Cameroon: The Stakes and Challenges of Governance and Development

6. Governance and Doing Business in Cameroon

Chapter six Governance and Doing Business in Cameroon Fondo Sikod & John Nde Teke Introduction Good governance is epitomized by predictable, open, and enlightened policy making (that is, transparent processes); a bureaucracy imbued with a professional ethics; an executive arm of government accountable for its actions; and a strong civil society participating in public affairs; and all behaving under the rule of law (World Bank, 1994). Although Cameroon reached the HIPC Completion Point in 2006, a conditionality that the creditors put was that Cameroon had to make progress in the area of governance. It is now some 20 years that the economy of Cameroon collapsed, and the country agreed to adopt Structural Adjustment Measures under the guidance of the International Monetary Fund and the World Bank, to redress the economy. Two factors were responsible for the collapse of the economy: external – world market prices of primary commodities, and b) internal mismanagement. Although Cameroon is well endowed with natural and human resources, the country is not quite able to get out of the economic crisis. As the economy has continued to falter, and the population has continued to grow at the very high rate of 2.9 percent, poverty has continued to mount. According to the Cameroon Institute of Statistics (ECAM II, 2001), over 40 percent of Cameroonians live in poverty. This dismal situation has continued to persist a lot more because of governance issues than strictly economic. It is evident therefore, that without tackling governance, the economy will not grow. This chapter looks at how governance is affecting the way business is done in Cameroon, and what the consequences are. In the chapter, we use the descriptive and the growth model analyses. Because data on governance is based mostly on perceptions, we use mostly secondary data and comparative studies some researchers have carried out on Cameroon. 130 Cameroon: The Stakes and Challenges of Governance and Development Literature Review on Governance and Economic Growth A number of studies have been carried out on this topic. Some recent work addressing the impact of governance on the economic growth include Hali Edison (2003), Easterly and Levine (2003), Knack (2002), Acemoglu, Johnson, and Robinson (2001a, 2002), and Rodrik, Subramanian, and Trebbi (2002). They established that the quality of governance has a strong, unequivocal impact on economic performance. McNab and Everhart (2002) have argued that “a functioning private sector requires the rule of law; enforcement of property rights and contracts; an independent, strong judiciary with transparent and effective bankruptcy procedures; transparent tax systems; effective bank supervision; and the strict enforcement of bank prudential regulations.” These are the hallmarks of good governance, regardless of the formal definition. Fostering such an environment not only reduces opportunities for corruption, but, more importantly, the returns from corruption. Each of these, in turn, stimulates investment, lowers transactions costs, and facilitates economic growth. Aid donors have come to the view that aid flows have a stronger impact on development in countries with good institutional quality, and thus increasingly utilize measurable performance indicators (governance) for monitoring, evaluation and decision-making at a country level. On foreign aid and governance, McNab and Everhart (2002) state that foreign aid that is subject to conditions, such as that offered by the large multi-lateral international donor agencies, may create sufficient incentives for receiving governments to improve institutions, governance, and economic efficiency. “A government that wishes to reform but lacks the political will to do so may be able to move forward with reform by accepting foreign aid.” Collier (1997), Stiglitz (1999), and Easterly (2001, 2002), however, argue that attaching conditions to foreign aid does not improve governance. The conditions attached to foreign aid may also not be static, that is, they may be adjusted over time in response to economic conditions in the recipient country. Improving governance is a difficult, but necessary task, in order to increase efficiency and promote economic growth (Tanzi, 1998). McNab and Everhart (2002) found that the quality of governance 131 Sikod & Teke: Governance and Doing Business in Cameroon has a strong, unequivocal impact on economic growth. A onepercent change in the quality of governance, they found, appears to induce a 4-percent change in the rate of economic growth. For a country currently growing at 2 per cent per annum, a ten-percent increase in the governance score would raise the growth rate to approximately 2.9 per cent per annum. Countries that ignore the rule of law, let red tape...