Moody s B2 / S&P B / Fitch B 1 Economy: Agriculture 23%, Industry 28%, Services 49%

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1 Cameroon Summary Moody s B2 / S&P B / Fitch B 1 Economy: Agriculture 23%, Industry 28%, Services 49% Cameroon has abundant natural resources, significant growth potential, low GDP per capita, and weak institutions. Economic growth tends to be strong, driven by infrastructure investment but is volatile due to dependence on oil. Amid an oil shock and continued military spending to fight Boko Haram, the fiscal outlook has deteriorated over the past few years. In 2017, Cameroon sought an IMF program requiring fiscal consolidation. President Paul Biya has been in power since 1982, and he is likely to seek reelection in At 84 years old, the lack of a transition plan has created uncertainty as political and social disorder may ensue. Thus far, Cameroon remains relatively peaceful despite a diverse society with close to 250 ethnic groups, two major religious groups (Christians, 40% and Muslims, 20%) and with French spoken by about four-fifths of the population and English by the rest. The Islamist militant group, Boko Haram, remains the main social issue in the north, followed by the more recent increased separatist movement in the Anglophone south-west region. Economic Indicators F 2018F Population (Millions) GDP per Capita (USD) 1,345 1,424 1,230 1,238 1,263 1,329 Nominal GDP (USD Billions) Real GDP (%) Year-End CPI (%) Fiscal Balance (% of GDP) Interest (% of Revenues) FC Debt/Public Debt (%) Government Debt (% of GDP) Government Debt (% of Revenue) Current Account (% of GDP) FDI (% of GDP) External Debt (% of GDP) Foreign Reserves/External Debt (%) Foreign Reserves (Mo. of Imports) Foreign Reserves (% of GDP) As of November 2017 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: Lazard, Citibank, Haver Analytics, IMF 557

2 Lazard Emerging Markets Debt Rating History Below is a history of the country s foreign and local currency ratings by the major agencies dating back to We have also included a chart of the country s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency BB- B+ B B- CCC+ CCC Local Currency BB- B+ B B- CCC+ CCC CCC CCC Moody's S&P Fitch Moody s S&P Fitch As of December 2017 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Bloomberg, Fitch, Moody s, Standard and Poor s Bond Spreads Cameroon 2012 EMBIGD 2017 As of December 2017 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 558

3 Cameroon Strengths Economic Growth Cameroon has posted strong growth in recent years, averaging 5.1%, and is expected to remain stable from 2018 to 2022, according to the latest IMF forecasts. 2 Over the past few years, tertiary sectors, such as telecommunications, transportation, and financials have contributed significantly, though the economy has experienced some setbacks due to the armed conflict with the Islamist militant group, Boko Haram, in the north of the country. The decline in oil prices also negatively affected the economy, although this was partially offset by an increase in production. 3 The government is currently seeking to boost growth with an infrastructure program, including building an improved highway connecting the two economic centers, Douala and Yaounde, as well as a deep sea port in Kribi. These projects are being financed by the Export and Import Bank of China. Despite steady economic growth, poverty indicators (approximately 40% of GDP) have remained unchanged over the past few years. 4 Poor infrastructure, including ongoing electricity shortages and unfriendly business policies, remain major constraints for higher growth in Cameroon. Oil and Gas Production Cameroon s oil production is on an upward trend after a steady decline for more than two decades, from 185,000 barrels per day (bpd) in 1986 to 63,000 bpd in This rise in production has been supplemented by recent discoveries of oil reserves and new technologies. At the beginning of the 2015, oil production surpassed 100,000 bpd, and currently, Cameroon is the sixth-largest oil producer in Africa, with 325 million barrels in oil reserves. In the medium term, oil production is expected to continue increasing on the back of new investments and exploration in the offshore Kribi-Campo oil field. 5, 6 The World Bank estimates reflect oil production surpassing 150,000 bpd in 2017, 7 but expect a decline by the end of The government hopes for new oil discoveries and anticipates that the country will start to exploit its large natural gas reserves, totaling 5.4 trillion cubic feet in To further developments in the oil and gas sector, National Hydrocarbons Company (SNH) has installed a floating natural gas liquefaction plant and will eventually allow for exports of up to 1.2 million tons per year. 10 Domestic-Led Economy While Cameroon is an oil producer, its economy is less dependent on oil today (in part due to the decline in production), and is increasingly driven by the domestic consumption of its 24 million citizens, significant infrastructure projects, and agriculture. Agriculture is a significant contributor to the country s non-oil exports, and the sector also employs approximately 70% of the working population. 11 Membership in the BEAC Like Congo and Gabon, Cameroon is a member of the Banque des Etats de l Afrique Central (BEAC), which promotes economic and trade integration. Since these countries were previously colonized by the French, they share a common currency - the Central African CFA, pegged against the euro. As BEAC members keep half of their foreign reserves with the French Treasury, the full convertibility of the CFA franc is guaranteed, substantially reducing the risk of balance-of-payments and contributing to economic stability. 559

