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Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Intelligence Cameroon: Tough Times Ahead ALA 83-100/3 Februarn 1983 Copy 268 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Cameroon: Tough Times Ahead A Research Paper This paper has been prepared by Office of African and Latin American Analysis. Comments and queries are welcome and may be addressed to the Chief, West and East Africa Division, ALA, Directorate of Operations Secret ALA 83-10013 February 1983 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 secret Cameroon: Tough Times AheadF_~ 25X1 Key Judgments Cameroon has been a model of economic progress and political stability Information available since it gained independence in 1960 because of the careful use of the as of 29 December 1982 country's resources and the effective leadership of former President was used in this report. Ahmadou Ahidjo, who resigned in November 1982. Despite this strong past performance, however, we believe the country will face significant economic challenges over the next few years as a result of less favorable in- ternational economic conditions and an overly ambitious domestic develop- ment program. Cameroon's newly installed President, Paul Biya, will be required to make and impose tough economic decisions to keep the country on a strong development track. Cameroon's historically strong development effort received a major boost in late 1977 when the country became an oil producer. Production is currently around 100,000 barrels per day and brings in almost $1 billion in foreign exchange annually. We anticipate these oil earnings could increase to $1.6 billion by mid-decade Optimistic Cameroonian Government officials are counting on this oil money to help finance an $8 billion investment program through 1986 that is critical to maintaining the country's economic health. The program includes agricultural projects, port construction, and exploitation of miner- al resources, such as petroleum and natural gas. Government planners project real economic growth to average 7 percent through the mid-1980s. We believe the Cameroonian economy cannot support a development plan of this magnitude, and that real economic growth is not likely to average more than 5 percent-approximating the historic average-over the life of the plan. In our opinion, manpower and transport deficiencies will limit the country's ability to absorb the rapid infusions of capital and equipment required by the plan. The country's cumbersome bureaucracy will also retard Cameroon's capacity to implement the plan. Even if Cameroon could overcome these constraints, we expect financial deficits will jeopardize completion of the plan. The program, written in 1979-80, anticipated the continuation of a strong world oil market and positive global economic growth. Since this assumption proved incorrect we believe that government revenues are substantially overestimated. Secret ALA 83-10013 February 1983 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 We also believe Yaounde will fail to locate overseas financing for all of the $4-5 billion that-considering the softer oil market-we project it will need to complete the Ian. the Mexican and Brazilian financial crises are making Western bankers much more conservative in lending to Third World governments. In addition, France-Cameroon's primary donor and foreign investor-has financial problems of its own and would be hard pressed to come up with the volume of funds we forecast as needed. We expect that Cameroonian officials will approach the United States for help, either on their own initiative or at the request of the French. Comments by senior Cameroonian officials indicate that Yaounde, capital- izing on what it believes are recently improved ties with Washington, will look to the United States for economic aid, particularly to fund agricultur- al projects. Cameroon also is likely to expect private US investment to increase significantly as a result of the groundwork laid by the US trade and investment mission in 1982. As traditionally inward-looking Cameroon seeks new sources of interna- tional financing over the next few years, it is possible that it could turn also to the Soviets or Libyans, but we believe this is not likely. Cameroonian leaders in and out of government are strongly anti-Soviet and anti-Qadhafi. Also, with the country needing large-scale economic rather than military assistance, there seems virtually no likelihood that Moscow or Tripoli will succeed should they woo the new government. We believe the government within the next two years will be forced to cut back its development program because of financing difficulties. Cutting the plan, however, will carry not only economic but political risks. Biya will have to be especially careful of the reaction of English-speaking-and oil- rich-western Cameroon, where residents have long resented what they believe to be second-class treatment by a French-dominated bureaucracy, a problem rooted in Cameroon's dual colonial legacy. Spending cuts will affect housing and other public services, and the government's inability to satisfy popular expectations could contribute to urban unrest 25X1 25X1 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84S00552R000100040003-3 Secret Steady Progress A. Cameroon's FY 1982-86 Development Plan B. Making the Most of Oil C. Methodological Notes on Economic Forecasts 3. The Fifth Five-Year Development Plan, FY 1982-86 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84S00552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Figure 1 Road +-+ Railroad Airfield -Province boundary Western region Bight of Biafra ouaia~ Ed ea EQUATORIAL GUINEA GABON C~kw RPU L I C Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Secret Cameroon: Tough Times Ahead The Economy-A Synopsis Steady Progress Under the Ahidjo regime, Cameroon experienced moderate, broad-based economic expansion between independence in 1960 and 1975, according to US Embassy sources and data provided by the Interna- tional Monetary Fund (IMF). Led by gains in local food and export crops, real growth averaged 4.6 percent annually through the mid-1970s. Ahidjo's favorable agricultural pricing policies helped double the production of cocoa and coffee-Cameroon's prin- cipal exports during the 1960s-to account for over half of export earnings. Cameroon became the fifth- largest producer of cocoa and ranked high among coffee exporters during this period. Moreover, Camer- oonian farmers diversified their exports to include cotton, rubber, bananas, palm kernels, peanuts, tobac- co, and tea. Cameroon even retained its status as a net food exporter, a rarity in black Africa. The most dramatic progress, however, was