Abstract

The main objective of this study is to examine the effect of human capital on the industrialization of Cameroon. As specific objectives the study had to examine the effect of private investments on the industrialization of Cameroon. To examine the effect of total labour force on the industrialization of Cameroon.

For this to be accomplished relevant literature was reviewed and necessary theories stated. The area of study is Cameroon and the data used are mainly secondary data of industrial output, human capital, labour force and private investment gotten from World Development Indicators (WDI). The method of analysis used is the ordinary least square method done through the SPSS software.

The results showed that human capital has a positive effect on the industrialization of Cameroon. Labour force has a positive effect on the industrialization of Cameroon. Private investment has a positive effect on the industrialization of Cameroon. And for any policy recommendation intending to improve the industrialization of Cameroon the government is advised to put a keen eye on the level of human capital.

 CHAPTER ONE

INTRODUCTION

1.1  Background of the Study

Various conceptual approaches have been used to explore the links between education and training and economic performance. The aim of the present review is to provide a critical assessment of this work, focusing primarily on the macroeconomic level. In order to reach a macro overview, it is necessary to consider many other branches of literature than those just concerned with macroeconomic growth models.

The study, therefore, presents an extensive international review into a number of strands of literature that focus on the link between investment in education, training and skills and economic performance at the macro level. This includes some micro level research, where training and education conducted by firms and industries is deemed to be an important contributor to overall economic growth. Benhabib& Spiegel, 2013

All of the European Union (EU) 15 Member States have experienced significant growth over the past 30-year period. However, there is variation between countries, especially in the short term. Educational expenditure as a percentage of gross national product (GNP) has been maintained at roughly constant levels across all the Member States over the long term. This has ensured increased investment in human resources throughout the EU. (Spiegel, 2013)

Other data show a strong growth trend in the percentage of the eligible population entering tertiary education over the three decades. Consistent statistics on trends in EU vocational training prove more difficult to obtain, but there is evidence of significant vocational training inputs in a number of EU countries. A simple reading of these statistics indicates that increases in economic growth across the EU are associated with increases in both education and training. However, more detailed comparisons also illustrate the difficulties in establishing a causal link between educational and training inputs on the one hand and economic outputs (in form of growth in gross domestic product – GDP) on the other. Similar patterns are observed in other developed economies. Benhabib& Spiegel, 2013

A key body of literature relates to the rates of return for the individual (and for society in general) of investment in human capital, in the form of education and training. Much of this research draws on the seminal work by Becker (1964), Mincer (1974) and many others. This body of work is founded on a microeconomic approach.

Nevertheless, the results have important macroeconomic implications. They highlight the strong links observed between education, productivity and output levels. Although some have questioned the direction of causality and argued that much education simply acts as a screening device to help employers to identify more able individuals, the general consensus seems to be that education does result in higher individual productivity and earnings. On balance, the results suggest a strong and positive causal link between investment in education and training and earnings.

This applies both at the level of the individual and also to the broader social returns on such investments, the evidence suggesting substantial social as well as private benefits. The implication is that what is good for the individual is also good for society at large at a macro level. Evidence on social rates of return concentrates on the benefits to the economy arising from increased education by calculating all the costs of schooling and education compared to the relative pre-tax earnings of individuals in receipt of such education. Many qualifying assumptions need to be made in arriving at a quantifiable estimate, but several studies suggest a social rate of return in the range 6 to 12 %. This compares well with rates of return on other capital. Comparable studies to establish the social rate of return for vocational training are hard to find, although there is some evidence that such training has a significant positive impact on productivity. Becker, (1964)

Another key focus of recent research has been the use and deployment of human resources and skills at an organizational level and how this is linked to the economic performance of organizations and economies more broadly. While much of this research lies outside main economic literature, research on the management of human resources suggests a range of results concerning various aspects of human capital and firm performance.

This is not really surprising, as there is a widely held belief that people are a key source of an organization’s competitive advantage. It is the quality of the human resources that determines organizational performance. There are a number of different emphases in this research, including the role played by human resource management (HRM) in promoting such resources, and the role of management itself – particularly top managers. One important theme is the role of leadership, with a focus on the role of managers, especially top executives, in influencing company performance. Their skills, education and training are important in what are often very complex processes.

The final strands of literature considered here detail some of the indirect effects of investment in human resources that are not normally captured in measured national economic growth. Such spill-overs and externalities can be technological, spatial or environmental and economic and non-economic.

