Central African Republic
The economy is experiencing a slow recovery after a period of recurring sociopolitical crises that began at the end of 2012. Real GDP grew by an estimated 4.3% in 2018, up from 4.0% in 2017, led by the primary sector through a rebound in logging, agriculture, and mining.
The fiscal balance improved to an estimated surplus of 1.0% of GDP, from a deficit of 1.5% in 2017. Despite the tightening of the Bank of Central African States’s monetary policy, due to difficult security conditions, inflation was an estimated 3.9% in 2018, down from 4.1% in 2017 but still above the Central African Economic and Monetary Community’s 3% requirement. The current account deficit improved to an estimated 8.3% of GDP in 2018 from 9.4% in 2017, thanks to improvements in the trade balance.
Tailwinds and headwinds
The economic recovery is projected to continue in 2019 and 2020, with real GDP growth of 5.0%. The primary sector is expected to benefit from a resumption of farming and the continued good performance of mining operations. Public investment and private consumption are expected to be the drivers of growth. Inflation is projected to fall gradually to 3.2% in 2020, reflecting improved security conditions and declining food prices. The fiscal surplus is projected to be 0.6% of GDP in 2019, dropping to 0.2% in 2020, as a result of the gradual rise in revenue and control of public spending. The current account deficit is projected to fall to 7.3% of GDP in 2019 and 7.0% in 2020, reflecting a recovery in domestic production, improved current transfers, and a narrower trade deficit.
The economic outlook is favorable, albeit uncertain. Economic growth depends largely on political stability, continued reform, improved performance of the forestry sector, and public investment under the National Development Plan. Low economic diversification and heavy dependence on foreign aid (more than 40% of the budget) and oil products leave the economy vulnerable to external shocks.
Despite the 2016 return to constitutional rule, the country remains fragile, particularly in terms of security, and is characterized by a limited infrastructure network, a low Human Development Index value, weak governance, and high vulnerability to external shocks.
The restoration of peace throughout the country and the improvement of the business climate are necessary conditions to attract private investment, which could enable the country to take advantage of its enormous forestry and mining potential. Authorities have already revised the trade and tax code and submitted a revised investment charter to parliament to strengthen the dialogue between the public and private sectors.
The country’s forestry and ecotourism resources cover some 34 million hectares. In 2017, the exploitation of some of these forestry resources, which contain a broad range of varieties, accounted for about 40% of export earnings. In addition, the country has substantial mineral resources such as diamonds, gold and uranium, iron, and copper. However, only diamonds are mined by an artisanal sector and account for about 35% of export earnings, thanks to the partial lifting of the Kimberley Process embargo.
The CEMAC securities yield curve extended to 5 years with 9 benchmark points along the curve (3m-6m-1-1.5-2-3-3.5-4 and 5 years).
The issuance strategy is based solely on funding the budget. Constructing the yield curve is not taken into account in the issuance strategy. The issuance methods used are the auction method and the underwriting method.
CEMAC states may issue new lines on the financial market in Libreville or in Douala. They can also use the auction market for government securities which is organized by the Central Bank, the Banque des Etats de l’Afrique Centrale (BEAC). The states have no proper debt strategy in place.
There are 9 benchmarks maturities for government securities in local currency in the CEMAC zone: 3m-6m-1-1.5-2-3-3.5-4 and 5 years.
Yield curve calculation models
The BEAC prepared its own in-house method for computing its yield curve: the implied yield curve.
The Brandt interpolation method is used in the CEMAC region.
Yield curve managed by
The BEAC is responsible for calculating the yield curve on a monthly basis.
Challenges in building an efficient yield curve
- Illiquid and limited secondary market: buy-and-hold investors
- Narrow investor base: only banks are involved in the bond market
- Coexistence of three agencies for issuing bonds and bills: the Douala Stock Exchange (DSX) and the Bourse des Valeurs Mobilières de l’Afrique Centrale (BVMAC) are in charge of syndication. The Banque des Etats de l’Afrique Centrale (BEAC) is responsible for auctions.
