(Business in Cameroon) - The Managing Director of the Treasury at the Ministry of Finance explains the government’s decisions in relation to securities and discusses obstacles that inhibit the Douala Stock Exchange’s dynamism.

Business in Cameroon: The Financial Markets Commission (FMC) has just fined seven banks that had participated in the State’s bond loan in 2010 for having unduly received commissions and revealed that the arrangers had not advised the state as they ought to have done. In light of all of this, can one still consider that operation a success even when the State clearly lost a lot of money in the process?

Sylvester Moh Tangongho: Without wishing to comment on decisions rendered by the Financial Markets Commission (FMC), as these are derived from its regulatory role, I must say that the matter to which you have referred can in no way call into question the success of the 2010 bond which enabled the government to raise 200 billion FCfa on the national financial market in only 20 days, as outlined in the Financial Act for the 2010 fiscal year; funds which were used for substantial infrastructural projects such as the Memve’ele and Lom Pangar Dams, the gas plant, and so on.   

An operation like this had never been carried-out in our country before and so we had no points of reference at the time and the state undertook the debt in circumstances that were deemed optimal. If it is proven today that the interests of the issuer were disregarded by another party, it is the role of the regulatory body to protect them, as it would have done for any other entity, especially in a fledgling market like ours. Therefore, if the FMC has ruled on this matter to restore equity in the treatment across the market, the success of the 2010 bond loan should not be in dispute.  

BC: Since 2011, the State has been on the BEAC securities market for its issuance of goods and even Treasury bonds. Why is there this preference for this market instead of the DSX which urgently needs to be revived?

SMT: It’s important to recall that the market for government-issued open subscription securities is essentially the securities market of CEMAC member states who are the only entities authorised to issue. It also provides the necessary tools for conducting monetary policy.   The decision to enter one market or the other is a question of context. The State’s choices are guided by the nature of the financing needs with which it is confronted. The State enters the BEAC market to fill the gaps in its cash flow (issuance of treasury bonds) or for its medium term resources when the assimilatable Treasury bond volume sought is relatively low. But nothing prevents it from calling on the national or international financial market, if needed.

Besides its flexibility, lower costs and simpler procedures, the first market seems better placed for the active management of the State Treasury. Therefore, depending on its needs and circumstances, the State may choose what it deems most appropriate. As for reviving DSX, which is important to the national market, this would not depend only on the issuance of government securities, when the State constitutes an undeniable actor. This remains a contributing factor to the resolution of certain problems, particularly the development of a financial culture and the putting into place of attractive conditions that would lead actors to go there, particularly those of the private sector.

BC: In choosing the BEAC market, does the government not fear to some extent that this might discourage investors who would otherwise have been interested in DSX’s viability?

SMT: The DSX was created for public and private entities in an effort to accompany them in the mobilisation of long-term resources. The said institution did not rise with the 2010 bond issuance, but, instead, thanks to some companies entering the stock exchange. Some of them have even been quite successful. Though the viability and reliability of the DSX must be sought by market enterprise as an operational structure, the State, in its role as a guide, must be an undeniable companion and not the only entity involved.

BC: From a strictly economic point of view, what advantages will the Cameroonian government gain from being with the BEAC instead of the DSX?

SMT: The economic advantages that Cameroon will gain from being on the BEAC can’t be easily appreciated by opposing the two markets, as the instruments issued have neither the same functions, the same characteristics nor, in some cases, the same outcomes. It’s difficult to compare advantages of short-term instruments compared to those of medium or long-term instruments as the markets’ approaches are quite different. However, the BEAC market is unique in that it was implemented to replace statutory advances with a known interest rate and the amount limited to 20% of budget revenue from the previous year. From this point of view, it allows the State to make significant savings relative to the rates used. As I said earlier, resources are always being mobilised depending on the provisions of the Finance Act and the Treasury’s needs. In short, the advantages of this market are flexibility, lower costs and simpler procedures.

BC: So, like many experts, you support the position that the DSX’s operational costs are a deterrent compared to other markets, including the banking market on which the State of Cameroon is also involved?

SMT: The State of Cameroon chose to enter both markets depending on the opportunities presented by each in a given context. That said, it should be acknowledged that the structure of its costs in the syndication leads to procedures and charges which, compared to the BEAC, are higher. Comparing costs in our market with those of other financial centres tends to confirm this analysis. This is why the State, in its role as a guide, encourages the DSX to be more competitive as this is likely to make it more appealing to various business entities.

BC: A government-issued securities market has been launched by the Central Bank while there are already two stock exchanges in the CEMAC zone that propose the possibility of doing operations in government issued securities. In the end, isn’t this all unnecessarily competitive and counterproductive?

SMT: Between the BEAC market and the two stock exchanges, there is no issue of competition because, as I explained earlier, their functions are distinctly different. The question of competition can, however, be raised between the DSX and the BVMAC which are operating in a common niche while the level of activity in our sub-region is quite low.  Nevertheless, examples around the world show that multiple stock exchanges can exist in the same geographical area - Paris, Berlin and Madrid in the Euro zone or Abidjan, Accra and Lagos in the Cédéao. All of this depends on ambition and the economic and financial dynamic in place.