By Dr. Jean Cédric Kouam (Download pdf version)
Focus on Public-Private Partnerships in Cameroon
To reap the full benefits of the African Continental Free Trade Area (AfCFTA), Cameroon must strengthen its industrial system. This implies not only strengthening the competitiveness of national enterprises but also developing basic public infrastructure: energy, water, transport, housing, telecommunications, and communications). Given the importance of the projects and the financial needs required to implement them, the Cameroon government has generally resorted to two main sources of financing: debt/borrowing and increased taxation.
These methods are no longer effective in achieving the development objectives set by the government. In order to explore new sources of financing, the Cameroon government has set up a legal framework that provides incentives, stability, and guarantees to the government’s private partners free access, equality, transparency, objectivity, and equity in public procurement.
In addition to the general code of decentralized territorial authorities (CTD), which provides for various public-private partnership mechanisms at the level of the regions and municipalities, the following can be cited:
- Law n° 2006/012 of 29 December 2006 establishing the general regime for partnership contracts.
- Decree n° 2008/035 of 23 January 2008 on the organization and functioning of the Council for the Support of Partnership Contracts.
- Decree n° 2008/0115/PM of 24 January 2008 specifying the modalities for the application of law n° 2006/012 of 29 December 2006 laying down the general regime for partnership contracts.
- Law n° 2008/009 of 16 July 2008 setting the fiscal, financial, and accounting regime applicable to partnership contracts.
- Order No. 186 CAB/PM of 15 November 2011 setting the rates and modalities of collection of fees payable under partnership contracts.
- Decree No. 2012/148 of 21 March 2012 amending and supplementing certain provisions of Decree No. 2008/035 of 23 January 2008 on the organization and operation of the Partnership Contracts Support Council.
To facilitate the application of these legal texts, the Cameroonian public authorities decided in 2006 to create the Council for the Support of Partnership Contracts (CARPA). The vision that justifies the creation of this public body is to accelerate the realization of major public service infrastructures through public-private partnerships (PPP).
By definition, a PPP is a public contract in which a public body and one or more private partners agree to carry out all or part of the design, construction, financing, operation, and maintenance of public infrastructure and/or associated services.
In Cameroon, the preferences of public decision-makers for PPPs are most often directed toward foreign investors. The reason generally given is that foreign investors have a certain financial capacity that would allow them to effectively participate in the improvement of public investments through a PPP. However, the country also has a large number of small and medium-sized enterprises (SMEs) that can effectively contribute to the improvement of a number of public infrastructures in different sectors. The participation of national private companies in this type of partnership with the public sector has many advantages.
In this paper, which is addressed to the different actors of the Cameroonian entrepreneurial ecosystem, in particular the facilitators of the ecosystem (public sector actors), we present the opportunities related to the involvement of domestic private companies in PPPs in Cameroon. We also make some policy recommendations to facilitate the implementation of this fruitful collaboration between public and private actors in the country.
Benefits of Public-Private Partnerships in Financing Infrastructure
PPPs are an effective and timely financing model when both parties involved – from the public and private sectors – strictly adhere to the terms of the contract governing their partnership agreement. By negotiating such agreements with domestic private companies, the government can ultimately improve the quality of its investments and rationalize the operation of public services.
In addition, PPPs are an excellent way to stimulate the domestic private sector, which has the expertise and a strong capacity to innovate. They offer the State the possibility of mobilizing the necessary and sufficient resources to finance its development projects without having to resort to debt or oppressive taxation.
PPPs depend on a fully improved business climate, which can stimulate the performance of local companies. According to Bondoma (2020), PPPs can be achieved through good planning, careful analysis by the relevant actors, and a smooth, objective, and transparent process. According to the latter author of the book titled: ‘Public-Private Partnerships in Cameroon: Current Situation and Prospects for the Modernization of National and Transnational Infrastructures,’ this approach should be integrated into a legal and institutional framework free of any bottleneck, ensuring perfect legibility and good predictability for any private investor. Thus, facilitating the creation of businesses and promoting their development is today a major challenge for achieving the objectives of the new national development strategy 2020-2030 (SND30).
Also, a strong and resilient private sector naturally offers many opportunities for public decision-makers to contribute to the improvement of infrastructure in several sectors, including telecommunications, communication, energy, and real estate, as well as the realization of major public works. Indeed, within the framework of PPPs, the costs (initial investment costs; maintenance and upkeep costs; operating and service provision costs) are generally pre-financed by private funds (shareholder companies’ own funds, bank debts, bonds) to which can be added public aid in the form of subsidies or guarantees. Several options are available to public policy-makers in this context:
Public decision-makers may agree to entrust a private company with the management and operation of the technical and commercial activities of a public service for a specified period. In such management contracts, the private partner is called upon to provide the capital necessary for the daily operation of the department. However, the investment costs remain the responsibility of the state. Typically, this type of PPP is established for a period of three to five years.
