UEMOA and CEMAC currency exchange regulations – What next?

This note sets out the recent evolutions in the UEMOA and CEMAC currency exchange regulations. In addition, this note also provides a brief overview of some of the key considerations relating to the investment environment that need to be brought to the attention of sponsors of energy and infrastructure projects in the CEMAC and the UEMOA countries.

Background

Member States of the West African Economic and Monetary Union (UEMOA) and the Central African Economic and Monetary Community (CEMAC) have adopted regulations to ensure external monetary stability and to strengthen their control over foreign exchange reserves by closely monitoring financial transactions.

The UEMOA Regulation no. 09/2010/CM/UEMOA on external financial relations of member States (i.e. Benin, Guinea-Bissau, Burkina Faso, Côte d’Ivoire, Mali, Niger, Senegal and Togo) has been adopted on October 1, 2010 (the “UEMOA Regulation”).

The recent CEMAC Currency Exchange Regulation nº02/18/CEMAC/UMAC/CM (the “CEMAC Regulation”) entered into force on March 1, 2019, cancels and fully replaces the former regulation no. 02/00/CEMAC/UMAC/CM of April 29, 2000. The new CEMAC Regulation was adopted on December 21, 2018 after long negotiations between the 6 member States (i.e. Cameroun, Central African Republic, Republic of Congo, Gabon, Equatorial Guinea and Chad).

The Reform of the CFA Franc and The Franc Zone

The “Franc Zone” is an economic and monetary union with members comprising France and 18 African states (including the CEMAC and the UEMOA countries). Its core principles are set out in the Monetary Cooperation Agreement of 1972 between the Bank of Central African States (BEAC) and France, and the Cooperation Agreement of 1973 between the UEMOA and France. These principles include an unlimited convertibility guarantee whereby the French Treasury guarantees the conversion of CFA Francs to Euros without limitation, and a fixed exchange rate between the CFA Franc and the Euro. In exchange for pegging the CFA Franc to the Euro and for the unlimited convertibility guarantee, BEAC and UEMOA undertake to place some of their foreign exchange reserves with the French Treasury on an operational account the mechanisms of which are governed by the aforementioned cooperation agreements.

On 21 December 2019, in an agreement signed between the French Minister of Economy and Finance and the President of the Council of Ministers of the UEMOA the parties agreed on reforming the CFA Franc (the “CFA Franc Reform”).

The CFA Franc Reform, which exclusively applies to the UEMOA countries, will bring changes to the principles set out in the Cooperation Agreement of 1973. The agreement of 21 December 2019 provides that the CFA Franc Reform will:

• rename the current currency-CFA Franc- to “Eco”;
• put an end to the obligation to place some of the UEMOA foreign exchange reserves with the French Treasury on an operational account, which account is to be closed; and
• require the withdrawal of French officials from the UEMOA and the Central Bank of West African States (BCEAO).

However, pursuant to the CFA Franc Reform the following principles will be maintained:

• fixed parity: the Eco will be pegged to the Euro (currently the fixed exchange rate of CFA Franc to the Euro is EUR 1 = CFA Franc 655.96); and
• free and unlimited convertibility of the Eco that will be guaranteed through a credit line granted by France thereby limiting transfer risks.

Given the uncertainties of the current period due to the pandemic situation, one could wonder:

i)whether the reform will actually take place in 2020 (July 2020 was the anticipated date in December 2019),

ii) how the practical issues raised below with respect for instance to the opening of offshore accounts will be dealt with in the new monetary agreements, and

iii) whether and how the principles of free convertibility and fixed parity will be maintained within the larger monetary union of the Economic Community of West African States (ECOWAS) which comprises the UEMOA countries plus Nigeria, Ghana, Gambia, Liberia, Guinea, Cape Verde and Sierra Leone, as a consensus was reached in June 2019 on having “Eco” as the name of the ECOWAS single currency.

Authorisation to open offshore or onshore accounts in foreign currency

Offshore accounts in foreign currencies

Sponsors wishing to open current accounts in foreign currency both within and outside the CEMAC and the UEMOA regions must meet certain requirements. Our analysis below is based on the current state of regulations – to be updated once the CFA Franc reform is implemented.

Opening an account outside the CFA Franc Zone by a resident of a UEMOA country requires obtaining (i) the consent of the BCEAO and also (ii) an authorisation from the Minister of Finance of the relevant country^[1]. As of now, the CFA Franc Reform has not been implemented but will these formalities still be required once the new Eco currency is operational?

Those restrictions apply only to the opening of an account outside the CFA Franc Zone (i.e. France and the other UEMOA countries). Nevertheless, even though France is not defined as being a “foreign” country under the UEMOA Regulation, and thus, the opening of an offshore account in France should not require authorisations from the BCEAO and the Minister of Finance, in practice, such authorisations are still required and the BCEAO exercises a very strict control on the number of offshore accounts and their operation. Sponsors should draft their authorisation with careful attention as currently only 2 or 3 offshore accounts are authorised by the BCEAO after a full analysis of the proposed operation of said accounts.

In CEMAC countries, the opening of offshore accounts (i.e. outside any CEMAC Member State) in foreign currency by a resident requires an authorisation from the BEAC which then notifies the relevant ministry in charge of currency and credit. The previous CEMAC currency exchange regulation issued in 2000 did not provide for this kind of restriction. By comparison, the new CEMAC Regulation is much more restrictive. Moreover, the CEMAC Regulation is silent as to how the authorisation will be granted – such terms and conditions will need to be clarified in the near future as opening offshore accounts in project finance transactions is a key bankability issue for many financiers. 

Onshore accounts in foreign currencies

Under article 43 of the CEMAC Regulation, opening an onshore account in a foreign currency requires an authorisation from the BEAC for residents, whereas under the previous regulation, this prerogative was granted to the Ministry in charge of finance of each individual CEMAC Member State. This is the demonstration of a more stringent control from the BEAC.

Under the UEMOA Regulation (article 43 of Annex II), a resident of the UEMOA region opening an account in foreign currency must obtain the consent of the BCEAO and then an authorisation from the Ministry in charge of Finance. 

Pursuant to article 35 of Annex II of UEMOA Regulation, opening an account in Euros for the benefit of a non-resident does not require an authorisation from the BCEAO.

• Under the UEMOA Regulation, two authorisations are required to open offshore or onshore accounts in foreign currency. Such formalities will have to be reassessed further to the implementation of the CFA Franc Reform.
• Under the CEMAC Regulation only one authorisation from one authority (the BEAC) is required.

The obligation to repatriate EXPORTATION proceeds

There is an obligation for residents to repatriate any proceeds originating from exportation under article 11 of Annex II of the UEMOA Regulation and under article 53 et seq. and article 67 et seq. of the CEMAC Regulation. Legal entities are expected to repatriate such proceeds through their local commercial bank. To the extent the regulations do not provide for an exception to this obligation, assets should not be held on any offshore account. Non-compliance with this obligation would be an offense and would lead to sanctions.

The UEMOA Regulation requires such sums to be repatriated within one month from the date of payment, when the requirements under the CEMAC Regulation appear more flexible as the maximum time limit for repatriation of funds is 150 days.

Throughout the course of their projects, sponsors are typically required by lenders to keep all generated profit in offshore accounts. An authorisation from the BCEAO or BEAC, as the case may be, is required and must be renewed regularly to provide an exemption from the legal requirement relating to the repatriation of profits and funds. Such exemption is extremely hard to obtain.