made in manufacturing, which, according to US Embassy sources, averaged an impressive I1-percent annual expansion during the period. Led by agricultural processing, the industrial contribution to GDP had risen from 10 percent in 1960 to 16 percent by 1975. We believe this performance was spurred by preferen- tial treatment given to both domestic and foreign investors under Cameroon's liberal investment code, which allowed, among other benefits, duty-free im- ports of raw materials and machinery and exemption from taxes on products and profits for three to 10 years. Numerous industries also were developed to produce a wide variety of consumer goods, including shoes, textiles, soap, and paper containers. Yaounde, during the first 15 years of independence, relied heavily on its former colonial ties to France to develop the modern sector. France was Cameroon's major trading partner and aid donor, providing both 25X1 25X1 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Cocoa Coffee Cotton Export bananas Palm kernels Peanuts Rubber Sugar Tea Timber Tobacco Bauxite deposit Aluminum refinery Hydroelectric plant Petroleum refinery "25X1 generous financial and technical assistance for con- struction projects, marketing facilities, and improved agricultural production and education. French man- agers dominated banking, foreign trade, industry, and plantation agriculture. Membership in the French- backed Central African Customs and Economic Union (UDEAC) also facilitated trade between Cam- eroon and other member African states because of the shared convertible currency. Weathering World Market Price Fluctuations Like many LDCs, Cameroon benefited from the tropical products boom in the mid-1970s, which helped the country pull out of the world oil shock of 1973-75. Our analysis indicates that increased cocoa and coffee revenues and Western donor assistance were the primary forces behind the growth in real Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Secret Table 1 Cameroon: Selected Financial Indicators Trade balance 40.5 31.2 Exports (f.o.b.) 828.1 1,078.5 Of which: Coffee 400.4 320.1 356.1 299.4 235.0 220.0 Oil 25.0 265.0 720.0 1,100.0 850.0 Imports (f.o.b.) 787.6 1,047.3 1,314.7 1,550.4 1,735.0 1,800.0 Current account balance -109.4 -187.0 Foreign exchange reserves (yearend) 42.4 52.3 a Estimated. b Projected. GDP, which climbed from 1.5 percent in 1975 to 4.0 percent yearly during 1976-78, approximating the average of the previous 15 years. Even with the more rapid growth, according to the IMF, inflation re- mained manageable largely because Yaounde's re- strictive credit policies and public-sector wage re- straints damped consumer demand without crimping investment. In fact, Fund reports indicate surging public and private outlays boosted average annual domestic investment to 20 percent of GDP during 1976-78, 5 percentage points above the share at the start of the decade. Although our analysis indicates investment-induced borrowing caused the external debt-largely to France and the United States-to top $1 billion by 1978, the debt service ratio remained low at only 8 percent (see table 1). The Impact of Oil Cameroon began pumping oil in late 1977 at an offshore field operated by a French-US consortium and by the end of 1978 was a net oil exporter. The US Embassy reports that while many other LDC econo- mies began to sputter in the late 1970s in the face of a global commodities slump, Cameroon easily weath- ered the decline as it began to benefit from oil 25X1 25X1 ^ Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 First Five-Year Plan: 1961/62-1965/66 Cameroon's first plan was prepared by two private French consulting firms and covered only French- speaking Cameroon. When reunification occurred in October 1961, the program was subsequently extend- ed to the whole country. This plan emphasized agricultural production, roads and railways, and social projects. Total planned investment amounted to $148 million (current dollars). Second Five-Year Plan: 1966/67-1970171 Although the second plan was written primarily by French consultants, it was the first to use various planning structures at the local, department, provin- cial, and national levels. It was also the first plan to set up a program to achieve Ahidjo's goal of doubling per capita income by 1980. The plan was known as the Farmer's Plan. Education, transportation, and industrialization efforts were also emphasized. Total spending amounted to $462 million. We believe Cameroon has been more successful than West Africa's two other major oil producers-Nigeria and Gabon-in managing its oil windfall. US Embas- sy reporting indicates the government has employed oil money and other financial resources to build up other sectors of the economy, specifically agriculture and industry. As a result, by the end of 1981 econom- ic growth had topped 6 percent for the third year in a row. Oil production increased by more than 25 per- cent to 88,000 barrels per day (b/d), while agricultur- al output increased-although at a rate somewhat lower than earlier years-as a result of the govern- ment's favorable pricing policies and good weather conditions. Industrial performance was also strong, led by food processing activities Third Five-Year Plan: 1971/72-1975/76 The third plan was thefirst written by Cameroonians. Its preparation also involved more local participation than either of the two preceding plans. The third plan was labeled the "Plan of Production and Productivi- ty"because of its emphasis on industrial development and commerce. Total spending amounted to $784 million. fourth plan amounted to $2 billion. Fourth Five-Year Plan: 1976177-1980/81 In addition to those local elements that participated in the preparation of the previous two plans, the drafting of the fourth plan included village develop- ment committees, sectoral study groups, and the provincial and national planning commissions. The fourth plan also brought modern methods of growth analysis and statistics into the planning process. In particular, the fourth plan focused on projects to eliminate bottlenecks, especially the still acute trans- portation deficiencies, that hinder a more rapid devel- opment of the economy. Investment costs during the In addition, Cameroon moved ahead in reducing its chronic current account deficit. More than $1 billion -in 1981 oil revenues again offset depressed cocoa and coffee receipts. Yaounde's fiscal policies also held nominal import growth that year to little more than 10 percent. As a result, we estimate that Yaounde had by then contained its current account deficit to under $200 million (the lowest since 1977), an amount easily financed by foreign donors and bankers against the collateral of Yaounde's oil potential. Although the external debt climbed to $2.4 billion by the end of 1981, the 15-percent debt service ratio was still fairly low for an LDC. Typical of many LDCs in the throes of an oil boom, however, Cameroon began to experi- ence increased demand-generated inflationary pres- sures as public expectations rose sharply. Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 .25X1 25X1 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Secret We believe that economic growth during 1982 proba- bly equaled 1981's impressive rate but at some cost. The slack world oil market and increased domestic consumption reduced oil export earnings to only about $850 million. This downturn, along with still de- pressed sales of cocoa and coffee, cut total export earnings to only about $1.5 billion, down nearly $400 million from 1981 and the lowest since 1979. With import and service charges on the rise as Yaounde accelerated its 1981-86 development program, we believe the current account deficit hit some $650 million, which available data indicate is the largest since independence. con borrowed about $400 million from various inter- national sources. The remaining $250 million came from an estimated $900 million in overseas oil invest- ments that the government had been accumulating as a financial cushion since the startup of its oil produc- tion The Financial Picture Cameroon, unlike most of its West African neighbors, has an opportunity to regain and maintain a strong financial position over the next several years. We believe, however, that this will require the Cameroo- nian Government to make extensive and politically risky adjustments in the current development pro- gram (see appendix A). These would involve canceling or delaying indefinitely many prestige projects that are the basis for regional industrialization schemes. The government would have to carry out a careful balancing act to ensure that various interest groups, particularly those in English-speaking West Camer- oon, do not feel that they are suffering disproportion- ately from budget reductions. Such changes could probably be carried out fairly easily if Ahidjo were still at the helm. President Biya does not have Ahidjo's prestige, however, and in our view will be less able to resist pressure from his supporters to maintain Should Cameroon manage to implement the fifth development plan as it now stands, we estimate that the country will face a cumulative current account deficit of $4-5 billion over the period 1982-86 (see table 2) and will have an overall debt by the end of 1986 in excess of $6 billion.' In addition, we believe Yaounde will be forced to draw down its remaining $650 million financial buffer (oil earnings held abroad)-perhaps as early as next year-just to make ends meet. Cameroon could, as a result, be forced to turn to the IMF for balance-of-payments assistance or perhaps to the London or Paris Clubs for debt rescheduling by the end of the decade. Official Cameroonian estimates differ substantially from our projections. Planning officials project a $2 billion cumulative surplus by the end of 1986. There are several reasons for the discrepancy, including what we believe are overly optimistic production and price projections for the country's agricultural ex- ports. The principal factor in such a large variance, however, is Yaounde's projected rate of oil produc- tion, a figure twice as high as that forecast by officials of US oil companies operating in Cameroon. apparently believes, according to US Government officials, that oil production will not drop off until some time in the 1990s, expect a decline beginning in 1988 unless substantial new finds are made (see appendix B). In carrying out its proposed investments, the Camer- oonian Government is counting on at least $5 billion in loans, which would account for 60 percent of total projected spending. According to the plan, Cameroon expects io garner $3.2 billion in project-related fi- nancing from international banks and private Camer- oonian interests. Because Cameroon's domestic bank- ing sector is still underdeveloped and the government has shown no signs of imposing forced savings through additional taxation, most of this amount must come those parts of the plan of benefit to them. 25X 25X 25X1 25X1 25X1 25X1 I 25X1 25X1 25X1 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 from foreign banks. Even though Cameroon currently has a solid credit rating, we believe the government will be unable to borrow anywhere near this amount. Yaounde also expects to borrow $1.8 billion from foreign government sources; $500 million from the Franc Zone and another $1.3 billion in aid credits from Western donors. Again, we are not optimistic that Cameroon will be able to borrow these amounts. The Franc Zone itself is in severe financial straits position. because of chronic foreign exchange shortages of the Zone's member countries, while Western donors, es- pecially France, are being more selective in their aid disbursements to help restore their own financial In addition to financial problems, implementation of the plan will also be affected by manpower and transport deficiencies (see appendix A). With less than 5 percent of the population possessing any technical skills, the country has a severe shortage of qualified Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 25X1 25X1 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Secret labor and must depend on expatriates, mainly French, to fill most of the technical and managerial positions. The transport network is grossly inadequate, with most roads impassable during much of the year The Political Scene Cameroon's prospects now clearly depend on newly installed President Biya's ability to consolidate his power and handle the economy. Cameroonian officials and international development experts agree that the country's economic future requires major investments in agriculture to maintain Cameroon's rare ability among African states to feed itself. This, however, would be possible only at the expense of more popular projects in industry-such as the Kribi liquefied natural gas (LNG) project'-and social programs involving education, health, and housing We are concerned how Biya will implement any needed program cuts to minimize popular disaffec- tion. Particularly worrisome, in our opinion, will be the reaction of residents in English-speaking western Cameroon, who have long resented what they believe is second-class treatment by a French-dominated bu- reaucracy in Yaounde. Biya is from French-speaking southern Cameroon, and we assume that he is well aware of the potential for local unrest if he does not appear sympathetic to the concerns of his western constituents. His task will be complicated by the fact that