BEAC must reconsider its new Forex regulation to save jobs in Gabon, Cameroon, Republic of Congo, Equatorial Guinea, Central African Republic and Chad
On March 1st, 2019, a new Foreign Exchange Currency Regulation was adopted by the members of the Economic and Monetary Community of Central Africa states – CEMAC. These member states, Gabon, Cameroon, the Republic of Congo, Equatorial Guinea, the Central African Republic and Chad), essentially mandated their Central Bank (BEAC) to restrict payments in foreign currency by individuals and businesses in these member countries. In recognition to the importance of the energy sector, and the challenges in the implementation, the Central bank allowed for an implementation period through till December 31st, 2020. At that date, all sectors of the economy without exception will be subject to the new regulations. Key tenets include:
- Any transaction over FCFA 1 million (approximately USD 1,700) per month and per entity or person now attracts significantly more bureaucracy and consequently leads times of multiple weeks. Small and medium sized services contractors in the oil and gas and energy infrastructure sectors are now condemned to seeking qualifying documentation and approval from government and central bank bureaucrats who very often do make use of their discretionary powers to slow down or reject justifiable day-to-day transactions. The simple result is that local companies already facing significant challenges, especially small and medium sized contractors, are being put out of business. For the energy sector, the African Energy Chamber notably estimates hundreds of thousands of jobs lost.
- Companies and individuals must now also receive an authorisation from the BEAC before opening an account outside of the region. This again puts businesses in the region at the mercy of the Central Bank and government bureaucrats who have full discretion in deciding to accept or reject a foreign account request. There are many viable reasons for companies to own foreign accounts, including for ease of business, ease of payments, tax efficiency and reduction of transaction costs. Local central African companies, like suppliers of chemicals used in the oil industry in Malabo, or EPC contractors in Douala will be clearly disadvantaged compared to foreign competitors who will be able to supply the same goods and services from their offshore base, avoiding additional cost and hassle. The implication is the impossibility to build local content within central Africa’s energy sector, and a reduction in the amount countries make per dollar of revenue generated barrel.
- Similar to demanding an authorisation before foreign accounts can be opened, foreign currency accounts domiciled in the region are now also only possible with express authorisation from the BEAC. The outcome is likely to be similar. Local businesses operating in the oil and gas sector for example, which is dollar-dominated, will be unnecessarily exposed to currency fluctuations, eating up margins and leading to poor competitiveness vis-à-vis foreign competitors. Local suppliers, in Congo or Gabon’s oil and gas sector who source products from abroad, are already unable to compete with foreign businesses under this new regulation.
- Apart from the commissions that economic actors are already paying to commercial banks when making transactions, the Central Bank also announced a month ago that is going to levy an additional tax of 0,5% on all wire transfer going outside CEMAC zone. The consequences on local content development will be devastating when this new tax comes into effect, starting January 2021.
- Finally, the regulation requests that proceeds from exports of FCFA 5 million and above be repatriated within 150 days from the exportation date. Whilst the African Energy Chamber understands the desire to repatriate such export proceeds, we expect many businesses to seek to avoid putting the proceeds of their exports under the very restrictive foreign exchange regime coming into place on January 1st, 2021.
The African Energy Chamber understands the desire of the government to protect its dwindling foreign exchange reserves, in response to reduced revenue from oil and gas proceeds since the oil price crash of 2014 and the recent Covid19-triggered slump. However, we believe that the new Foreign Exchange Regulation is the wrong response. It is a trigger for more bureaucracy, corruption and it is the ultimate job killer.
Fighting for decent paying jobs in the African energy sector is at the centre of what the African Energy Chamber stands for. We do believe that affordable energy and reliable energy is a major ingredient to development. The energy sector is therefore at the forefront of Africa’s development, and its jobs must be sacrosanct for any well-meaning government. In many African countries, the energy industry is not only responsible for the provision of the all-important energy needed to power the country’s development, it is also responsible for a large part of governments revenues. In Central Africa, this is more than 60% on average, rising up to 90% in countries like Gabon. It Such policies with adverse effects to the oil and gas industry are therefore incomprehensible, especially in light of recent efforts to build local content and empower local entrepreneurs.
Investment killer
The restrictions will lead to foreign investment drying up in central Africa. Access to foreign finance for local companies, which was already a challenge, now seems unsurmountable. Foreign banks, hedge funds and other traditional and non-traditional equity and debt providers will not subject their investments to such restrictions. Foreign companies based abroad will continue to increase their position to service the industry from abroad, at the detriment of locally based companies, and local jobs in the sector.
In recognition of the already dire prospects facing the region, the Central Bank did reduced interest payable to its lending facility for tenders to 3.2% from 3.5% amongst other measures, in a bid to inject FCFA 500 billion into the economy. The bank also recommended that member states approach both the IMF and the world bank for Covid-19 relief support of up to USD50 billion.
However, and according to the African Energy Chamber, these measures are insufficient, unrealistic and unlikely to drive sustainable development. We need companies that can be competitive and create good paying jobs. For that, we do not need restrictive regulations like the new foreign currency regulations that are due to come into play in January 2021. Private businesses, especially in the oil sector, must be supported.
Central African states do not need to look far to learn from a different approach. Nigeria’s central bank is consistently sending signals to foreign investors that despite the pressures on the Naira, currency convertibility and transfer restrictions are an utmost priority. Notwithstanding the expected weakening of the Naira, Nigerian investments in its oil and gas sector, including into local service companies, remain multiple times more attractive than those in the CEMAC region, as evidenced by the huge interest in the recent Marginal Fields Bidding Round organised by the Nigerian state.
It is time to stand up for jobs in the central African region. A good place to start will be the Central Bank’s suspension of the new foreign exchange regulations due to take effect on January 1st, 2021.