Abstract

This study analysed the relationship between domestic resources mobilised and output growth in Cameroon using annual time series data for the period of 44 years (1970-2013). This study follows the Engle and Granger Co-integration analysis and error correction approach to analyse the long run relationship between the two variables. The Error Correction Term for output growth and domestic resources mobilised is significant at 5% level of significance and indicates a positive but insignificant relation between the variables. The study also analysed the causality between Domestic Resource Mobilisation and output growth by using Granger causality test. The results of Granger causality showed that there is a unidirectional significant relationship between domestic resource mobilisation and economic growth. From the research findings, it is recommended that there is a need for government to create conducive investment climate and improve the infrastructural base of the economy to boast capital formation. Policies that address only resource mobilisation without the economic infrastructure may not be enough to improve adequate amount of natural resource rents and sufficient capital formation for sustained growth of the economy.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Most economists nowadays usually emphasise Economic Growth and domestic resource mobilisation as being at the heart of development – though these are just a limited view of the transformation processes involved in developmental issues. Each of these also incarnates complexities both on a conceptual and analytical level. For instance, development economists such as Rostow (1960) emphasised the role of natural resources to develop the physical and human capital in the country which is inevitable for further growth and development. The abundance of natural resources might be a potential source of additional domestic output; which should be used to develop the economy (Papyrakis and Gerlagh, 2004). Again, the conformist’s view before the 1980s was that domestic resource mobilisation positively influences economic prosperity of countries (Rosser, 2006).

Theoretically, domestic resource mobilisation is a real key to sustained economic growth, development and transformation of all economies. The advent of the global financial and economic crisis has further reinforced the need for all economies to intensify efforts aimed at developing strategic policies for mobilising domestic resources for long term economic growth (AfDB, 2010). A more reliable approach would be to persistently situate greater attention to concrete policies on domestic resource mobilisation and focus on the principles of division of labour and gains from specialization. This calls for reviewers who possess the ability to properly examine the global trends to highlight any blind spots and biases of profound growth from the efforts of mobilisation of domestic resources (Torvik and Ragnar, 2002). Consequently, there is a profound need for thorough blend of a better grasp of time and speed, for the rate of change is a realistic issue as far as the availability of productive factors and the evolution of consumer preference is concerned. Until such major issues of demand and supply analyses that affect the world market performance are giving priority attention, there might never be long term sustain global growth.

From the theoretical stand – point, resource endowment and mobilisation is a significant factor to influence economic growth. There is also both theoretical and empirical evidence that resources mobilised domestically will enhance investment, productivity and rapid growth in any economy better relative to external aid (Culpeper and Bhushan, 2008).

Developing countries are taking a greater role in the world economic growth and performance in recent years, simply because most of the economies have acknowledged DRM and its imperative role for better economic performance. Between 2006 and 2012, 74% of the world GDP was generated in developing countries and only 22% in developed countries. This was not never the case in previous decades; developed countries accounted for 75% of global growth in the 1980s and 1990s, but this fell to a little over 50% between 2000 and 2006 (UNCTAD, 2012). Among the developing regions, East, South and South – East Asia experienced the highest growth rate in 2013, of 6.1%, 4.3% and 4.7%, respectively. Encouraged by various income policy measures, domestic private demands is also supporting output growth in a number of other countries in this region, such as India, Indonesia, the Philippines and Thailand (ESCAP, 2013).

Unfortunately, economic growth in some developing regions such as West Asia slowed down drastically, from 7.1% in 2011 to 3.2% in 2012, a level that was fairly maintained in 2013. Weaker measures of mobilization of resources and external demand, especially from the European area, affected the entire region, but most prominently Turkey which saw its growth rate fell sharply from around 9% in 2010 and 2011 to 2.2% in 2012, even though it accelerated toward 3.3% in 2013. The Gulf Coop Council (GCC) countries maintained large public spending programmed to bolster domestic demand and growth, but the civil war in some countries within the region greatly affected investment and growth (UNCTAD, 2013).

