Energy Sources, Part B: Economics, Planning, and Policy

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Crude oil production and economic growth:

Evidence from Cameroon

Jean Gaston Tamba

To cite this article: Jean Gaston Tamba (2017) Crude oil production and economic growth:
Evidence from Cameroon, Energy Sources, Part B: Economics, Planning, and Policy, 12:3,
275-281, DOI: 10.1080/15567249.2015.1101511

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Published online: 17 Feb 2017.

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ENERGY SOURCES, PART B: ECONOMICS, PLANNING, AND POLICY
2017, VOL. 12, NO. 3, 275–281
http://dx.doi.org/10.1080/15567249.2015.1101511

Crude oil production and economic growth: Evidence from

Cameroon
Jean Gaston Tamba
Department of Thermal and Energy Engineering, University Institute of Technology, University of Douala, Douala,
Cameroon

ABSTRACT KEYWORDS
This paper analyzes the crude oil sector and examines the causal relation- Analysis; Cameroon;
ship between crude oil production and economic growth in Cameroon on causality; crude oil
the basis of annual data for the period 1977–2010. The tests for unit roots, production; GDP
the vector autoregressive (VAR) model, and the Wald test are used as
econometrics methodologies. The results show no causal relationship
between the variables. With regard to these results, the energy policy of
Cameroon will promote the popularization of new licenses to farms to
discover new crude oil deposits. In addition, if crude oil revenue manage-
ment becomes transparent, then these future new deposits or such future
crude oil production will have a positive impact on economic growth.

1. Introduction
The energy-economy works have been developed by several researchers and are applied to
different countries by adopting new techniques of econometric analysis. These various studies
on the causal relationship have led to very mixed results and therefore careful recommendations
on energy policy. Today, one really cannot draw a general trend characteristic for countries at
different levels of development or different structures of the economy. However, several
researchers propose works with much literature and knowledge of the studies that have been
performed in the field of causality between energy and economic growth (Bashiri Behmiri and
Pires Manso, 2013; Bashiri Behmiri and Pires Manso, 2014; Ziramba, 2015).
As the world economy highly depends on crude oil, it is significant to understand the
dynamics of crude oil production in the economic growth of countries. Crude oil is a strategic
product not only because it is a widely used type of energy and has delineated sources, but also
because it is a non-renewable source of energy and is especially depleted. Since the 1960s, Africa
has been producing crude oil in silence. It was not until the attacks of 11 September 2001 and
the outbreak of the second Iraq war that sub-Saharan Africa, and particularly the Gulf of Guinea,
became the focus of the major oil-consuming countries. Cameroon, a modest crude oil producer,
is located in the Gulf of Guinea.
In Cameroon, no scientific study between crude oil and economic development has been
made either in a general framework or in a particular setting. However, some studies of causality
between crude oil (consumption, demand, or production) and economic growth (GDP, price, or
income per person) can be identified in the world (Bashiri Behmiri and Pires Manso, 2013;
Bashiri Behmiri and Pires Manso, 2014). In a general way, the works show that crude oil
(production, consumption, and so on) contributes to economic growth of some countries
(Ziramba, 2015; Barros et al., 2011). What about Cameroon?

CONTACT Jean Gaston Tamba tambajea@gmail.com Department of Thermal and Energy Engineering, University Institute
of Technology, University of Douala, PO Box 8698, Douala, Cameroon.
© 2017 Taylor & Francis Group, LLC
276 J. G. TAMBA

The objective of this work is to show whether crude oil production contributes to economic
growth in Cameroon. This study will apply the same approach as Abosedra et al. (2009). Thus, the
methodology adopted in this paper is performed in three phases as follows: first, stationarity is
tested; second, the vector autoregressive (VAR) model is estimated to test the Granger causality; the
Wald test (chi-square statistic) is established to determine the nature of causality between the two
variables in the final phase.

