Bank of Central Africa States (BEAC) Foreign Exchange (FOREX) Regulations Putting Restraints on Prosperity (By NJ Ayuk)

By NJ Ayuk, Executive Chairman, African Energy Chamber (https://EnergyChamber.org).

With energy majors and independent companies kicking off new projects in Gabon, Cameroon, Congo, Chad, and Equatorial Guinea, exciting things are happening for the oil and gas industry in the six-nation Central African Economic and Monetary Community (CEMAC). Particularly welcome news concerns Perenco, an Anglo-French company that recently spud a new appraisal well at the Hylia South West Field offshore Gabon. This field holds the potential for substantial oil reserves, estimated to be between 20 million and 100-plus million barrels.

However, the elephant in the room remains: Most of CEMAC’s potential remains untapped. Several factors have created a hostile business environment that hampers CEMAC’s ability to harness its abundant natural resources, raise its people’s standard of living, and participate more fully in the global community. As an example, Gabon and Chad have the 9th and 10th largest oil reserves in Africa, respectively, yet only 67% of Gabon’s population and 8% of Chad’s have access to electricity.

I would like to highlight one of the most frustrating — but easily solvable — barriers to CEMAC’s economic success: The Bank of Central Africa States’ (BEAC) absurd foreign exchange (FOREX) regulations. While said regulations were created with the best of intentions, they have ultimately cost the region countless jobs, foreign investment, and economic health.

Behind the FOREX Regulations

In 2019, BEAC (which governs monetary policy for the six CEMAC nations) took several measures to restrict the flow of foreign currency. The intention was to tackle the problems of low foreign exchange reserves, capital flight, money laundering, and terrorism funding. However, these regulations have only served to kill business in the region — particularly for the energy industry. Despite vehement opposition from local leaders and business owners, these rules stipulate that:

All routine transactions over USD 1,700 now require qualifying documentation and government approval.

This measure has skyrocketed the lead time for routine, legitimate money transfers.

“Businesses have complained of waiting months to get hold of hard currency and of being unable to import materials or pay suppliers,” says Celestin Tawamba, president of the Cameroon Employers group. “Slow money transfers mean there is a reticence, a climate of mistrust between operators and their foreign partners.”

Despite official claims that properly documented transfers clear within 48 hours, manufacturers in the Congo and the Central African Republic report that it can actually take two to three months. I invite every BEAC official who supported this particular measure to wait that long for their next paycheck.

Slow payments harm every industry, but the oil and gas sector is particularly vulnerable. Operators rely heavily on imports for equipment, spare parts, and goods to carry out daily operations. Delayed transactions aren’t just inconvenient — they can cause weeks-long delays and kill projects.  

Businesses must obtain specific government authorization to open a foreign bank account, or to domicile a foreign currency account in a CEMAC area.

Despite efforts to create a pan-African payment system, financial transactions are generally routed through a Western bank, converted into dollars or euros, and then converted again into the recipient’s preferred African currency. In 2017, only 12% of intra-African payments were cleared within the continent.

In other words, to function properly, modern African businesses must depend on foreign currency and foreign accounts. This particular BEAC rule essentially put hundreds of businesses on hold, dooming them to wade through red tape to conduct normal operations.

The Employers’ Group of Cameroon (Groupement Inter-Patronal du Cameroun or GICAM) reported that “71% of businesses considered this difficulty of access to foreign currency to be a major concern.” Because lead times and transaction costs have risen, importers “find it increasingly difficult to pay their foreign suppliers on time.”

These issues hit dollar-dominated industries even harder — particularly the energy sector, which relies heavily on foreign talent and a reliable supply chain. Gabriel Obiang Lima, former Minister of Mines and Hydrocarbons of Equatorial Guinea, called it a “disaster for oil and gas in the Gulf of Guinea” that has led to “dire” currency shortages and delayed transactions.

Similarly, Sonara, Cameroon’s national refinery, saw shortages directly due to “the scarcity of foreign currency and the blocking of its import operations by BEAC.” If a government-subsidized company can’t run properly under these circumstances, then the entire region is in trouble.

Export proceeds over 5 million FCFA (Central African Francs) must be repatriated within 150 days of the exportation date.

Like many oil and gas-producing states, the CEMAC region holds reserves of foreign currency to cover imports. In 2018, CEMAC’s reserves were sufficient to cover 2.7 months of imports — a far cry from the five months recommended by the IMF.

To increase foreign currency reserves, the FOREX regulations stipulate that exporters must return their proceeds to CEMAC nations, rather than storing them indefinitely in foreign accounts. While we understand the need to bolster foreign currency reserves, this ruling is not a viable long-term plan: It signals to foreign investors that they cannot turn a profit. We cannot convince energy majors to fund more exploration and development projects under such restrictions.

Lima put it most succinctly in 2019: “Companies are saying ‘I am not going to invest $2-$3 billion there if I cannot take it out.’”

Sadly, little has changed in that regard.

Ironically, foreign currency reserves fell in 2023, rather than remaining stable — the ruling has not even accomplished its short-term goal. BEAC director Abbas Mahamat Tolli blamed oil and gas operators for failing to repatriate foreign currency. Rather than pointing the finger, it might behoove Tolli to cultivate a better relationship with the oil and gas industry that provides 70-75% of CEMAC’s GDP.

International Reputation

In short, these FOREX regulations have created a hostile environment for foreign investors —  and the world has begun to notice.

The International Trade Administration makes scathing references to the FOREX rules in its descriptions of Cameroon, Chad, Gabon, and the Central African Republic, including:

“Almost all business transactions require senior-level government approval, making for a cumbersome process susceptible to political influence and corruption.”

“International companies continue to have difficulties collecting timely payment, and some companies in the oil sector have closed operations.”

Moving Forward

We urge BEAC to seek a reasonable compromise. CEMAC does need practical measures to maintain foreign currency reserves and combat capital flight, money laundering, and terrorism funding — but without costing the region thousands of jobs, local businesses, and the foreign investment that we badly need to unlock CEMAC’s potential. The fact that any operators continue to invest in CEMAC speaks volumes for our abundant natural resources and long-term potential: Let’s create an environment that attracts forward-thinking players rather than repelling them.

Distributed by APO Group on behalf of African Energy Chamber.