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Angolan Law Pushes Kwanza Use to Boost Economy, Massano Says

July 4 (Bloomberg) -- Angola, Africa’s second-biggest oil producer, will benefit from a law requiring foreign companies to use local currency as it takes effect, Central Bank Governor Jose de Lima Massano said.

Angola passed a law last year that required foreign oil companies to start using kwanzas, the local currency, to pay taxes beginning in May. Since July 1 foreign companies must pay all domestic suppliers in kwanzas, and after Oct. 1, they have to pay foreign suppliers via Angolan bank accounts in either local or foreign currency.

“There will be an increase, a monetary flux, allowing more resources for the economy,” Massano told a banking forum on the law in Luanda, the capital, today. “The new law will harmonize the exchange rate system in Angola.”

Angola’s producers including Total SA, Exxon Mobil Corp. and BP Plc contributed to Angola’s June crude oil output of 1.67 million barrels a day, second only to Nigeria in Africa.

The law will increase capital flow to the financial system by about $25 billion a year, according to Joao Fonseca, executive director of Banco Angolano de Investimentos SA, Angola’s largest bank by assets. The oil industry accounted for 45 percent of the country’s $114 billion gross domestic product last year, 75 percent in taxes and 97 percent in exports, said Fonseca, citing the Ministry of Finance and the central bank.

Boost Competition

“This law will decrease the dependency on the central bank by commercial banks regarding foreign currency,” Fonseca said. “There will be an increase in competition from international banks coming into Angola.”

The central bank rate to buy one dollar is 96.113 kwanzas, according to its website, though the common rate on the street, where most people change their money, is 100 kwanzas to the dollar. About 43 percent of the economy is conducted in dollars, Fonseca said.

“One of the main changes is that oil companies were subject to a special exchange system and now they must comply with the general exchange regime,” Marilia Pocas, head of the Foreign Exchange Department at the central bank, told the forum.

Exchange rate stability is crucial for the implementation of the law, as well as the ability of banks to be able to process payments quickly for the large oil companies, Pocas said.

Civil War

Crude producers were “reluctant” about the new law because of the banking system’s capacity in a country that is rebuilding from a 27-year civil war that ended in 2002, Fonseca said. He said the $25 billion influx is composed of the government earning about $13 billion a year in taxes, while the financial system would process another $12 billion a year in payments to suppliers.

The central bank is targeting inflation between seven percent and nine percent a year “in the medium term,” while the government plans to use the capital flows from the new law to develop parts of the economy, excluding oil, Pocas said.

Inflation accelerated to 9.25 percent in May from 9 percent in the previous month, the statistics office said on June 19. Angolan economic growth may increase to 5.6 percent this year from 4.8 percent in 2012, according to the International Monetary Fund.

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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