Infrastructure, LNG Exports To Bolster Growth Opportunities in Cameroon

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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%.

Private Consumption
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.

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