Can Cameroon Increase Export Revenues by Re-joining AGOA ?
Cameroon has been heavily struck by the effects of the COVID-19 outbreak and global shocks brought on by the turmoil in Ukraine, which have stunted economic growth and made it more difficult for them to repay debt. Armed uprisings in the Far North and two anglophone districts of Cameroon are posing an escalating danger to the country’s security situation. However, Cameroon wants to industrialise and build high-tech export businesses to help the country’s economy recover. Will Cameroon’s re-admission to the African Growth and Opportunity Act (AGOA) aid in the accomplishment of her goals?
Located in West Africa and home to 26.5 million people, Cameroon is bordered by Gabon and Equatorial Guinea to the south, Nigeria to the north-west, and the Gulf of Guinea. Cameroon’s economy is mainly agriculture-based, with almost three-quarters of the economically active population in rural areas employed in agricultural pursuits. Agriculture is vital to the economy, employing half the workforce. Alongside agro-industrial plantations and some large private farms, Cameroon has about two million small family farms, according to the International Fund for Agricultural Development (IFAD), an international financial institution and specialised United Nations agency based in Rome. People with professional jobs usually grow and sell small amounts of crops. The economy depends a lot on the amount of money people can get from selling oil, tea, coffee, and cocoa. Because oil reserves may run out in the future, Cameroon is working to come up with other ways to make money.
The country has generally enjoyed stability, which has enabled the development of agriculture, roads, and railways, as well as a petroleum industry. Despite slow movement towards democratic reform, political power remains firmly in the hands of President Paul Biya (CIA, 2023). As observed by scholars, the relationship between exports and economic growth has triggered an ever-growing curiosity; theoretically, it has been debated that a change in export rates could change output (gross domestic product). Export, therefore, is often considered to be the main determinant of the production and employment growth of an economy, which is shown in gross domestic product (GDP) growth. The aim to achieve rapid economic growth and development is most relevant and crucial for developing countries as a whole, specifically Cameroon, and exports are generally perceived as a driving force for economic growth.
The World Bank, an international development organisation owned by 187 countries, claims that starting in November 2021, Cameroon will experience high inflation, driven mainly by shortages and increases in the price of staple goods (bread, wheat and related products, vegetable oil, and meat), which can be explained by the disruption of the global value chain due to the COVID-19 pandemic and the ongoing Ukraine-Russia war. The war in Ukraine has impeded Cameroon’s economic recovery, heightening inflation pressures and domestic structural vulnerabilities. Despite the global economic turmoil, real GDP growth is projected to reach 4.0 percent in 2022 and 4.6 percent by 2024 (World Bank, 2023). Economic growth in 2023 will be driven by rising liquefied natural gas production and increased mining output, but oil output will continue to decline as existing oilfields mature; insecurity has deterred the development of new fields.
The initial try
Cameroon is a member of the Central African Economic and Monetary Community, which takes some 20 percent of its exports (IFRD, 2023). History indicates that a bilateral investment treaty (BIT) between Cameroon and the United States entered into force in 1989. The BIT renews automatically under the terms of the treaty every 10 years. Companies must obtain a Foreign Government Approval (FGA) letter from the Cameroonian government if they wish to invest in Cameroon. In 2009, the government signed an interim Economic Partnership Agreement (EPA) with the EU in order to secure duty-free, quota-free access to the European market in exchange for the gradual removal of duties and quotas for European goods entering Cameroon. The EU EPA went into force in 2014. Cameroon signed an EPA with the United Kingdom in 2021 to mirror provisions of the EU EPA following the United Kingdom’s exit from the European Union (International Trade Administration, U.S. Department of Commerce, 2023).
The African Growth and Opportunity Act (AGOA) project, it was stated, has included Cameroon as a participant ever since its founding in 2000. AGOA is a preferential trade programme that allows a set of eligible products from designated African countries to enter the US market. Its main objective is to promote economic development through increased trade and investment between the US and sub-Saharan Africa. According to the agreement, only sub-Saharan African countries are eligible to be beneficiaries of AGOA, and the legislation outlines requirements candidates must fulfil, such as upholding the rule of law and human rights and liberalising their economies. Moreover, U.S. presidents can disqualify countries at their discretion and have done so, citing reasons such as rights violations and protectionist policies. Participants graduate out of AGOA if per capita gross national income reaches $12,535, the World Bank’s lower limit for high-income countries (Council on Foreign Relations, 2022).
