Examining the Need for Institutional Reforms
By Ernest L. Molua
"The private sector...has a unique input to make, for it is the main engine of the economy. Accordingly, its operations must be free of heavy-handed and cumbersome regulatory or bureaucratic procedures that could slow its expansion. Cameroon's private sector is faced with a notoriously cumbersome regulatory framework.....Civil society also has a major role to play in smoothing the entry of Cameroon into the global economy. Being close to the people and their concerns, it is the appropriate forum for raising awareness of the challenges globalization poses and for the necessary changes in thinking....."
1. Introduction
Poverty in Cameroon affects close to 40% of its people. Cameroon can make good progress evading the scourge of poverty and improve the lives of its citizens if it relies on new existing blue prints and capture the beneifts of globalisation. Communication technology has herald a global competition for capital goods, bank loans and other services. Today's economy depicts a world in which innovation is more important than mass production. A world in which investment buys new concepts or the means to create them, rather than new machines. A world in which rapid change is a constant. A world at least as different from what came before it as the industrial age was from its agricultural predecessor. A world so different such that its emergence can only be described as a revolution. Where do developing countries such as Cameroon fit in this new world economy? What can Cameroon do to become a major player in today's global economy?
2. Redefining the Role of the State
A combination of new technologies and the globalization of the economy presents challenges to the government of Cameroon, the custodian of the wellbeing of its people. Until recently, the state's scope of activities had no defined limits. In addition to its sovereign functions (for example, security, justice, education, and health care), it was involved in economic life through direct control over the production and distribution of many goods and services. In Cameroon, the state has been responsible for managing even financial institutions, as well as controlling trade and capital flows between the national economy and the rest of the world.
This interventionist system, which was justified in various ways, eventually ran out of steam in early 1990s. But it did not give way to a burgeoning private initiative. A restrictive regulatory framework limited private initiatives to marginal activities, stifling the emergence of a true entrepreneurial class. It is precisely from this restrictive regulatory framework that Cameroon must extricate itself if she is to realize her true potential in the global economy. For this to happen, government action must focus on four areas.
A. Stabilizing the macroeconomic situation. This is essential if Cameroon is to be competitive in the globalized economy. Unproductive spending, fiscal imbalances, and large balance of payments deficit needs to be contained. Only then will the state be able to devote more resources to the construction of adequate infrastructure (such as better roads, deep seaports and proper airports, adequate supply of electricity, and availability of portable water), consolidation of the long-term bases of development (such as education, health care, and the environment), and the struggle against poverty and unemployment.
B. Reducing the size of the public sector. The state needs to withdraw from the commercial sector and devote more time and resources to the delivery of essential public services. The tool for this is the privatization of inefficient public enterprises. Neoclassical reasoning intimates that the private sector is far better equipped than the government to manage commercial activities effectively, because its decision-making apparatus is less unwieldy and its ability to adapt to changes in the environment is greater. Reforms in the public sector must be guided by the desire to liberalize economic activities and promote free enterprise. Therefore, the state must encourage healthy competition among businesses while eliminating economic rents and mechanisms that legally confer a dominant position on a firm or economic agent/ethnic groups.
A framework for allowing market forces to efficiently determine prices needs to be instituted. Such a framework would encourage competition among businesses and suppress the distortions inherent in any system of administered prices and controls. Thus, the establishment of the Douala Stock Exchange (DSX) is a welcome move. The DSX will no doubt (i) promote the movement of capital across Cameroon and foreign markets; (ii) increase investment opportunities; (iii) encourage optimum financing for Cameroonian firms; and (iv) increase the attractiveness of Cameroon as a country for investment, both by regional and non-regional investors. To reap maximum benefit from these, Cameroon needs to liberalize trade and foreign exchange transactions to attract foreign investment.
C. Good governance. Cameroon needs to focus on the following issues:
(i) Transparency of government. Citizens must be kept informed of the decisions of the state and their justification. There must be simplicity of procedures. Whether in fiscal matters, investment, or other areas, administrative procedures need to be as simple as possible, with the number of participants reduced to a minimum.
(ii) Responsibility. Public officials must be held accountable and, if necessary, penalized for offenses. The fight against corruption must be intensified. Eradication of this scourge is imperative for promoting healthy competition, eliminating surcharges, and strengthening the efficiency of economic management.
(iii) Individual freedom and collective expression. A free and responsible press, in particular, is an important pillar of democracy. The State must uphold the independence of the legal system. The legal system must be free from pressure and intervention from political forces or any other organization, to ensure that its decisions are independent and impartial. While Cameroonian business laws on paper are clear, few foreign investors have come forward because implementation of those laws is problematic. Under the current judicial system, local and foreign investors have found it complicated and costly to enforce contract rights, protect property rights, obtain a fair and expeditious hearing before the courts.
3. Role of Civil Society
The civil society in Cameroon (voluntary organisations, community groups, trade unions, church groups, co-operatives, business, professional and philanthropic organisations and a range of other NGOs) is growing remarkably fast. It is becoming more organized and collaborates effectively with civil society in other countries. Cooperation with institutions such as the International Federation of Human Rights is a good example of how this phenomenon works. In the areas of development, the environment or human rights, NGOs have added a new dimension to traditional politics and have helped to find new forms of addressing national problems. In Cameroon, civil society plays a dual role. First, as a mouthpiece for democracy, it is the chief challenger of the power of the state, limiting deviations from good governance and acting as a regulator in the political arena. As evidenced in the privatisation and deregulation schemes, Cameroon is forging ahead with the etablishment of a proper functioning market economy. However, despite its overall efficiency, the market economy can generate negative social and environmental externalities. Civil society, as represented by consumer associations and nongovernmental organizations (NGOs), serves as a watchdog to contain market excesses and to guard against environmental abuse by increasing public awareness of ecological problems—for example, disposal of toxic waste.
