Download Angola update – the case of dollar supply

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ECONOMIC AND FINANCIAL RESEARCH
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Angola update – the case of dollar supply
11th December 2015
Paula Carvalho
+351 21 310 11 87
[email protected]
Supply of dollars suspension to Angolan Banks
According to recent news, the US authorities seem to have ordered the suspension of dollar notes supply to
Angolan banks. These news and interpretation are not correct. Indeed, First National Bank, a branch of South
Africa’s First Rand, that was the only supplier of dollar notes to Angolan banks, has announced the suspension
of these operations from December on. The South African bank has not justified the decision but there was
speculation in the market about the involvement of the Federal Reserve, which is incorrect (in fact, the decision
might have been originated in the Bank of America, that is a commercial and investment bank, not an authority).
Indeed, the Angolan banks are already managing to arrange alternative suppliers and some of them have
already assured their clients that they will restart the normal sale of dollar notes at the beginning of 2016.
Additionally, local banks have been suggesting alternatives to their clients that travel abroad, for instance by
providing pre-charged dollar cards.
Consequences for the global macro and Fx picture
Despite the misinterpretation, the stoppage/interruption in the dollar notes supply will have some consequences.
Accelerate the de-dollarization process - Indeed, this process is well advanced – for instance the proportion of
deposits and credit in foreign currency is now much lower than before (according to BNA data, the outstanding
level of credit to the private sector in fx currency amounted to circa 29% of private sector credit, that compares
to circa 50% back in 2011; deposits in fx currency amounted to 36% of total deposits also in October) and
authorities have been acting very firmly to hasten the reduction of the US currency use internally for payment
purposes (for instance, through legislation to mandate oil companies to use local banks and to make most of
their operations in kwanzas). However, there are some high value items such as rents or vehicle sales that are
still typically paid in US dollars. So, despite the fact that the interruption of dollar supply should be temporary,
the episode will probably accelerate this process.
Pressure will keep rising in the informal market – In the first days of December, the central bank was selling
the currency to commercial banks at 135.968 AKZ per dollar. But according to the press, in the parallel market
the rate has already exceeded 295 AKZ per USD. What is more, some of this parallel market is gradually
disappearing from street corners, according to local sources, which should be seen as a positive development
by the authorities.
…may add to the pressure on the currency – This
Exchange Rate USD/AOA and EUR/USD
episode
will
probably
have
some
negative
consequences internally due to the still high degree of
(USD/AOA; EUR/USD)
dollarization in Angola (although local banks assure that
the situation will be normalized soon). Furthermore, the 140
1.5
currency business still represents an important activity
1.4
for local banks. Although the lack of dollars is not 130
1.4
directly related to the foreign exchange policy, it could
1.3
have an impact on the exchange rate through the 120
1.3
expectation channel. Indeed, given the perceived need 110
1.2
1.2
for further adjustments in the economic policy mix, this
1.1
episode may well accelerate the process of devaluation. 100
1.1
We recall that since mid-September, when the BNA
90
1.0
decided to make a devaluation of circa 8%, the currency
jan-14 mai-14 set-14 jan-15 mai-15 set-15
has been almost stable, depreciating at a marginal rate:
Source: BNA
EUR/AOA
EUR/USD (ELD)
circa 0.008% since then from 135.968 to 135.986.
Meanwhile, several developments have occurred that
will influence the future path of the exchange rate and central bank’s decisions.
•
On the negative side, despite the currency devaluation, the goods’ import bill has declined only 25%
during the first eight months of the year to August. Given the almost 50% drop in export revenues from
a year ago, this suggests the need for further measures to curb domestic demand.
•
Additionally, recent data confirms that fx reserves continue to slide, although very gradually: October
reserves stood at 23.4 bln USD, less 3.3 bln USD than levels seen a year ago. We recall that the ability
to support the currency going forward will depend on the fx reserves level, which authorities think
should continue to cover more than 7 months’ imports, close to present levels.
Portugal: International Tr”Angola Update – The case of dollar supply” December, 11
•
th
2015
Finally, the oil price has declined recently towards below 40$ per barrel, lower than the level considered
in the 2016 official budget (45 USD per barrel). We recall that considering the official scenario, public
expenditure is expected to reach 4.3 trln AKZ next year, circa 17% below the levels reached in 2014;
capital expenditure is the major driver for this reduction, as investment is seen to decline 50% when
compared with 2014 levels.
On the opposite side, some developments have given additional leeway to the authorities that may well suggest
a smoother process of currency devaluation going forward. The end-November decision by the Monetary Policy
Committee of BNA (keeping key interest rates unchanged) also suggests that the central bank may wait for
further evidence until deciding for eventual additional measures as far as the fx rate is concerned. Indeed, oil
production has been increasing more than average forecasts (1.79 mln brl/day according to Bloomberg data,
on average, in Jan-Nov), a fact that should help to contain the reduction in foreign revenues; and, more
important, the recent issue of the first Eurobond (1.5 bln USD) as well as some bilateral agreements (especially
with China) will also contribute to smooth the process of adjustment to the “new normal” scenario of low oil
prices.
Portugal:
BPI International Tr”Angola Update – The case of dollar supply” December, 11
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reproduction is allowed, subject to mentioning the source.
This research is based on information obtained from sources
which we believe to be reliable, but is not guaranteed as to
accuracy or completeness. At any time BPI or any affiliated
companies (or employees) may have a position, subject to
change, in these markets. Unless otherwise stated, all views
(including estimates or forecasts) herein contained are solely
expression of BPI Economic and Financial Research and
subject to change without notice.
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2015