Public decision-makers and private players may choose to develop partnerships in the form of leasing, with an operating period of between 5 and 15 years. In this context, the financial risk of operating and maintaining the service is borne by the private provider, which pays the government the share it is supposed to cover.
Concession is another type of PPP that is based on the execution of works and/or the operation of public service or general interest infrastructure for a period of generally 20 to 30 years and sometimes up to 50 years. The concession holder operates the public facility at its own risk and with the right to collect fees from users. Unlike the concession, the PPP with public payment will require the State to reimburse, in the form of regular rents, the costs incurred by the private company in investment and operation/maintenance, subject to the achievement of performance objectives.
Proposals to Facilitate the Involvement of National Private Sector Actors in PPPs in Cameroon
Although the contribution of private sector actors to the economic development of Cameroon is recognized, several factors make it difficult for them to engage in this process. These include corruption, embezzlement, a weak regulatory framework, a lack of monitoring and evaluation skills, and administrative delays.
As a result of these problems, PPPs are generally not established on the basis of the technical, financial, or physical capacity of the contracting company, which hampers the development of basic infrastructure.
To remedy this situation, certain actions are required from the various actors. These include:
- Eradicate opportunist behavior and reduce information asymmetry in the implementation of public-private partnerships. In public-private partnerships, it is easy for exploitative behavior to come into play and undermine the established terms of the contract. A private partner may engage in capital expenditure and ultimately find him/herself in a situation of contractual expropriation vis-à-vis the public entity, which benefits from a certain number of privileges under common law. To remedy this situation, it is important to avoid any form of incomplete or asymmetric information in this type of contract, which is intended to be a win-win situation. The development of a solid relationship with private investors requires public actors to create an investment climate based on stability, consistency, and trust.
- Conduct transparent tenders. The development of public-private partnerships depends fundamentally on transparency in the process of competition and selection of the private partner but also on the strictness of the two public actors in monitoring and controlling the execution of mutually contracted commitments. In Cameroon, there is no doubt that public contracts are most often awarded on the basis of the personal relations that the successful bidder has with the contracting company. As such, they are rarely awarded on the basis of the latter’s expertise or financial capacity, hence the existence of many unfinished public works in the country. It should be noted that PPPs are complex contracts to negotiate and implement and require preparation time from the public structure (preliminary studies, feasibility study, call for tenders, contract negotiation) but also the capacity of the contracting private company to carry out the work in the long term (technical, material and financial capacity).
- Encourage the creation and development of innovative start-ups. This includes those capable of increasing public performance in the field of information and communication technologies. The implementation of the Startup Act is not yet effective in Cameroon, despite the numerous demands made by the actors of the entrepreneurial ecosystem. This document is more essential than ever to help young innovative companies overcome the many difficulties they continue to face. In effect, these companies find it difficult to pass the first five years of existence and when they succeed, the results remain far from the ambitions formulated at the start. For technology start-ups in particular, there are still difficulties related to not mastering product development, choosing a business model or understanding the real needs of the market. To address these challenges, policy-makers should facilitate the development of business incubators, aimed at helping companies to design more realistic business models and overcome a number of institutional barriers.
- Ensure the stability of the regulatory, legal, and fiscal framework. In Cameroon, numerous tax benefits have been granted to digital companies since 2021. They are exempted from taxes during their first five years of existence, from all taxes, duties, fees, and charges except social contributions. After the incubation phase, the sale of the start-up is subject to a reduced capital gains tax rate of 10%. During the exploitation phase and for a period of five years, the digital start-up benefits from the exemption of: the patent; the registration fees in case of extension or increase of capital; the fiscal and employer’s charges on salaries, except those due to the National Social Security Fund (CNPS). They also benefit from a reduced corporate tax rate of 15%, a 50% deduction on the basis of the calculation of the advance payment and the minimum corporate tax collection, and an income tax credit of 30% of research and innovation expenses, capped at one hundred (100) million euros. The shareholders of these start-ups benefit from a reduced rate of 5% of income tax. On the basis of the above, it is clear that these tax benefits are an asset for the promotion of the digital economy, as the tax regime set up by the legislator is largely attractive, especially when the operators in this sector meet the condition set by the 2021 Finance Act. The State should extend these tax benefits to companies engaged or wishing to engage in public-private partnerships not necessarily in the digital domain.
This article is written as part of a three-year project undertaken since September 2022, by the Small Business and Entrepreneurship Center (SBEC) of the Denis and Lenora Foretia Foundation. This project, entitled Fostering Prosperity and Economic Freedom for Youth and Women in Cameroon, has received financial support from the Rising Tide Foundation and the John Templeton Foundation.