Generally, growth rates in African economies would have depicted better prospects but for the drastic restrained by infrastructural bottlenecks, pervasive corruption and frequent political instability in some regions. For instance, growth in Africa slowed down in 2013, owing to weaker performance in North Africa (growth rate fell from 7.8% to 3.6%, due to political instability in some countries of the region). In South Africa, private investment, and to a lesser extent household consumption, have been maintaining signs of slowing down since early 2011. In essence, domestic resource mobilisation has to play a leading role in growth policy options, since this will accelerate the yielding of high earnings from exports of primary commodities and energy as well as tertiary sectors. Angola, Ethiopia, Gambia, Ghana, Liberia and Sierra Leone are likely to see rapid growth bolstered by strong investments, especially in telecommunications, energy and the extractive industries if they continue to direct their macro policies towards domestic resource mobilisation (UNCTAD, 2013).

The Central African region performed relatively well over the period 1999 to 2009, having an estimated average growth rate of about 6.2%; with the estimated average of the oil producing countries (Angola, Cameroon, Chad, Congo, Equatorial Guinea and Gabon) fairly higher at about 7.3%. The high growth rates of this region was greatly due to increased exports of crude oil and mining activities which facilitated a lot of economic transactions and investment activities in the respective economies. The region’s main challenge is to implement the necessary structural policies that would help mobilise domestic resources for sustainable development. Based on the natural resource endowments of the region, if domestic resources are sufficiently mobilised, the region’s growth rate will facilitate sustainable development. For instance, CEMAC’s inviolable economic growth in 2012 was largely due to rising public investments from revenues obtained through adequate resource mobilisation and exploitation. The high oil revenues coupled with an increased in public investment programs in most economies and vibrant domestic consumption contributed to a 6.5% growth in the non-oil sectors, while oil production growth fell by around 1%.

A great issue of serious concern is the political crisis in Central African Republic and the general drop in oil production in the region, which may both influence the regional growth negatively to a drop of about 3.5%. Despite a reduction of public investment programs in Chad, Congo and Equatorial Guinea; which has affected the regional fiscal balance, significant capital expenditure growth has continued in Cameroon and Gabon (UNECA, 2014).

In essence, the CEMAC authorities must device a more suitable way of handling the economic risks represented by the high dependence on oil revenue and other commodity prices, together with security issues. Consequently, there is an infinite need for a series of policies to achieve structural transformation in domestic resource mobilisation both at the regional level and within respective economies. This will lay the conditions for transformative change through improved governance, long term development planning and industrial policy, as well as enhanced investment in education, infrastructure, technology, agriculture and climate change. Such policy implementation, if effective will assist to restore and accelerate CEMAC’s impressive growth performance and sustain it over the long term (IMF, 2013).

The economy of Cameroon has continued to show slow progress in recent years from a growth rate of 4.1% in 2011 to 4.4% in 2012, increasing fairly to 4.9% in 2013 and to approximately 5.0% in 2014. The fastest growing sectors are trade, hotels and restaurants (19.9%), agriculture (16.9%), manufacturing (14.5%), and the extractive industries (8.2%). The secondary sector growth only increased from 4.9% in 2012, to 5.7% in 2013 (UNECA and UNDP, 2013). This little acceleration can be attributed to the upturns in oil production (4.5%), construction (10.5%), and electricity production (6.5%) since the opening of the Kribi fire gas power station and its knock-on effects on the other manufacturing industries, which recorded real growth of 5.2%. Again tertiary sector real growth was 5.9% in 2013, up from 5.5% in 2012, thanks to the upturn in the primary and secondary sectors. Due to poor public sector governance and planning, program budgeting was introduced; which slowed down public consumption growth in 2013 to 1.7% from 6.6% in 2012 (World Development Indicators, 2014).

Cameroon still struggles to achieve sustained growth and development despite its large natural resource endowment and efforts to reform the economy since the early 1990s.The resulting achievement and progress has been very unsatisfactory and redundant. Financial resources from major sectors like crude oil and similar discoveries have not significantly solve the difficulties of the economy over time and therefore cannot be relied on for estimated desired growth levels. Though the GDP per capita was US dollars 2,330(PPP) in 2008, which was fairly higher than the sub Saharan average of US dollars 2056 (PPP), more than 40% of the population lived below the poverty line, a share that barely budged from 2001 (UNDP and UNECA, 2014).

