the end of the first cycle of major projects and the launch of the second cycle, we have to act. And we have to act fast.

2.            Where are we coming from and what have we done?
                During the first cycle of the programming of Cameroon's economy which is underpinned by the Poverty Reduction Strategy Paper (PRSP), economic growth was mainly driven by consumer demand and recorded a modest 2 per cent performance rate on average during the 2000 decade. As from 2010, the Cameroonian Government embarked on an ambitious public investment programme in overarching infrastructure notably in the areas of transport and energy so as to improve the competitiveness of the economy. Thanks to this bold economic programme, the country recorded steady GDP growth rates moving from 3.3 per cent in 2010; 4.1 per cent in 2011; 4.6 per cent in 2012; 5.6 per cent in 2013; 5.9 per cent in 2014 and 5.8 per cent in 2015.  Better still, all development partners have lauded the Government for the sound management of some of these projects. The most recent recognition was from the Managing Director of the IMF who gave a positive but non-biased opinion on projects such as the LomPangar dam and the Kribi Deep Sea Port during a reception offered in her honour by the President of the Republic.
                The good performance ever since recorded, prompted analysts to describe our economy as "a resilient economy" because of its peculiarity in a global and regional context that was characterised by prolonged slowdown of economic activities since 2013/2014. In this respect, we should recognize that since the start of the implementation of the GESP in 2010, Cameroon has moved from a sluggish economy to a relatively buoyant economy with a growth rate projected to 5.9 per cent this year.  As a matter of fact, thanks to the economic improvement and changes brought in as a result of the implementation of the GESP notably through the Programme for Major Projects which is based on core area No.1 on the "Development of Infrastructure", Cameroon's economy has succeeded in addressing the negative effects of (i) war against the Boko Haram terrorist group; (ii) unfavourable conditions on the international front and unaccommodating conditions with its main trade partners notably China which has been readjusting its economic model; (iii) the prolonged drop in commodity prices, notably oil; (iv) credit crunch; (v) persistence of climate disruption especially in the Far-North region and (vi) the influx of refugees into our country.
                This concept of our economic development drivers over the past years (or our resilience) is vital in the sense that it is a decisive factor in the choice of our future economic policies and should guide in the selection of measures/actions which should help Cameroon's economy achieve the key objectives of the GESP by 2020.

3.            What next in the coming years?
                It is true that 2018 will usher in the completion of the major first generation projects which were the main pillars from which our country derived its ”economic resilience" as observed these past years. However, the infrastructural gaps stand as the major constraints to Cameroon's economy according to the various surveys conducted with the private sector. In fact, some components of the programme for the development of infrastructure required to revitalize growth driven by the private sector are either uncompleted or even unexplored. While public capital stock has considerably increased in our country since 2010, there are gaps or pockets of deficits; for instance in the energy production capacity of the country or our alignment to international digital standards. This calls for a change of the focus which needs to be strengthened and extended so as to maintain and scale up the first achievements for spillover effects on the private sector. This infrastructure programme will thus be more likely to bring in the economic change desired by the Head of State through investments in the new sources of growth identified in the Industrialisation Master Plan (Energy, Digital and Agribusiness).
                This means that Cameroon has to optimize despite constraints and in a context of upward rigidity of income (no increase of salaries or social allowances projected). Besides, the economic trend characterised by an increasingly stringent budget calls for internal adjustments and improvement of public investment efficiency. The domestic debt which is estimated at about CFA F 1,100 billion also stands as a burden to businesses. In the same vein, the persistent sluggishness of external demand might produce recessive effects on economic growth. With the slowdown in the economy of our main trade partners like China, external demand might continue to impact negatively on our economic performance.
                We therefore call for a stimulus policy which is based on the multiplier effects of investment demand. While giving precedence to such demand, this option will further lay emphasis on back-up measures by scaling up investments to create a business environment conducive to the sustainable development of the private sector. Stimulus policies are trend policies used to address time-based weaknesses in growth in the presence of unused production capacities. As we see it, it is a timely and relevant option given the slight slowdown observed in 2015 because we must create roads that serve markets and consumer centres while further investing in the digital economy as prescribed by the Head of State; and facilitating electricity and water supply, providing quality telecommunication and internet services to economic operators, and creating the main trade corridors, etc.
                This is why, in keeping with the Head of State's vision, we should proceed with the launch of the Programme for Major Second Generation Projects which should come on the heels of the programme under completion. We will mention projects like the construction of railways in accordance with the National Railway Master Scheme approved in 2011; the third bridge over river Wouri; the Limbe Port; the extension of the optic fibre throughout the national territory, etc. This commitment is very acute especially as the country has to go through economic hardships in the next years which, in our point of view will be the most difficult ever faced since 2010, notably with the entry into force of the EPA and other increased threats, like smuggling which destroys segments of the economy; influx of refugee in the East region where they already account for 20 percent of the population of the region, with all the related effects on the security and economy of the region that bears the consequences especially in the sectors of livestock and farming.