all of the country's current oil production is off the western coast, and we believe that regional politi- cians are carefully monitoring how oil money is being of cabinet ministers from the country's principal tribes and his choice of a Muslim northerner as prime minister-his constitutional successor-reflect his awareness of the political need to balance his status as a non-Muslim, southern minority tribesman. We view Cameroon's military and internal security forces as generally apolitical and able at least for now to keep any antigovernment movements from taking root. According to US defense attache reporting, these forces are disciplined, well trained, and have a reputation for preventing dissension. Should domestic unrest develop, Biya, like his predecessor, will proba- bly rely on the national police and gendarmerie-- which receive better pay and allowances than the Army-to maintain internal order. Biya almost cer- tainly will also adopt Ahidjo's use of the threat of force and the promise of a share of the political spoils-such as cabinet posts and development proj- ects-to keep Cameroon's many disparate tribes working together. Still, we cannot rule out domestic unrest based-at least in part-on economic grievances. We believe, in particular, that the military could become increasing- ly disenchanted with the government if spending cuts prompt a sharp decline in economic activity and the lower ranks are forced to support financially a grow- ing number of family members. The military will probably also be watching to ensure that it is not required to bear an excessive share of the cost of any economic slowdown. used to improve local living standards. Biya's track record since he assumed office in Novem- ber is encouraging. US Embassy sources indicate that his succession has been accepted calmly by Cameroo- nians. In addition, Biya has used his administrative talents to make some politically adroit moves and to consolidate his position. In our view, his appointments 2 The Kribi project has already been scaled down by about one-third and probably will not be developed until 1988 at the earliest. The change in plans is the result of recent estimates by the main developers of the project, the French firms, Compagnie Francaise de Petrole and Elf Aquitaine, showing that Cameroon's natural gas reserves are not sufficient to justify construction of the original American influence in Cameroon, according to US Embassy reporting, has grown considerably in recent years. President Ahidjo visited Washington in 1982, following a visit to Cameroon of Secretaries Block and Baldrige earlier in the year. Cameroon has purchased US military hardware and civilian aircraft, and an increasing number of US firms and financial institu- tions are setting up operations. Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Although many US companies have found advantages in doing business in Cameroon, they also cite several drawbacks: ? The need to accommodate to the French system- language, customs, business practices-which, over the years, has become firmly entrenched in Cameroon. ? The increasing role of corruption. ? The ponderous redtape that limits the ability of a company to realize a profit in under 18 months. ? The need to justify expatriate positions to Cameroo- nian authorities and the requirement that Cameroo- nian nationals must fill certain other positions with- in a specified time limit. ? Finally, what businessmen see as a total lack of communication between responsible Cameroonian officials and US company representatives, which results in protracted contract negotiation and rene- gotiation. We agree with the US Embassy's assessment that the recent change in leadership in Yaounde provides the United States with an opportunity to expand its role, as Biya looks to the country's traditional benefactors for support. This opportunity could be short lived, however, if Washington fails to meet growing Camer- oonian expectations for financial and technical assist- ance. We believe Cameroonian officials assume- because of Ahidjo's successful visit to Washington in 1982 and the trade and investment mission earlier in 1982-that Cameroon has a new, special relationship with the United States. Yaounde, in our view, expects substantial aid, especially in agriculture. The country probably also expects an even larger amount of private US investment in support of priorities outlined under the five-year plan. If, as we expect, US and other Western donors do not provide aid and investment on the scale envisaged by Cameroonian officials, we believe that Cameroon has little choice but to reduce substantially its current development program. Yaounde theoretically could turn to Moscow or Tripoli for assistance, but we believe Cameroon's pro-Western, anti-Soviet, and anti-Libyan biases will prevent it from seeking help in those quarters. US Embassy reporting indicates that the present Cameroonian elite has not forgotten that the USSR and other Communist states provided material support for an unsuccessful tribal insurgency by Cameroonian dissidents in the early 1960s. Even if Biya were to approach the Soviet Union or Libya, these countries' own economic difficulties almost cer- tainly would prevent them from providing more than token assistance. Moreover, we do not believe that, in the event of a coup, Cameroon's new leaders would seek the military assistance that the Soviets and Libyans sometimes offer in an effort to expand their influence with fledgling governments. In our judgment, a new mili- tary regime, at least initially, would continue to look to France-the Army's traditional source of arms and training-for help. US Embassy and reporting indicates that the Cameroonian military has been thoroughly screened for years to root out any personnel with suspected leftist views Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Secret Appendix A Cameroon's FY 1982-86 Development Plan The current development plan-the most sophisticat- ed to date in preparation and democratic in terms of participation-is targeted at consolidating the gains of previous plans (see box), meeting more of the economic and social demands of the Cameroonian people, and extending the diversification of the econo- my (see table 3). To reach these goals, the government seeks to exploit more fully Cameroon's abundant natural resources-particularly oil and natural gas. In addition to developing its petroleum industry, Yaounde wants to move ahead on several other major programs in order to: ? Accelerate regional economic development. ? Maintain self-sufficiency in food. ? Expand the production of traditional export crops. ? Increase utilization of domestic raw materials in industrial production Primary Sector The major goals for