In 2019, according to a study titled “Revisiting the Trade Impact of the African Growth and Opportunity Act: A Synthetic Control Approach” by Woubet Kassa and Souleymane Coulibaly, “most of the countries that were eligible for AGOA have expanded their exports to the US after the preferential access. A few others have failed to register any gains in exports due to AGOA. There are, however, significant variations in the impact over time and across countries. The common trend in most countries is that there is an increase in exports immediately after eligibility. In the long run, however, there will be a decline in exports. This is largely due to a fall in US demand for exports from Africa and elsewhere in the wake of the 2008–2009 financial crisis. This was further exacerbated by the substantial “Countries that have not seen gains in trade from the preferential market access include Benin, Cameroon, Guinea, Zambia, and Mozambique. US goods imports from Cameroon declined by about 16% between 2005 and 2013. Its main exports included wood, mineral fuels, and cocoa. In comparison to many SSA countries, Zambia has a relatively larger share of exports to the US. Nevertheless, the estimated rise in exports that was expected over the last two decades even without AGOA is much higher than the stable and constant export performance it registered after AGOA. This suggests that Zambia is one of the countries that would have expanded exports to the US regardless of AGOA. Any increase in exports, hence, should not be attributed to AGOA (Woubet K. et al., 2019).
However, Cameroon has reaped substantial benefits. Overall export commerce in 2015 brought about USD 133 million. The country’s main exports to the US include petroleum, cocoa, rubber, timber, and coffee, while its main imports from the US include machinery, vehicles, and chemicals (The Conversation, 2017). Also, imports from sub-Saharan Africa to the US under AGOA, according to the report, amounted to $12 billion in 2018 and accounted for nearly half of total US imports from the region, with Nigeria, South Africa, Angola, Chad, and Kenya as the top exporters under the AGOA provisions.
The Council on Foreign Relations, an American think tank specialising in U.S. foreign policy and international relations, stated that AGOA, as the primary U.S. trade policy for the region, would foster economic and political development in Africa. Moreover, the outsize roles of oil and apparel in African export growth have raised questions about whether AGOA can diversify the region’s economies and increase its competitiveness in global markets. Similarly, after peaking in 2008, U.S. trade with AGOA’s participants has dropped to near its pre-AGOA total. Meanwhile, African trade relationships with other countries, particularly China, have greatly expanded.
AGOA: A new return
Indeed, in 2019, the US kicked Cameroon out of the AGOA programme for rights violations by security forces in the restive southwest and northwest regions (AGOA, 2019). Former US President Donald Trump said Cameroon has failed to address concerns regarding government forces’ persistent human rights violations, including extrajudicial killings, arbitrary and unlawful detention, and torture (Human Rights Watch, 2019). This sent a signal to the Biya regime that increased pressure will be applied if a negotiated settlement to the insurgency in the Anglophone regions is not reached. Ethiopia also faced similar challenges. The United States will delist Ethiopia from AGOA in 2021. The U.S. government at that time listed purported human rights violations in the northern Ethiopian war as the main reason for suspending Ethiopia’s AGOA benefits (Journal du Cameroun, 2022). Though the Ethiopian government has generally been weary about disclosing the effects of Ethiopia’s suspension from AGOA, as the Journal du Cameroun indicated, trade unions say several thousand jobs have been lost already and several thousand more will be lost if Ethiopia’s suspension from the free trade pact continues into 2023.
As noted, Cameroon’s Anglophone crisis, which emerged from legal and educational grievances in 2016, rapidly escalated into a secessionist political conflict that is threatening the unity of the country and has the potential to degenerate into a complex emergency (Bang et al., 2022). A report by Human Rights Watch in 2022 also stated that “armed groups and government forces committed human rights abuses, including mass killings, across Cameroon’s Anglophone regions and in the Far North region.” Earlier in 2023, Canada’s Minister of Foreign Affairs, Mélanie Joly, announced a peace process aimed at resolving the ongoing war in the North-West and South-West regions of Cameroon. It is the latest bid to resolve the war in Cameroon (Africa News, 2023). On the other hand, the government of Cameroon reacted to this claim, saying, “The Cameroonian government has not entrusted any foreign country or external entity with any role of mediator or facilitator to settle the crisis,” thus apparently denying a statement from Canada that it had been assigned to work on a peace process (Aljazeera, 2023).
Accordingly, illustrating the negligible potential commercial effects of Cameroon’s absence from AGOA, figures from the American Embassy in Cameroon show that, in 2018, the country exported approximately $220 million of goods and services to the United States. $63 million of these were exported under AGOA, more than 90% of them in the form of crude oil.” Clearly, these data reveal that Cameroon makes little use of the AGOA mechanism for its exports to the United States. The data noted that only 28.3% of Cameroon’s exports to the United States are done under the AGOA mechanism. Moreover, exports benefiting from this US facility are largely dominated by crude oil (Business in Cameroon, 2019).
