Cameroon’s education department can use the returns on government-invested assets to help fund teachers’ salaries, increase the number and quality of classrooms, and purchase school supplies and uniforms for students. In order to earn substantial returns, the precision with which these investments are made requires an advanced understanding and application of certain finance concepts.
Primarily, the net present value (NPV) concept for new projects is paramount for bringing new and greater revenue streams to the education department. With the government’s total budget deficit of 6.40 percent as of 2015, Cameroon’s education department is not in a financial position to freely choose new projects (Cameroon Government Budget, n.d.). This will force the education department into hard rationing of their budget. When choosing between mutually exclusive projects, the one with the highest NPV is the best option (Brealey, Myers, & Marcus, 2015, p. 241). Some projects may have higher internal rates of return; however, these rates can be deceptively high while still providing a lower NPV because the internal rate of return may simply look better for smaller and shorter-lived projects. It is also important to consider all available projects simultaneously so that the NPV of each can be compared when selecting subsequent projects to fund. A set of two or three projects with lower individual NPV may provide a higher aggregate NPV than a single project higher on the list that has a lower profitability index (Brealey et al., 2015, p. 251).
Utilizing the circular flow model of economics, increases in foreign investment can provide improved growth for Cameroon-based companies, thus circulating more money for laborers which is put back into the economy through spending (Circular Flow, n.d.). With 40% of its exports being crude and refined oil, Cameroon maintains an amplified risk in the overall global economy because the oil market is predicted to keep slowing in coming years (Cameroon Exports, n.d.; Pei, 2017, para. 3). In an effort to counteract this, Cameroon has been reducing its exports in the oil market, supplanting it with other natural resources like wood. This relates to the internal rate of return, where falling oil prices due to a global oversupply is not providing the returns necessary to maintain such large expenditures in oil projects, given that the cost of capital in Cameroon is high. (Brealey et al., 2015, p. 243; 2013 Investment Climate Statement, 2013, para. 47). Showing a growing rate of return for Cameroon’s other natural resource exports will attract more foreign organizations to open companies or invest in these markets.
Investors, especially international ones, like to put their money into solid, research-based, and historically positive performers. It would follow that the oft-unstable economies and governments of developing nations may hinder such investments because of higher rates of government turnover and corruption; less reliable accounting practices; and large populations of poverty. If a single organization were to consolidate and highlight less-risky, but still lucrative opportunities for these foreign investors, a developing country like Cameroon could reap the benefit of turning these investment monies into a self-funding resource for its education department. The organization would monitor and put out consistent, up-to-date information on sustainable growth opportunities as well as those with high NPV and returns. Outside investors could more easily choose to invest their money in markets of developing countries that simultaneously help that economy grow. Properly grouping and grading investment opportunities, calculating the return, profitability index, and net present value (among other measures) of each opportunity would show investors where they can reduce risk. These investments opportunities could also be coordinated into one-time projects to be fully funded, or a mutual fund-style group of investments that would grow over time. This idea builds on the straightforward donation-model in that a return could be realized from foreign market investors while achieving end results that are philanthropic.
2013 Investment Climate Statement – Cameroon. (2013, April). Retrieved June 25, 2017, from https://www.state.gov/e/eb/rls/othr/ics/2013/204615.htm
Brealey, R. A., Myers, S. C., & Marcus, A. J. (2015). Fundamentals of corporate finance. New York: McGraw-Hill Education.
Cameroon Exports. (n.d.). Retrieved June 25, 2017, from http://atlas.media.mit.edu/en/profile/country/cmr/#Exports
Cameroon Government Budget. (n.d.). Retrieved June 25, 2017, from https://tradingeconomics.com/cameroon/government-budget
Circular flow. (n.d.). Retrieved June 25, 2017, from https://www.stlouisfed.org/education/economic-lowdown-video-series/episode-6-circular-flow
Pei, A. (2017, June 24). Gartman: The oil bear market has turned crude into a ‘worthless’ commodity. Retrieved June 25, 2017, from http://www.cnbc.com/2017/06/24/gartman-the-oil-bear-market-has-turned-crude-into-a-worthless-commodity.html