JOHANNESBURG, South Africa, November 9, 2020/ -- By Leoncio Amada Nze, CEMAC Region President, African Energy Chamber (https://EnergyChamber.org/)
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 31 st, 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. |
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