By Paul Wallace
Angola is poised to become the latest emerging-market nation to dispense with a pegged currency, another sign that a four-year slide in oil prices has battered exporters in the $2.2 trillion-a-year market.
The southern African nation, an OPEC member, said this week that it would let the kwanza trade within a new band. The rate at which it was fixed against the dollar since April 2016 “does not reflect the truth,” according to central bank Governor Jose Massano.
It joins a long list of commodity exporters — from Russia to Egypt, Kazakhstan, Nigeria and Uzbekistan — that have floated or devalued currencies in a bid to end crippling shortages of foreign exchange and to revive economic growth.
“It was a long time coming,” said Kaan Nazli, a strategist at Neuberger Berman in The Hague, which manages almost $300 billion, including Angolan bonds.
The move underlines just how forcibly President Joao Lourenco is trying to bolster his nation’s finances, three months after he replaced Jose Eduardo dos Santos, the ruler for almost four decades.
Angola, which relies on oil for more than 90 percent of exports, kept a tight grip on its currency as the commodity slid. While the kwanza has already weakened 40 percent to 166 per dollar since mid-2014, analysts say it’s still too strong. Charles Robertson, Renaissance Capital’s chief economist, said in a note Thursday that the kwanza was the most overvalued of the more than 50 currencies he analyzes and that its fair value was 348 to the greenback.
The currency has tumbled to 430 on the black market as dollars run dry, leaving hundreds of companies struggling to pay foreign workers and overseas suppliers. Economic growth fell to zero in 2016 after averaging almost 9 percent per year during the previous decade.
Angola has bled reserves — which more than halved in the past four years to the lowest since 2010 — to defend the peg. The dos Santos administration said it was the best way for the import-dependent nation to curb inflation, which stands at 28 percent.
It could take a currency depreciation of 30 percent during the next year to improve Angola’s fiscal balances while also ensuring foreign debts remain manageable, according to Neuberger Berman’s Nazli.
Still, a devaluation alone may not be enough given the nation’s tight capital account controls and lack of kwanza-denominated securities to attract investors, according to Paarl, South Africa-based NKC African Economics. Angola is one of the few major African economies that lacks a stock exchange.
“While a more liberal stance on the kwanza is certainly welcome, we would argue against an immediate move toward a completely free float,” NKC analyst Cobus de Hart said in a note Thursday. That would raise the risk of the currency “spiraling out of control” and it “may not lead to a significant amount of foreign-exchange inflows initially due to the lack of developed stock and domestic debt markets.”
Finance Minister Archer Mangueira said late Wednesday that he would also “renegotiate our debt with our main partners throughout 2018.”
After his statement, yields on the government’s dollar-denominated $438 million of securities due in 2019 rose 25 basis points, although yields fell on its $1.5 billion of Eurobonds due in 2025. The Finance Ministry later said it was committed to servicing both foreign and local debt.
Much of Angola’s roughly $40 billion of foreign debt is in the form of bilateral lines from nations such as China or loans taken on by state oil company Sonangol.
“The government is more likely to focus on renegotiating the Chinese loans and the debts taken on by Sonangol,” said Nazli. “The Eurobonds only make up a small proportion of the external debt.”