By Bin Meh (Download pdf version)
Determinants of Infrastructural Development In Cameroon
Infrastructural development facilitates the development agenda of the state by ensuring a continuous provision of capital goods. Infrastructure comprises two major forms, which are; hard and soft infrastructure. Hard infrastructure is tangible or physical infrastructure like roads, telephone connections, airports, roads, fast distribution networks, electricity transmissions, and rail-roads meanwhile. Soft infrastructure refers to intangible or immaterial goods, like; market-oriented institutions and governance structures. These goods are usually provided by the government and are tools for attaining inclusive and sustainable growth.
In Cameroon, infrastructure is unevenly distributed. In some regions, infrastructural development is greater than in others; meanwhile, some sectors are better developed than others. Between 2000 and 2005, investments in Information and Communication Technology (ICT) horned economic performance by 0.126 points; however, a poorly developed energy sector led to 0.28 points fall in growth (Molem, 2016).
Romp et al. (2005) explained the relationship between economic growth and infrastructure. Their results showed the link is very complex but acknowledged that increasing infrastructure accompanies industrial take-off and economic growth. This implies that to achieve infrastructural development, the government must address factors that could boost investments in infrastructure. The literature identifies some determining factors of infrastructural development, namely, economic growth, foreign direct investment (FDI), urbanization, and public debt. The objective of this study is to identify the extent to which these determinants affect infrastructural development in Cameroon.
Infrastructural Development: A Brief Overview
This section provides an overview of infrastructural development in Cameroon.
Musgrave (1959) purported that collective capital goods (infrastructure) should be provided by the government and paid for through taxes. The reason is that the government acts in the best interest of the state and will ensure optimal allocation of resources at an efficient tax rate (Barro, 1990).
According to Mckinsey (2014), the demand for infrastructural development is significantly higher than the supply. Thus, in a country like Cameroon, where the state is in charge of providing both hard and soft infrastructure, the government encourages private participation and partnerships to augment its financing capacity. Despite this public-private cooperation, the country still suffers from deficient infrastructure. For Njimanted et al. (2013), infrastructural deficiencies have hindered urban and economic development in Cameroon, and poorly constructed roads cause persistent traffic congestion.
There had been a steady increase in infrastructure development from 1972 to 1980, followed by a drastic fall from 2007 to 2010. This can be attributed to the global financial crisis, which affected all sectors of activity. However, Cameroon’s infrastructure development has been on the rise since 2010. The following estimations account for this:
Determinants of Infrastructural Development in Cameroon
The Level of Economic Growth
The economic growth rate is measured by the growth of the Gross Domestic Product of that economy. It represents the change in the wealth accumulated over some time, usually one year. Investments in infrastructure will lead to an improvement in the level of economic activity and the productive capacity of the economy. The higher the increase in the production capacity of an economy, the greater the output.
When the output augments, the amount allocated for the construction of farm-to-market roads, markets, acquisition of technology, construction of schools, and hospitals will increase. Our results gotten from the Vector Error Correction Model reveal that economic growth positively affects infrastructural development by 0.279. Therefore, a percentage increase in economic growth (GDP) will lead to a 27.9% increase in infrastructural development.
Foreign Direct Investment
International investment and trade are highly promoted by the level of infrastructure. For a country to integrate into the global market and export commodities at competitive levels, there is a need for good quality electricity, telecommunications (ICT), availability of drinking water, and transport facilities (UNCTAD, 2008).
To enhance the quality of infrastructure, Cameroon will need substantial investments from multinationals, but also these multinationals must engage in projects that align with the vision of the Growth and Employment strategic paper of the Cameroon government. Following the results of the Vector Error Correction Model (VECM), a unit increase in Foreign Direct Investment (FDI) will bring about a 19.5% increase in infrastructural development (see Appendix).
The agglomeration mechanism through urbanization engenders the demand for investment in infrastructure. Urbanization will boost productivity and reduce transaction costs. Likewise, investments in infrastructure can improve the market’s funding capacity and facilitate the process of economic agglomeration towards metropolitan and hub cities. From the results, a unit increase in urbanization will lead to a 25-unit increase in infrastructural development.
A major source of government revenue is borrowing. Utilizing such funds on infrastructure will yield positive effects in the short run and the long run alike. Our results (see Appendix) reveal that public debt will increase infrastructural development provided the loan is used for investment, and public debt will reduce infrastructure development for loans taken to finance activities like war and consumption, which becomes a burden to the state and its citizens (deadweight debt).
The analysis above shows that improvement in infrastructure development is primordial for the development of an economy. The major determinants of infrastructure development are public debt, economic growth, urbanization, and Foreign Direct Investment.
From the analysis and identification of the determinants, the following policies are recommended to the state:
- Practical enhancing strategies for the active participation of the private sector in the infrastructural development process of the economy (strong private-public relationship)
- The government needs to introduce good governance practices to attract foreign direct investment. This will have a significant impact on infrastructural development. If regulatory institutions are biased and fail to define clear rules and procedures for embarking on infrastructure projects, the private sector and foreign investors may become more reluctant to invest in the country.
Finally, the government needs to encourage investment infrastructures that are Green, resilient, and inclusive for development (GRID). Investing in GRID infrastructure will increase economic growth and reduce climate change through the reduction of the emission of greenhouse gases. For instance, the government can reduce the consumption of non-renewable energy to renewable energy.
Bin Joachem Meh is a Research Assistant in the Department of Economics Affair at the Nkafu Policy Institute. He is a Ph.D. Fellow in Labour and Development Economics in the University of Bamenda. He is multidisciplinary, as he holds a B.Sc. and M.Sc. in Economics and Financial Engineering from the University of Yaounde II Soa and M.Sc. in Banking and Finance from the University Rennes 1 France.
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