The economy of Cameroon and economies in transition have the responsibility for achieving growth and balanced development through the implementation of policies that can mobilise natural resources required for major investment projects. Through appropriate policy measures, every economy can be regularised and macroeconomic objectives of such government achieved. Necessary fiscal measures through budgetary policy design and implementation will go a long way to enhance proper financial and social spending for the interest of investment to generate future incomes. Such regulatory policy and implementation are very vital for a sound investment climate which will lead to general economic and social development. International conferences for development have most often stressed the inevitable considerations of strategies to mobilise resources as a major factor for actual and increasing net investment, especially as investment is highly considered as one of the greatest facilitator for economic growth. In essence, DRM does not only contribute to growth but it also facilitates sustainable rapid economic development of nations and at the same time maintains long-term economic stability.

1.2 Statement of Problem

Most Sub Saharan African economies are greatly endowed with abundant natural resources and their weather encourages better agricultural output, but they generally experience very slow growth rates. In the past decades, these economies have depended largely on the agricultural sectors; with the main objective of exporting cash crops for international trade. Unfortunately, the results in terms of national revenue generation have not been the best compared with economies relying on industrial and manufacturing sectors. Although the discovery of crude oil raised hope for most developing economies, the experience and national benefits of most African countries yielded little positive impact as far as development is concern.

Despite multiple concessions to formulate and analyse better principles and policies for the mobilisation of domestic resources to enhance sustain economic growth, the growth figures of Cameroon still remains very frustrating (between 4 to 5 percent in recent years). And even after years of hard-won domestic reforms, Cameroon still depends on highly volatile capital flow to support its economic growth and development programs. This probably explains why the growth rate has shown a peculiar trend of slow progress or deceleration. There is mounting evidence that if much is not done according to the theoretical propositions and realistic implementation, the growth rate of Cameroon will not attain its desired pace. Even after providing guidelines to policy options and mechanisms for fully exploiting sources of domestic finance to generate huge investments, there have been serious challenges in accessing and managing most domestic resources.

A serious issue facing the advancement of DRM in most developing nations is the assumption that domestic resources are scarce where poverty is very prominent with its associated prevailing effects. This has even cause the increment in DRM to be described as a “hard option” when compared to mobilising resources through external sources such as FDI and ODA (Aryeetey, 2004). The complexity in analysing the Cameroon economic performance now becomes obvious; is it that the resources are scarce and are not adequately mobilised or is it that the mobilised resources do not play a significant role in economic growth of Cameroon?

Precisely, the logical reasoning of a greater focus on domestic resources thus emerge from the quest for sustainable growth and poverty reduction in Cameroon, and the necessity to create policy-space to adapt genuine domestic ownership and national diversity. In other words, it is hypothesised that greater and genuine DRM can facilitate higher level of economic growth and poverty reduction, and can also be a powerful means of enhancing policy space and domestic ownership.

The need to improve the rate of domestic resource mobilization is not, however, a new concern in Cameroon. It has been one of the policy goals of adjustment programmes, starting with the World Bank’s financial sector adjustment loans and continued with IMF’s PRGF arrangements. These initiatives had aimed at removing restrictions on financial intermediation and enhancing non – oil revenue mobilisation with specified DRM targets. The attainment of such targets has influenced the scope of cooperation with these IFIs and the disbursement of funds. Therefore, despite the numerous efforts and the targets set by Cameroon and its multilateral partners, there are still difficulties in raising enough resources domestically.

Considering the major issues cited above, coupled with the concerns of mixed conclusions from the studies on domestic resource mobilisation and economic growth, and the argument that DRM is very necessary to elevate growth rates of an economy from theoretical indication, accelerating poverty reduction and enhancing sustained development. The possibility that no peculiar research has been carried out about the economic growth of Cameroon and domestic resource mobilisation, this research will seek to answer the following research questions:

1.3 Research Question

1.3.1 Main Research Questions

To what extend does domestic resource mobilisation affect economic growth in Cameroon?

1.3.2 Specific Research Questions

The specific research questions are as follows:

1. To what extent does natural resource rent affect GDP growth in Cameroon?
2. What is the nature of causality between natural resource rents and GDP growth in Cameroon?
3. Are other factors such as Labour quality, Real Exchange Rate, Gross Investment and Trade Openness affect GDP more than natural resource rents in Cameroon?