Cameroon’s industrialization agenda and desire to see economic recovery through promoting and developing sophisticated export industries At an online conference organised by the Africa CEO Forum, founded by Jeune Afrique Media Group, the country’s Prime Minister Joseph Dion Ngute said in late February, “Cameroon is a very good risk for foreign investors.”
The government is looking to public-private partnerships to help build infrastructure that can create more opportunities for beneficiation and deliver real impact to its diverse population. Douala is focusing on several areas, including infrastructure, energy, digital, and agribusiness. Regarding agricultural production, particular attention is being paid to certain sectors, including rice, corn, cocoa, coffee, and palm oil (The Africa Report, 2023).
The stunted economic growth jeopardised the country’s capacity to pay back debt. Unfortunately, the government debt-to-GDP ratio in Cameroon averaged 45.34 percent of GDP from 1990 until 2022, reaching an all-time high of 131.44 percent of GDP in 1994 and a record low of 9.30 percent of GDP in 2008 (Trading Economics, 2022). While the national debt of Cameroon was forecast to increase between 2022 and 2027 by a total of 0.5 billion U.S. dollars (+2.57 percent). This overall increase does not happen continuously, notably not in 2024 and 2025. The national debt is estimated to amount to 19.89 billion U.S. dollars in 2027 (Statista, 2022). The general government gross debt, according to the International Monetary Fund, comprises all liabilities that require payment or payments of interest and/or principal by the debtor to the creditor at a date or dates in the future.
Meanwhile, U.S. Department of Commerce statistics from the International Trade Administration showed that “in 2019, Cameroon exported $5.21 billion of goods and services and imported $6.07 billion, resulting in a negative trade balance of $86 million, according to Massachussets Institute of Technology statistics. Cameroon’s top exports were crude petroleum ($1.89 billion), cocoa beans ($647 million), sawn wood ($518 million), gold ($454 million), petroleum gas ($404 million), bananas ($266 million), and rough wood ($251 million). The top export destinations were China ($906 million), the Netherlands ($702 million), Italy ($476 million), the United Arab Emirates ($397 million), and India ($381 million). In 2019, Cameroon exported $302 million of goods to the United States.” During that same year, Cameroon’s top imports were crude petroleum ($346 million), scrap vessels ($332 million), rice ($323 million), special purpose ships ($216 million), and packaged medicines ($169 million). The top exporters to Cameroon are China ($1.68 billion), Nigeria ($889 million), France ($567 million), Belgium ($334 million), and Thailand ($237 million). In 2019, the United States exported $191 million worth of goods and services to Cameroon.
Surprisingly, in December 2021, China announced new investments in Ethiopia at its Forum on China-Africa Cooperation (FOCAC) ministerial meeting. China presented its vision for China-Africa relations for the next three years under the theme ‘Deepen China-Africa Partnership and Promote Sustainable Development to Build a China-Africa Community with a Shared Future in the New Era.’ It states: China will encourage its businesses to invest at least $10 billion in Africa in the next three years and will establish a platform for China-Africa private investment promotion. China also aims to increase its imports from Africa to a total of $300 billion in the next three years (Fibre2Fashion, 2022). Correspondingly, Russia uses the rhetoric of anti-colonialism in its engagement with Africa, and it is fighting neo-colonialism from the West, especially in relations with its former colonies. It sees France as a threat to its interests, especially in Francophone West Africa, the Maghreb, and the Sahel. It, therefore, focuses on anti-western slogans as its main trading commodity across Africa (Business Post, 2023). Russia has shared decades-long partnerships with Africa, with the Wagner mercenary group increasingly gaining a foothold in countries like Mali after French forces were pushed out. Moscow also relies on the neutrality of many African countries in the war in Ukraine to maintain its stance. The war’s knock-on effects, like soaring food prices, however, have hurt many African economies (DW, 2023). An analyst says, “The African Continental Free Trade Area (AfCFTA) could be the strongest dimension of Russia’s dealings in Africa.”
