Local industries perish, employment dwindles

Dr. Michael Forzeh Fossung, Certified Public Accountant, Lecturer of Accounting, General Manager of Kosan Crisplant Cameroon.

What justifies government’s decision to allow for goods like sugar, milk, cement and vegetable oil to be imported when national production could meet demand?

We must first clarify that national production of these basic commodities and many others imported are currently insufficient to meet demand. However, there is room for the government to raise local production to meet the needs of the local market but at what price? No country today, even in the developed world, can be totally self-sufficient without suffering a high cost. This leaves the need or choice by the government to import goods especially basic necessities, to be able to satisfy local demand. It is possible that goods or services that satisfy domestic needs or wants can be produced more inexpensively or efficiently by other countries, and therefore sold at lower prices.  This is the case of crude oil for instance. Cameroon will continue to rely on imports to meet its petroleum needs into the foreseable future. This, however, is not the same as saying that Cameroon has no choice but to import crude oil from other countries. As the preceding discussion suggests, there are alternatives. Unfortunately, those alternatives are less economically and politically feasible than simply continuing to import oil from countries endowed with generous petroleum reserves and sophisticated processing machinery and know-how.

The same holds true for other basic products like rice, vegetable oil and so on whose domestic supply are currently limited. The government can find ways to increase the production of such commodities or identify domestic substitutes. These alternatives can prove to be more costly than continuing to import from other countries. Many countries have taken advantage of foreign competitive efficiency in various sectors and for various products to satisfy local demand. Take the case of the United States which has almost entirely stopped producing some goods particularly in low-tech products and electronic equipments which are produced by firms in other countries (notably Japan and China) faster, more cheaply and sometimes, of better quality.

Other issues would be that of quality. All of these and many other items that Cameroon imports from other countries are available through the domestic market. However, some consumers believe that imported versions of these items offer a level of quality that Cameroon varieties do not have - A case in point is rice.

What is the impact on the sectors concerned?

The impact of importing goods like sugar, milk, cement and vegetable oils are significant both positive and negative. Taking the case of cement which is an important input for construction and infrastructure development, underpins growth and industrialisation as well as private sector development, and represents a significant proportion of government spending in Cameroon, the price and availability of cement cannot be overemphasised. The cement sector, for instance, is one that is often concentrated because of the cost structure and high minimum efficient scale of production despite the new entrant of Dangote in the industry.

Cameroon's demand for cement has risen dramatically despite the increasing volume of imports and local production, according to the Ministry of Economy and Planning, Cameroon's cement demand grows by 8 per cent per annum and the country currently has a deficit of 2.5-3 million tonnes. In 2014, local cement production was estimated at 1.3Mt and imports were around 1.2 million tonnes. This increase in demand if matched with local production would have increased significantly the level of national employment, but this is not the case.

Despite the government's bid to ban imports to boost domestic production, foreign producers continue to have significant market share in the country, importing to almost 1.3 million tonnes in 2014 compared with 561,190 tonnes of cement in 2011. This significant increase in importation has reduced the economic potential of cement consumers in the sense that imported cement turns to be more expensive. Import duties paid to the government treasury is not matched with the external financing consumers incur. It is for some reasons like this that the government issued a ban of cement importation in April 2015. Cameroon's cement production is presently estimated at 3.6 million tonnes/yr.

Continuous importation of cement into the country reduces the economic potential of national cement companies and also increases the export earnings of the countries from whom such imports originate.  Besides, the local industry perishes and employment dwindles.

How serious is the impact on the balance of payment/trade of Cameroon?

Very serious-very negative! On a national level, in most countries international trade and importing goods represents a significant share of the national income. International trade has a significant economic, social, and political importance in many countries. It is needless to say that for Cameroon to maintain a favourable balance of payment, there should be an increase in export over import. Therefore, the government should take measures to reduce imports. For locally made goods, the government should find sustainable cost effective means to boost national production to meet demand.

The National Balance of Payment Technical Committee in the Ministry of Finance has disclosed a FCFA 700 billion trade deficit between Cameroon and its foreign trading partners in 2014 as against 500 in 2013. Should this figure be taken seriously by a country like Cameroon that is aiming at achieving a middle-income economy by 2035?