4.            What do theories hold?
                Like any Government, Cameroon is pursuing numerous objectives with limited resources.  Trade-offs are therefore a routine action.  Such trade-offs according to Douglass North reflect their preferences and depend on institutions, meaning formal constraints (rules, laws, institutions) and informal constraints (standards and behaviours).
                The works of prominent economists like Keynes show the efficiency of economic policies hinged on State intervention to address constraints associated with unfriendly environments, acting on demand through expansionary budget policies. The stimulus policies seek to increase either the available income of economic agents (tax reduction, increase of social allowances, salary increase) or the domestic demand through increase State expenditure (major projects). Thus, Keynes' policies were implemented for several decades over the world with a real success (post-1944 period referred to as the Glorious 30s owing to the major project policy carried out in Europe, or even the New Deal of President Roosevelt, for instance), until the oil shock in 1973. As from that moment, the budget instrument proved its limits especially with the high tax rates it builds on to fund its deficits and the difficulties in effectively anticipating/projecting the behaviours of economic agents with regard to savings and consumption. In fact, demand-driven stimulus policies only prove successful if economic agents have a low propensity to save and use their exceeding income to consume more; and such consumption is maintained by the high production capacity of existing industries. Moreover, stimulus through consumer demand has its limits especially in terms of time horizon because it is essentially effective in the short term through its multiplier effects; meanwhile in the long term, it is challenged by asymmetric information in terms of agent behaviours. We agree with the economist Paul Krugman that the essential legacy of the New Deal implemented by President Roosevelt in 1933 is the creation of conditions for the effective redistribution of wealth which characterised growth in the post-war period also referred to as the "the period of the Glorious 30s".

5.            What about stylized facts?
                According to the World Bank, lack of infrastructure reduces growth by two (02) points per year and the effects thereof will be worsened with climate change. Besides, inadequate or poor infrastructure harms the development of businesses and stands as an impediment to the development of manufacturing and service industries while jeopardizing the policy of diversification of private investment in the local processing of our basic commodities.
                As for the IMF, its Managing Director Mme Christine Lagarde, in a round-table conference at Hilton Hotel in Yaounde on 8 January 2016 said before the Prime Minister, Head of Government, Mr Philemon Yang that lack of infrastructure is a constraint to economic growth and that the upgrade of the said infrastructure calls for huge investments. According to her, the economic boom of our country rests on the continuation of the programme on which we are embarked since 2010. Still on this issue, the IMF, earlier on in 2014, upheld that it was time to revive the economy through infrastructure (Global Economic Outlook). Since public investments in massive and quality infrastructure are essential to boost economic activities and create jobs and that if investments are managed properly, their boosting effect on production will offset the loans incurred. As shown in this report, infrastructure is the base of daily life and the cornerstone for economic activities. No activity can be carried out without infrastructure in some form.
                Countries like Côte d'Ivoire, Senegal and Kenya with 2016 growth rates projected to 8.5 per cent (against 9.4 per cent in 2015 and 10.7 per cent in 2012), 6.5 per cent and 6 per cent respectively have undertaken to make massive investments in infrastructure. If Côte d'Ivoire is counted among the top 10 countries to have improved their business climate in the world, it is notably through public investments which are above all funded with external funding. Such investments which are backed up in priority by the State and under the Public Private Partnership scheme concern the extension of the Port of Abidjan, renovation of the Abidjan-Ouaga railway or construction of the Henri Konan Bedie bridge.

