Staying The Course Amidst Troubled Economy

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From stabilizing the nation’s currency to keeping unemployment at bay, Central Banks across the world are perfecting the art of staying the course amidst a global economic crunch.

The Angolan Central Bank has particularly become adept in managing the country’s monetary policy and making the currency surge ahead of the rest.

In this exclusive interview with José de Lima Massano, Governor of the National Bank of Angola, we discussed the performance of the Angolan economy and other issues. Excerpts.

You have had an impressive career. Please tell us briefly about your professional background and how that has supported you in your current role?

I have spent most of my working life in the financial sector, having completed a Master’s degree at the City University in London.

I was on the board of directors of the state-owned commercial bank for 6 years, and thereafter was the CEO of the largest private commercial bank in Angola for another 6 years, with a break in between of 4.5 years during which time I served as the Governor of the Central Bank. This experience gave me an in-depth knowledge of the workings of the financial sector and of the economy and was invaluable for my current role.

At a Conference in Carcavelos, you stated that the main objective of the institution’s monetary policy is to ensure that inflation falls to single digits by 2024, adding that you are migrating to an inflation-targeting regime. Please, can you talk more about this strategy, and what policies you plan to introduce bearing in mind the rising cases of inflation globally?

At the end of 2017, we transitioned from an exchange rate objective in controlling inflation to a monetary objective, with money aggregates being the operational variable of the monetary policy, whilst at the same time preparing the ground for the implementation of a free-floating exchange rate regime, which was achieved in October of 2019. This policy has served us well up to now, however, our objective for the future is to progress to an inflation-targeting regime that will see the Central Bank establishing a numerical target for medium-term inflation, which will be publicly disclosed.

In the meantime, from an organizational point of view, the reforms we have implemented, which, amongst others, include formalizing the independence of the Central Bank and strengthening its accountability, as well as establishing price stability as its primary objective, have contributed towards creating the internal conditions for the implementation of the inflation targeting regime.

As for the rising cases of inflation globally, we are obviously monitoring those movements, taking note of the strong measures being applied by Central Banks worldwide to bring inflation back to their target levels. In our monetary policy decisions, whilst we define our policy in line with our particular circumstances, we also consider the inflation levels of our trading partners and the extent to which they may impact on our internal inflation.

Angola’s national currency, the kwanza, has seen an appreciation in recent months and is now worth around 430 kwanzas per dollar, appreciating about 30% against the dollar. What would you say is responsible for this achievement?

Angola depends on oil sales for its foreign currency, and therefore the significant drop in the oil price which started around mid-2014 significantly reduced the availability of foreign currency. The reluctance at the time to devalue the domestic currency due to the country’s dependence on imports exacerbated the shortage of foreign currency and led to a significant overvaluation of the domestic currency. This resulted in the complete malfunction of the foreign exchange market.

At the end of 2017, we established a new foreign exchange policy focusing on normalizing the functioning of the foreign exchange market through the elimination of administrative controls and the implementation of a free-floating foreign exchange regime. Initially, we had a regime of “managed depreciation” and in October 2019 we transitioned to a free-floating exchange rate regime.

As expected, immediately after freely floating the currency, there was an overshooting of the exchange rate as the banks adjusted to this new regime. In addition, shortly thereafter, we were confronted with the Covid 19 pandemic, and a crash in the oil price, linked to uncertainty on all levels, which caused some disturbance in the functioning of the foreign exchange market. However, as the Covid 19 was brought under control, the functioning of the foreign exchange market started returning to normal, and we saw the exchange rate move back to more sustainable levels, which explains the appreciation in the first half of the year.

From your perspective as the Governor of the National Bank, how do you rate the performance of the Angola economy?

The quarterly national accounts released by National Statistics Institute indicate a quarterly growth of real GDP of around 1.60% (+1.1pp) in the fourth quarter of 2021, resulting in a growth of 2.2% (+1.30pp) year on year, which determined a slight annual expansion in 2021 of 0.7%, after 5 consecutive years of economic recession. The favorable evolution of the GDP is in line with the positive sentiment of businesspeople about the economy. Of course, there is still a lot of work to be done, but we are on the right path.

Are there any plans to regulate financial technology (fintech) firms in the same way as banks are regulated in Angola?

The provision of financial services in Angola, including payment services, is regulated by the Central Bank. We have specific payment systems regulations which cover all payment service providers, whether they be banks or not. Fintech firms that are payment service providers are therefore regulated by the Central Bank according to the nature of their business model.

One issue that is attracting a lot of interest currently around the world is cryptocurrencies. While some countries are adopting crypto, some are also banning them. What is the bank’s position in relation to crypto adoption?

Only two countries have so far adopted cryptocurrencies as official legal tender, making their acceptance mandatory. We have no plans whatsoever to do this. We are closely following international developments on the use of crypto “currencies”, including the discussions within the Central Bank space with respect to regulation and supervision, and will take a view in due time as to the course of action to follow in respect of these “currencies”.

In what ways has the National Bank worked to ensure the safety of consumers and the financial system while facilitating innovation and competition?

In terms of the safety of the financial system, the Central Bank has adopted the European model of regulation and supervision of financial institutions in order to ensure a robust financial sector, aligned with international best practices, and prepared for the future.

The safety of the consumers of financial services is inevitably linked to the stability of the financial sector. We have also implemented specific regulations ensuring the conduct of banks toward their clients is appropriate and protects the client’s interests at all times. In addition, we have instituted a Deposit Guarantee Fund which guarantees bank deposits under a certain amount and which covers a large percentage of the depositors.

On the innovation front, the Central Bank has partnered with specialized entities to create the first fintech regulatory sandbox in Angola, with the objectives of increasing financial inclusion through technology and job creation.

The project was aimed at allowing fintech start-ups to test their products and services in a real market environment, whilst providing guidance on regulation and acquisition of licenses, as well as in the definition of the market strategy and the matching up with potential investors.

The Central Bank has also modernized the payment system regulation to widen the range of authorized service providers in line with technological developments in the payments space.

You introduced new reforms, and responded to the pandemic with policy and regulatory reliefs for the banking and SDI sectors, what is the broad vision of the Central Bank of Angola for the industry?

As mentioned previously, we have introduced numerous reforms in the financial services sector and foreign exchange market in order to align these with the best international practices. The reforms support our vision for the

banking sector, which is to have a strong sector fulfilling its primary role of providing a safe haven for the funds of the public and a means to allocate those funds to servicing the economy, through loans, in particular, to the productive sectors. We understand that a robust banking sector is essential to economic growth and development, creating opportunities, providing jobs, and facilitating commerce.

You have just been nominated to be conferred with the African Public Service Leadership Excellence Award by the African Leadership Magazine for displaying innovative leadership. How do you feel about this honour?

I would like to thank the African Leadership Magazine for the award.

Together with my team at the Central Bank, we work every day to achieve our objective of ensuring price stability and the solidity of the financial system, with a view to adding value to our society. It is, of course, gratifying when this effort is recognized by an international organization such as the African Leadership Magazine.

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