Each contributes significant social gains. Many of these effects are related to other areas of the literature covered in this review. The spatial externalities, that embrace city dynamics, demonstrate how geographical clustering of businesses employing highly qualified workers produces high productivity and strong local economic growth. Other significant spill-overs relate to health and life expectancy, which typically increases as a consequence of higher levels of education. Such spill-over and related external effects are potentially very important. In making a training investment, an individual firm takes into account the impact of the training on its performance, given the current total stock of human capital in the economy. The higher the human capital in the economy, the greater is the firm’s own performance. However, it does not take into account the effect of its own investment on the total human capital stock.

As far as the individual firm is concerned, the impact of that investment is minuscule and need not be considered. However, from the perspective of the economy as a whole, the totality of training investments by firms can further increase economic output and economy-wide performance. These external effects can add considerably to the macroeconomic consequences of any initial investment in human capital. External benefits are often not economic. They also include improvements to the environment, better health and reduced crime rates. Serious attempts are now being made to quantify these in economic terms. These are major areas of study in their own right and are only touched on here.

Industrialization is the period of social and economic change that transforms a human group from an agrarian society into an industrial society. This involves an extensive re-organization of an economy for the purpose of manufacturing. As industrial workers’ incomes rise, markets for consumer goods and services of all kinds tend to expand and provide a further stimulus to industrial investment and economic growth.Chandler, Jr. (2013).

In Cameroon for instance, the contribution of the industrial sector to GDP (Gross Domestic Product) is well below that of the tertiary sector.

In 2008, the Cameroon Ministry of Finance carried out a study on the competitiveness of manufacturing industries using 95 enterprises grouped in 13 branches. Findings from this study show that unit costs of enterprises are considerably high. Inputs constitute the main component of the general costs of manufacturing industries (77, 2 %), followed by the cost of capital (10,1 %), cost of labour (9,2 %) and taxes. (MINFI, 2009a).

Moreover, Cameroonian industrialists are often faced with problems of smuggling, unfair competition, high tax rates and bad governance. These observations come at a time when Cameroon as other ACP countries signs free trade agreements with the European Union. In this light, this study examines the impact of trade opening on the industrialization of manufacturing sector in Cameroon. Indeed, trade opening may have two contradictory effects on the industrialization of a country. It may reduce prices of imports as well as reduce inefficiency within enterprises, as enterprises are exposed to foreign competition.

Cameroon is endowed with natural resources, which has led to the development of industries such as mining and oil refining industry, agro industry, wood processing industry and textile industry, energy, energy and water industry.

Between 1993s and 2008, the value added of wood processing industries and textile industry passed from 566,47 billion FCFA to 961,39 billion FCFA. In the sub-sector of energy and water, the production of electricity fell by 0, 3 % in 2009. This decline is explained by the decline of 2,5 % in hydraulic production which was not compensated by the increase in thermal production (38,1 %) thanks to the two new thermal power factories. But, in 2010, electricity production should increase in Cameroon due to renovation and rehabilitation works of the hydroelectric power factory of Edéa. (MINFI, 2010).

The production of water fell by 2 % in 2009 because of unfavorable climatic conditions. The government of Cameroon intends, in 2010, to build waters processing factories in the suburbs of Yaoundé and Douala. These new factories will raise the production of water to 165 000 m3/day in the economic capital and to 150 000 m3/day in Yaoundé. Combined with the other works of rehabilitation, extension and densification of the system of supply, the rate of water supply should pass from 35 % to 60 % at the national level in 2015 (MINEPLAT, 2010).

Many macroeconomic measures, institutional reforms and with the assistance of World Bank, the structural adjustment program (SAP) was adopted and used into the Economic growth and sustainable development agencies in Cameroon. However, the Hallmark of poverty in Cameroon is unemployment. Cameroon resorted to encourage on investment, net export and government policies for sustainable economic growth and could reduce unemployment rate (Njong 2008).

Using a cross-country model Pugu and Venable (1998 – 1999) described the process of development as waves of fast industrialization where the industry spread successively from one country to another. Originally, the development of industries in a country has a consequence to increase its salary with respect to other country with poor industrialization sector.

Nurkse (1953), the concentration of investment in a single sector cannot develop an industry because the demand for products of these industries would be low and investment in a single sector cannot build its own demand and cannot develop the domestic market.

Cameroon import (1-388 million tons) of food product in 2015 worth over FCFA 800 billion thereby exceeding for the 1st hydrocarbons (1-294 million tons) and (1-323 tons) primarily, this concerns rice (730,000 tons).

