Wednesday, June 28, 2017 5:40 PM / BMI Research
BMI View: Capital spending will keep the import bill elevated in future, meaning the current account will remain in deficit. However, this will be sustainable owing to strong foreign direct investment and increasing export proceeds from incoming gas production.
Net International Investment Position (NIIP)
Cameroon's international investment position will remain firmly in negative territory over our forecast period. Inward foreign direct investment (FDI) is set to increase in future due to foreign interest in the country's oil, gas and manufacturing sectors.
Inward flows of 'other investment' will also increase owing to the government's efforts to find concessional loans for its public investment programme, which has seen it successfully secure funding from international financial institutions (IFIs) and bilateral lenders.
While inward portfolio investment did rise in 2015, owing to the issuance of the country's debut eurobond, overall this will remain weak given the Ministry of Finance will seek to avoid high borrowing costs associated with borrowing on the international capital markets.
The country's main stock exchange, the Douala Stock Exchange, has few listings and is unlikely to attract many more, which will keep the capital markets shallow for the foreseeable future.
Given most of the NIIP consists of FDI rather than portfolio investment (which would leave the external position to hot money flows), this will mean the deficit will largely be sustainable.
Although much of future current account deficits will be financed by inward investment, this will be insufficient to meet net import demand entirely. As a result, Cameroon will require additional foreign financing to fund its current account deficit over the coming years, adding to the economy's external debt burden.
However, we maintain the country's debt dynamics remain sustainable. The government will look to secure loans from IFIs with lower borrowing costs, rather than through issuing eurobonds.
We forecast external debt will rise to 31.4% of GDP in 2021 from an estimated 26.8% in 2016, thereafter falling to 26.5% in 2026.
Balance Of Payments
The current account balance will remain in deficit across our ten-year forecast period, but strong growth in exporting industries will see it gradually narrow.
Gas production will ramp up in late 2017 and 2018 as Golar and Perenco's floating liquefied natural gas (FLNG) project comes online.
Although our Oil & Gas team believe oil production is generally in decline owing to maturing fields, a gradual rise in oil prices in future will bolster proceeds. Otherwise, Cameroon benefits from a more diversified export basket than its other CEMAC neighbours, which all depend heavily on oil.
Production of cocoa and coffee, as well as its processing, will grow due to improved seeds and government investment in new processing units. Meanwhile, import growth is likely to slow down in the long term.
We note Cameroon's currency – the CFA franc, which is pegged to the euro – will fall against the dollar in line with our Europe team's view of continued euro weakness.
This will limit consumer import demand in the short- to medium term. Moreover, while infrastructure investment has kept capital import demand high in the last few years, the completion of large projects such as the FLNG unit, Kribi port and hydropower plants in the first half of our ten-year forecast period will thereafter temper further import growth.
As such, we expect the current account deficit to fall to 1.4% of GDP by 2026 from an estimated 4.6% in 2016.
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