Cameroon

Country Summary

Macroeconomic performance and outlook

Despite exogenous shocks and security challenges, Cameroon’s economy grew an estimated 4.1% in 2019 thanks to a dynamic tertiary sector and growth in con- sumption and investment.

However, economic growth has not been inclusive enough to develop human capital. Cameroon continues to underachieve in human development, ranked 151 in the world (21 in Africa) on the 2018 Human Develop- ment Index. The poverty rate has inched lower, from 39.9% in 2007 to 37.5% in 2014. However, the current trend will not achieve two goals in the Growth and Jobs Strategy Paper: workforce underemployment falling from 76% to 50%, and a poverty rate at 28.7% in 2020.

The inflation rate rose from 1.1% in 2018 to 2.4% in 2019, but remained below the CEMAC 3% limit. The fiscal deficit has been declining (3.8% of GDP in 2017, 2.5% in 2018, and 2.3% in 2019) thanks to fiscal consol- idation in the context of the three-year plan for 2017–19. The current account deficit is estimated at the same level in 2019 as in 2018 (3.7% of GDP) before declining to 2.6% in 2020 (its 2017 level). Cameroon continues to have a high risk of debt distress, according to the IMF’s assessment in November 2018 (debt was almost 39% of GDP in 2018, compared with 12% in 2007).

Tailwinds and headwinds

Growth is projected to remain around 4% in 2020 before slowing to 3.4% in 2021. The IMF program will end in June 2020, and its effects are likely to continue into 2020 and 2021.

Cameroon plays a central role in the Economic and Monetary Community of Central Africa (CEMAC), holding nearly 40% of its money supply. Over 2014–17, its share of total intracommunity trade amounted to 24.7%, aided by the relative diversification of its econ- omy and the existence of road corridors with all CEMAC countries as well as Nigeria. The country’s ratification of the African Continental Free Trade Agreement in June 2019 continues in this vein. The merger in 2020 of two stock exchanges (Cameroon and Gabon) is expected to lead to further financial integration in the CEMAC area.

The implementation of significant value chain proj- ects in the agroforestry, pastoral, and fisheries sectors should help to strengthen the economy.

The persistence of security problems, specifically Boko Haram, in the far north and sociopolitical ten- sions in the northwest and southwest are affecting the economy, with transport, hospitality, telecommunica- tions, and commercial agriculture recording significant material and financial losses. In September 2019, the government initiated a national dialogue to address the challenges.

The security expenses generated by the various security crises and the shutdown of SONARA (the national oil refinery) in June 2019 following a fire weak- ened the country’s fiscal and current account positions.

Constraints remain in meeting needs in education, healthcare, poverty, and employment, and hold the country back from capitalizing on the potential of the demographic dividend.

Imparting high skills and training sufficiently skilled labor feature among the country’s biggest challenges.

Implementing the Growth and Jobs Strategy Paper 2010–19 has led to the creation of infrastructure, financed largely by public sector borrowing. However, growth remained below the goal of an average 5.5% over the period.

Source: African Economic Outlook 2020

Fixed Income

Summary

Three instruments are issued in Cameroon Sovereingn bond market and used to construct the yield curves:
 Assimilable Treasury Bills (BTA) and Assimilable Treasury Bonds (OTA), issued on the public securities market by auctions organized by the BEAC, as well as Treasury Bonds (OT).

Cameroon securities yield curve extended to 10 years with 14 benchmark points along the curve (3m-6m-1-1.5-2-3-3.5-4-5-6-7-8-9-10 years).

Issuance strategy 

The Medium Term Debt Strategy (SEMT) for the period 2019-2020 aims ultimately at a global portfolio of 79% external debt and 21% domestic debt. Domestic financing is carried out through direct financing from the banking sector and by issuing public securities on the domestic financial markets. The Government will issue public securities with medium maturity (02 to 07 years) for 35.7% over the period. As in previous years, the strategy for issuing public securities will be based on

transparency: publication, compliance with the issue schedule and their results, as well as the production of a briefing note on the projects funded by public medium and long-term titles are the elements that will form the basis of this criterion. As such, the auction calendar will be published at the start of the financial year by the Ministry of Finance and will be revised at the beginning of each quarter according to cyclical movements observed in the monetary and financial sector.

regularity: the auction calendar. On the one hand, it allows debt market participants to better structure their portfolios and stocks, and on the other, it is for the Treasury to better capitalize on the advantages offered by the domestic debt market. This regularity will also allow banks, specialists in Treasury securities or Investment Service Providers to better refine their intervention strategy on the market.

diversification: lengthening the average maturity of public securities by varying the instruments for covering needs, but also having a liquid public securities market where investors can easily find the range of securities suited to their demand

security: boosting the network of Treasury Specialists; strengthening the security of the mechanism for reimbursing public securities by setting up liquidity buffers (reserve accounts); use of hedging instruments for public securities subject to market uncertainties (interest rate and exchange rate risk. 

Benchmark issues 

There are 14 benchmarks maturities for government securities in local currency  in Cameroon: 3m-6m-1-1.5-2-3-3.5-4-5-6-7-8-9-10 years. 

Yield curve 

Yield curve calculation models 

The BEAC prepared its own in-house method for computing its yield curve: the implied yield curve. The curves are mainly constructed  from the primary market's data and secondary market transactions, when these are significant. 