agriculture in the new plan are to meet the country's food needs and to expand produc- tion of agricultural exports. The government believes, and we agree, that a critical element in meeting these objectives is to avert large-scale or excessively rapid rural/urban migration, which Cameroonians claim is responsible for the disastrous agricultural perform- ance in neighboring Nigeria. As a result, the plan's agricultural investment strategy is aimed at making rural life more attractive to Cameroonians. Key tar- gets are to keep producer prices high and improve the availability of credit, fertilizers, and other agricultur- al extension services. Secondary Sector In the manufacturing sector, Cameroonian Govern- ment officials are focusing on agricultural processing and light manufacturing industries. The plan calls for a significant expansion in the processing of local raw materials and intermediate goods for both domestic consumption and export. Continued exploitation of petroleum reserves and hydroelectric power sources along with development of natural gas and bauxite also rank high on the government's industrial develop- ment priorities list. The government anticipates an increasing role for both foreign and domestic investors and includes in its development strategy provisions for revamping its investment code and tax structured Tertiary Sector Along with increased industrial production, Yaounde is looking to a major expansion in commerce, trans- port, and tourism. To enhance the role of its budding tourist industry as a source of foreign exchange, Yaounde plans to develop several new tourist sites and I construct 3,000 additional hotel rooms. The govern- ment hopes to hold several international trade fairs 25X1 and construct new warehouses, storage facilities, and commercial markets. Other investments involve ac- quiring trucks, railcars, aircraft, and other kinds of transport machinery and equipment. For communications, investment is aimed at both improving existing facilities and expanding links both domestically and internationally. In terms of trans- port, investment projects include: ? Construction of 2,000 kilometers (km) of roads and 1,190 meters of bridges. ? Reinforcement of 1,200 km of roads. ? Realignment of the Transcameroonian railway. ? Expansion of Douala port to include fruit and minerals terminals. ? Construction of a deepwater port near Kribi. ? Expansion of Douala airport to accommodate large transport planes. ? Construction of new airports at Garoua and Bafoussam. Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Investment Percent (million 1981 of Total as $) Table 3 The Fifth Five-Year Development Plan, FY 1982-86 Agriculture 1,512.5 18.9 Livestock and fisheries 288.1 3.6 Forestry 96.0 1.2 Mines and power (includ- 672.3 8.4 ing oil development) Communication infra- 1,692.3 21.1 structure Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Post offices and 246.0 3.1 telecommunications Town planning, equipment, 1,224.3 15.3 research Administrative 192.0 2.4 buildings In addition, the plan envisages improving the coun- try's internal and international telecommunications network, upgrading the mail service, and constructing new post office buildings. The plan also includes new initiatives in town plan- ning, town expansion, and development research. Ur- ban development projects include a major expansion in the availability of potable water and electricity, improved drainage and sanitation facilities for Douala and Yaounde, a 14,000-unit housing program, and the creation of industrial zones. Development research will highlight improving food crop production, animal husbandry, and nutrition. Education Government planners hope to build the 17,000 class- rooms and train the 20,000 teachers they anticipate will be needed to handle the projected doubling in school enrollment by 1986. Increased attention will also be paid to technical and vocational education to fill the country's needs for skilled manpower. Other proposals include the establishment of a national education fund and a public relations campaign to encourage Cameroonians to become teachers. Health In recognition of the country's inadequate system of health care, Yaounde has proposed a major expansion in health services. Some of the more ambitious pro- grams include the construction of 41 hospitals and 36 mother and child care facilities, and the training of nearly 4,000 medical and paramedical personnel. Preventive medicine will receive new emphasis, as will more active participation by village communities in good health care practices. Education/ training 704.2 8.8 Youth and sports 112.0 1.4 Information/ culture 128.0 1.6 Health/social affairs 320.1 4.0 Youth and Sports The primary goal of this aspect of the plan is to enhance the ability of Cameroonian youth to adjust to modern values while retaining some ties to their Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Secret cultural heritage. Government officials believe this approach is the best way to minimize the possibility of a sharp increase in juvenile delinquency that they see elsewhere in black Africa. Investments include con- structing a national institute for youth and sports (with five regional centers and three sports stadiums), purchasing equipment, and improving existing sports facilities. The Fifth Five-Year Plan calls for investment totaling some $8 billion. Financing is to be split 60/40 be- tween public and private sources respectively (see table 4). The largest component of public-sector fi- nancing is budgetary savings, that is, the amount of public revenues left after current operating costs are covered. According to the financial plan, Cameroon expects these savings to total $1.6 billion over the life of the plan. Other local public resources-central bank holdings and contributions from parastatals- are to contribute another $1.4 billion. The remainder of public financing will come from borrowings against the country's Franc Zone account, $500 million; and external borrowing, $1.3 billion. Private financing is to supply the remaining $3.2 billion. Government planners anticipate funds will come from inter financial institutions and private businessmen. As noted in the text of this paper, we believe Yaounde will be hard pressed to come up with anything close to the funds specified in the plan. This is largely because Yaounde's chief benefactors-Paris especially-have financial problems of their own and are slowing new aid commitments. In addition, international lending institutions are nervous about LDC lending because of the Mexican and Brazilian financial crises. More- over, what we see as the overestimation of oil revenues for the period will limit the government's own domes- tic resources available for