In the event, US economic policy towards Africa pushes for greater private investment. In December 2022, the US hosted its much-anticipated US-Africa Business Forum, complete with a “deal room,” where more than $15 billion worth of new trade and investment partnerships were announced. Meanwhile, African countries used the ministerial meeting of the African Growth and Opportunity Act (AGOA), America’s signature economic policy towards Africa, to push for greater private investment. US foreign direct investment flow to the continent has lagged behind China’s since 2013, according to Statista, falling to just half ($2.1 billion vs. $4.2 billion) of Chinese FDI flow in 2020. Total US FDI in Africa was $44.8 billion in 2021, down from a peak of $69 billion in 2014. According to experts, “the deals announced so far fall far short of the $33 billion announced at President Obama’s first US-Africa Leaders Summit and Business Forum in 2014.”
Investment-friendly government policies
Against this backdrop, Cameroon is looking to rejoin the US’s trade initiative for Africa as the country works to boost export revenues amid falling foreign exchange earnings (Africa News, 2023). According to a local report, Cameroon’s economy minister, Alamine Ousmane Mey, said his country has started talks with Washington for admission back into the Africa Growth and Opportunities Act (AGOA), which grants African countries tariff-free access to the U.S. market.
Between January and September 2023, Cameroon’s trade deficit fell by CFA 442 billion year-on-year to CFA 701 billion, data from the National Stats Agency (INS) stated. According to the agency, “this 38% decline came from a lower increase in import expenditure (+13.4%) compared to export earnings (+49%). In detail, the purchase of products such as fuels and lubricants went up by 65.1%, fertilisers by 43.4%, and frozen sea fish by 42.5%. Meanwhile, spending on coffee, tea, and spices fell by 27.4%, wood and wood products by 20.9%, pharmaceuticals by 13.8%, and cereals by 3.1%.” While exports increased significantly during the period under review, they consisted mainly of primary products, namely liquefied natural gas (+138.2%) and crude oil (+64.8%). These two products generated CFA 1,549 billion, or 62.2% of the overall export earnings. Excluding oil and gas, Cameroon’s trade balance deficit would be CFA 2,192 billion, according to the INS. Other products contributed to a lesser extent to the increase in the volume of exports. These are raw cocoa beans (+7.0%), sawn wood (+6.1%), raw cotton (+5.5%), and cocoa paste (+3.2%) (Business in Cameroon, 2023).
“We’re working to be able to improve our exports through import substitution policies to reduce imports, produce more, and export more. This will give us better room for debt service coverage,” he said.
“All the issues that have been raised, we’re working on in a very transparent and open manner to be able to iron them out and solve the problems,” Mey said during an occasion structured by the Atlantic Council think tank on the sidelines of the IMF and World Bank’s Spring Meetings in Washington.
Increasing trade through AGOA and AfCFTA
Overall, the African Continental Free Trade Area was established in March 2018 and currently includes 55 African nations and eight regional economic communities. It is mandated to create a single continental market with a population of about 1.3 billion people and a combined GDP of approximately $3.4 trillion (AGOA, 2022). Rwanda, Ethiopia, Guinea, and Mali, across the continent, were even suspended from the trade facility. Now these countries are a part of the fledgling Africa Continental Free Trade Area Agreement (AfCFTA) (East Africa, 2022).
As discussed, the AfCFTA could also play a major role in AGOA’s path forward. Proponents say the agreement, signed by all of the African Union’s fifty-five member states except Eritrea, will boost regional trade by forming a single market and that it will create millions of jobs across the continent. Analysts say Washington should use AfCFTA as the foundation for talks to create a new strategic economic partnership rather than renew AGOA (Council on Foreign Relations, 2022).
In closing, the two major trade agreements—the African Growth and Opportunity Act (AGOA) and the African Continental Free Trade Area (AfCFTA)—will make it easier for African countries, including Cameroon, to trade with one another and with the United States (AGOA, 2022). Together, the agreements promise to remove longstanding impediments to industrialization. A point of weakness for Africa, though, has been when strength in numbers and solidarity in priorities have not been applied.
The ancient wisdom of united we stand or divided we fall still holds, adding that the weakness of diminutive, balkanized economies is still true, said Dr. Francis Mangeni, an independent consultant and advisor on African economic integration (The Guardian, 2023). Researchers suggest that expansion of the quota-tariff-free access to products most African countries may have a comparative advantage in, such as agriculture and relevant manufacturing, may expand the benefits for African firms. For that reason, there is an urgent need to marry aid with trade to maximise the gains from preferential access (Woubet K. et al., 2019).
The Cameroonian government is dedicated to advancing structural reform in order to boost private investment, increase competition and efficiency, and reduce costs. This will allow for the efficient use of resources, reflect Cameroon’s comparative advantages, and enhance economic growth. Cameroon must experience rapid economic growth, dramatically increase public expenditure efficiency, and enhance governance in order to reduce poverty in a sustainable way.
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