Foreign exchange markets facilitate international investment by enabling investors to convert between currencies. The two primary mechanisms through which such investment is conducted are Foreign Direct Investment (FDI) which involves the establishment of long-term business operations or physical presence in a foreign jurisdiction and Foreign Portfolio Investment (FPI) which involves the acquisition of shorter-term foreign financial assets such as stocks or bonds.
Comparison of Investment Types – Foreign Direct and Portfolio Investment in Cameroon
Foreign Direct Investment (FDI)
Foreign Portfolio Investment (FPI)
Entails establishment or purchase of physical infrastructure and business in a foreign country.
Entails stocks or bonds purchased as foreign securities on an exchange.
The investor holds a stake and actively participates in management. Usually above 10%
The investor holds a passive stake of less than 10% without any operational control.
A long-term investment and difficult to withdraw quickly.
A short-term investment easy to convert and withdraw quickly.
Generates sustained demand or supply of currency for large capital projects.
Causes rapid, frequent currency market fluctuations based on daily market movements.
POSITION OF CAMEROON AND CEMAC IN FOREIGN DIRECT AND PORTFOLIO INVESTMENT
Foreign direct and portfolio investment is free and Credit institutions have the right to execute on behalf of their customers transactions involving direct and portfolio investments under the terms and conditions laid down by Central Bank Instruction (BEAC).
- Direct Inward Investment
Foreign direct investments are declared by the investor or his agent to the Central Bank and the Ministry in charge of currency and credit (Ministry of Finance) at least 30 days before their completion.
The terms and conditions for the execution of direct investment and portfolio operations and the clearance of related files are specified by Central Bank Instructions.
Foreign direct investments that constitute a capital increase resulting from the reinvestment of undistributed profits are reported to the Central Bank and the Ministry in charge of currency and credit within 30 days of the completion of the operation.
The transfer of the proceeds of the liquidation or transfer of foreign direct investment are declared to the Central Bank and the Ministry in charge of currency and credit at least 30 days before its completion.
The realization and liquidation of foreign direct investments have to be declared to the Central Bank and the Ministry in charge of currency and credit within 30 days of the operation.
- Outgoing Direct Investment
Direct investments by residents abroad are subject to the prior authorisation of the Central Bank, which informs the Ministry in charge of currency and credit.
The terms and conditions for the execution of direct investment and portfolio operations and the clearance of related files are specified by Central Bank Instructions.
Direct investments by residents abroad, which constitute an increase in capital resulting from reinvestments of undistributed profits must be declared to the competent authorities within 30 days of the completion of the operation.
The liquidation of direct investments by residents abroad must be declared to the Central Bank, which shall inform the Ministry in charge of currency and credit within 30 days of its completion.
The reinvestment of the proceeds of the liquidation of direct investment by residents abroad must be reported to the Central Bank and the Ministry of currency and Credit within 30 days of its completion.
The liquidation proceeds that have not been reinvested abroad must be repatriated to the country of origin within 30 days through an authorised intermediary.
- Inbound Portfolio Investment
Foreign portfolio investments in the form of equity investments have to be declared to the Central Bank and the Ministry in charge of currency and credit at least 30 days before their completion.
The terms and conditions for the execution of incoming portfolio investment operations are specified by Central Bank Instruction.
Foreign portfolio investments that constitute a capital increase resulting from reinvestments of undistributed profits are reported to the Central Bank and the Ministry in charge of currency and credit within 30 days of their completion.
The transfer of the proceeds of the transfer of foreign portfolio investments amounting to more than CFAF 100 million, must be declared 30 days before its completion to the Central Bank and the Ministry in charge of currency and credit.
Incoming portfolio investments in the form of the acquisition of securities by non-residents are free.
The transfer outside CEMAC by a non-resident of the proceeds of the transfer of CEMAC securities in an amount exceeding CFAF 100 million must be declared to the Central Bank and the Ministry in charge of currency and credit 30 days before its completion.
The file to be submitted to the credit institutions for the transfer of the proceeds of the sale, interest and repayment of the capital shall include the documents justifying the ownership of the security, the amount to be transferred and the declaration of the transfer to the Central Bank and the Ministry in charge of currency and credit.
- Outgoing Portfolio Investment
Portfolio investments abroad in excess of a threshold set by Central Bank Instruction are subject to prior approval by the Central Bank.
Portfolio investments abroad, below the threshold, are reported 30 days before the transaction is carried out.
An Instruction of the Central Bank sets the terms and conditions for the settlement of outgoing portfolio investments and the clearance of related files by credit institutions.
Credit institutions may invest, on their own account, in securities abroad, subject to a declaration to the Central Bank, at the latest 30 days after completion of the transaction and compliance with the provisions of the banking regulations in force.