2. Overview of the crude oil sector in Cameroon

The first crude oil production was made in the Rio del Rey basin in the southwest of the country and the
production started in November 1977. Cameroon’s crude oil production in 2010 was about 3.3 million
tonnes (SIE-Cameroon, 2012). The remaining reserves and proven crude oil in 2010 amounted to 219
million barrels or about 30 million tonnes (0.2% of proved reserves and 0.7% of oil produced in Africa)
(SIE-Cameroon, 2012). Cameroon is a modest crude oil producer in Africa alongside giants like Nigeria
(37.2 thousand million barrels (BP, 2013)). Only three foreign companies (Total represents 61%, Pecten
28%, and Perenco 11%) provided the bulk of the research and production of crude oil in Cameroon in
2010. At the current rate of crude oil production, Cameroon would have at most 10 years of production
if new oil fields are not discovered and put into service. Of all the national production in 2010, only 12%
was processed locally by the National Refining Company.
National oil reserves on which Cameroon could rely on its economic and social development are
low and declining. However, the handover of the oil in Bakassi Peninsula and the incentives
provided by the government in redeveloping oil contracts to the benefit of multinational corpora-
tions to encourage them to develop marginal fields could reverse the trend. Moreover, in view of the
geographical location of Cameroon in the Gulf of Guinea, it is likely that the crude oil reserves of
Cameroon are as important as those of its neighboring countries.
A look at Figure 1 reveals changes in GDP that Cameroon’s economy has experienced in four
major steps and the evolution of crude oil production can be classified into two main stages. Figure 1
clearly shows that crude oil production decreases while the economy returns to growth in GDP

GDP (in billion FCFA) CRUDE OIL PRODUCTION (in ktoe)

10000
Phase 2:
9000 strong growth
of GDP.
Rate = 7.76%
8000

7000 Phase 1: moderate growth of

GDP .
6000 Rate = 2.97%.
No crude oil production.

5000
Phase 3: GDP
4000 decrease.
Rate = -2.76%.
3000 Decrease of oil
production. Phase 4: return to growth of GDP.
2000 Rate = 3.38%.
Decrease of oil production.
Explosion
1000 of oil
production

Year

Figure 1. Comparative evolution of GDP and crude oil production in Cameroon. (Source: SIE-Cameroon, 2012).
 ENERGY SOURCES, PART B: ECONOMICS, PLANNING, AND POLICY 277

during the period 1994–2010. It can be suggested that economic growth and crude oil production do
not have similar long-run trends.
It is important to note that there are no official viable data on Cameroon concerning: crude oil
consumption; revenues of crude oil; and subsidies from the Cameroonian government on the
purchase, sale, import, and export of crude oil on the international market. All these are justified
by the non-transparency of information.

3. Econometric methodology
y can be considered as caused in the Granger sense if the variable χ is crucial in estimating them, or,
equivalently, if the coefficients of the lagged values of the variable χ are significantly different from
zero. Engle and Granger (1978) consider that two sets χ and y which the processes are integrated of
order one (I(1)), are called cointegrated, if there is a unique linear combination of two variables,
which is integrated of order zero (I(0)).
This study uses the unit root test to verify whether the two time series are stationary. For this, the
Augmented Dickey–Fuller test (Dickey and Fuller, 1981) is used. This test consists in estimating the
following form:
X
k
Δxt ¼ α þ ðρ  1Þxt1 þ θj Δxtj þ εt (1)
j¼1

where Δ is the difference operator, κ is the auto-regressive lag length, εt is assumed to be a Gaussian
white noise random error in the three forms, t=1,. . .,T is a term for trend, and ρ and α are the
coefficients of interest. First-difference is considered if the series in level are nonstationary and the
Augmented Dickey–Fuller test is applied once more.
Engle and Granger (1978) show that if the variables are integrated I(1) and cointegrated, the
standard Granger causality test based on the vector autoregression (VAR) is no longer appropriate. If
time series are I(1) and non-cointegrated, the standard Granger test causality based on VAR is used.
When the time series are not I(1), directly applying the Granger causality test will give misleading
results. Hence, it is essential to transform the variables to stationary before applying the standard
Granger causality test based on the VAR. According to Gam and Ben Rejeb (2012), the use of a VAR
representation is very powerful and it has many advantages.
If not all the series are I(1), valid Granger-type tests require transformation to make them I(0); or
if bivariate cointegration is rejected, standard Granger-type causality tests are valid. So in this case
the equations become
X
l X
m
Δxt ¼ α þ ζi Δxti þ φj Δytj þ ut (2)
i¼1 j¼1

