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As with the majority of African consumer markets, weaker
purchasing power as a result of supply and demand shocks resulting
from the coronavirus disease 2019 (COVID-19) pandemic will bode ill
for activity in 2020 and 2021.
Annual headline inflation in Angola remained elevated in
September and October, limiting space for the central bank to cut
interest rates further in the near term to support small and
medium-sized enterprises and raise private consumption.
The Angolan government showed prompt action to support
households and businesses in 2020 during the pandemic through for
instance the introduction of exemptions from value-added tax (VAT)
on goods imported as humanitarian aid and donations, but also VAT
tax credits on imported capital goods and raw materials for
producing essential consumption goods.
Rising price pressures and higher
unemployment
Figures available as of 4 November from the National Bank of
Angola (Banco Nacional de Angola: BNA) suggest that price levels
stood at 22.9%. September's annual headline inflation rate rose to
23.8%. Annual headline inflation reached the 20% mark back in
April. In addition, April registered the highest increase on a
month-on-month basis, at 2.1%, identical to the monthly price
growth observed in January. Monthly headline inflation in September
fell to 1.8%, down by 0.3 percentage point from the previous month.
The combined demand and supply shocks of the COVID-19 pandemic have
caused a significant deterioration in macroeconomic fundamentals
contributing to a worsening in poverty levels and general weaker
purchasing power in Angola. The weaker purchasing power that
results from these developments is expected to have a significant
negative impact on the consumer market. And anticipated higher
unemployment levels in 2021 will challenge a rebound next year.
Furthermore, and according to the Angolan National Institute of
Statistics (INE), the unemployment rate during the third quarter of
2020 is estimated at 34%, 1.3 percentage point higher than in the
second quarter and 3.9 percentage points higher than in the third
quarter in 2019. To mitigate the negative impacts of the COVID-19
pandemic, the BNA announced in September plans to implement a
deferral measure in the constitution of impairments for regulatory
effect.
Limited scope for monetary adjustments
However, further monetary policy adjustment is expected to
remain constraint. We maintain our view that for instance interest
rate hikes or further rate cuts by the BNA are unlikely in the near
term amid expected continuous high inflationary pressures. IHS
Markit expects Angola's annual average headline inflation rate to
reach around 22.5% in 2020. Although softening moderately,
inflationary pressures are expected to remain elevated in the near
term, before tempering in 2022. The higher price levels in tandem
with a weaker exchange rate of the kwanza, which is the result of
oil price softness, are expected to continue to burden
private-sector business growth, in particular, and IHS Markit
expects private consumption to decline by 4.3% in 2020, before
gradually recovering during the second half of 2021. This outlook
remains under high risk, however, from the outcome and duration of
a second wave of COVID-19 pandemic globally.
Fiscal policy changes to support the
economy
Given little scope to adjust interest rates, we have seen other
prompt action by the Angolan government to support households and
businesses in 2020 during the pandemic. These included exemptions
from VAT on goods imported as humanitarian aid and donations, but
also VAT tax credits on imported capital goods and raw materials
for producing essential consumption goods. Additional liquidity
support to banks and a liquidity line to buy government securities
from non-financial corporations have also been implemented to
support business activity.
The quantitative impact of the COVID-19 pandemic on business
growth in Angola and on other macroeconomic criteria such as
consumer spending has not been measured yet by the Angolan
government. However, to obtain critical information on the impact
of the pandemic on the productive and commercial activity of mostly
small and medium-sized companies and to assist their actions and
decision-making, the BNA launched a survey on 30 October. The
survey is of monthly frequency and should be reported to the BNA by
the 15th day of the following month, with data based on turnover,
number of workers, and use of support instruments created by the
government. The launch of the survey bodes well for further,
much-more targeted action by the government to address domestic
demand. Lowering excise duties, for instance, would be one
additional action we expect the government to undertake. Angola's
beverage sector raised concerns in October that, if excise duties
are not lowered, further reductions in employment and productivity
will arise, following a drop in revenues as a result of COVID-19
this year. The excise duty stands at 25% for spirits and 19% for
soft drinks. According to the Association of Beverages Industry of
Angola, the beverage market has seen a drop in orders of 30% so far
in 2020, leading to a significant rise in redundancies contributing
to higher poverty levels.
Posted 17 November 2020 by Alisa Strobel, Senior Economist
