The fight for decent and paid jobs in the African energy sector is at the centre of what the African Energy Chamber stands for.
We believe that affordable energy and reliable energy are a major ingredient in development
JOHANNESBURG, South Africa, November 9, 2020/APO Group/ —
By Leoncio Amada Nze, President for the CEMAC Region, African Energy Chamber (EnergyChamber.org)
On1 March 2019, a new regulation on currencies was adopted by the members of the Economic and Monetary Community of Central African States – CEMAC. Its member states, Gabon, Cameroon, the Republic of Congo, Equatorial Guinea, the Central African Republic and Chad, have essentially mandated their Central Bank (BEAC) to restrict foreign currency payments by individuals and businesses in these member countries. Recognizing the importance of the energy sector and the challenges of its implementation, the Central Bank has authorized an implementation period until 31 December 2020. On that date, all sectors of the economy without exception will be subject to the new regulations. Its key measures include:
- Any transaction of more than 1 million FCFA (about 1,700 USD) per month and per entity or person now attracts much more bureaucracy and consequently entails delays of several weeks. Small and medium-sized service providers in the oil and gas and energy infrastructure sectors are now condemned to seek qualification documents and approval from government and central bank bureaucrats, who very often use their discretionary powers to slow down or reject justifiable documents for their day-to-day transactions. The result is that local businesses, already facing significant challenges, especially small and medium-sized entrepreneurs, are bankrupt. For the energy sector, the African Energy Chamber estimates hundreds of thousands of jobs lost.
- Businesses and individuals must now also receive authorization from the BEAC before opening an account outside the region. This again puts companies in the region at the mercy of the Central Bank and government bureaucrats who have full latitude to decide whether to accept or reject a foreign account application. There are many valid reasons for companies to have accounts abroad, including ease of doing business, ease of payments, tax efficiency, and reduced transaction costs. Local companies in Central Africa, such as suppliers of chemicals used in the oil industry in Malabo, or EPC contractors in Douala will be at a clear disadvantage compared to foreign competitors who will be able to provide the same goods and services from their offshore base, thus avoiding additional costs and hassles. As a result, it is impossible to create local content in Central Africa's energy sector and a reduction in the amount that countries earn per dollar of a barrel of revenue generated.
- As with applying for authorization before opening foreign accounts, foreign currency accounts domiciled in the region are now only possible with the express permission of the BEAC. The result will probably be similar. Local companies operating in the dollar-dominated oil and gas sector, for example, will be unnecessarily exposed to currency fluctuations, eating away at their margins and leading to low competitiveness vis-à-vis foreign competitors. Local suppliers, in Congo or in the Gabonese oil and gas sector that source from abroad, are already unable to compete with foreign companies under this new regulation.
- In addition to the commissions that economic actors already pay to commercial banks during transactions, the Central Bank also announced a month ago that it would levy an additional tax of 0.5% on all transfers outside the CEMAC zone. The consequences for the development of local content will be devastating when this new tax comes into force, starting in January 2021.
- Finally, the regulation requires that the proceeds of exports of CFAF 5 million or more be repatriated within 150 days from the date of export. While the African Energy Chamber understands the desire to repatriate these export products, we expect many companies to seek to avoid placing the proceeds of their exports under the highly restrictive exchange rate regime that will come into place on January 1, 2021.
The African Energy Chamber therefore understands the willingness of governments to protect their declining foreign exchange reserves following the reduction in revenues from oil and gas revenues since the fall in oil prices in 2014 and the recent fall triggered by Covid-19. However, we believe that the new foreign exchange regulation is a bad and inappropriate response to these new market dynamics. It's a trigger for more bureaucracy, more corruption and it's the ultimate killer of jobs.
The fight for decent and paid jobs in the African energy sector is at the centre of what the African Energy Chamber represents. We believe that affordable energy and reliable energy are a major ingredient in 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 providing the energy essential to the country's development, it is also responsible for a large part of government revenues. In Central Africa, it is more than 60% on average, up to 90% in countries like Gabon. Such policies that have adverse effects on the oil and gas industry are therefore incomprehensible, especially in light of recent efforts to strengthen local content and empower local entrepreneurs.
The end of investments
The restrictions will lead to a drying up of foreign investment in Central Africa. Access to foreign financing for local businesses, which was already a challenge, now seems insurmountable. Foreign banks, hedge funds and other traditional and non-traditional lenders will not subject their investments to such restrictions. Foreign companies based abroad will continue to strengthen their position to serve the industry from abroad, to the detriment of local companies and local jobs in the sector.
Recognizing the already disastrous prospects facing the region, the Central Bank has reduced the interest payable on its tendering facility to 3.2% from 3.5% among other measures, with the aim of injecting 500 billion CFA francs into the economy. The bank also recommended that member states turn to both the IMF and the World Bank for financial support against Covid-19 of up to USD 50 billion.
However, according to the African Energy Chamber, these measures are insufficient, unrealistic and unlikely to stimulate sustainable development. We need companies that can be competitive and create well-paying jobs. For this, we do not need restrictive regulations like the new currency regulations that are due to come into force in January 2021. Private companies, particularly in the oil sector, must be supported.
Central African states don't have to look far to learn from a different approach. The Central Bank of Nigeria is constantly sending signals to foreign investors that, despite the pressures on the naira, currency convertibility and transfer restrictions are a top priority. Despite the expected weakening of the Naira, Nigerian investments in its oil and gas sector, including in local service companies, remain several times more attractive than those in the CEMAC region, as evidenced by the enormous interest generated by the recent tender on marginal fields organized by the Nigerian state.
It is time to stand up for jobs in the Central African region. A good starting point will be the Central Bank's suspension of the new foreign exchange regulations that are due to come into force on 1 January 2021.
By Leoncio Amada Nze
Distributed by APO Group on behalf of African Energy Chamber.
