In Country Where Beer Was Once the Currency, a New Crisis Builds


MARCH 27, 2015

A worker counts 500 denomination kwanza currency banknotes in an office in Luanda, Angola, on Friday, Nov. 8, 2013. Angola, the largest crude oil producer in Africa after Nigeria, appointed Deloitte LLP as the independent auditor of its $5 billion sovereign wealth fund to ensure transparency. Photographer: Simon Dawson/Bloomberg

Luisa Joao sits all day in the sparse roadside shade on the outskirts of Angola’s capital, Luanda, buying US dollars with a stack of kwanzas, the local currency that she doles out from her purse.

The 47-year-old mother of three is constantly on guard for police patrols. She’s a black-market trader. And raids to break up the market have become more frequent since the currency’s plunge to a record low quickened late last year.

The selloff — while in part just a reflection of the dollar’s broader rally against currencies across the world — also has plenty of made-in-Angola elements to it. The country’s reliance on oil for more than 90 percent of its exports has made it vulnerable to the plunge in crude prices, and a law from 2012 requiring foreign oil companies to pay suppliers and salaries in kwanzas has further dried up the supply of dollars in some parts of the economy.

In the eastern Luanda suburb of Viana, Joao sees the growing dollar shortage first-hand. To acquire greenbacks, she said she’s had to offer a premium of as much as 70 percent to the price on the official market, where the central bank controls the exchange rate. Speculation is mounting that policy makers will pare back their defense, effectively letting it sink against the dollar in a devaluation.

“Lots of people are looking for dollars on the street,” Joao said, glancing over to the nearby convenience store where she hides her stash. “I hope business gets back to normal and police let us earn our money.”

Beer currency

Angola, Africa’s second-biggest oil producer and third-largest economy, is rebuilding from a 27-year civil war that ended in 2002. Residents in the late 1980s used beer as currency when inflation skyrocketed and a dollar was worth 2,000 kwanzas. Government workers used coupons to buy foreign beer, which they sold on the black market, and a few cases could even buy a plane ticket to Lisbon on the subsidized state airline. The currency was revalued in late 1999, when six zeros were dropped.

The kwanza weakened 9.2 percent over the past 12 months, falling to a record 107.9750 per dollar on Friday. On the black market, the kwanza depreciated to as low as 180 per dollar in February, when greenbacks were tough to come by, according to Joao. A year ago, she was paying 100 kwanzas for each dollar.

The tumble in the currency on the black market suggests that Angolan policy makers will need to follow Nigeria, the continent’s biggest oil producer, and devalue its currency by at least 20 percent, Gareth Brickman, a market analyst at ETM, said in an e-mailed response to questions this month. “Policy makers in both countries are and have been very reluctant to adjust to the new status quo.”

Inevitable devaluation

Such a move would help Angola’s economy adjust to lower oil prices that risks reducing the country’s trade surplus, he said. It would also ease foreign-investors concerns that a further slide in the currency will hurt returns when converted back to dollars, Brickman said.

The central bank allows lenders to sell foreign currency as much as 3 percent higher or lower than the exchange rate it sets at weekly auctions. The kwanza slipped 2.1 percent in February, the most since March 2010 and the seventh straight monthly decline. It was unchanged at 107.66 per dollar by 8:21 a.m. in Luanda on Friday.

“In the next couple of months, it wouldn’t be surprising to see the kwanza hit 120 to 125,” Tiago Dionisio, a Lisbon-based analyst for Eaglestone Advisory SA, said by phone March 6. “Devaluation is inevitable. And if there’s a large devaluation, imports will become more expensive and it could have a big impact on inflation.”

Managed depreciation

Inflation may accelerate to 9 percent this year from 7.7 percent in February, according to government forecasts. The central bank must balance the risk of price increases against the use of foreign reserves to defend the currency, Dionisio said. Net reserves dropped to $26.5 billion in December from more than $30 billion in April, according to central bank data.

“Whereas the Angolan central bank has historically used foreign exchange reserves to defend the currency, it’s more likely to use foreign-exchange reserves sparingly in a managed depreciation,” Lucy Corkin, author of a book published in 2013 on Angola’s management of credit lines with China, said in an e- mailed reply to questions.

With Moody’s Investors Service cutting its outlook for Angola’s credit rating to negative on March 3, two weeks after Standard & Poor’s lowered the country’s rating to four levels below investment grade, the government will find it more expensive to borrow hard currency abroad, according to Jose Alves da Rocha, chief economist at the Catholic University of Angola in Luanda.

Dollar debt

The southwestern African nation is seeking to sell $1.5 billion in Eurobonds as part of plans to issue $8.4 billion in mostly local bonds and Treasury bills, while also negotiating loans for $250 million in loans each from Goldman Sachs and London-based Gemcorp Capital to plug revenue shortfalls.

Yields on $1 billion of bonds due August 2019 and guaranteed by the Angolan government rose to a record 8.71 percent on Dec. 16, compared with 6.39 percent when the notes first started trading in August 2012. The rates dropped 12 basis points to 7.19 percent on Thursday as oil rallied to a two-week high.

The government approved a 2015 budget with a deficit equal to 7 percent of gross domestic product, which compares with a 3.9 percent targeted shortfall in South Africa and 0.8 percent gap for Nigeria. The World Bank estimates Angola’s GDP at about $124 billion.

Project delays

A 25 percent cut in government spending is being accompanied by delays in infrastructure projects, while President Jose Eduardo dos Santos reduced his forecasts for 2015 GDP growth to 6.6 percent from an earlier estimate of 9.7 percent. Eaglestone’s Dionisio is more pessimistic, predicting growth will be below 4 percent this year. Growth averaged 10.7 percent from 2000 to 2013, according to Trading Economics, which compiles data from official statistics and has offices in New York and Lisbon.

None of this bodes well for Joao, the illegal currency trader in Viana. As she struggles to eke out a profit, she’s torn between buying clothes for her children and saving up for a generator that can keep the lights on when the power flickers out across the city.

All the reading that her children have to do by candlelight, she said, is hurting their eye sight.

“A generator would be very helpful.”