In principle, there is nothing wrong with a trade deficit and should not be a call for concern if the excess of imports is financing future economic growth. In the short term, if a country is importing a high volume of goods and services, this is a boost to living standards because it allows consumers to buy more consumer durables. The deficit might also be the result of importing much needed capital equipment that will boost a country's productive capacity in the long run. Imports of capital goods may increase the trade deficit in the short run, but there will be long term benefits in terms of increased domestic production and exports. Provided productive investments are made, this gives a country the extra capital to drive future GDP growth so it can repay foreign lenders. So, as long as the economy as a whole is growing faster at an annual percentage in real terms than the current account deficit is a percentage of GDP then the deficit will not be a problem. In a growing economy like Africa and expesicially Cameroon, a budget deficit is an operational tool and it is welcome - It is normal for the Government to plan to spend more than it collects.

On the downside, a trade deficit however means that Cameroon must rely on foreign direct investments or borrow money to make up the difference. For Cameroon envisaging to emerge by 2035, sustained deficits are a real problem as countries from whom Cameroon borrows to finance these deficits will at some point require repayment with interests. Failure to do so may hamper borrowing options/opportunities from other countries and institutions.

To avoid other negative results of sustained deficits such as low standards of living in the long term, loss of jobs in home-based industries, a drop in the value of the FCFA, inflation, capital flight, a strain on foreign currency reserves etc, the government will therefore have to watch closely, the reasons behind this increasing deficit.

What could be the best approach to valorising/promoting made in Cameroon goods?

The preference for imported versions of products made locally is a real problem for Cameroon and many African countries. Promoting the use of domestically produced goods in a globalised economy with sophisticated taste and demand is a challenging task.

There is therefore, a big challenge for industrialists to be innovative and embrace modern technology to produce goods that match standards and stay competitive with western products. However, the manufacturing industries cannot develop if local consumers do not buy the produce.

From this standpoint, one of the most cost effective ways to boost the demand of locally manufactured goods would be moral suasion and patrotism, appealing to peoples’ conscience to chose and use local goods rather than imported goods. This, though, can only work in some sectors of the economy and requires other supporting policy incentives and disincentives to make much impact. While such a crusade can influence taste, it may not be able to do anything about other factors. The main reasons for the high demand for imported goods are changing technology, changing tastes, non availability of domestic substitutes, high cost and poor quality. The limitation is the perceived low quality of made in Cameroon products. Industries have to be supported to improve quality and standards and still maintain competitiveness in terms of costs of inputs and products.

There is also the need to do more research on local produce and support TV programs which would show and compare the benefits of common Cameroon products and imported substitutes. The public/private partnership should be encouraged. The government can partner with business departments of various universities to design programs and strategies to promote Made in Cameroon goods.

Moral suasion has to be complemented with more radical policies such as local content requirement and special tariffs. Beyond foreign investors, all contractors, beneficiaries of government funded projects and public officials executing government projects should all be made to demonstrate local contents of their material inputs. Even supermarkets should be compelled or made to sign up to deals to stock and promote Made in Cameroon goods. Ban and embargo may be out of place in the current global environment but specific special tariffs can be used. For example if we want to promote the consumption of local chicken, which is actually healthier and tastes better, the government can impose specific tariffs on frozen chicken and channel the revenue into grants to support the poultry industry.

What adequate measures should the country take for its balance of payment not to remain in the negative as has been the past years?

The government of Cameroon has already taken some active steps by privatising some inefficient white elephant public sector companies to allow fresh capacity in investments by private sector. More exports can be encouraged by enhancing further the customs procedures and processes, improvement of the efficiency of the Douala port, and perhaps a lower tax rate on income out of exports. While encourage exports, reducing imports by encouraging the consumption of made in Cameroon goods will also go a long way.On the capital side, the government can encourage foreign investments mostly in the form of equity of companies and not much fresh debt inflows from abroad. Otherwise, discourage foreign debt investments using political actions such as lowering interest rates, increased taxes on business and more stringent regulations. The government can direct trade deficits to financing investments that will generate long term growth in GDP. A drastic measure to reduce the current account deficit would be to give a long term tax holday/incentives, including subsidies, and reduction of excise duties to industries producing locally. A corresponding increase in import duties should be decreed on imported goods, which are produced and available locally. For goods that Cameroon needs importation of a certain quantity, to meet national demand, a quota for that quantity should be put in place.