X
q X
s
Δyt ¼ ψ þ χ i Δyti þ γj Δxtj þ vt (3)
i¼1 j¼1

where ut and υt are the serially uncorrelated error term, the optimum lag lengths l, m, q, and s are
determined based on the tests information criterion. For Eqs. (2) and (3), Δy Granger cause Δχ if,
H0:φ1=φ2=. . .= φm=0 is rejected against H: at least one of φj≠0, j=1. . .n and ΔX Granger cause Δy if,
H0:γ1=γ2=. . .=γs=0 is rejected against H1: at least one of γj≠0, j=1. . .s.
Note that the bivariate approach is used due to lack of available and viable official data. Data of
crude oil production are obtained from the Ministry of Water Resources and Energy (these data are
identical to those from the three crude oil production companies in Cameroon), and GDP data are
obtained from the National Institute of Statistics of Cameroon. LOIL and LGDP represent the
logarithmic form of crude oil production and GDP, respectively.
278 J. G. TAMBA

4. Empirical results
4.1. Unit root tests
First, the unit root null hypothesis tested on time series LGDP level is not rejected at the 5% level. It
is rejected at the 5% in first difference significantly. Furthermore, the unit root null hypothesis tested
on time series LOIL level is rejected at the 5% level significantly. It can be finally said that LGDP and
LOIL series are stationary in first differences and levels, respectively (Table 1(a)). Time series LGDP
and LOIL are I(1) and I(0), respectively. Therefore, the time series are not all I(1).

4.2. VAR estimation

To estimate the VAR model, the first step is to determine the optimal number of lag variables.
The choice of the number of lag is made using information criteria. It is noted in this study that
all information criteria lean toward the same value, which indicates that the lag optimal number
of VAR is one (Table 1(b)). The second step is to estimate the VAR(1) model (Table 1(c)). The
t-statistic of the coefficient of the variable ΔLGDP(-1) equals –0.17299. Hence the GDP variable
is not a significant contribution to the explanation of the OIL variable at the 5% level. Similarly,
the t-statistic of the coefficient of the variable ΔLOIL(-1) equals −0.71419. Therefore, the variable
is not significantly OIL contribution to the explanation of the GDP variable at the 5% level.

Table 1. Summary of econometrical results: (a) Augmented Dickey–Fuller (ADF) unit root tests, (b) selection of lag length, and (c)
VAR estimation.
(a) Augmented Dickey–Fuller (ADF) unit root tests
1. Not constant. No trend t-statistic 2. Constant. No trend t-statistic 3. Constant. Trend t-statistic
Variable (p-values) (p-values) (p-values)
Levels
LGDP 1.4740 (0.9622) −0.6490 (0.8454) −1.5394 (0.7941)
LOIL −18.214 (0.0001)* −4.2938 (0.0095)*
First difference
LGDP −4.0517 (0.0001)*
(b) Selection of lag length

Lag LogL LR FPE AIC SC HQ

0 69.132 NA 4.51e-05 −4.331 −4.239 −4.301
1 94.683 46.157** 1.12e-05** −5.721** −5.444** −5.631**
2 96.605 3.223 1.29e-05 −5.587399 −5.125 −5.437
(c) VAR estimation
ΔLOIL ΔLGDP
ΔLOIL (–1) 0.396845 (0.04030) −0.013191 (0.01847)
[9.84617] [−0.71419]
ΔLGDP (–1) −0.065295 (0.37744) 0.498888 (0.17296)
[−0.17299] [2.88435]
C −0.002827 (0.01889) 0.012253 (0.00866)
[−0.14966] [1.41547]
R-squared 0.843878 0.262355
Adj. R-squared 0.833111 0.211483
F-statistic 78.37584 5.157157
Log likelihood 32.12927 57.09958
Akaike AIC −1.820579 −3.381223
Schwarz SC −1.683167 −3.243811
*Represents rejection of null hypothesis at the 5% level of significance.
**Indicates lag order selected by the criterion.
LR: sequential modified LR test statistic (each test at the 5% level); FPE: Final prediction error; AIC: Akaike information criterion; SC:
Schwarz information criterion; HQ: Hannan–Quinn information criterion.
Standard errors in (), t-statistics in [], Δ is first-difference and one lag value (−1).
 ENERGY SOURCES, PART B: ECONOMICS, PLANNING, AND POLICY 279

Table 2. Granger causality tests.

