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By Dr. Jean Cédric Kouam (Download pdf version)

The Implications of Financial Development for Economic Growth in CEMAC


In recent years, the Economic and Monetary Community of Central Africa (CEMAC) has experienced sluggish economic growth. This has fallen from 4.86% in 2010 to 0.04% in 2021 (World Bank, 2021), a drop of 4.82 percentage points in a decade. In addition to the high vulnerability of economies to exogenous shocks, several economists such as Asteriou & Spanos (2019) attribute the slowdown in growth to the underdevelopment of the financial sector. In CEMAC, the access of populations to mobile money or commercial bank deposit services has undoubtedly become insufficient to keep economies on a sustainable and inclusive growth path. This article reviews the evolution of financial development indicators in the CEMAC zone since 2013, and its impact on the performance of states in terms of economic growth. We use secondary data collected from the World Bank and the Bank of Central African States (BEAC), between 2013 and 2021. The analysis provides public authorities in CEMAC with arguments to promote financial development in the sub-region to boost economic growth, and better take advantage of the opportunities of the African Continental Free Trade Area (AfCFTA). The paper is structured in two sections. Section 1 presents the evolution of financial development indicators in CEMAC and section 2, the implications for economic growth and sustainable development.

1- Evolution of financial development indicators in CEMAC

Many indicators are used to analyze and assess the performance of the financial sector. These indicators mostly reflect the efficiency with which intermediaries manage to mobilize and allocate savings available in the economy to investment or development projects. They are also relevant for measuring the financial depth and activity of financial intermediaries.

  • Money Supply (% of GDP)

A key indicator of financial development refers to the liquid assets of the financial system (M2). Specifically, it measures the financial depth and size of the formal financial intermediation sector in a broad sense, relative to the size of the economy. It is the broadest measure of financial intermediation activity, as it covers all banks, central banks or non-financial intermediation activities.

Based on data collected from BEAC (M2) and the World Bank (GDP), the money supply increased from 35% of GDP in 2013 to 41% of GDP in 2021, while economic growth had a very little increase from -4.15% to 0.04% over the same period (World Bank, 2021). This result indicates that the expansion of money supply in CEMAC has not been sufficient to stimulate the volume and efficiency of investments needed to boost economic growth.

  • Domestic Credit provided by the Financial Sector (% of GDP)

A second indicator, commonly used to measure the relevance of the financial sector, is the domestic credit provided by the sector. This includes all credit to the economy, including credit to the government. In essence, this indicator provides information on the contribution of the formal banking sector to the overall financing of the economy.

In CEMAC, the amount of domestic credit provided by the financial sector (as a percentage of GDP) has increased by almost 35 percentage points in less than a decade, from 10.57 percent of GDP in 2013, to 45.46 percent of GDP in 2021. However, a larger share of the financial sector’s credit to the economy goes to state-owned enterprises. These public enterprises are much more concerned with public interest, but are not as invested as private enterprises in promoting the competitiveness of the national economy. As a result, the financial development of the sub-region remains limited.

  • Domestic Credit to the Private Sector (% of GDP)

The domestic credit to the private sector is a relevant indicator of financial development. It refers specifically to the financial resources provided to the private sector by financial corporations, through loans, purchases of non-equity securities, trade credits and other creditors, who make a claim for repayment.

Domestic credit to the private sector measures the amount of credit committed to the private sector relative to the size of the economy. The main advantage of this indicator is that it excludes credit to the public sector. Furthermore, it accurately presents the role of financial intermediaries in transmitting funds to market participants.

In the CEMAC, domestic credit to the private sector (as a percentage of GDP) increased from 18.95% in 2013, to 21.71% in 2021. This slight increase in domestic credit to the private sector over the period is sufficient evidence that the financial resources provided to the private sector by financial companies, have remained very limited and insufficient to encourage local know-how, promote the competitiveness of the national economy and reduce poverty. This result confirms the findings of many studies that reveal that access to finance is the main obstacle to the sustainability of enterprises in sub-Saharan Africa (BAD, 2017; Akouwerabou, 2020)

2- Implications of Limited Financial Development for Economic Growth in the CEMAC Zone

Financial development stimulates economic growth through several mechanisms. These include the investment rate channel and the allocation of capital to the most productive projects. Through these mechanisms, any improvement in the accessibility of economic agents to finance, contributes to encouraging technological innovation, capital accumulation and consequently, to stimulating economic growth.

Without a transformation of liquid assets into long-term assets suitable for investors, it may be difficult to achieve the manufacturing development that will allow CEMAC countries to achieve their economic growth objectives. Furthermore, by choosing an appropriate mix of liquid and illiquid investments, financial intermediaries promote long-term investments in profitable and less risky projects (Levine, 1997), which in turn would help to stimulate economic growth, through capital accumulation and profitability of such investments.

If the Central African Banking Commission (COBAC), in collaboration with financial intermediaries in the sub-region, do not develop a strategy to promote the financing of investment projects, it will be difficult to achieve sustainable and inclusive economic growth in the various states. This strategy implies, among other things, the acquisition by financial institutions of all information on projects to be financed, in order to optimize the allocation of available resources.

Access to information is indeed essential to reduce the risk of non-repayment or late repayment that could occur. This requires the development of a guarantee mechanism or the definition of financial contracts between the parties in order to avoid that the rapid increase in access to financial services leads to financial instability.

Despite the strong growth of mobile money and related innovations, the underdevelopment of the financial sector in CEMAC is also explained by the low mobilization of savings in banks. The direct consequence of the limited access of economic agents to quality financial services, is the reduction in the amount of capital available to stimulate technological innovation, foster resource allocation and stimulate economic growth.

By facilitating technological innovation, financial development promotes the specialization of firms in areas where they have an advantage, facilitates the intensification of trade in goods and services, which in turn boosts economic growth.


Financial development and economic growth in the CEMAC have very close links. Indeed, any improvement in access to finance for economic agents, especially businesses, is unique in that it promotes capital accumulation and facilitates technological innovation, which are necessary to achieve sustainable and inclusive economic growth.

However, it should first be ensured that financial intermediaries have sufficient information on the clients and projects they finance. This can only be achieved through the establishment of credit information bureaus (CIBs) under appropriate (or tailored) regulation.

These instruments have become an urgent solution, not only to promote financial inclusion, but also to boost the productive sector. CIBs would indeed enable the various actors, mainly financial intermediaries, to boost their mechanisms for collecting information on economic agents requesting credit.

The development of CIBs in CEMAC thus appears to be the ideal solution to facilitate financial inclusion, stimulate financial development in CEMAC and boost economic growth.

Jean Cedric Kouam is the Deputy Director-Economics Affairs Division and the Head of Fiscal and Monetary Policy Sub-section at the Nkafu policy Institute. He holds a doctorate in economic policy and analysis (monetary and financial macroeconomics) from the University of Dschang in Cameroon.