Can Free Trade Revolutionize Cameroon’s Manufacturing Sector?

Executive Summary

The Fourth Industrial Revolution is rapidly changing the nature of work in recent times. Policymakers are grappling with integrating 4IR technologies into their economies, but for Cameroon and Nigeria, free trade is a useful tool in supporting manufacturing and innovation. Free trade will increase competition in the Cameroonian market as lower trade barriers will increase the flows of goods and services into Cameroon. Admittedly, local manufacturers will innovate their processes in order to protect their market share and reduce the impact of foreign competition. Medium and high-tech manufacturing exports in Cameroon will drive by increased demand from other African countries and price-driven competition in local markets.

Introduction

Industrialization is a prerequisite for economic development and poverty reduction. Development economists opine that free trade will boost employment and lift millions out of poverty.  However, countries like Cameroon have been industrializing at a gradual pace. As a result, it exports low value-added products, which partly explains its huge current account deficit and slower pace of development. On the other hand, experience from Southeast Asia illustrates that the manufacturing sector can only support economic development over the long run if it adopts innovative practices across its value chain.

Nigeria’s manufacturing sector is made up of well-known companies such as Milo and Dangoté cement. The latter is a major competitor for Cimencam in Cameroon with a strong presence in Cameroon. (CIMENCAM, 2020). Faster industrialization and a penchant for manufacturing have caused Nigeria to record a trade deficit of USD $1.2 billion, according to the WTO (2019).

However, Cameroon is equally competitive, and there are a number of Fintech and Cameroonian start-ups such as Maviance (Maviance, 2021) and Tagus drone (Tagus, 2021) that use advanced data analytics and artificial intelligence to address unique market needs.

This policy brief illustrates how free trade can boost the manufacturing sector. It equally shows how Cameroon’s manufacturing sector stands to benefit from the Fourth Industrial Revolution and how competition from Nigeria and access to cheaper intermediate products can stimulate innovation and 4IR applications.

The Manufacturing Sector in Cameroon

The contribution of manufacturing to the economy grew in the late 20^th century to account for one-fifth of the country’s GDP. The manufacturing sector is focused on the transformation of agricultural commodities, specifically sugar refining, tobacco, and cotton spinning. Other industries such as wood pulp production have equally anchored manufacturing in Cameroon. Meanwhile, the industrial sector is comprised of aluminum smelting in Edéa and SONARA and oil refinery in Limbe. The government is a major player in the manufacturing sector via Société Nationale d’Investissement, although its role has diminished following a raft of privatization that began in the 1990s.

In the last decade, the Agri processing sector has become diversified, with companies such as Sahel Agro and La Pasta causing the manufacturing sector to diversify (Sahel, 2021 & La Pasta, 2021). As the expertise of the sector has grown together with demand, the value-added from the manufacturing sector has increased to 14.42% in 2019 from 9.82 in 1972 (World Bank, 2021). During this time, the contribution from the agricultural sector has fallen to 38.5% from over 60% in the early ’90s.  More recently, companies such as Tagus drones, Hyperlink Infosystem, Thirsty Sprout, and NERDERY can integrate the manufacturing sector and facilitate the Fourth Industrial Revolution (Hutchinson & Akileswaran, 2019). However, the broader sector lags emerging market economies such as Nigeria.

The Fourth Industrial Revolution in Brief

The fourth industrial revolution is characterized by the fusion between the digital, biological, and physical worlds (Ndung’u. and Signé., 2020). It equally entails the adoption of new technologies such as artificial intelligence, cloud computing, robotics, 3D printing, the Internet of Things, and advanced wireless technologies. It has ushered in a new era of economic disruption with uncertain socio-economic consequences for Africa in general and Cameroon in particular.

4IR Technologies for Manufacturing

The productivity gains that result from the 4IR can have positive effects on the labor market and manufacturing. Specifically, it can lower the cost of manufacturing and reduce the price of intermediate products. As a result, it will stimulate demand and the creation of jobs in the sector.

Oil from SONARA could be refined into components used for textile, chemicals, and household products, while fashion could help nascent companies such as Maison D’Afie, Kibonen NY, Eloli World, and Clap Style to produce at large scale and reach millions of consumers across Africa (Culture Trip, 2021). In Lagos, Nigeria, general Electric’s garage has provided skills and training in advanced manufacturing technologies and promoted entrepreneurship (Pilogallo (2018) & Macon-Cooney (2019)). Karishma Banga and Dirk Willem te Velde illustrate how advanced technologies boosted the productivity of migration workers and pushed them towards more skilled work (Banga and Willem te Velde, 2018).

A fabric-cutting machine reduced the number of people required to cut from 35 to 17 but created more jobs in stitching that added 300 additional jobs. Elephas is a 3D start-up that emerged from this program, and they build prototypes and print local replacement parts for several industries.

Table 1: Comparing Cameroon and Nigeria’s Manufacturing Sectors

Source: UNCTAD (2021)

Free Trade can Boost the Competitiveness of the Manufacturing Sector

Free trade with Nigeria will boost Cameroon’s exports to Nigeria, and competition will reinforce specialization and boost capacity in the manufacturing sector. These competitive pressures tend to force innovation in companies that will adjust to more agile processes and integrate 4IR tools into their production and distribution. Looking at the nature of Nigeria’s exports to Cameroon, Table 1 illustrates that it exports a higher share of high-tech products, at 0.33, while Cameroon stands at 0.08. Meanwhile, the value-added from the manufacturing sector is higher in Cameroon than in Nigeria.

Policy Recommendations

This section provides a number of recommendations to help manufacturing companies in Cameroon integrate 4IR technologies.

• Policymakers should prioritize credits and tax incentives for manufacturing companies that will encourage the adoption of 4IR technologies. Such incentives should be targeted to ensure that Research & Development credits are provided against quantifiable metrics such as the level of production and/or output.
• Establishing a learning ecosystem will enable the workforce to prepare for 4IR jobs in the manufacturing and software sectors. There is a need for the integration of digital skills as well as machine learning, robotics, and artificial intelligence into educational systems.
• Moreover, it is essential to integrate domestic companies into Cameroon’s industrial strategy in order to integrate innovative firms into the Cameroonian value chain. This will put Cameroonian start-ups at the heart of innovation and enable closer collaboration between software firms and the manufacturing sector.

Free trade has the huge potentials to boost Cameroon – Nigeria trade, and it will encourage the manufacturing sector to industrialize at a faster pace. This will be driven by higher levels of competition and lower prices. Free trade lowers tariff barriers, and a larger supply of goods will force domestic manufacturing firms to adapt and leverage revolutionary 4IR technologies in the process. While Free trade is a prerequisite for industrialization, the African Continental Free Trade Agreement Area presents an opportunity for Cameroon to integrate Nigerian value chains while substituting imports that will cause it to industrialize and adopt more productive and innovative methods of production.

Henri KOUAM is an Economic Policy Analyst at the Nkafu Policy Institute.

Photo by Josh Beech on Unsplash.