Civil society also has a major role to play in smoothing the entry of Cameroon into the global economy. Being close to the people and their concerns, it is the appropriate forum for raising awareness of the challenges globalization poses and for the necessary changes in thinking. It is therefore important that civil society be fully involved in defining growth strategies, whose success is largely dependent on popular support. In sum, civil society can also play a significant role in promoting the mobilization of savings through decentralized financial institutions and, in general, helping to combat poverty especially via the microfinance schemes.
4. The Private Sector
The private sector also has a unique input to make, for it is the main engine of the economy. Accordingly, its operations must be free of heavy-handed and cumbersome regulatory or bureaucratic procedures that could slow its expansion. Cameroon's private sector is faced with a notoriously cumbersome regulatory framework. It is interesting to observe that the investment approval process, while appearing open on paper, is convoluted and confusing in practice, lacking transparency. To take full advantage of the opportunities the global economy offers, Cameroon's private sector needs high-quality human resources and managerial capabilities, and also the easing of the byzantine bureaucracy that characterises government's regulation of the private sector. The private sector must in itself assume some responsibility for the education and training of its workforce, enabling workers to take advantage of the potential offered by new information and communication technologies and to benefit from the relocation of industrial businesses and services.
The financial market plays a lead role in the global economy. Any country wishing to be part of this economy must have a solid and credible financial sector, capable of tapping savings and offering businesses the possibility of diversifying their portfolios. To flourish, therefore, the private sector needs to be supported by a sound banking and financial sector within a liberalized institutional context. In particular, credit policy must be managed flexibly and be resolutely oriented toward fighting inflation. Exchange and interest rates must also be as realistic as possible, reflecting internal cyclical variations while staying connected to international market conditions. In developing countries such as Cameroon, the success of a credible monetary policy depends crucially on a central bank that is wholly independent of political pressure. In addition, because of their significant role in the collection of savings and the financing of economic activity, banks' operations need to be supported by a secure regulatory framework that meets three criteria:
(a) freedom of action that excludes any intervention by political powers in the distribution of credit;
(b) development of and compliance with prudential standards comparable to those used internationally; and
(c) establishment of a banking oversight committee specifically responsible for monitoring strict compliance with approved banking management methods.
The development of microfinance is another important aspect of the private sector's role in Cameroon. In addition to financing micro businesses and small and medium-sized enterprises that do not have access to the traditional financial sector, decentralized financial institutions are a powerful engine for growth and employment. They are an important tool in combating the impoverishment of people who might otherwise be excluded from the beneficial effects of globalization while suffering its negative effects. Therefore, the microfinance sector must be consolidated and better organized to engage the maximum number of economic agents and contribute to the expansion of markets. To establish its effectiveness and credibility, the microfinance sector, like the banking system, government is required to step up effort in monitoring and adequately controling the structures of the microfinance subsector.
5. Regional Integration
As evidenced by the formation in the past several years of regional groupings of countries regional integration is an important mechanism for constructive engagement in the New Economy. In fact, the setting up proper functioning regional economic areas such as CEMAC and ECOWAS, in which countries—for historical, geographical, cultural, economic, or political reasons—try to create an area of stability, growth, or solidarity can be instrumental in easing the path toward full integration in to the global economy. Cameroon is a member of the Central African Economic and Monetary Community (CEMAC), which also includes Central African Republic, Chad, Republic of Congo, Equatorial Guinea, and Gabon. For Cameroon, which is handicapped by small market, weak basic infrastructure, and insufficient financial resources, regional integration can actually speed up growth and development. The benefits of regional integration include opportunities for economies of scale and streamlined production processes that will make businesses internationally competitive. Other beneficial aspects of regional integration—such as the harmonization of rules and procedures, free circulation of goods, people, and capital, and the elimination of customs barriers—can create a business environment that attracts and encourages private sector activity.
6. Conclusion
For the foreseeable future Cameroon's government will continue to play a significant role in the daily lives and wellbeing of its people, the changing paradigm of increasing reliance on market forces notwithstaning. The economically strong forces in society who assert a need to dismantle impediments to international trade often also assert a need for "strong" domestic policies to ease the functioning of markets. Handicapped by the weakness of its infrastructure and low level of industrial development, Cameroon is clearly not sufficiently integrated into the global economy. However, it is also clear that the country cannot afford to remain on the sidelines of globalization. To facilitate its inclusion in the world economy, Cameroon must begin to make significant institutional reforms—in particular, by refocusing the functions of the state toward its essential mission of delivering needed public services; promoting the development of a dynamic private sector within a liberalized and transparent framework; and strengthening the role of civil society, which is critical for any social and economic change. Regional economic integration is also a necessary element for securing Cameroon's active participation in globalization.
All these reforms have extremely high financial and social costs that far exceed the country's current resources. It is hoped, therefore, that Cameroon may be able to count on international cooperation to support its economic development efforts. Particular attention must be paid to managing the external debt that weighs heavily on public finances and considerably reduces the maneuvering room the government needs to generate financing for infrastructure and poverty reduction. The various debt-reduction initiatives undertaken by the international financial community are very encouraging and should be explored more intensively. …© The Entrepreneur Newspaper 2009. All Rights Reserved
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