Factors Affecting Private Investment in Cameroon (1985-2014)

Abstract

This work is fundamentally on the factors affecting private investment in Cameroon from 1985-2014. The study is based on secondary data obtained from existing documents.

The study identifies the major problems faced by the individuals or private companies that invest in businesses, the causes and daily challenges like the effect of interest rate on private investment, effects of business taxes on private investment, effects of broad money supply on private investment, effects of per capita income on private investment.

 In line with these results, I recommended that the government should reduce taxes and improve in business sectors in other to encourage private investment.

CHAPTER ONE

GENERAL  INTRODUCTION

Background of the Study

Investment is one of the major determinants of the rate of growth and development of any economy though it is itself affected by other variables such as taxes, rate of interest, per capita income, size of the market, political instability, and broad money supply.

Private investment involves a variety of activities which ranges from petit traders, sole owners of estates and partnership enterprises. The way in which they operate is greatly determined by taxes imposed by the government which limits their ability to invest. Information on investment expenditure can be of much help in making a prediction on the potential growth of the economy

The role of private investment in the economy of Cameroon can be better appreciated by a critical assessment of the factors that affect private investment in Cameroon. The government’s development policy at a given point in time limits the conditions under which economic activities are supposed to operate and this gives a clue on assessing private investment.

There has been a continuous increase in the size of the private sector in Cameroon since the late 1980s with the institution of privatization, the 1990 investment code and of late, the 2002 investment charter which constitutes a significant modification to the others (Lambi, 2009). Their effectiveness to the private investment in Cameroon can be appreciated by looking closely at how far they have gone to eliminate the problems of private investment in the country.

Private investment in the informal sector in Cameroon employs above 55% of the labour force (World Bank, 2007). The informal sector providing employment opportunities to the labour force is very significant (World Bank, 2007). This greatly helps in solving one of the major macroeconomic problems – unemployment, which hinders economic growth and development.

The economy is a dual-sector – formal and informal sectors, provides about 60% of Gross Domestic Product (GDP), 97% of employment opportunities (FAO, 1995). The informal sector activities alone provide about 48% of the GDP, which is an important role in economic development (World Bank, 2007).

With regards to the past, domestic investors were more interested in commerce than in manufacturing industries because of insufficient capital and technology (World Bank, 2007). But then, development in the economy had led to joint ventures between domestic and foreign investors leading to an increase in manufacturing activities.

Although investment in the private sector is recognized as major determinants of economic growth and development, there are many controversies as to the way these two are linked. This can be done better by an assessment of the factors that affect private investment in Cameroon.

In view of the above, the private sector investment can be defined as that part of the economy where resources are privately owned and controlled by individuals, firms, companies who also take responsibilities of their outputs. In most cases, the leading objective of private sector investment is profit maximization.

Non-Governmental Organizations (NGOs) are increasingly dominating the private sector in Cameroon which is not out for profit. The US which is a free enterprise economy is dominated by the private sector. Also, the private sector was not well known in China due to the existence of communism until the late 1980s (World Bank, 2007)

The formal private sector refers to those private sector activities which are legitimately and legally authorized by law to operate. They have well-defined lines of activities provided by the government. On the other hand, the informal sector is that part of the private sector activities that are illegitimate and illegal. Examples include peasant farmers, hawkers and petit traders.

Besides, there are many factors that affect the ability to invest in the informal sector in Cameroon. These include: the nature of the peasant activities which can not be clearly classified, level of education, lack of capital, Value Added Taxes (VAT), corporate tax, income tax, political instability and money supply (Molem, 2010). These factors act as major drawbacks to the private sector investments which are important to the assessment of the factors that affect private sector participation in the economy of Cameroon.

Problem Statement

The Cameroon government from 1960 to 1984 and lastly in 1990 has put in place some policies called investment codes which aimed at improving the ability to invest more in the private sector (Lambi, 2009). Also, the industrial free zone legislation of ordinance number 90/001 which became effective on 29^th January 1990 had as one of its objectives to encourage and promote new investment in Cameroon (World Bank, 2009).

In the late 1960s, large commercial banks were created so as to help provide finance or credit to investors at affordable rates of interest which were not met due to lack of collateral securities (GTZ, 2009).

Then micro-finance institutions were approved by the government to operate and meet this need and boost investment (World Bank, 2009). Again, the Structural Adjustment Program (SAP) of the International Monetary Fund (IMF) which came up after the economic crisis in Cameroon in the 1980s was aimed at boosting investment as one of its objectives (World Bank, 2007).

Despite all these efforts put in place by the Cameroon government and the foreign organizations, the level of private investment in Cameroon is still very low. Even with the revision of these investment codes to meet the situation at hand, the private investments are still not up to expectation.

Objectives of the Study

The main objective of this study is to analyze the factors affecting private sector investment in Cameroon. In order to achieve this main objective, the study specifically aims at:

• Assessing the effects of business taxes on private sector investment in
• Examining the effects of per capita income on private sector investment in Cameroon.
• Appraising the effects of interest rate on private sector investment in Cameroon.
• Explaining the effects of broad money supply on private sector investment in Cameroon.
• Making necessary recommendations based on the findings.

Research Questions

      In order to achieve the objectives of the study, the following research questions are put in place. These include:

• To what extent do business taxes affect private sector investment in Cameroon?
• What are the effects of per capita income on private sector investment in Cameroon?
• What are the effects of interest rate on private sector investment in Cameroon?
• To what extent does broad money supply affect private sector investment in Cameroon?
• What are the necessary recommendations that can be made based on the findings?