2009 Index of Economic Freedom

Quick Facts

Population:

• 18.2 million

GDP (PPP):

• $38.0 billion
• 3.2% growth
• 3.5% 5-year compound annual growth
• $2089 per capita

Unemployment:

• 30.0%

Inflation (CPI):

• 0.9%

FDI Inflow:

• $309.0 million

Cameroon's economic freedom score is 53, making its economy the 136th freest in the 2009 Index. Its overall score is 1.3 points lower than last year, primarily as a result of a worsened investment freedom score. Cameroon is ranked 27th out of 46 countries in the Sub-Saharan Africa region, and its overall score is slightly lower than the regional average of 53.1.

Cameroon scores well only in government size. Government expenditures are low, and the overall tax burden is relatively low as a percentage of GDP, though the top income and corporate tax rates remain burdensome. A simplified tax code with lower rates would formalize much economic activity.

Cameroon faces challenges common to other developing African nations: inefficient bureaucracy, an unreliable legal system, and poor infrastructure. Employment regulations are costly and restrictive, hurting employment and productivity growth. Business licenses are difficult to obtain. Privatization moves forward at a crawl. Although progress has been made in privatizing the management of the national water company, other enterprises remain under state control, including the national airline and cotton companies.

Background Back to the top

Cameroon has abundant natural resources and was once one of Africa's most prosperous countries. Roughly half of the labor force is employed in agriculture. The economy contracted sharply from 1986 to 1994 because of economic mismanagement and falling commodity prices. Rising oil prices have added to GDP growth and government revenues, but Cameroon's economic performance still lags behind that of other African countries. The transparency of oil-related public finances has improved marginally. President Paul Biya has held office since 1982 through a series of uncontested or flawed elections. Political reforms adopted in the mid-1990s have been largely ignored or overturned. In 2008, Biya's supporters in parliament, having won a strong majority in 2007, passed a constitutional amendment granting the president immunity for acts committed while in office.

Business Freedom 39.3 Back to the top

The overall freedom to start, operate, and close a business is seriously limited by Cameroon's regulatory environment. Obtaining a business license requires 15 procedures, compared to the global average of 18, but takes more than the world average of 225 days. Closing a business is very difficult and burdensome.

Trade Freedom 56.0 Back to the top

Cameroon's weighted average tariff rate was 14.5 percent in 2005. Surcharges and inconsistent customs valuation for certain imports, import and export bans, import and export taxes, import licensing, inadequate regulations and standards, corruption, and inadequate enforcement of intellectual property rights add to the cost of trade. Fifteen points were deducted from Cameroon's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 69.6 Back to the top

Cameroon has high tax rates. The top income tax rate is 35 percent, and the top corporate tax rate is 38.5 percent (35 percent plus an additional 10 percent council tax). Other taxes include a value-added tax (VAT), excise taxes, a property tax, and an inheritance tax. In the most recent year, overall tax revenue as a percentage of GDP was 18.2 percent.

Government Size 93.6 Back to the top

Total government expenditures, including consumption and transfer payments, are low. In the most recent year, government spending equaled 14.6 percent of GDP. Government finances continue to exhibit persistent structural weaknesses.

Monetary Freedom76.0 Back to the top

Inflation has been low, averaging 2.0 percent between 2005 and 2007, but the regional central bank, Banque des Etats de l’Afrique Centrale (BEAC), took several measures in 2008 to contain inflationary pressures. The market determines most prices, but the government provides subsidies and controls prices for such “strategic” goods and services as rice, flour, consumer goods, agriculture inputs, electricity, water, petroleum products, telecommunications, cooking gas, pharmaceuticals, and cotton. Fifteen points were deducted from Cameroon’s monetary freedom score to adjust for measures that distort domestic prices.

Investment Freedom40.0 Back to the top

The government does not discriminate with regard to equity ownership, permitting 100 percent foreign ownership. All investments face government screening, but it is unclear which process applies to which kind of investment. Cameroon has one of the world's most challenging business environments. Corruption, cumbersome bureaucracy, and decision-making delays place a significant burden on investment. Dividends can be freely remitted abroad, as can capital returns, interest and principal on foreign debt, lease payments, royalties and management fees, and returns on liquidation. Liquidation of foreign direct investment must be declared at the Ministry of Finance and the central bank. Residents may open foreign exchange accounts with prior approval of the central bank and the Ministry of Finance. Many capital transactions, including foreign borrowing, foreign direct investment, liquidation, and foreign securities, are subject to controls and generally require the approval of or declaration to the government. Delay and corruption are encountered in resolving commercial disputes.

Financial Freedom50.0 Back to the top

Cameroon's financial system is not fully developed, and the absence of a vibrant credit market hinders more dynamic economic growth. Banking is highly concentrated, with three banks controlling two-thirds of all assets. The cost of financing is high, and access to credit is very limited in rural areas. There are about 700 microfinance institutions. The insurance sector is also concentrated, with four companies accounting for about 60 percent of the market. The largest insurer is foreign-owned, but Cameroonian ownership is increasing. The stock exchange, founded in 2003, remains small and much less vibrant than others in the region.

Property Rights30.0 Back to the top

Corruption and legal uncertainty can lead to confiscation of private property. Courts and administrative agencies often grant preferential treatment to domestic firms and have been accused of corrupt practices. Some foreign companies have alleged that unfavorable judgments were obtained through fraud or frivolous lawsuits. Trademarks and copyrights are routinely violated, and software piracy is widespread.

Freedom From Corruption24.0 Back to the top

Corruption is perceived as pervasive. Cameroon ranks 138th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Courts and government agencies are inefficient and have been accused of corrupt practices, and there continue to be reports of such abuses as beatings of detainees, arbitrary arrests, and illegal searches.

Labor Freedom51.5 Back to the top

Relatively inflexible employment regulations hinder job creation and productivity growth. The non-salary cost of employing a worker is moderate, and dismissing a redundant employee is relatively easy, though labor legislation mandates retraining or replacement before firing a worker.