Economic Analysis - Construction And Hydrocarbons Will Drive Robust Growth - JUNE 2017

BMI View: Cameroon will be a regional outperformer in terms of economic growth in the coming years. In particular, we highlight opportunities in the construction, hydrocarbons and agricultural sectors.

Increased activity in the construction, extractive and agribusiness sectors will see Cameroon post vigorous growth in the coming years. Efforts to develop greater hydropower and transport infrastructure will present opportunities for the construction industry and, over the long term, improve Cameroon's standing as an investment environment. Meanwhile, burgeoning gas production will provide sustenance to Cameroon's declining hydrocarbon sector. Finally, improvements in cash crop production and more facilities for processing will support growth in Cameroon's large agricultural sector. As such, we expect Cameroon's real GDP growth to average 6.0% between 2017 and 2021, well above the Sub-Saharan African average of 4.5% in the same period.

Cameroon Poised To Outperform
Cameroon And Sub-Saharan Africa - Real GDP Growth, % y-o-y
e/f = BMI estimate/forecast. Source: BMI, Statistics Cameroon

Public Infrastructure Investment Will Buoy Construction

Growth in Cameroon's construction sector will be boosted by significant public and private infrastructure investment in the coming years. Government-led development projects will see significant spending on improvements to hydropower and transport ( see ' Fiscally Expansive Policies Spurring Economic Resilience ' , December 19). At the same time, the country's robust public-private partnership (PPP) model will continue to support private sector investment. For example, our Infrastructure team expects work to begin shortly on the USD1.5bn Katsina Ala hydropower plant on the north-west border with Nigeria, and the USD1.3bn Nachtigal Falls plant near Yaounde to be completed by 2021. Furthermore, the second phase of construction at the Kribi deep sea port - Central Africa's first deep sea port - has been recently approved, and will be financed by Exim Bank of China. While fiscal pressures from low oil prices have left the government with reduced funding to finance these projects, a potential loan deal with the IMF announced in March will assist with financing in the short term and mitigate the effects of increased fiscal pressures. Our Infrastructure team therefore expect construction in Cameroon to notably outperform the West African average over our medium-term outlook ( see 'Construction Growth Outlook Outperforms West Africa', September 9 , 2016).

Hydrocarbons Development Will Build On Declining Sector

Multiple new opportunities for growth exist in the oil and gas sector, which has been in decline since oil production hit its peak in 1985. A floating LNG project led by the LNG shipping company Golar and producer Perenco, which will begin in late 2017, will bolster natural gas production, and see Cameroon becoming a net gas exporter. This will help to diversify the country's exports beyond crude oil and agriculture. There is also further room for investment into the sector, given that Bowleven holds a permit on fields in Bomono and Victoria Oil & Gas holds a permit on Mantanda fields. Furthermore, although our Oil & Gas team's core view for oil production is for a gradual decline after 2019, they note that ongoing offshore exploration provides upside risk to their forecasts. In a low oil price environment, Cameroon's shallow-water offshore reserves, particularly in the proven Rio del Ray basin, will appear attractive to oil companies due to lower production costs.

Gas Gains Will Provide Export Opportunity
Cameroon - Gas Production And Exports
e/f = BMI estimate/forecast. Source: BMI, EIA

Strengthening Investment And Consumption Will Support Agriculture And Processing

We believe that Cameroon's agribusiness industry, particularly processing, is set for brisk, if volatile growth in the years ahead. While we note that agriculture is still highly weather dependent, meaning that yields remain vulnerable, new production techniques and access to higher-yielding seeds will be a boon to production in the coming years. In particular, our Agribusiness team hold a positive view on production of soft cash crops such as cocoa and coffee. The Economic Partnership Agreement trade deal with the EU will sustain strong European demand for these commodities, and provide farmers with tariff-free access to agricultural machinery which will likely improve productivity ( see ' Cameroon-EU Trade Deal Brings Short-Term Gains, Long-Term Risks ' , October 5). In turn, improving production will bolster the outlook for agricultural processing. Our Agribusiness team have a more positive view on Cameroonian cocoa processing over other major West African cocoa producers Cote d'Ivoire and Ghana due to a stronger domestic market and recent government investment in industrial processing units as part of a long-term strategy to bolster value-addition processes in the country. Cameroonian coffee processing also grew eightfold in 2015/2016 over 2015. While partially due to stronger domestic consumption, investment into machinery and marketing of the country's coffee products largely sparked this increase. We therefore believe that opportunities for value addition and increased production will be a boon to Cameroon's agriculture sector over the coming years.