Monday, October 24, 2016/ 8.15am /BMI Research
BMI View: Thriving infrastructure investment in Cameroon will be a significant growth driver in the near future. Furthermore, LNG exports from 2017 will provide the West African nation with an alternative to oil.
Infrastructure development and opportunities in liquefied natural gas (LNG) will provide Cameroon with a solid foundation for growth in the next two years.
Infrastructure investment into various sectors, particularly transport, will bolster fixed capital formation.
Furthermore, our Oil & Gas team forecast Cameroon to become a net LNG exporter by 2017. On top of this, loose monetary policy by the regional central bank and low inflation will provide tailwinds to private consumption.
We forecast robust real GDP growth of 5.4% and 6.5% in 2016 and 2017 respectively, compared to an estimated 5.8% in 2015. However, it is worth noting that we have downgraded our 2017 growth forecast from 7.1%, on the back of an LNG plant cancellation by Engie, and weaker cocoa production expectations.
Infrastructure Development Spurring Investment
Cameroon is a regional outperformer in terms of infrastructure development, shown in the fact that BMI's Infrastructure team forecast the construction industry to grow at 9.4% and 8.9% y-o-y in 2016 and 2017 respectively. This will be led by billions of dollars' worth of hydro power investment; in particular, the Katsina Ala River Hydro Power Project and the Nachtigal Falls Plant will each cost USD1bn.
Transport development is also underway, with the Kribi port project set to cost USD850mn. In the long term, these projects will give a boost to the operational environment by improving logistics and power capacity. Overall, gross fixed capital formation will grow 8.0% and 6.5% in 2016 and 2017 respectively, compared to an estimated 8.0% in 2015.
LNG: Most Promising Export Opportunity
A ramp-up in gas exports will provide tailwinds to Cameroon's trade balance. Development of Cameroon's offshore Kribi gas fields by Perenco and Golar will be complete in 2017 and 2018 respectively, with our Oil & Gas team forecasting Cameroon to be a net LNG exporter by Q417.
However, plans for an LNG plant to be built by Engie have been shelved, subduing the gas exports outlook slightly. Oil production, which accounts for almost half of Cameroon's exports, is also likely to see a ramp-up this year.
The national oil company reported that crude oil production had risen by 19.4% in the period between January and April, which poses an upside risk to current production forecasts.
However, we expect more disappointing yields from cocoa crops to pose headwinds. In August, Cameroon's cocoa production was reported to be 40% weaker than the previous year on account of a drought. In light of such headwinds, we forecast real growth in total exports at a modest 2.0% in 2016, though LNG will bring a significant bounce in 2017, at 12.5%.
Household spending will stay strong in the next two years, as looser monetary policy facilitates lending and inflation stays low. The Bank of Central African States (BEAC) has undertaken several policy loosening moves, having cut the policy rate to 2.45% in July 2015 and loosening the reserve requirement by 50% in April.
Low lending rates will help to encourage a rise in lending, and lower reserve requirements will help the slow push towards higher financial inclusion (see 'Fixed Investment And Stronger Exports To Buoy Growth', July 1).
Furthermore, low inflation will leave consumers with more spending power.
Average monthly inflation over H116 came in at just 1.3% y-o-y, compared to 3.4% in H115.
We expect inflation to remain low in the second half of the year on the back of suppressed food and fuel prices, coupled with currency stability due to Cameroon's use of the Central African franc, which is pegged to the euro.
Hence, we forecast real growth in private consumption at a healthy 4.6% and 5.6% in 2016 and 2017 respectively.