development purposes. We believe that aside from financial considerations, deficiencies in manpower and transport will impede completion of the plan. Excessive redtape and bureau- cratic inertia will also slow the process. Table 4 The Financial Plan, FY 1982-86 Billion 1981 Percent US $ Total 8,004.6 100.0 25X1 Public financing 4,801.6 60.0 I Local public financing 3,479.4 43.5 Budgetary savings b 1,586.6 19.8 Other local public resources 1,370.9 17.1 Local public loans d 521.9 6.5 External public financing 1,322.2 16.5 Loans already obtained 372.3 4.7 a Because of rounding, compoments may not add to the totals shown. b According to the plan, these are government revenues remaining after current operating expenses are covered. Cameroonian officials suggest this money represents contributions from parastatals and central bank resources. d Cameroon can borrow up to 15 percent above their reserves on deposit in the Central Bank of Equatorial Africa, the local Franc Zone bank. e We believe these are grants from the French Government. Inadequacies in the country's transportation system are especially worrisome. Currently, according to Cameroon's Director of Transport, the country's transport network consists of: ? 65,000 km of roads. ? 1,165 km of railways. ? Two principal seaports, Kribi and Douala, and two secondary ports, Victoria and Tiko. ? One seasonal river port at Garoua. ? The international airport at Douala and 12 smaller domestic airports scattered throughout the country. Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Although the transport network is fairly extensive (see map), there are serious problems that affect the flow of traffic. Except for a few roads in the major cities, the country's road system, by far the dominant mode of transport, is in disrepair. In addition, most roads are made only of gravel and earth and are frequently impassable during the rainy season. According to the World Bank, the state-owned railway consistently operates at a loss because of shortages of rolling stock and locomotives and managerial and operational defi- ciencies. Douala port, which handles 90 percent of the country's trade, operates at only 50 percent of capaci- ty because of poor administration and bottlenecks in such areas as customs. Air transportation is not reliable because of frequent delays resulting from management and maintenance problems. Skilled manpower shortages will also have an adverse effect on the country's development plans. According to the 1976 census-the last available-the Cameroo- nian work force accounts for 40 percent of the total population, of which the World Bank estimates that 83 percent are engaged in agriculture and lack other skills. Of the remainder, employed by industry and government, Embassy reporting indicates most are also unskilled. Even those who have received several years of education have pursued a predominantly liberal arts curriculum with few science and engineer- ing courses. As a result, the country is dependent on expatriate labor-mostly French-for filling most of the technical and managerial positions in the economy Agricultural development could suffer the most from manpower and transport deficiencies. According to AID economists attached to the Ministry of Agricul- ture, the country's ability to feed itself is declining because of outdated technology, rural migration, and difficulties in moving products to markets posed by poor roads and lack of trucks. These economists believe that Cameroon will become a net food import- er by 1990 largely because it will take at best a minimum of 10 to 12 years to rebuild agriculture even if the government moves now to address the problem. US Embassy sources, who believe the Cameroonian Government is aware of the farm problem, cite Yaounde's designation of agriculture as the country's top development priority. In addition, planners have drawn up a series of policy initiatives that they hope will persuade highly productive farmers either to stay in or return to the countryside. These include annual raises in producer prices for both food and cash crops, increased training in advanced farming techniques, and expanded availability of agricultural credit Nevertheless, we anticipate serious problems in imple- menting these projects. The absence of skilled admin- istrative personnel, for example, will impede the abili- ty of the government to process applications for farm credits and to offer new extension services on a wide scale. In addition, few Cameroonians are qualified to be extension agents. Moreover, any increase in pro- duction would place serious strains on the country's already weak transport system. This is especially a problem for perishable crops such as bananas and cocoa. One experienced AID economist believes Cam- eroon will be lucky to meet half of its goals for agriculture because of these factors. Other facets of the country's development program will also feel the impact of manpower and transporta- tion deficiencies, in our view. Industrial projects can be expected, at a minimum, to fall behind schedule due to delays in machinery and equipment deliveries at the port and the ability of most roads to handle heavy loads for only five to seven months out of the year. Social projects-particularly health care and education-will lag because of insufficient personnel, while lack of timely deliveries of equipment and raw materials will push back the timetable for completing the plan's ambitious housing program Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Secret Appendix B Making the Most of Oil Oil is a prominent feature in any Cameroonian devel- opment scenario. We estimate it accounts for 50 to 60 percent of foreign exchange earnings. In addition, and apart from official foreign exchange holdings, the government has managed to build a financial buffer- which we estimate to be currently about $650 mil- lion-of oil money savings held outside the country in foreign financial institutions Cameroon currently produces about 100,000 b/d of oil. By 1987, according to oil industry estimates, production should peak at 157,000 b/d. Assuming that real oil prices firm somewhat beginning in 1984 (see appendix C), government receipts will total some $5-6 billion from its share of production and taxes and royalties over the course of the current five-year plan. The present energy chief is Samuel Libock, director of Cameroon's national oil company, Societe Nationale des Hydrocarbures (SNH). Although industry deci- sions ostensibly are made by the SNH Board of Directors, Libock clearly is the government's primary spokesman, according to Embassy sources. During the past several years, he has moved to tighten Camer- oon's grip on the oil industry, to the dismay of US oil companies operating