4 Lazard Emerging Markets Debt IMF Program Committment Due to the oil shock, Cameroon has begun coordinating a regional approach with the IMF, in an effort to restore external imbalances. As a result, Cameroon obtained a three-year Extended Credit Facility (ECF) for $666 million, committing to a front-load fiscal consolidation, reforms to increase non-oil revenues, and private-led economic diversification. 12 Whereas prior to the IMF program, the fiscal deficit was significantly impacted and was previously expected to be fluctuating close to 5.0% of GDP until However, with the new IMF program, the budget deficit is now expected to be only -2.8% of GDP in 2018, and arrears of 3.5% of GDP will be cleared during the duration of the program. 13 In its first review, the IMF noted that Cameroon met the program performance criteria and that the economic program was on track. 14 Political Stability Cameroon has only had two presidents since winning independence from France, in At 84 years old, President Paul Biya has been in power since Due to his age, succession planning has become more center-stage, although no absolute transition plans have been announced. His party, Cameroon People s Democratic Movement (CPDM), currently controls 148 out of the 180 seats in the National Assembly. 15 Under the current regime, the Head of the Senate will assume power if the President steps down, though there is a lot of uncertainty regarding whether this transition would be peaceful. The Head of Senate, Marcel Niat Njifenji, is 83 years old. The next presidential election is scheduled for October 2018, and Paul Biya is likely to seek reelection if his health permits. As of October 2017, only one other candidate has declared his intention to run for the presidency. 16 Weaknesses Debt Levels The debt ratio has been on a rapid upward trend, from 11.5% in 2010 to an estimated 33.8% of GDP in This amount has tripled in the past seven years, after receiving a major haircut as part of the debt relief under HIPC (Heavily Indebted Poor Countries) in 2004, when Cameroon s debt level was considered unsustainable. With growing concerns around this trend, the IMF has recommended that the government increase the share of debt borrowed on concessional terms and slow down capital infrastructure projects, to reduce the deficit. 17 With an IMF program in place, debt levels are expected to stabilize. However, the track record of government debt payments remains unfavorable, as the government defaulted on the local debt in 2004, and has restructured its debt several times with multi- and bilateral entities in the 1980s to early 2000s. Donations and Financing Like most low-income countries, Cameroon is very dependent on multi- and bilateral financing and donations from countries. Multilateral and bilateral debt amounts to 38% and 56%, respectively. Thus, maintaining a good relationship with the international community is key to covering the fiscal gaps. Donations are relatively moderate, averaging 0.5% of GDP in the past, and is expected to decline to 0.3% of GDP from 2018 to

5 Cameroon Boko Haram The Islamist terrorist group, Boko Haram, is based in Nigeria but very close to the borders of Cameroon, Niger, and Chad. These three neighboring countries joined forces with the support of the international community to push Boko Haram back to Nigerian territory. The United States also sent 300 troops to Cameroon to fight Boko Haram. Despite the success of the military attacks, Boko Haram continues to sporadically attack the region. 19, 20, 21 The ongoing armed conflict has created exorbitant costs for the government, which has increased military spending. The armed conflict has also resulted a surge of displacements, affecting approximately 7,500 citizens. 22, 23 While attacks are still taking place, the frequency has decreased as a result of the multinational task force set up in Cameroon reopened its border with Nigeria in 2016, which was previously closed due to security threats. 24 North/South An increase in religious and ethnic tensions could pose a potential risk for Cameroon. Currently about two-thirds of the population is Christian and one-fifth is Muslim. 25 The concern remains that Boko Haram could spark a religious conflict within the groups, although this has not been the case so far. The government has reportedly deported 100,000 Nigerians in an attempt to stop the spread of Boko Haram. 26 Additionally, Cameroon has escalated military efforts to confront separatists in the Anglophone Southwest region. 27 Diversification The lack of diversification in Cameroon s economy has increased its vulnerability to declines in oil prices. Oil accounts for one-half of exports and one-fourth of revenues. Notably, Cameroon is also an energy importer because it lacks refineries. The agriculture sector, employing roughly 70% of the population, includes key products such as cocoa, coffee, cotton, and bananas. Informal Sector Cameroon s large informal sector causes a major drag on the economy, primarily due to lost tax revenue. According to the World Bank, the informal sector employs about 90% of the labor force, with most working in agriculture. The sector also poses challenges in measuring the true size of the economy. 561

