ABSRACT

The study sets out to analyze the determinants of private investment in Cameroon for a period of 35 years 1980-2014(period of adoption of structural adjustment program). These goals were set to increase efficiency in the use of state-owned resources, increase productivity, increase foreign saving for investment, resource allocation, and aggregate demand management.

Variables identified for the study including the real rate of interest, infrastructure availability, inflation rate, trade openness, and political stability.  To enhance the analysis, the study assumed correlation analysis and multi regression in an effort to examine how private investment is related to each unidentified variable as well as the net effect of each variable on private investment.

Though most results from correlation analysis are contrary to the research’s expectations, treating the variables for correlation and multi-collinearity gave theory-aligned results in regression analysis.  The study, though not outrightly disregarding correlation results identifies political stability, the real rate of interest, inflation rate, infrastructure availability, and trade openness as key determinants of private investment in Cameroon.

In a bid to foster economic growth and increase private investment, the study recommended the promotion of political stability, the attraction of FDI, enabling a structured public-private dialogue, and promoting government investment in infrastructure development among others.

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

During the late 1970s and the early 1980s, many African countries experienced a profound slowdown in economic growth (Mlambo & Kumar, 1997). The growth rate of real per capita GDP fell from 0.4% per year during the 1973-1980 periods to 12% per year during the 1980-1989 periods. Nevertheless, broad consensus has emerged on the importance of increasing total investment and promoting private sector development, by so doing increasing its share of the total investment for long-term growth (Warner. 2001).

It is widely recognized that Gross domestic investment fell substantially in Africa during the 1980s and remained severely depressed across the region. The proportion of total domestic investment in GDP fell from 20.8% per year during 1973-1980 to16.1% per year during the 1980-1988 periods.

In some countries, investment has fallen to less than 10% of GDP, a level that is insufficient even to replace depreciated capital. In Africa, the minimum investment needed to replace depreciated capital is estimated at 13% of GDP (Ouattar-Etal, 2005).

Cameroon’s economy has been resilient in the face of security and humanitarian crisis at the Northern borders with Nigeria and the eastern borders with the Central African Republic. Cameroon’s growth was driven by the secondary sector, a large supply of energy and agricultural goods. According to projections, growth is said to remain strong in 2015 (5.4%) and 2016 (5.5%) thanks to the diversification policy aimed at developing the construction sector and the supply of energy (Khan &Kumar, 1997).

In addition to pursuing a moderately expansionary fiscal policy, the authorities have sought to mobilize tax revenue and improve the returns on private expenditure. They have significantly reduced poorly targeted subsidies on petroleum products and made improvements to projects.

The 2013-2015 budgets aimed at maintaining the existing line of fiscal policy in 2015. However, the dropped expenses resulting from Nigeria and CAR crisis forced the government to introduce proactive fiscal consolidation measures to prevent the deficit from widening (Blejer & Khan. 1984).

The government of Cameroon has been working actively to attract foreign investment in order to create much-needed economic growth and employment, though it is less effective. However, interested investors are being followed so as to ensure that investment is more forward in a timely manner (Everhart & Sumlinski, 2000).

Furthermore, since 2012, numerous trade delegations have visited Cameroon exploring investment opportunities including delegations of China, Singapore, India, Thailand, Brazil, and Turkey (Chibber & leechor, 1994).

In addition, Cameroon’s legislative body, The National Assembly adopted an investment charter in 2002 to attract international investors and replace the existing investment code of 1990. However, the Cameroon government has fully implemented the 2002 investment charter. In May 2009, H.E President Paul Biya signed a decree postponing the 2014 deadline for implementation of some provisions of the investment charter.

Finally, Cameroon is still in the process of privatizing its state-owned companies. Institutions such as the World Bank and the INFORMATION have long called for the privatization of the national telephone company CAMTEL, which holds a monopoly on the international gateway as well as the landline infrastructure.

In October 2012, the vice President of the Cameroon Chamber of commerce announced that CAMTEL, SODECOTON, SOCIETE CAMEROUNAISE DES DEPORTS PETROLIERS (SDPC) and CDC were likely to be privatized by 2013. Full privatization in 2001 of Cameroon’s electricity distribution company SONEL resulted in major US direct investment.

US-based AES corporation acquired 56% of SONEL to create SEE SOMEONE which received an operating license to generate up to 1000mw of installed capacity. Today this energy company is in partnership with (Ghura & Goodwin, 2000).

 

1.2 PROBLEM STATEMENT

Given the fact the private investment is generally influenced by varied factors such as cultural, economic, political, and social factors, research of this nature becomes vast. Also, given the change of the Cameroon economy from the mercantilism view in 1968 to the introduction of the private sector where there is an increase in the efficiency of productivity and utilization of state-owned endowments. Prior research on this topic include: a project was written by John Ngale Mayanja “Determinants of private investment in Sun-Times Saharan African countries “

 

1.3 RESEARCH QUESTIONS

Due to certain reasons as earlier brought forward in the problem statement which brings out the reasons to study the determinants of private investment in Cameroon. Which has led to the evolution of these research questions?

1. What are the factors that influence private investment in Cameroon?
2. What is the relative sensitivity of private investment in Cameroon determinants?

 

1.4 RESEARCH OBJECTIVES

The main objective of this study is to examine” the determinants of private investment in Cameroon”. While the specific objectives include

1. To determine the major variables that influence private investment in Cameroon.
2. To test the sensitivity of private investment to those variables that determine it in Cameroon

 

1.5 SIGNIFICANCE OF STUDY

The study of the determinants of private investment in Cameroon is very significant to the researcher, to the public, and to policymakers of the government. The study is essential to the researcher as he/she seems to evaluate the concept which postulates interest rate being the main determinant of private investment in Cameroon.

With this, it becomes helpful to the researcher as he/she grasp relevant knowledge to private investment and the factors that influence it there are other factors that influence investment in Cameroon such as Inflation, real interest rate, infrastructure availability, trade openness, tax rates, and political stability,  the researcher aims at computing numerical values for economic theories related to this aspect such that the researcher is able to evaluate in order to forecast or predict future values of economic variables.

This study is also relevant to the general public. Assuming the researcher’s work brings light to the advantages of private investment; this motivates and encourages the members of the general public to invest their resources and funds worthwhile.

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