- Central bank measures to support currencies dry up supplies
- Currency pegs risk `coming apart with some violence', CEO says
Nampak Ltd., Africa’s biggest manufacturer of beverage cans, is struggling to get money out of Angola and Nigeria to pay for management fees, dividends and loans as central bank efforts to shore up their currencies dry up foreign-exchange supplies.
“The approach that the central banks in those countries have taken in order to manage the exchange rate has resulted in a liquidity squeeze,” Nampak Chief Executive Officer Andre de Ruyter said in an interview at Bloomberg’s Johannesburg office. “In Angola the situation is more of a challenge for us.”
The economies of Africa’s largest oil producers are struggling to cope with crude prices below $50 a barrel, with the commodity accounting for the bulk of government revenue and almost all export earnings. Angola’s kwanza has weakened to a record low after the central bank devalued the currency in two steps since June. In Nigeria, the regulator has restricted some imports and introduced rules to limit trading to prevent dollars fleeing the continent’s biggest economy.
Nampak, which supplies companies from Coca-Cola Co. to SABMiller Plc, is seeking to benefit from a sub-Saharan African consumer market of 900 million people who spend at least 20 percent of their earnings on food and beverages. The Johannesburg-based company in 2013 bought a Nigeria packaging company in its biggest acquisition ever. The company is well positioned for more volume growth in Angola, where it already has a 56 percent market share, De Ruyter said.
“To take money out and convert naira into dollars to pay for management fees, dividends, loan repayments etc. is challenging at times,” he said. “But generally we can get our money out of Nigeria. It’s more of an issue in Angola than it is in Nigeria.”
Central Bank of Nigeria Governor Godwin Emefiele has repeatedly insisted that the regulator is providing enough foreign exchange for businesses in the country, even as members within his own Monetary Policy Committee joined calls from local companies to foreign investors for a more flexible exchange rate. Emefiele’s action has contributed to the currency stabilizing at an average of 198.93 against the dollar since March.
“I don’t want to make any pronouncements on Nigerian monetary policy, but generally if you look at the history of economics, currency pegs never work,” De Ruyter said. “They inevitably come apart and when they come apart they come apart with some violence.”
Angola devalued the kwanza on Sept. 10, reducing the official rate to 130.442 per dollar, following a cut in June to 116.8745 against the greenback compared with a previous rate of 110.518, according to prices quoted on the Banco Nacional de Angola’s website. The currency, which has dropped 24 percent this year, weakened to a record low 136.3240 on Sept. 21 on the interbank market. The nation’s foreign reserves have dropped by 21 percent over the past year as the central bank sold dollars to defend the kwanza.
A more-than-halving in the oil price over the past year made an decline in Angola’s currency inevitable and the southwest African country’s policy makers are trying to avoid too big a shock to the economy, said De Ruyter, a former executive at Sasol Ltd., the world’s largest producer of motor fuel from coal.
“I think if you look at the drop in government revenue in particular in Angola, as a result of the drop in the oil price, one would anticipate at some stage an adjustment,” he said. “They are trying to manage it in more of a glide path than a crash.”