Null hypothesis χ2-Statistics DOF* p-Value**
ΔLGDP does not Granger Cause DLOIL 0.0229 1 0.863
ΔLOIL does not Granger Cause DLGDP 0.5101 1 0.475
* Degrees of freedom.
** Acceptance probability.

4.3. Granger causality test

The results of the tests on causality using the Wald test are presented in Table 2. It was found that
the p-values of chi-square statistics corresponding to the null hypothesis: ΔLGDP do not Granger
cause ΔLOIL and ΔLOIL do not Granger cause ΔLGDP; they exceed the 5% threshold level and
therefore the null hypothesis can be accepted. This allows one to conclude that there is no Granger
causality between the variables.

5. Discussion
The lack of causality between the variables could mean that the current low production of crude oil in
Cameroon can be done without compromising the country’s economic growth. However, not increasing
crude oil production is not an option for Cameroon. The reduction in crude oil consumption without
using appropriate policies could have a negative impact on Cameroon’s economic growth. This analysis
is confirmed by Bashiri Behmiri and Pires Manso (2013). Moreover, the countries of Central Africa
require the availability of their oils to grow and for the well-being of their populations (Rosellini, 2005).
Note that Cameroon has not yet reached a level of energy independence. The works of Bashiri Behmiri
and Pires Manso (2014) indicate the possibility that there could be no causality between crude oil and
economic growth, and thus reassure the results of this study. It is noted that the econometric results
confirm the analysis performed in Figure 1.
The results obtained in this study were predictable and is not surprising because:

(a) Crude oil is considered a curse for Africa, especially for the countries in the gulf of Guinea; it is a
source of all sorts of conflicts for developing countries and sub-Saharan countries in particular
(Colgan, 2014).
(b) The crude oil economy of Cameroon is characterized by a non-transparent or opaque
management of oil revenues; high levels of corruption in the sector and tax evasion; poor
development performance and government’s silence toward the environment destroyed
by the oil companies; indebtedness of Cameroon when there is decline in oil prices on
the international market; high volatility of oil revenues due to changes in price and
nature of reserves; arms purchases using modest crude oil revenues; and finally a
dominance of multinational oil companies (majors) (SIE-Cameroon, 2012; Fondja
Wandji, 2012).
(c) Cameroon remains poor, and this poverty is marked by the lack of job opportunities and
income; the inadequacy and lack of basic economic infrastructure; poor management of
public resources and those of oil in particular; the development of the informal sector; the
risk of social instability, policy, and risk of civil war; and the deterioration of social indicators
(Fondja Wandji, 2012).
(d) Demand for education is expected to remain very high and insufficient government supply in
the forthcoming years given the youth of the population (44.6% of the population is under 15
years) and a current literacy rate of 21.2% (Fondja Wandji, 2012).
280 J. G. TAMBA

(e) In health, malaria and AIDS are the two leading causes of death in Cameroon, thus reducing
the life expectancy to 51.1 years. Ultimately, the Human Development Index published in
2009 by the United Nations Development Programme ranks Cameroon 153rd worldwide
(Fondja Wandji, 2012).

It therefore appears obvious that crude oil does not perceive a significant impact on Cameroon’s
economic growth.

