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Fuel Price Hikes in Cameroon and the Effects on Consumers, Businesses, and Investors

Updated: Feb 22, 2023

The price of petrol and diesel at pumps in Cameroon will rise by 15.4% and 25.2% from the 1st of February 2023, while fuel sold to industries will be fixed at 560.19 CFA francs ($0.9317) per litre. (Reuters, 2023).

The International Monetary Fund (IMF) staff and the Cameroonian authorities reached a staff-level agreement on economic policies to conclude the third review of the program under the ECF (Extended Credit Facility) and EFF (Extended Fund Facility) arrangements. Cameroon will have access to about US$74.6 million in financing once the review is formally completed by the IMF Executive Board in early March 2023.

The IMF expects the performance of non-oil tax revenue to offset the increase in current government spending majority of which comes from higher fuel subsidies, which is expected to reach CFAF 800 billion. (IMF, 2023).

It is important to note that the EFF (Extended Fund Facility) was established by the IMF to provide assistance to countries experiencing serious payment imbalances because of structural impediments or slow growth and an inherently weak balance-of-payments position. An EFF provides support for comprehensive programs including the policies needed to correct structural imbalances over an extended period. And the Extended Credit Facility (ECF) provides financial assistance to countries with protracted balance of payments problems.

The ECF was created under the Poverty Reduction and Growth Trust (PRGT) as part of a broader reform to make the Fund’s financial support more flexible and better tailored to the diverse needs of low-income countries (LICs), including in times of crisis. The ECF is the Fund’s main tool for providing medium-term support to LICs.

The price increases of fuel in Cameroon will have certain repercussions on consumers, businesses and investors.

Impact on Consumers.

Cameroonian consumers are already facing several struggles, which are affecting their ability to purchase goods and services such as inflation, lack of access to credit, limited access to basic goods and high unemployment rate. The increase in fuel prices will likely have an impact on consumers in Cameroon.

When fuel prices go up, it tends to lead to an increase in the cost of transportation, food, and other goods and services, which can result in inflation and decreased purchasing power for consumers. In addition, businesses that rely heavily on fuel may also face increased costs, which could be passed on to consumers in the form of higher prices. These rising prices can lead to a decline in consumer confidence and spending, which can negatively impact the overall economy.

Although the Government of Cameroon has increased the minimum wage for private sector workers from 37,000 to 41.875 francs FCFA, and state employees’ salaries will also witness a 5.2 percent rise as from February 1, the wages increase is less than the increase in fuel prices. This means that these workers have less money to spend on other goods and services, such as food, housing, and transportation. This will eventually lead to financial strain for these workers and will make it difficult for them to make ends meet.

Impact on Small and Medium Size Businesses.

Small and medium size businesses play a crucial role in the economy of Cameroon, providing employment and contributing to economic growth. Small and medium-sized enterprises (SMEs) are estimated to account for a significant portion of employment in Cameroon. According to the World Bank, SMEs employ around 60% of the workforce in Cameroon, providing livelihoods to millions of people.

The increase in fuel prices can have a significant impact on small and medium size businesses in Cameroon, particularly those that rely heavily on transportation or manufacturing processes that use fuel.

Higher fuel prices can result in increased operating costs, which can lead to reduced profitability and potentially force small and medium size businesses to raise their prices. This could make it more difficult for them to compete with larger companies and may also discourage consumers from making purchases, which can hurt their sales and revenue.

Additionally, small and medium size businesses may also face challenges in securing loans and investment, as the overall economic environment becomes less favourable. In general, higher fuel prices can create a challenging operating environment for small businesses and may lead to decreased economic growth and job creation.

Impact on Investors.

Investing in Cameroon can be an opportunity to tap into the country's growing economy and natural resources. However, it is important to carefully consider the risks and challenges associated with investing in the country.

An increase in fuel prices in Cameroon can impact investors in various ways. Firstly, the increased cost of fuel can result in higher inflation, which can reduce the value of investments and savings in real terms. This can make it more difficult for investors to earn a positive return on their investments.

Additionally, the economic effects of higher fuel prices, such as decreased consumer spending and lower growth, can make the country a less attractive destination for foreign investment. This could lead to a decrease in investment flows into Cameroon, which could have negative consequences for the country's economy and financial markets.

Furthermore, businesses that are heavily dependent on fuel may face reduced profitability and increased financial stress, which could affect the value of their shares and make them less attractive to investors. Overall, an increase in fuel prices can create a challenging environment for investors and may lead to a decrease in investment activity in Cameroon.

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