Identifying Sources of Growth and Competitiveness in the Context of the New World Trade Regime: Case Study for Cameroon

1. Introduction Cameroon experiences a long-term negative currant account deficit. To find a solution to this problem, the country needs to intensify and diversify its exports while reducing imports of both goods and services. Primary products have accounted for more than 60% of Cameroon’s exports revenues. Because prices of commodities are volatile at international markets, Cameroon future development cannot be supported by such products. It becomes a necessity for the country to diversify its exports to non traditional products. Non traditional exports would help the country reduce the deficit of its current account and then mobilize resources for future development. Another point concerns the Cotonou Agreement according to which African, Caribbean and Pacific countries should reciprocate by allowing European Union (EU) products entering their territories free of taxes. In fact, EU represents the main market of CEMAC exports. This market has been privileged because of non-reciprocal preferences accorded by EU to some ACP (African, Caribbean and Pacific group) products through the Lome Convention. Lome IV-bis expired on February 2000. Negotiations between the two groups led to a new agreement, the Cotonou Agreement. EU introduced radical changes because not only trade preferences have had limited impact but also because the Lome convention was incompatible with the rules of World Trade Organization (WTO). ACP and EU agreed to establish a new trading system that would pursue trade liberalization between the two parties. The present non-reciprocal preferences would continue until 2008 when Regional Economic Partnership Agreements (REPAs) will be applied to each ACP region. That means ACP partners would maintain their current preferential access to European market, but would have to reciprocate by opening progressively their own markets to European products by the 2008 horizon. The two situations call for the identification of new sources of growth and competitiveness in the context of actual globalized world. In fact, there is a need for Cameroon as for many other developing countries to identify new sectors on which would lay its long-term growth. Such sectors would help the country improve its benefits from international trade and avoid being marginalized in the context of increased liberalization among countries. This paper explores new sources of growth and competitiveness in Cameroon in order to increase the country’s benefit from international trade in the context of the New World trade regime. The study that is centered on the secondary sector analyses manufacturing efficiency and competitiveness for policy recommendation with the objective to determine potential growth-laid sectors at the eve of New Partnership Agreements between ACP and EU. 2. Methodology The methodology focuses on two main concepts: comparative advantage and competitiveness. Comparative advantage is estimated by the domestic resource cost that measures the domestic resources required in an activity to earn or save a unit of foreign exchange. The domestic resources cost measures the degree of efficiency of a firm in its activity. Because of prices distortions, not all efficient firms are competitive. That is why the concept of competitiveness is also used. The competitiveness approach is based upon the principle that competitiveness of local firms is defined by a cost advantage over foreign competitors (Siggel and Cockburn (1995). Competitiveness is measured in terms of market prices, the prices which manufacturers really face while comparative advantage is measured in terms of shadow prices that are net of distortions. Let uc denotes unit costs of a producer at market prices. If the asterisk denotes the reference competitor, a competitiveness criterion can be expressed as follows: uc < uc* As firms produce goods of different quality than their competitors, physical unit cost (the ratio of total cost to quantity produced) would not be appropriate, so unit costs are expressed in terms of value of production or monetary unit costs. uc = TC/PQ where P is the final-good price, Q the quantity produced and TC total costs. Under the condition of long-term perfect competition, profits are zero, meaning that international producers will sell at cost (TC = PQ). The competitiveness condition therefore becomes: c < 1. With this condition, one can easily analyze firms’ competitiveness in the absence of data on competitors’ activities. 3. The main findings 3.1 The level of competitiveness in Cameroon’s manufacturing Results reveal that the manufacturing sector of Cameroon is less competitive. In 2001, 45% of firms are competitive in their activity. This percentage gradually dropped to 42% in 2002, 39% in 2003 and 36% in 2004. Only 28% of firms are competitive during the entire period 2001-2004. These firms are found principally in the following sub-sectors : chemical products (7%) ; food products, beer and soft drinks (4% each) ; wood industry, aluminum and aluminum products, petroleum products (3% each) ; building materials, metal products, electric products and household appliances (1% each). The structure of production costs is as follows: tradable inputs (50% of total cots on average), non tradable inputs (21%), capital (13%), labor (12%), and direct taxes (4%). Concerning particularly non tradable inputs, transport accounts for 25% of total non tradable cost while electricity cost is estimated at 9%. Water cost is relatively less important in all firms. Financial cost and other costs represents the most important component of non tradable cost. 3.2 Comparative advantage analysis The study reveals that 59% of firms are efficient in 2001, 53% in 2002, 54% in 2003 and about 49% in 2004. Between 2001 and 2004, 40,5% of firms are efficient in their activities. It therefore appears that Cameroon’s manufacturers are less competitive than they are efficient. This can be explained by the existence of prices distortions among which: nominal protection of output, nominal protection of inputs, interest rate distortions, and exchange rate distortions. These distortions lead to an increase in total cost at market prices which means less competitiveness. 3.4 Identifying sources of growth The following sectors are therefore considered as growth-laid sectors. Namely they are: i) Other food products; ii) Vegetable oil; iii) Wood industry; iv) Robber; Aluminum products; v) Metal products; vi) Glassware; vii) Electric material; ix) household appliances. Some other sectors are potentially competitive and efficient. Theses sectors would boost their performance with the support of the Government on one way or another. Those concerned are: i) Cigarettes; ii) Chemical products; iii) Beer and soft drinks; iv) Building materials; v) Plastic products.