6.            What are our main issues of concern?
                In order to better materialize our determination and achieve the objectives we have set, we have to absolutely address two main issues to guarantee quality and ensure compliance with the deadlines set for the construction of infrastructure. To this end, we can count on the assistance of our development partners who have assisted us in the drawing up of strategies to be adopted to address these issues.
                The first one is lack of maturity of first generation investment projects some of which witnessed certain delays in the kick-off and operations at construction sites.  Efforts shall be made to solve problems of expropriation and payment of compensation which hinder the smooth conduct of some projects like the Yaounde-Douala highway where cases are sometimes reported of the populations vehemently demonstrating for the payment of their compensation.
                The second issue is the persistent problem of contracts where the necessity of compliance with the procedures has often given rise to certain loopholes and delays in the execution of projects.
                The creation of the National Public Debt Committee (CNDP) chaired by the Minister of Finance ushers in new perspectives for the process of maturation of projects.  In fact, this body is increasingly vigilant regarding the quality of projects to be executed. To avoid excessive debt-servicing, it is imperative to kick-off projects on time, comply with the prescribed time limits and initiate administrative, financial and technical procedures before these projects kick-off. Greater attention will be given to these aspects as well as to the regular upgrade of existing infrastructure so that there should be less abandoned projects but more added-value generated.


7.            What can we conclude?
                With the implementation of the Programme for major second generation projects, the Government has as ambition to keep up the trends recorded during the first five years of implementation of the GESP on the one hand and create sustainable conditions for a conducive environment to the development of the private sector, the main sector which creates wealth. In other words, it is the policy mix which impacts on investment demand to suppress or reduce clogs and release offer. This renewed economic ambition through major second generation projects added to an active policy of direct support to the private sector while scaling up through increased focused on our "national champions" would boost production in the short term, by stimulating overall demand; and in the long term by increasing the productive capacity of our economy. The IMF (2014) showed that excess public investment in infrastructure stands to boost the GDP thereby offsetting the debt increase so that the public debt/GDP ratio remains stable.
                Finally, revival through investment demand which is a follow-up to the implementation of the GESP should rest on the implementation of major second generation investment projects with the private sector as the key actor in the process. Emphasis should thus be laid on productive investments with increased assistance from public authorities to make private investments act as the intermediate point for public investments by the period of implementation of our strategy. This will contribute to emergence or the consolidation of our "national champions" in the growth-bearing sectors of our economy (agribusiness, digital economy, energy...) in the prospect of an industrialization process backed up by the private sector. The Minister of the Economy, Planning and Regional Development (MINEPAT) had already held discussions with GICAM to develop this approach built on "leaders of industries"; a bold approach which will rest on direct support to certain sub-sectors selected beforehand on the basis of unbiased criteria.
                Apart from the public investment budget which stands as our lever, our future strategy shall consist in mobilizing our traditional partners for more substantial support to the private sector benefiting from public guarantee.
                There are funding margins for this bold option underpinned by major second generation projects at the domestic level with the good performance recorded in terms of mobilization of domestic resources, as well as at the external level given the debt sustainability with an outstanding public debt with public guarantee accounting for only 27.3 per cent of the GDP as at end of July 2016, that is far below the community standard of 70 per cent.
Minister of the Economy, Planning                                                            
and Regional Development

Louis Paul MOTAZE

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