African Energy Chamber (AEC) (www.EnergyChamber.org) executives called on regional leaders and energy ministers to improve the business climate at the CEMAC Business Forum in Brazzaville on Tuesday, specifically taking aim at the Bank of Central African States’ (BEAC) foreign exchange regulation that imposes stricter rules on currency transfers and payments and faces full implementation from January 2022.
While initially intended to safeguard dwindling foreign exchange reserves in the region, the new forex regulations have proven contentious among African energy industry leaders, stakeholders and lobbyists, who argue that they deter investment and impede private sector growth by increasing transactional and operational costs and limiting access to foreign financing for local businesses. As a result, the AEC has called for an open and honest dialogue and urged local leadership to listen to industry and embrace free market principles by eliminating lengthy and bureaucratic regulations.
“The BEAC forex regulation is killing the energy sector and killing local companies and economies, more than foreign companies, by increasing the cost of doing business,” stated NJ Ayuk, Executive Chairman of the AEC. “CEMAC needs reform. It is no longer competitive. Leaders need to drop their egos and listen to businesses and citizens. Our tax rates are very high. We need to make it easier for investors to invest in Africa. Unless significant steps are taken to improve the ease of doing business, the CEMAC region will continue to experience reduced investment.”
The African oil and gas industry is particularly vulnerable to the regulations, as it struggles to attract new foreign investment into the setor and faces ongoing fiscal and regulatory challenges including delays in project approvals, high tax rates, and weak PSCs and field development plans. Moreover, the FX regulation makes it more difficult for foreign currency accounts to be domiciled in the region, in turn exposing local businesses operating in dollar-denominated industries, such as the oil and gas sector, to currency fluctuations and narrower profit margins.
“CEMAC financial institutions should be at the service of the region’s growth aspirations. Today’s financial situation cannot get the region where it needs to be in terms of economic development to create jobs because the banking sector is almost absent,” stated Leoncio Amada Nze, CEMAC Region President for the AEC, during a panel discussion at the Forum. “CEMAC GDP is 70-75% from oil and gas-related activities. The BEAC Forex regulation is anti-oil and gas industry. It is anti-local content. It is anti-CEMAC and needs to be withdrawn. We need to have a central bank that is at the service of CEMAC economies, not the contrary.”
The AEC argued that both traditional and non-traditional lenders will be less willing to subject their investments to a more restrictive foreign exchange regime than they could find elsewhere, resulting in job losses, increased operational costs, and an additional degree of bureaucracy and red-tape, as the region becomes a less attractive place to do business.
“The CEMAC region is the least developed and has the worst fiscal policies on the continent. These conditions do not allow the mobilization of internal and external resources to be invested in the region,” added Nze. “Out of 190 countries in the World Bank’s Doing Business index is 2020, the six countries from CEMAC are in the worst positions (Equatorial Guinea: 178, Cameroon: 167, Gabon: 168, Chad: 182, Central African Republic: 184, Republic of the Congo: 180). This picture needs to change or we will never get out of the crisis that is decimating our economies.”
(With Inputs from APO)