As an August IMF blog recounts, four of the six countries in the francophone Central Africa Economic and Monetary Community (CEMAC) — Cameroon, Gabon, Chad and the Central African Republic — are now in oil price collapse and debt crisis programmes. Negotiations have also begun with the remaining two: the Republic of Congo and Equatorial Guinea.
They share a common central bank and the CFA franc currency tied to the euro and managed through the French Treasury, which requires backing with half their foreign reserves.
The IMF notes that despite a summit in the Cameroonian capital of Yaoundé last year that pledged commodity diversification and fiscal, financial sector and business climate changes, policymaker delay and the spreading Boko Haram conflict left the region in “dire shape” for traditional austerity and transparency remedies.
At the recent G20 summit, Emmanuel Macron, the French president, for his part recommended a new strategy that could involve shedding the 50-year-old currency peg, but his message lacked specifics and was garbled by reference to “civilisational” differences such as deep-rooted corruption and large families that can frustrate growth and modernisation plans.
Instead of relying on historic outside bilateral and multilateral relationships to overcome its repeated predicament, Central Africa should focus on its own stalled efforts, such as in banking integration and the creation of stock exchanges, to achieve development breakthroughs and narrow the income and sophistication gap with the neighbouring West African Economic and Monetary Union, led by Ivory Coast and Senegal, which has started to link with the English-speaking Economic Community of West African States.
Oil accounts for 60 per cent of CEMAC’s exports but revenues halved between 2014 and 2016 as the bloc’s current account deficit neared 10 per cent of output.
Public debt rose 20 percentage points, and is now approaching 50 per cent of GDP, and international reserves fell $10bn to cover only two months’ imports, below the danger threshold, exacerbated by the fixed exchange rate.
The Fund’s arrangements feature standard formulas to correct imbalances and also limit further commercial borrowing by Cameroon and Gabon, which have issued Eurobonds and are components of JPMorgan’s Nexgem index.
Cameroon is to prioritise infrastructure projects from domestic and donor resources, and boost non-oil revenue through land taxes and ending exemptions. High bad loan levels and insolvent banks will be resolved and private sector “administrative obstacles” slashed, with 3.5 per cent of gross domestic product safeguarded for education and health spending.
Gabon will improve public finance management and show progress across the World Bank’s “Doing Business” indicators, especially on company start-ups, construction permits, property registration and contract enforcement.
After getting the first instalment of its $650m facility, GDP growth stabilised in mid-year at 1 per cent, helped by a recovery in oil prices and an improved performance by the mining, timber and construction sectors, with exports up almost 40 per cent on an annual basis.
Both Cameroon and Gabon are led by longstanding rulers, and their governments must follow extractive industry transparency initiative reporting and also clear and disclose outstanding contract arrears.
Chad, which must restructure external commercial debt, and the Central African Republic, gripped by civil war, face similar programme criteria with larger relative allowances for anti-poverty outlays.
As of April the gross reserves of the central bank, known by its French acronym BEAC, were $4.5bn, as it worked to maintain the integrity of the decades-old CFA franc structure, deal with the 15 per cent commercial bank non-performing loan ratio, and tighten monetary policy through a 50 basis point interest rate hike and reduced access to overdraft facilities.
Excess liquidity has evaporated from the system, which now requires emergency lines and recapitalisation, according to a June IMF regional policy report. Stricter statutory ceilings on government borrowing will apply, and banks in turn will face collateral limitations for refinancing under the latest Fund pacts.
Interbank foreign exchange and capital markets will also deepen, and supervision is due to strengthen next year with enforcement of prudential rules, including connected lending, risk concentration, asset provisioning and board conduct alongside basic capital sufficiency.
Several smaller banks have been closed and seized, most recently in Gabon, and with the deposit insurance regime to be finalised in 2018 other “orderly” insolvencies are likely following the terms agreed between the BEAC’s regulators.
These promises have fallen short in the past, and even if member countries could plot a future direction at variance to conventional recipes. They could explore a phased devaluation or peg to a wider currency basket, to include the dollar and major emerging market units given their trade and investment links.
“Single passport” cross-border banking approaches should be revisited in operational and regulatory terms and the dormant Central African securities market, with a few government and state company bond listings, can be cast as an active private sector debt and equity platform, or merged with the bigger nearby West African bourse so this frontier region charts a proprietary path that is no longer desperate.
Gary Kleiman is senior partner of Kleiman International, an independent analyst of emerging market banking and securities markets