Developing a Sustainable Economy in Cameroon

3 - Analysis of Cameroon's Non-traditional Exports Market Access Potential

3 Analysis of Cameroon’s Non-traditional Exports Market Access Potential Lydie Tankoua Bamou and Ernest Bamou Introduction Following two decades of sustained growth, Cameroon entered a period of acute economic recession in 1985. This situation is consequent, among others, to the relative lower and decreasing of the trade surplus. From international trade theory, we can discern three ways to increase the trade balance surplus: reduce imports, increase exports and reduce imports while increasi ng exports. The first alternative is the main objective of the import-substitution strategy adopted by Cameroon after independence. The third can be assimilated with the country’s Fifth Five-year Development Plan (1981/85) strategy, and the beginning of the economic crisis demonstrated its limits. Pushed by the ongoing globalisation and the requirements of the structural adjustment programme (SAP) set up in 1988/89, the second alternative was adopted by the government in its export promotion strategy. This choice presupposes an increase of traditional exports and diversification towards non-traditional exports. Such diversification is all the more necessary since the country’s export earnings are highly dependent on a limited number of products, and the efforts of increasing the volume of traditional exports is subject to both supply and demand constraints (Luvanga and Musonda 1993).1 Because of the tough competition imposed by the globalization process, one can rightly pose the question of what potential was offered by Cameroon’s non-traditional exports to ensure the necessary diversification of its exports. This study provides some answers to that question by identifying and classifying Cameroon’s non-traditional exports according to their world market prospects (competitiveness) and their financial profitability measured by the coefficient of domestic resource cost (DRC) and the financial capital profitability ratio (FCP). This chapter is divided into five sections. The first presents the conceptual framework; the second identifies and classifies the non-traditional exports and the third analyses the competitiveness and profitability determinants; the last section covers policy implications and concluding remarks. 50 Developing a Sustainable Economy in Cameroon Conceptual Framework This study is closely linked to the comparative advantage thesis developed by Ricardo . It is motivated by the macroeconomic management difficulties of developing countries resulting from harmful fluctuations in their revenue owing to the international price instability of their exports, which rely on a small number of products (Collier 1996). The conceptual framework deals with the justification and the quantification of exports diversification determinants. Justification of Exports Diversification On the basis of two main groups of arguments, exports diversification is considered as a leading solution to the instability of export earnings of developing countries. The first and older of these two groups is based on the conclusion of MacBean et al. (1980), who show that the instability index of export earnings is higher for developing countries with a narrow export base than for developed countries with a wider base of exports. For them, commodity and geographical concentration were not the cause of export earnings instability, as was previously believed, but depended on the type of commodity. The second group is partly a rebuttal of development literature against the Ricardian static concept of comparative advantage, which when carried to its logical conclusion advocates complete specialization to maximize gains from trade. Comparative dynamic advantage is thus used to justify exports diversification for the following reasons: (i) as a reaction to autonomous factors (taste, technology, industrial capacity, producer competitiveness, etc.), the comparative advantage of a country changes with time; (ii) changes caused by the economic policy in place (e.g. tariff barriers) affect comparative advantage. These changes render dynamic comparative advantage more significant than the static one. This means that a nation’s pattern of development is not determined once and for all, but must be recomputed as underlying conditions change or are expected to change over time. Therefore developing countries are not necessarily or always relegated by traditional trade theory to export mostly primary commodities and import mostly manufactured products (Salvatore 1990:313). In addition to these two main groups of arguments, others taken from supply and demand approaches, on debt and industrialization and those studying the country’s economic performance, environment, tariff barriers, risk aversion, etc., are well developed by Luvanga and Musando (1993), Ssemogerere and Kasekende (1994) and Atungire and Tumwebaze (1996). Quantification of Export Diversification Determinants Much of the debate on export diversification deals with quantitative comparative advantage models. At the level of the individual exporter, indices of competitiveness are widely discussed while at the global level economic models are...