Cameroon’s Authorities Attempt to Heat Up the Economy with Salary Increase

By Ernest L. Molua

Cameroon’s President, Paul Biya, has signed a presidential order dated Friday, March 7, 2008 increasing the nominal value of monthly wages for civil servants, state employees, contract officers and military personnel. The presidential ordinance indicates wages would increase by 15% and housing allowance by 20%, effectively from April 1, 2008. This comes amidst calls by economists in the country for far reaching measures to beef-up purchasing power, enhance consumer demand and heat-up the economy. Cameroon’s economy has over the years observed economic growth rates that averaged 4.5%. This has however not translated into improved welfare felt by ordinary citizens, partly because growth has been masterminded solely by increases in the prices of traditional exports of crude petroleum, timber, cocoa, coffee and bananas, rather than broad-based industrial development associated with increased employment opportunities. Average wages in Cameroon, though higher than the middle income African average, has not kept pace with growing commodity prices, and still lags behind income earnings in emerging market economies.

Cameroon, with a public service workforce of about 300,000 and an additional 100,000 workers in state-owned parastatals, is Africa’s 12^th largest economy and the 83^rd largest economy in the world, with a Gross Domestic Product of about US$ 30 billion in purchasing power parity terms, and a corresponding per capita income of about US$ 2000 (ppp). With four hundred thousand Cameroonians earning monthly salaries from the state treasury, and catering on average to about 5 persons, the economy is heavily dependent on the welfare of state workers. This computation which indicates that the public treasury accounts on average for about 2 million Cameroonians directly per month, in a population of almost 17 million, informs on the extent of direct dependency on public finances and handouts. The ensuing multiplier effect significantly accounts for an annual aggregate demand of almost US$ 20 billion.

Cameroon is a primeval welfare state, with significant public expenditures on family allowances, child welfare and low-cost public housing for state-employees and their dependents. The country offers free tuition to its youths, who are open to study in public schools, from Kindergarten to doctoral levels spending less than US$ 1000 in life time expenditures on education. With formal health insurance largely inexistent, the state subsidises medical expenses in state-owned hospitals. It is expected that a 15% increase in nominal wages and a 20% increase in housing allowance will enhance disposable incomes and see increased interlocking of market forces on consumables and utilities.

However, the Presidential ordinance increasing salaries for state-workers is silent on private sector workers. More than 3 million adult Cameroonians are employed directly by the private sector. Minimum wage has remained unchanged since 1972, at 23, 350 FCFA (US$ 58) per month. Private sector employers have held firm on this, with reported cases of some paying less than the minimum wage to their employees. It remains to be seen how the bulk of Cameroonians, some who clamour for price reductions in basic commodities in recent statewide economic unrest, will benefit directly from the salary increase. Perhaps, its time to turn the tides, away from government, to private sector employers. 

The challenge faced by consumers in Cameroon is the near-orthogonal absence of a vibrant credit market, required to boost consumption. Despite the huge liquidity reportedly lying fallow in banks, money market agents shy away from issuing loans given the risks associated with defaults in payment. The culture of promptly repaying debts, without police threats, is remote to the Cameroonian consumer, and this scares away the mushrooming microfinance houses, domestic and foreign commercial banks from issuing loans. As a consequence, stiff conditions stand in the way of banks and their clientele. This absence of significant credit opportunities has translated into difficulties in purchasing durable consumer goods and utensils, cars and home acquisitions. Transactions are based wholly on cash payments. In a way this allows Cameroonians to sustainably create wealth, given that those who own houses, cars and other property have paid cash for them, rather than obtained through hire-purchase or mortgage. Contrary to developed market economies where consumers meet basic needs and purchase durable goods essentially with the aid of massive credit opportunities extended by well established financial houses. This illusion of wealth eludes the Cameroon economy.

The salary increase, which will come into effect next month, will no doubt, contribute to increased exchanges of goods and services, warm up the national economy, and further strengthen social ties on the country.  To effectively heat up the economy, though, there is need for comprehensive measures that would include long-term effort on infrastructural development, industrialisation, easing the strain in doing-business, attracting foreign investment and nurturing homegrown entrepreneurs.

© The Entrepreneur Newspaper 2008. All Rights Reserved

Comments

[luka]

Thank God to have someone like you Ernest who can write about the Cameroonian economy to the extend that the lay man and those of us in the diaspora can make some decisions about investing back home.

This is a great article for all Cameroonians to read and understand the importance of credit in our economy and also how important it is to respect the credit terms so that we can continue to receive them to boost the economy of our beloved country. I personally think that in the absence of banks leanding credit to small businesses and individuals, our economy cannot grow beyond what it is today. What the banks and govenrnment need to do is to exstablish a credit bureau just the USA with a credit rating systems to extend credit to those that deserve to end a credit.

Love your article and will keep looking for more. Please contact me @ fabange75@yahoo.com