Like many African countries that gained independence in the 1960s, Cameroon has retrogressed in the last two decades and could be a failed state waiting to happen. It is reported that the Cameroon government has identified corruption and mismanagement of state assets as the main factor preventing the economy from growing at the hoped-for rate of 4.5%.
The Economic Freedom of the World: 2010 Annual Report identifies a broader set of issues, the most prominent being: extremely high top marginal tax rates; restrictions on owning foreign currency; restrictions on foreign capital transactions; low integrity of the legal system; limited judicial independence; low levels of legal enforcement of contracts; limited investment and business freedom; limited size of trade sector relative to expected; and low freedom from corruption. For all of these prominent issues, out of the 38 components used to construct a summary index for the 141 countries for which data were available, Cameroon achieved a low score (50% or less) .
Over more than a decade, the analyses contained in EFW reports provide ample evidence that there is a close correlation between economic freedom and growth. Cameroon, for instance, enjoys less economic freedom now than it did in 1990. Its ranking has declined from 53rd to 119th out of the 141 countries surveyed. What Cameroons decreased growth rate reveals is that, during a period marked by increased economic freedom worldwide, it has been doing few of the right things.
In Cameroon, despite the progress being made in privatising the management of the national water and electricity companies, other important enterprises remain state-controlled. Research has shown that privatisation alone cannot result in sustained growth if other microeconomic variables are not in place. Because of the recent global financial turmoil, Cameroon is struggling with reduced exports, and has difficulty in obtaining financing for investment projects. In response to a potential fiscal deficit, the government has tried improving transparency while further developing non-oil sources of revenue. Progress on access to financial services has been sluggish.
Research shows that most governments could carry out their core functions, including welfare tasks, on a lot less money as a proportion of GDP than they are inclined to spend. Relatively high government expenditure can be justified by the need to alleviate poverty among the poorest of the poor. However, when we look at the problems caused by the increasing number of uneducated and unemployed youths involved in scamming and other crimes, we must conclude that some of the spending could be better utilised to reduce youth unemployment and crime in Cameroon.
Perhaps compelled by IMF regulations, the Cameroon government seems, at last, to have recognised, to some extent that it is the private sector that brings about economic growth. However, that recognition needs to translate into positive action and will not occur while the overall freedom to establish and run a business continues to be seriously limited by the regulatory environment. Compared to the global average of 18 procedures, obtaining a business licence in Cameroon requires 15, and it takes much longer than the world average of 218 days. Bankruptcy procedures remain onerous and costly. This is no doubt why the country scored a mere 37.2% points on this indicator.
My observations lead me to believe that Cameroons private sector feels that it is being constantly lashed with disincentives in the form of new legislation and regulations; that it is expected to perform at increasing levels, but receives very little recognition for its efforts. To hound people who want nothing more than to be able to concentrate on running an efficient business is not the way to achieve economic growth. The achievements of the private sector, despite the burdens that have been imposed on it, are nothing short of remarkable.
In Cameroon, corruption is perceived as pervasive. Courts and government agencies have been accused of corrupt practices. Reports of arbitrary arrests, detainees being beaten, illegal searches and the confiscation of private property continue to be made. Trademarks and copyrights are routinely violated, and software piracy is widespread. Cameroon is ranked 96th out of 115 countries in the 2009 International Property Rights Index, and in Transparency Internationals Corruption Perceptions Index for 2008, it ranks 141st out of 179 countries.
Taxation and regulation, including price controls, are items that require attention. Cameroon has high tax rates. The top income tax rate is 35 percent, and the top corporate tax rate is 38.5 percent. Other taxes levied include value-added tax (VAT), transfer tax on businesses sold, property tax, and inheritance tax. In 2009, overall tax revenue as a percentage of GDP was 10.8 percent.
If there were lower taxes, money for reinvestment would remain in the hands of the most productive people in the economy and would provide them with the incentive to be even more productive. Everyone would benefit, not only the consumers and the people required to fill the new jobs that would be created, but also the fiscus, which would gather more tax at low rates from a bigger economy. Unnecessary regulation imposes costs in time and money that can be more productively employed. Frequently the cost of regulation is deadweight because no one benefits from it.
Encouraging is the fact that the Cameroon government has moved in the right direction in such areas as labour market regulations, access to sound money, and the size of government where it scored 6.59, 7.02, and 7.12 respectively on a scale of 10. Sadly though, in many other respects as analysed above, the government is moving in the wrong direction. It could save a great deal of time and energy if the policy makers would take note of the successes achieved by the worlds most economically free countries and utilise that knowledge and experience for the benefit of all Cameroonians. That would be the surest route to achieving high growth and an economically competitive society.
Author: Vivian Atud is an economist with the Free Market Foundation who specialises in socio-economic issues. This article, which is the first of a series of planned articles on the economies of African countries, may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the authors and are not necessarily shared by the members of the Foundation.
FMF Feature Article / 23 November 2010
Vivian Atud is an economist with the Free Market Foundation.
Publish date: 24 November 2010
The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.