For the past few months, most African countries have reported a shortage of U.S. dollars in the local markets.
There could be many reasons for the scarcity of the currencies but available reports suggest that this is caused by companies remitting large payments in terms of dividends and manufacturers’ large imports of raw materials at higher prices in U.S. dollars.
In Kenya, for instance, it has been reported that there is a huge currency imbalance caused by the two reasons above that some analysts have associated with the global supply chain disruption caused by the ongoing Ukraine-Russia war.
This is not only happening in Kenya, there is a number of sub-Saharan countries faced with the same challenge as one of the dents of the pandemic which is why on April 4, 2022, the International Monetary Fund (IMF) predicted there was going to be capital outflows as a result of major central banks in advanced economies withdrawing policy stimulus and raise interest rates.
The analysis that called for foreign exchange intervention to ease the effects of shocks also urged regulators to carefully weigh the interventions against potential longer-term costs.
As a response to the call, on May 13, 2022, the Bank of Tanzania (BoT) responded with the new THE Foreign Exchange Regulations, 2022 that seek, among other things, to control the foreign exchange business in Tanzania.
According to these regulations, people, both residents and non-residents of Tanzania, are allowed to hold any amount of foreign currency, sell to or purchase any amount of foreign currency from a bank, financial institution or bureau de change and open and maintain a foreign currency account with a bank or financial institution.
Those travelling outside the country, are allowed to purchase from a bank, financial institution or bureau de change, foreign exchange at an amount or the equivalent of which does not exceed ten thousand U.S. dollars.
However, this is done subject to the submission of supporting documents relating to their residency and valid travelling documents. A resident, other than a bank or financial institution, is not allowed to open or maintain an account outside Tanzania except for specified purposes.
Furthermore, banks or financial institutions are not allowed to buy foreign currency from an exporter with whom they have no account relationship. They are also prohibited to trade foreign currency with international foreign currency brokers.
Those entering or leaving the country while in possession of foreign currency exceeding ten thousand U.S. dollars or its equivalent must declare to the customs authorities at the time of arrival or departure as provided for under the Anti-Money Laundering (Cross Border Declaration of Currency and Bearer Negotiable Instruments) Regulations, 2016.
Unless authorized under the Foreign Exchange Act it is also prohibited to buy, borrow, sell, lend, hold or otherwise deal in gold unless permitted by the governor of the central bank. ‘Gold’ here refers to gold coins or gold bullion.
Additionally, a person resident in the country who has a right to receive a payment from a person resident outside the United Republic must receive such payment through a bank or financial institution.
Controlling the balance of payments
It has never been officially communicated whether or not these measures are intended to control the balance of payments in the country.
However, a cursory review of literature and reports suggest that these measures are usually done to enhance transparency in the foreign currency transactions by exchange companies and curb the undesirable outflow of foreign currencies as well as improve documentation of the sale of foreign currency by exchange companies.
Regarding export transactions, exporters are required to receive proceeds from exports of goods and services in foreign currency through a bank or financial institution.
They must also furnish the bank or financial institution through which export proceeds shall be received with all relevant export documentation within seven days after completion of customs export procedures.
The regulations further require that the payment period agreed for that transaction to be not more than ninety days and in case of delay beyond ninety days, the exporter must immediately furnish reasons for the delay and expected time of realization to the respective bank or financial institution for onward submission to the BoT.
Exporters are further prohibited to do any act that involves or is associated with underpricing of export of goods or services.
Regarding import transactions
Importers are required to make payments for imports of goods and services through a bank or a financial institution.
However, according to these regulations, where the value of import consignment does not exceed an amount equivalent to U.S. dollars ten thousand an importer may use other means of payment.
In case payment for imports is made through a credit or debit card and the amount exceeds U.S. dollars ten thousand, a bank or financial institution is required to maintain appropriate records and report the transaction to the BoT as part of imports.
As part of its customary banking business, banks and or financial institutions are allowed to receive any amount of foreign currency whether in the form of currency notes, coins, travellers’ cheques, bank drafts or in any other form.
However, in doing so they must notify the central bank’s governor and ensure compliance procedures, which may be required by relevant authorities.
Regarding remittances for services outside Tanzania
A person who intends to remit funds outside Tanzania must make such remittance through a bank, financial institution or a mobile money operator.
These remittances, however, are subject to the following process: in the case of education or medical expenses, there must be supporting documents in form of a letter, or invoice from the respective educational or medical institution.
In the case of living allowances, the sender must submit his identity card, copy of relevant pages of the passport of the beneficiary and request from the beneficiary in the form of a letter, email, fax or any other formal communication approved by the BoT, except where the amount to be remitted per transaction does not exceed U.S. dollars ten thousand or it’s equivalent.
Expatriates who remit funds for various purposes outside the country must present and submit relevant employment contracts and work permits. In the case of retirement benefits, the applicant must submit an employment contract and pension award letter from the respective pension fund.
For insurance or reinsurance business, the applicant must submit a no-objection letter from the Commissioner of Insurance.
Regarding consultancy, management or royalty agreements
The applicant must submit contractual documents duly executed by the parties, relevant invoice or fees notes, and a tax clearance certificate from the authority responsible for revenue collection and administration.
For other transactions not specifically mentioned, the applicant must submit to the respective banks or financial institutions any such relevant supporting documents.
A mobile money operator or an authorized financial service provider may make outward remittance within the prescribed territory without supporting documents, provided such remittance does not exceed the limit amount per transaction per day as prescribed by relevant authorities and reasons for such remittance are provided.
Regarding dividends and profit to foreign shareholders
A bank or financial institution must, before making remittances outside Tanzania in respect of dividends or profit to foreign shareholders, require the applicant to submit audited financial statements.
Or dividend payment notice indicating declared dividends or profit to be repatriated and approval of the board of directors or shareholders for payment of dividends and documents confirming payments of all relevant taxes from the authority responsible for revenue collection and administration.
On coupon and principal amounts on securities to non-residents, a bank or financial institution must require the applicant to submit a contract note, statement of holding or any other relevant document.
‘Coupon’ here means an annual interest rate paid on a bond, expressed as a percentage of the face value and paid from the issue date until maturity.
Regarding capital and financial account transactions
Residents and non-residents are traded securities of a listed company, thus purchasing, issuing, selling, transferring or paying for securities.
However, a non-resident is prohibited to purchase, sell or transfer government securities unless he is a resident of a prescribed territory or a Tanzanian citizen in the diaspora.
Regarding borrowing from abroad, residents are allowed to access credit accommodation from a non-resident provided that the transaction is carried out through a bank or financial institution.
However, foreign credit accommodation to a resident with a tenure exceeding 365 days must be registered by the BoT and assigned a debt registration number.
It is worth noting that under these regulations, the governor is mandated to issue directives or restrictions in relation to capital account transactions where he determines that the United Republic is experiencing or has experienced a severe deterioration in its balance of payments or significant financial markets disturbances that require the imposition of temporary safeguard measures.
The BoT is also mandated in collaboration with law enforcement organs and other competent authorities to monitor and enforce compliance with the provisions of these Regulations under the prescribed arrangements.
Emmanuel Mwesiga is experienced in commercial and corporate law transactions and advisory. He can be reached at firstname.lastname@example.org or follow him on Twitter at @EsquireMK. These are the writer’s own opinions and do not necessarily reflect the viewpoint of The Chanzo Initiative. Want to publish in this space? Contact our editors at email@example.com for further inquiries.