in Cameroon: ? In December 1978 Libock announced a new law that required the government's share of production to be no less than 40 percent of the oil production from each company operating in Cameroon. ? The following year, Libock asked the French oil company Total to draft an additional agreement regulating Yaounde's share of oil revenues. The primary change involved an increase in the govern- ment's share of total revenue from what we estimate was about 75 percent to 87 percent, with the additional amount to come out of company profits. National oil company president, Samuel Libock After some modifications, the Cameroonian Gov- ernment decided these provisions would apply to all other companies as well. Total and ELF, another French firm, went along with the proposal, but the various US oil companies-Gulf, Mobil, and Shell- Pecten-resisted, claiming that they already had valid agreements. ? SNH then turned to ELF-the only firm currently producing oil in Cameroon-to prepare another agreement that would control timetables for debt amortization and repatriation of profits by all oil companies. Copies became available to oil compa- nies in the spring of 1981. Only ELF, Total, and the US firm Shell-Pecten, which shares its concessions with ELF, have signed the new operating convention. Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Figure 3 Cameroon: Oil Concession Areas CA Area N Area of CENTRAL AFRICAN REPUBLIC Concession limit Hypothetical equidistant line 0 30 Kilometers i I III 0 30 Miles Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 ;El IElIE Fernando Po Limbe Victoria) )UATORIA GUINEA N E Elf Serepca . .. . 100.0 E1 Elf Serepca 51.0 Pecten Cameroon ............................. 49.0 E2 Elf Serepca ......... ............... ............ 30.0 Wintershall Ap ............................................ 30.0 Total Explor. Prod. Cameroun 20.0 Denison Mines ............................................ 19.8 E6 Elf Serepca 48.5 Pecten Cameroon ...................................... 46.5 Soc. Nat. des Hydrocarbures...................... 5.0 G Gulf Oil Co. of Cameroon ... 100.0 O1 Gulf Oil Co. of Cameroon .. . 40.0 Elf Serepca ............... ............?..................... 34.6 Denison Mines .................. .:........................ 14.4 Total Explor. Prod. Cameroun .................... 11.0 Gulf Oil Co. of Cameroon. ............. 75.0 Total Explor. Prod. Cameroun .................... 25.0 M2 Mobil Exploration Equat. Africa............ 75.0 Total Explor. Prod. Cameroun 25.0 M3 Mobil Exploration Equal. Africa 54.1 Total Pxplor. Prod. Cameroun ..,._......_...... 18;0 Ocelot Industries ........................ ...._..,....._ 15.6 Damson OI Corporation 12.2 Elf Serepca....... ........................... _.......,...,.... 20.0 Pecten Cameroon.:. 35.0 Gulf Oil Go. of Cameroon ............................. 30.0 Damson Oll Corporation......... ................. ..... 112 Elf Serepca ..............?.......,._..................,....,. 10.0 D'ixei....._..........._ .................... ....................... 5:6 Damara Ott Ltd.....:;.,_.,_ .......... _ 2.8 Oxoco International Inc ....._ ..................._.. 2.4 Peyto Oils Ltd ,...,.,..... ..,,....._.........._,,...,..... 1.7 Suntite Oil Co. Ltd 1.3 Pecten Cameroon 40.0 Elf Serepca 10.0 T Total Explor. Prod. Cameroun ...... 100.0 TI Total Explor. Prod. Cameroun 98.0 Denison Mines ............................................ 4.0 T2 Total Explor. Prod. Cameroun .. .. 50.0 Mobil Exploration Equat. Africa .................. 50.0 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Secret ? At about the same time that the operating conven- tion was proposed, the government announced that it wanted 20 percent of each foreign company's stock-in addition to its share of production re- ceipts-which would entitle Yaounde to further corporate profits. Gulf and Mobil refused to sign the new operating convention in protest of the addition- al 20-percent equity share requirement levied by Libock. Libock in turn has demanded that Gulf relinquish half of its most promising concession if the company wants to continue to do business in Cameroon. This latest move has provoked a bitter dispute between Libock and Gulf, which could become an important factor in determining future US-Cameroonian relations We believe that Libock did not act on his own in imposing these additional restrictions. Since former President Ahidjo frequently shuffled senior govern- ment officials to remind them that he was in control, it is our opinion that he would have removed Libock if the latter were not in fact following presidential orders in such important matters. In addition, we believe that Ahidjo monitored very closely overall oil policy decisions and would have moved quickly to stop Libock from doing something not in Cameroon's interests. For the time being, Biya-probably preoc- cupied with consolidating his own position-seems content to leave Libock in charge of oil policy. In our view, Libock's decisions clearly benefit Camer- oon in terms of increasing Yaounde's share of oil revenues. We also believe that his actions may reflect government concern over the short lifespan of current oil reserves. Yaounde expects pro- duction start to decline some time in the 1990s. We do not know, however, the assumptions the gov- ernment is using in making this projection We believe Libock's behavior could also reflect Yaounde's bowing to French pressure. Libock could be deliberately trying to force US oil companies out of Cameroon, leaving the field open to French firms. US Embassy sources report that French oil companies relinquished to American oil concerns what are now relatively large oil deposits in Ivory Coast and do not intend to suffer the same fate in Cameroon. In addition, information available to us indicates that Libock employs Total-in which the French Govern- ment has 40-percent ownership-as a consultant on oil matters. Furthermore, as noted, both the new association agreement and operating convention were drafted by French companies, and it is our opinion that their provisions will stretch out the time needed by those firms yet to begin production-almost all of these are US-to recover their investment costs. ELF, on the other hand, has been lifting crude since 1978 and, we believe, has offset a sizable portion of its capital outlays with revenues generated by earlier, more generous financial arrangements. US Embassy officers worry that Libock will make a major blunder in investing Cameroon's oil money. Indeed, Libock himself recently voiced similar con- cerns to Embassy officers and has engaged the serv- ices of a reputable US investment firm to assist him. policy for the forseeable future will remain in short- term assets because of financial demands associated with the current development program. 