For primary market data for BTA and OTA auctions or syndication of TOs, issues with amounts greater than or equal to 1 billion CFA are used. With regard to TOs, and as far as possible, it is the effective exit rate which will be taken into account when drawing up the yield curve. With regard to the secondary market, all transaction data are taken into account on the basis of the clean price (trading price from which the accrued coupon is subtracted).

Interpolation methods

In the CEMAC region, 

The model used is the Nelson-Siegel ones and the estimation approach is based on the generalized gradient reduction algorithm method which is intended for the optimization of nonlinear problems.

Yield curve managed by 

The yield curves drawn up by the BEAC are updated and published on a monthly basis. They are communicated to national public treasuries and other market players through the National Directorates of the Central Bank and published on the BEAC website (www.beac.int). In addition, the data used to develop these curves will also be published on the BEAC website at the same time as the curve.

Challenges in building an efficient yield curve 

  • Illiquid and limited secondary market: buy-and-hold investors 
  • Narrow investor base: only banks are involved in the bond market 
  • Coexistence of three agencies for issuing bonds and bills: the Douala Stock Exchange (DSX) and the Bourse des Valeurs Mobilières de l’Afrique Centrale (BVMAC) are in charge of syndication. The Banque des Etats de l’Afrique Centrale (BEAC) is responsible for auctions.

Guide to Buying Bonds

Procedures for market participation

The BEAC organizes the auction on behalf of the states. The auction takes place at the asking price. Orders are served retained interest rates or the price offered by the bidders within the maximum interest rate or maximum price decided by the government.

At the end of the auction, the general information, including the amount of bids expressed the amounts used and the rate and limit price selected are disseminated through the press.

The methods of creating, presenting and counting of the tenders shall be determined by agreements on the one hand, between BEAC and National Treasuries, and secondly, between the BEAC and the Primary Dealers (PD). Subscriptions to government securities are firm and irrevocable. They are paid in a single payment by debiting the account of the PDs at the BEAC and credited to a special Treasury account opened for this purpose.

Given that the debt market is under developed, the optimal schedule has been adopted as part of regular program. The six National Treasures issue in turn, at regular intervals. Each National Treasury will issue T-Bills weekly on Wednesday. The amounts are generally low to allow all states to issue at the same time, resulting in each State having fifty-two issues of T-Bills per year. Each National Treasury can issue T-Bonds monthly.

The auctions are scheduled to take place every Wednesday. However, given the nature of the instrument and the expected volume of transactions in relation to the needs for public investment, treasuries are not able to issue on the set day. 

A shift schedule was developed for planned Wednesday auction sessions: 

  • Cameroon: 1st Wednesday of the month
  • Central Africa - Congo: 2nd Wednesday of the month
  • Gabon: 3rd Wednesday of the month
  • Equatorial Guinea-Chad: 4th Wednesday of the month

These emissions will occur at regular time intervals and are publicly known.

The total amount of the twelve issuances will be released in the Finance Act each year.

For each fiscal year, this amount will be communicated to the market by the Minister of Finance no later than November 30th of the previous year. This communication from the Minister responsible for finance may take the form of a conference, briefing or a press release. The amount of the issuance will not be announced at this time.

However, the amount to be raised for each auction is specified in the auction announcement in accordance with National Treasury issuance calendar.

On the secondary market, the T-Bills are traded OTC and the T-Bonds are traded on the DSX and the BVMAC.

Settlement cycle

The settlement of transactions takes place at T+3.

Taxation

The level of taxation pursuant to Regulation No. 14/07 - UEAC-175-CM-15 instituting a specific tax regime applicable to the transactions listed on the Securities of Central Africa (BVMAC) "are exempt from income Tax Securities (IRVM) or any other taxes or levies of a similar nature, interest obligations of States for residents of the CEMAC." Subscribers residing outside the CEMAC zone must comply with income tax laws of their country of residence. The Issuer shall levy any withholding tax on loan repayments.

Rating

Rating Agency Current rating Outlook
Moody’s B2 Stable
Fitch B Stable
Standard and Poor’s B Stable

Primary Dealers

Auctions of Government securities are exclusively reserved for Primary Dealers. Each CEMAC state has its own network of Primary Dealers. However, a credit institution, which meets the eligibility requirements, may be a Primary dealer only for the country they belong to or upon request, all the states. The Ministers of Finance, select Primary Dealers from all the credit institutions in CEMAC that meet specifications adopted by the Committee of Ministers, after consulting the Monetary Policy Committee.

Market restrictions

Openness to international investors

Foreign investors can access the debt market under the same terms as nationals of the zone. There are no rules that discriminate foreign participants in the market.

Capital control

This is no restriction on foreign ownership in the CEMAC zone.

Restrictions on FX and profit repatriation

There are no restrictions on obtaining foreign exchange.

The regional central bank, the BEAC, issues CFA for circulation among the members of the CEMAC. Although the Central African franc is at par with the West African CFA franc, the two currencies are not usually accepted for payment in each other’s zones.

Foreign investors have the right to repatriate earnings and the profits from sales of financial instruments. There are no restrictions on converting or transferring funds associated with investments, including remittances of investment capital, earnings, loan repayments, and lease payments.

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