Kwanza devalue to hit exporters hard
Bank of Namibia Governor Iipumbu Shiimi says the recently-devalued Angolan Kwanza will create less demand for the Namibian dollar.
Namibia and Angola signed a currency exchange agreement earlier this year to boost trade between Santa Clara and Oshikango.
Last week, the Angolan central bank devalued the Kwanza by 6%, which saw the currency’s losses against the US dollar amounting to roughly 23% this year. The Angolan central bank’s governor Jose Pedro de Morais said the economy has been weakened by a sharp drop in crude prices. Angola is Africa’s second-largest crude oil producer, and is currently struggling to support its economy after the oil prices which were halved last year saw less dollar inflows.
This put a dent in Angola’s local currency, negatively affecting public finances, in addition to encouraging huge government borrowing.
BoN and Banco National de Angola in June also signed a currency conversion agreement, followed by an agreement signed between the two central banks in September 2014. That agreement was set to facilitate the joint conversion of the national currencies of Namibia and Angola at the border towns of Oshikango and Santa Clara.
Any Namibian visiting Santa Clara in Angola will be able to legally exchange the Namibian dollar into Angolan Kwanza at any commercial bank or bureau de change, and any Angolan citizen will be able to exchange the Angola Kwanza at any commercial bank or bureau de change at Oshikango for the Namibian dollar at the applicable daily exchange rate. The implementation of this agreement was intended to enhance trading activities, and thus strengthen economic relations between the two countries.
Shiimi said the devaluation of the Kwanza by 6% will make the dollar more expensive, and the person exchanging would thus get less money. The purchasing power for goods will thus decline.
For Namibian nationals exchanging the Namibian dollar in Angola, it means the number of Kwanzas they will receive is less than what they would usually receive before the devaluation occurred. “Of course, Namibia is affected by the Kwanza devaluation. It means the Kwanza becomes more expensive for us, and it means that the person exchanging will get less money.
The Angolan national who is also exchanging the Kwanza for a Namibian dollar will get less dollars. We will be getting less Namibian dollars as the devaluation means we are not selling at the same exchange rate. The purchasing power for goods declines,” Shiimi said.
He reiterated that the agreement which was signed allowed Angolans to come and exchange their currency here, saying they can change their Kwanza here for Namibian dollars. “It is meant to assist small traders who sell their products and earn their money in kwanza, and thus need to exchange it here. The agreement makes it easier to buy here and exchange kwanzas. We do not decide on the exchange rate, the market determines the price,” Shiimi said.
Meanwhile, the devaluation was caused by the Angolan government passing a new Private Investment Law on August 11, although the details were previously not made public.
Last year, Namibia also signed a Memorandum of Understanding (MoU) with Angola on bilateral cooperation in the oil and gas sector. The three-year MoU allows Namibia to purchase crude oil from Angola, and also involves bilateral co-operation in the construction of two oil refineries in Angola.The agreement was the conclusion of two years of collaboration between technical teams and negotiations between the two governments.
The National Petroleum Corporation of Namibia (Namcor) and its Angolan counterpart Sonangol will implement the agreement, which is renewable after three years. Hopefully, the situation in Angola would have calmed down as Namibia plans on tapping into that country’s oil sector.
The Angolan Central Bank Governor was quoted in the Business Day as saying that a significant part of private investment has become a major drain, with foreign currency going abroad. De Morais said companies operating in Angola and citizens should reduce their foreign currency needs by 50%.
The new law would require foreign companies to run operations from an Angolan bank, a measure experts believe is aimed at monitoring firms which regularly report losses, meaning they do not then have to pay taxes. At the same time, the new law would mean that foreign nationals will not have to repatriate local Angolan funds.
Meanwhile, the Namibian and Angolan governments have signed a number of bilateral agreements such as power agreements, the construction of the three bridges and so forth.
One of the projects is the Baynes power plant, which is regarded as a valuable power-generation asset which has the potential of supplying the two countries with reliable, clean electricity in future.The Baynes hydro-power station project is worth N$14.9 billion, and is set to be situated in the Cunene Region. It is supposed to take seven years to complete from the date of inception, but has not been specified yet. It is predicted that the Baynes mid-merit/peaking power station’s capacity would be 600 MW, which will be shared equally between Namibia and Angola.