- Lack of issuance strategy in CEMAC states
- Lack of reliable data
- Lack of long-term maturity
- Two countries had never issued on the domestic market as of end-2015
Guide to Buying Bonds
Procedures for market participation
The BEAC organizes the auction on behalf of the states. The auction takes place at the asking price. Orders are served retained interest rates or the price offered by the bidders within the maximum interest rate or maximum price decided by the government.
At the end of the auction, the general information, including the amount of bids expressed the amounts used and the rate and limit price selected are disseminated through the press.
The methods of creating, presenting and counting of the tenders shall be determined by agreements on the one hand, between BEAC and National Treasuries, and secondly, between the BEAC and the Primary Dealers (PD). Subscriptions to government securities are firm and irrevocable. They are paid in a single payment by debiting the account of the PDs at the BEAC and credited to a special Treasury account opened for this purpose.
Given that the debt market is under developed, the optimal schedule has been adopted as part of regular program.
The six National Treasures issue in turn at regular intervals.
Each National Treasury will issue T-Bills weekly on Wednesday. The amounts are generally low to allow all states to issue at the same time, resulting in each State having fifty-two issues of T-Bills per year.
Each National Treasury can issue T-Bonds monthly. The auctions are scheduled to take place every Wednesday. However, given the nature of the instrument and the expected volume of transactions in relation to the needs for public investment, treasuries are not able to issue on the set day.
A shift schedule was developed for planned Wednesday auction sessions:
- Cameroon: 1st Wednesday of the month
- Central Africa - Congo: 2nd Wednesday of the month
- Gabon: 3rd Wednesday of the month
- Equatorial Guinea-Chad: 4th Wednesday of the month
These emissions will occur at regular time intervals and are publicly known.
The total amount of the twelve issuances will be released in the Finance Act each year.
For each fiscal year, this amount will be communicated to the market by the Minister of Finance no later than November 30th of the previous year.
This communication from the Minister responsible for finance may take the form of a conference, briefing or a press release. The amount of the emission will not be announced at this time.
However, the amount to be raised for each auction is specified in the auction announcement in accordance with National Treasury issuance calendar.
On the secondary market, the T-Bills are traded OTC and the T-Bonds are traded on the DSX and the BVMAC.
The settlement of transactions takes place at T+3.
The level of taxation pursuant to Regulation No. 14/07 - UEAC-175-CM-15 instituting a specific tax regime applicable to the transactions listed on the Securities of Central Africa (BVMAC) "are exempt from income Tax Securities (IRVM) or any other taxes or levies of a similar nature, interest obligations of States for residents of the CEMAC." Subscribers residing outside the CEMAC zone must comply with income tax laws of their country of residence. The Issuer shall levy any withholding tax on loan repayments.
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Auctions of Government securities are exclusively reserved for Primary Dealers. Each CEMAC state has its own network of Primary Dealers. However, a credit institution, which meets the eligibility requirements, may be a Primary dealer only for the country they belong to or upon request, all the states. The Ministers of Finance, select Primary Dealers from all the credit institutions in CEMAC that meet specifications adopted by the Committee of Ministers, after consulting the Monetary Policy Committee.
Openness to international investors
Foreign investors can access the debt market under the same terms as nationals of the zone. There are no rules that discriminate foreign participants in the market.
This is no restriction on foreign ownership in the CEMAC zone.
Restrictions on FX and profit repatriation
There are no restrictions on obtaining foreign exchange.
The regional central bank, the BEAC, issues CFA for circulation among the members of the CEMAC. Although the Central African franc is at par with the West African CFA franc, the two currencies are not usually accepted for payment in each other’s zones.
Foreign investors have the right to repatriate earnings and the profits from sales of financial instruments. There are no restrictions on converting or transferring funds associated with investments, including remittances of investment capital, earnings, loan repayments, and lease payments.