25X1 I 25X1 25X1 25X1 25X1 25X1 25X1 25X1 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Secret Appendix C Methodological Notes on Economic Forecasts Fhese 25X1 Official Cameroonian data posed serious problems. Almost all series suffer from the lack of internal consistency and timeliness and from frequent unex- plained changes. The five-volume FY 1982-86 devel- opment plan spells out few assumptions for estimates of either government revenues or expenditures. More- over, Yaounde's persistence in keeping information on oil earnings tightly held precludes the use of official sources to project future Cameroonian oil production and government revenues. tors, we have relied principally on the International Monetary Fund, whose annual consultations with the Cameroonian Government and periodic publications produce the most current and consistent series of data. In preparing our current account estimates for 1982- 86, we first addressed Cameroon's export earnings potential. We focused our attention initially on petro- leum, currently the country's primary foreign ex- change earner. Three elements-production, domestic consumption, and international oil market trends were examined: projections reflect current estimates of proved re- serves and recovery rates. We do not expect produc- tion to be affected by international swings in oil demand over the next several years because Camer- oon's output is too small a share of the market. ? Estimates of domestic oil consumption reflect the historical relationship between the country's growth rate and resulting oil needs-a 2-percent growth in oil consumption for every 1-percent growth in GDP. Our consumption forecasts assume a 5-percent an- nual growth rate in GDP during the plan. We expect problems in implementing the plan to keep economic growth below the 7-percent rate used by Cameroonian planners. Moreover, a 5-percent an- nual increase is in line with the country's post- independence average. ? With regard to international prices for Cameroo- 25X1 nian oil, we assume that Yaounde will continue its policy of closely tying its price to that of Nigerian crude. As a result, we have drawn on some projec- tions of future market trends for Nigerian and other African crude oil to make our forecasts for Camer- oonian oil prices. ? We assume that current oil market conditions will I prevail through 1983. We base this assumption on a number of unclassified projections of only a slight 25X1 recovery in major industrialized countries, resulting in average OECD growth of about 2 percent this year. Accordingly, we are projecting that world oil prices will remain steady in the current $32.50 to $33 per barrel range, with no change in existing quality and transportation premiums. This should allow Cameroon to hold its official sales prices in 1983 at this year's level of $33 per barrel. ? After 1983 we look for a stronger expansion in economic growth in the major industrialized coun- tries, which will allow oil prices to begin improving Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 in real terms. Allowing for international inflation, we estimate that Cameroonian crude could be sell- ing for as much as $36 per barrel in 1985 and $39 per barrel by 1986. In addition to looking at petroleum exports, we exam- ined factors affecting future sales of coffee and cocoa, Cameroon's other significant foreign exchange earners: ? Cameroonian planners anticipate marked increases in production of these crops during the next several years, but US Embassy and IMF reports indicate that such a performance requires immediate efforts to replace old, unproductive cocoa and coffee trees, and to introduce improved farming methods. At best, any improvement in output will require five to seven years-or beyond the scope of the current plan-because of the length of time needed for new trees to begin producing crops. ? Coffee and cocoa earnings will also be affected by what we believe will be a continued world surplus of both commodities. We project that market condi- tions may push prices even below current depressed levels. Consumption has stagnated because of weak economic growth in Western economies, while pro- duction remains high. However, a sudden change in supply, such as happened when the freeze in Brazil caused prices during the mid-1970s to skyrocket, would probably result in a significant improvement in prices. On balance, we conclude that these factors will keep earnings for exports of tropical products close to the current depressed levels through 1986 even assuming moderate increases in production. As a result, overall export earnings will range from $1.5 billion in 1982 to $2.3 billion in 1986. Our estimates for the average annual increase in import volume is driven by the comparable Cameroo- nian plan estimate. We believe this estimate-9.3 percent annually-is conservative considering the ex- periences of other African countries (particularly Nigeria) in implementing ambitious development plans and Cameroon's own previous development plan track. Still, lacking the basis of an independent estimate that would adequately capture the mix of projects and services in the plan, we have accepted the Cameroonian figure as reasonable To this import volume gain, we added 3 percent annually to reflect what we expect will be the average weighted import inflation rate for the period. This projection is based on inflation rates of Cameroon's major overseas suppliers, suitably adjusted for expect- ed changes-as best we can judge them-in the yearly value of the dollar relative to the currencies of other industrialized countries. These assumptions result in Cameroon's merchandise import bill rising from $1.8 billion in 1982 to nearly $2.9 billion in 1986. Over the same period, we project that imports of services will jump from $350 million to $565 million. When placed alongside our forecasts for export earnings, the result is a cumulative current account deficit for Cameroon of nearly $5 billion during FY 1982-86. outstanding external debt by the end of last year 25X1' 25X1 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Secret to carry out the plan, we anticipate that cumulative financial needs could push Cameroon's debt to at least $6 billion by the end of 1986. This assumes full implementation of the current development program, a complete drawdown of the country's $650 million in oil assets that remain deposited in overseas govern- ment accounts, the absence of any significant net foreign investment or grant aid, and no addition to international reserves Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3 Secret Secret Sanitized Copy Approved for Release 2011/01/27: CIA-RDP84SO0552R000100040003-3