6. Conclusion and policy implications

This paper shows that there is no causal relationship between crude oil production and economic
growth at the 5% threshold. However, Cameroon’s economy has been growing since 1994; mean-
while, production and revenues from crude oil are still low. Several measures have to be considered
so that: (1) Cameroon becomes an emerging economy in both the long run and the short run; (2)
low crude oil production does not result in future years in the slowdown of economic growth of the
country; (3) Cameroon’s population enjoys the benefits attributable to the production of crude oil;
and (4) the government of Cameroon should take the opportunity to establish a development
infrastructure before the end of its crude oil (SIE-Cameroon, 2012).
In terms of regulation, it is necessary for Cameroon to define a pre-regulation for a correct
formulation of the terms of public corporations concession contract (or parastatal) to foreign oil
companies. In addition, it is appropriate for the country to have a legal framework (more effective
than current petroleum codes) to regulate the market and the sector. Furthermore, effective regula-
tion of the Cameroon oil industry is necessary because its success will cause more oil revenues. This
excess will be used for better purposes. Thus, the government will copy its neighbors, namely Congo
and Nigeria. Rosellini (2005) shows that these countries’ budget is prepared on the basis of a very
conservative estimate of the evolution of crude oil; any surplus is deposited in a special account in
the Central Bank. Cameroon, like Ghana (Obeng-Odoom, 2015), could also elaborate institutions
mainly for activities related to crude oil.
The success of the restructuring and regulatory process can be achieved by improving the
transparency of crude oil revenues. As Nigeria in November 2003, Angola in June 2003, Chad in
October 2004, Gabon in May 2004, and the Congo and Sao Tome and Principe in June 2004,
Cameroon will also think of joining the Extractive Industries Transparency Initiative to improve the
transparency of its oil revenues. Note that in Cameroon, the management of oil revenues remains
opaque, unlike in neighboring Chad, where it is a law that governs the allocation of oil revenues
(Rosellini, 2005).
The real liberalization of the oil sector through the introduction of competition will certainly help
increase and enjoy the benefits associated with the production of crude oil. The State of Cameroon
will completely abandon the system of oil contracts joint-ventures (in which Cameroon is associated
with an oil company and finance operations in proportion to its interest) to the unique profit
production-sharing contracts. The production-sharing contracts allow the state facing increasing
difficulties to ensure their participation to delegate investment, the cost of exploration, or production
setting to a foreign oil company that earns a portion of the production oil. Furthermore, the State of
Cameroon will also participate more consortia, for example, Chad and Cameroon, and compete
alongside multinational companies operating the Chadian oil. Thus, the monopoly of Cameroonian
oil by the oil companies will become increasingly rare and partners will diversify. The oil sector will
become more competitive and less powerful oil companies, allowing a rebalancing of power between
states and companies. Note also that the multiplication of exploration permits will enable Cameroon
to increase its chances of greater benefit to crude oil revenues.
Despite the expansion efforts made by Cameroon, access to oil remains an urban phenomenon.
To meet the challenge of increasing access for the poor while ensuring the proper functioning of
existing energy infrastructure, Cameroon must achieve concrete results such as strengthening the
 ENERGY SOURCES, PART B: ECONOMICS, PLANNING, AND POLICY 281

planning frameworks to consider oil needs for economic growth and poverty reduction, and
integrating oil in the national and sector development strategies; promoting the use of local oil
resources to create a favorable environment for energy security and to create jobs; and improving
access for the poor through appropriate policies for determining prices, distribution, and supply.
The effective management of crude oil and planning in sub-Saharan Africa is difficult. This
difficulty is marked by the absence of reliable data on crude oil. It is therefore important for
Cameroon to reorganize the data collection and information management systems. These are
prerequisites so that researchers and scientists can apply their analytical skills to modeling. It should
therefore also develop energy models to optimize and plan the production and use of crude oil. They
will optimize the oil resources of Cameroon and enhance oil revenues and development of its human
capital.
Contrary to what is observed in industrialized countries, in sub-Saharan Africa, crude oil tends to
be not a source of collective wealth and general development, but a tangible factor of destabilization
and social degradation, through a disorganized exploitation of crude oil. Moreover, crude oil
production tends to be a real factor of insecurity and political instability (Colgan, 2014). If
Cameroon takes into account the above instruments, its population would truly benefit from oil-
related benefits, the country will have the opportunity to establish a development infrastructure
before the end of this strategic resource, and finally, crude oil production may have a positive
influence on economic growth in the long run as well as in the short run. The oil sector, which held
during the 1980s an important place in the national economy, is marked by a gradual decline in
crude oil production. The decline of oil resources will definitely bring Cameroon to diversify energy
resources. Thus, the promotion of natural gas and the development of hydroelectric potential would
enter the country’s energy strategy.

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