1.2 Statement of the Problem

Cameroon became an oil-producing country in 1977. Claiming to want to make reserves for difficult times, the authorities manage “off-budget” oil revenues in total opacity (the funds are placed in Paris, Switzerland and New York accounts). Several billion dollars are thus diverted to the benefit of oil companies and regime officials. The influence of France and its 9,000 nationals in Cameroon remains considerable. African Affairs magazine noted in the early 1980s that they “continue to dominate almost all key sectors of the economy, much as they did before independence. French nationals control 55% of the modern sector of the Cameroonian economy and their control over the banking system is total.

The Declaration of National Policy of Employment validated in April 2007 by the National Consultative Commission on Labour’s approach is one of the EIIP Innovative strategies in the fight against unemployment for poverty reduction, as it combines the best use of the abundant manpower available with the optimum use of local resources, whose costs are less compared to the investment community interest. Zilibotti, F. (2003)

Recent signs, however, are encouraging. As of March 1998, Cameroon’s fifth IMF program — a 3-year enhanced structural adjustment program approved in August 1997 is on track. Cameroon has rescheduled its Paris Club debt at favorable terms. GDP has grown by about 5% a year beginning in 1995. There is cautious optimism that Cameroon is emerging from its long period of economic hardship.

The Enhanced Structural Adjustment Facility (ESAF) signed recently by the IMF and Government of Cameroon calls for greater macroeconomic planning and financial accountability; privatization of most of Cameroon’s nearly 100 remaining non-financial parastatal enterprises; elimination of state marketing board monopolies on the export of cocoa, certain coffees, and cotton; privatization and price competition in the banking sector; implementation of the 1992 labor code; a vastly improved judicial system; and political liberalization to boost investment.

France is Cameroon’s main trading partner and source of private investment and foreign aid. Cameroon has an investment guaranty agreement and a bilateral accord with the United States. USA investment in Cameroon is about $1 million, most of it in the oil sector. Inflation has been brought back under control. Cameroon aims at becoming emerging by 2035.

The government embarked upon a series of economic reform programs supported by the World Bank and International Monetary Fund (IMF) beginning in the late 1980s. Many of these measures have been painful; the government slashed civil service salaries by 65% in 1993. The CFA franc — the common currency of Cameroon and 13 other African states — was devalued by 50% in January 1994. The government failed to meet the conditions of the first four IMF programs.

In Cameroon, the secondary sector is made up of five main categories of industries. These categories include: mining and oil refining industry; agro-industry; wood processing industry and textile industry (other industries); energy and water; buildings and public works (BPW). The mining and oil refining industry has observed a downward trend since 2007 because of the drying up of main operational wells.

Besides, this sub-branch of industry is the one which undergoes most external shocks. In 2009, the revenue of petroleum oil exports fell by 39 %. On the other hand, the quantity of petroleum oil exports declined by 4 % and 13,1 % in 2008 (MINEPLAT, 2010). From 1993 to 2008, the value added of this sub-sector dropped from 821,61 billions FCFA to 500,25 billions FCFA. At this level, it is important to note that the main exported product is oil, but Cameroon also possesses bauxite, diamond, and uranium. It is also important to note that the reserves of gas amount to 110 billion cubic meters (WTO, 2001).

The agro-industry is dominated by the production of the following products; sugar, flour, refined oil, brewery and soap products. This sub-sector has observed a relative expansion because its products are consumed by Cameroonians. Specifically, the production and the turnover of agro-brewery industries have increased respectively by 14 % and 19,1 %; for wheat, the volume produced and the sales have increased respectively by 9,4 % and 8,5 % in 2009 (MINFI, 2010).

From 1993 to 2008, the value added of this sub-sector has passed from 304,10 billions FCFA to 525,91 billions FCFA. The big problem in Cameroon is that, there are several growth potentials which could be exploited for sustainable development but it still finds its economy in an almost stagnant growth rate of 7% and an uneven distribution of income. This provokes the assertion that; the average Cameroonian is poor man. Therefore, it is necessary to study and understand the relationship between industrialization and human capital including other variables that have a greater say in development. Ravallion, M. (2004)

1.3 Research Question

Main Research Question

What is the effect of human capital on the industrialization of Cameroon?

Specific Research Question

1. What is the effect of private investment on the industrialization of Cameroon?
2. What is the effect of total labor force on the industrialization of Cameroon?

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