6 Lazard Emerging Markets Debt Country Background Size Capital Population 475,440 KM 2 (55th) Yaounde 25.0 Million Religion Roman Catholic 38.4%, Protestant 26.3%, Muslim 20.9%, Animist 5.6%, Other 8.8% Median Age Literacy Rate 75% 18.5 Years Independence 1 January 1960 Political System Government Leadership Presidential Republic President Paul Biya Next Election October 2018 Legislative Branch Bicameral Parliament Economy Agriculture 23.0%, Industry 28.2%, Services 48.8% Labor Force Agriculture 70.0%, Industry 13.0%, Services 17.0% Merchandise Exports Crude Oil and Petroleum Products, Lumber, Cocoa Beans, Aluminum, Coffee, Cotton Export Partners Netherlands 21%, India 11.3%, Italy 11%, China 8%, Spain 6.7%, France 5.9% Currency Central African CFA franc (XAF) As of November 2017 Source: CIA 562

7 Cameroon Country Timeline 1960 French Cameroon granted independence and becomes the Republic of Cameroon with Ahidjo as president Cameroon becomes a unitary state following a national referendum and is renamed the United Republic of Cameroon Prime Minister Paul Biya succeeds Ahidjo, who resigns Discharge of poisonous gases from Lake Nyos kills about 1,700 people Fighting between Cameroon and Nigeria flares up over disputed oil-rich Bakassa Peninsula Cameroon and Nigeria agree to UN mediation over Bakassa Peninsula Cameroon classed as the most corrupt country in the world by business monitor Transparency International World Bank approves funding for oil and pipeline project in Cameroon and Chad despite strong criticism from environmental and human rights activists Growing tension between Biya government and separatists lobbying on behalf of country's 5m English-speakers. Unrest results in three deaths, several arrests Nigeria hands over 32 villages to Cameroon as part of the 2002 ICJ border deal. In January 2004 both countries agree to mount joint border patrols Paul Biya wins new seven-year term as president Nigeria agrees to withdraw its troops from the Bakassi peninsula to settle its long-running border dispute with Cameroon. The breakthrough comes at a UN-mediated summit. The Paris Club of major lending nations agrees to cancel almost all of Cameroon's $3.5bn debt Parliament amends the constitution to allow President Biya to run for a third term in The opposition condemns the move as a "constitutional coup" Pope visits, says peaceful coexistence between Muslims and Christians in Cameroon should be seen as an example to other African nations Cameroon secures Chinese loan to build deep sea port at Kribi, terminal of an oil pipeline from Chad. Paul Biya wins a landslide re-election as president, officially taking 78% of the vote. His opponents reject the result, alleging widespread fraud Hundreds of elephants are slaughtered in Bouba Njida national park in a wave of ivory poaching blamed on Sudanese and Chadian gangs Cameroon deploys about 1,000 troops to the border with northern Nigeria to counter a rising threat of incursions and kidnappings by Boko Haram militants Chad pledges military support for Cameroon against Boko Haram Violent protests against the imposition of French in anglophone parts of Cameroon Unrest as Anglophone minority in north- and southwest regions continue protest action against perceived marginalization. Amnesty International alleges that Cameroonian security forces tortured and killed dozens of suspected members of the Islamist group, Boko Haram. Source: BBC 563

8 Lazard Emerging Markets Debt Notes 1 As of November IMF WEO Data, October 2017, accessed 25 November Republic of Cameroon Bond Prospectus, 3 November accessed 7 December accessed 25 November Arrangement-Under-the-Extended-Credit-Facility-Press accessed 7 December Arrangement-Under-the-Extended-Credit-Facility-Press accessed 7 December accessed 7 December accessed 7 December Arrangement-Under-the-Extended-Credit-Facility-Press accessed 7 December accessed 25 November accessed 7 December accessed 7 December

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