Financial Crime World

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Financial Institution Risk Assessment in Cameroon

The financial landscape in Cameroon is marked by uncertainty, with a complex political and economic environment posing significant risks to corporate payment behavior. According to Coface, the country’s corporate default probability is high.

Business Climate Rating

The business climate rating for Cameroon is a dismal D, reflecting a very difficult operating environment. Corporate financial information is often unavailable or unreliable, making debt collection unpredictable. The institutional framework has serious weaknesses, and intercompany transactions can be challenging to manage in this highly risky environment.

Strengths and Weaknesses

Despite these challenges, Cameroon has some strengths:

  • The country has relatively diversified resources, including forestry, agriculture, oil, and minerals.
  • Efforts are underway to improve infrastructure, and the CFA franc is pegged to the euro, providing a degree of stability.
  • Cameroon is a member of several regional economic communities, including the Central African Economic and Monetary Community (CEMAC) and the Economic Community of Central African States (ECCAS).

However, the country’s weaknesses are significant:

  • External and public accounts are heavily dependent on commodity prices, which can be volatile.
  • Government revenues are low, at just 13.9% of GDP in 2021.
  • The banking system is weak but small, and growth is not inclusive, with extreme poverty affecting 23.5% of the population.

Economy

The economy remains largely dependent on commodities for exports, with gas contributing increasingly to the mix. In 2022, net exports of goods and services are expected to remain stable at around 0.7% of GDP. However, the depletion of oil fields and security threats to infrastructure could constrain exports.

Household Consumption

Household consumption is growing below pre-pandemic levels due to chronic insecurity, moderate inflation, and fuel and food shortages. The government has agreed to wage increases in the public sector and subsidies on essential goods to support this critical part of the local economy.

Development Plan

In 2023, the Cameroonian authorities plan to pursue their 2020-2030 development plan, focusing on fiscal consolidation, including a reduction in fuel subsidies from 3.7% of GDP in 2022 to 2.6% in 2023. The country’s public debt is expected to remain stable, with domestic agents holding one-third of the debt and China and multilateral institutions holding the rest.

Current Account Deficit

However, the current account deficit could widen slightly in 2023 due to declining hydrocarbon exports. Net current transfers have doubled since 2012, but increased foreign direct investment (FDI) and external borrowing from multilateral and bilateral partners should finance the current account imbalance.

Political Situation

The political situation in Cameroon is also a source of concern:

  • The succession of President Paul Biya could lead to a regime crisis.
  • The Anglophone separatist rebellion continues to pose a threat.
  • The government’s response to these challenges has been marked by repression and violence, which is unlikely to reduce tensions in the long term.

External Relations

On the external front, Cameroon is seeking to diversify its alliances, renewing its military cooperation with Russia and maintaining relationships with Western countries. However, these efforts may not be enough to mitigate the risks facing the country’s financial institutions.