Angolan Bank Says Exchange Law Step Toward Kwanza Trade

A foreign exchange law in Angola has halved the amount of dollars auctioned by the central bank since June as the country considers letting its currency trade on international markets, a central bank official said.

The Banco de Nacional de Angola said the amount sold at auctions has fallen to $200 million a week from $400 million in June, before oil companies were required to pay some suppliers in kwanzas, the local currency, Antonio Andre Lopes, a vice-governor of the bank, said in an Aug. 21 interview in his offices in Luanda, the capital. The kwanza traded at 95.7780 per dollar on Aug. 23.

Angola, Africa’s second-biggest oil producer after Nigeria, passed a law last year that may funnel $25 billion annually through the $116 billion economy by requiring foreign-owned oil companies including Chevron Corp. (CVX) and Exxon Mobil Corp. (XOM) to pay taxes in Kwanza’s from May this year and domestic suppliers in the currency from July 1. The measure has boosted the supply of kwanzas in Angola’s market, Lopes said.

“There’s a high supply of foreign currency with the oil companies obligated to pay in kwanzas after exchanging dollars at the banks,” Lopes said. “We’re in a process of de-dollarization of the economy.”

While a date has yet to be selected, the law is a step toward allowing free trade in the kwanza, the central bank official said.

“There is some pressure to make the kwanza a traded currency,” he said. “We need to think about the impact this will have on stability.”

Not Stable

The kwanza is being used informally in neighboring Democratic Republic of Congo and Zambia, generating some demand for international trading, Lopes said.

The value of the kwanza, backed by the oil law, will lead to a “fully tradeable” currency as soon as central bank Governor Jose de Lima Massano “sees the market is ready and the kwanza is respected,” Pedro Coelho, Chief Executive Officer of the Angolan unit of South Africa’s Standard Bank Group (SBK) said in an Aug. 20 interview in Luanda.

“Things are not stabilized,” Joao Fonseca, executive director of Banco Angolano de Investimentos SA, said by e-mail on Aug. 23. “Banks now have excess of dollars due to the new phase of the foreign exchange oil law.”

Exercising monetary policy by selling Treasury Bills, regulating the supply of foreign currency in the market and adjusting reserve ratios at banks has helped stabilize the exchange rate, Lopes said. The kwanza is little changed against the dollar this year.

Declining Inflation

The bank has kept its benchmark interest rate at 10 percent since January, while commercial bank rates are about 5-6 percent higher, Lopes said.

“The tendency will be for both to decrease,” he said, declining to be more specific.

The inflation rate has declined to 9 percent, meeting the government’s target and may fall to 7 percent in the next three to four years, he said.

Angola pumped 1.76 million barrels of oil a day in July almost entirely from fields offshore the southwest African country. It’s recovering from a 27-year civil war that ended in 2002.

To contact the reporters on this story: Colin McClelland in Luanda at cmcclelland1@bloomberg.net; Manuel Soque in Luanda at msoque@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net

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