Over the last few years there have been growing concerns in South Africa about the weakening of key State departments and institutions. The SA Reserve Bank (Sarb) has however remained strong and independent, and has successfully pushed back against attempts to undermine it.
It’s therefore understandable that when the ANC resolved at its 54th national conference that the Sarb must be nationalised, this caused some consternation. The Reserve Bank itself was quick to argue that this was a potentially disruptive decision.
“The Sarb is of the view that the process of changing the ownership structure of the Sarb at this point in time could raise the level of risk and uncertainty for the country in both a financial and economic policy sense,” the bank noted in a statement. “This heightened exposure to risk is unwarranted given the country’s fragile economic situation.”
At the same time, however, it also pointed out that it makes no practical difference who its shareholders are.
“The Sarb functions in the public interest; private shareholders have no influence whatsoever on monetary policy, financial stability, or banking regulation,” the Sarb said.
That being the case, why has the ANC seemingly become so obsessed with the Sarb’s ownership structure, particularly since when ANC economic transformation committee head Enoch Godongwana announced the policy position, he added that there will be no change to the bank’s mandate?
The Sarb’s mandate is in any case set by the Constitution. So while it has become highly unusual for a central bank to have private shareholders, they play no role in that area.
Monetary policy is also decided by the Monetary Policy Committee (MPC), where private shareholders have no presence whatsoever. The most important members of the MPC are the governor and deputy governors, who are all appointed by the president.
“The fact that the Reserve Bank has private shareholders has no impact on its policy decision making,” says Johann Els, the head of economic research at the Old Mutual Investment Group’s MacroSolutions boutique. “And, similarly, nationalising the bank won’t have any impact on policy either. There wouldn’t be any change to the way that the Sarb sets policy. That independence won’t change.”
He says the ANC’s decision to nationlise it may therefore be more about politics and playing to an audience than anything else. This is a view shared by Herbert Smith Freehills partner and Africa co-chair Peter Leon.
“It’s just straight economic populism,” says Leon. “It’s a complete red herring because the bank has had private shareholders since its establishment in 1921.
“It’s confusing ownership with control,” Leon adds. “The control of the bank is in the hands of the government, because the president appoints the governor and deputy governors.”
A change in ownership is therefore, as the Sarb itself put it, “cosmetic”.
“I don’t think we should be too concerned about it,” Els argues. “If on the back of this the ANC starts changing the Reserve Bank’s mandate or policy, then we should worry, but I think that’s unlikely.”
He points out that when the Public Protector recommended a change in the Sarb’s mandate as part of her findings in the Absa-Bankorp bailout matter, there was an immediate reaction from government against this interference.
“The comeback, even from the minister of finance, was so swift that I don’t think this is a big risk,” says Els. “Malusi Gigaba may have disappointed us significantly in other ways – such as the medium term budget policy statement – but he hasn’t crept onto the monetary policy terrain by putting pressure on the Reserve Bank to cut interest rates or anything like that.
“If you do start hearing those kinds of comments, that could potentially be the first signs that could lead to changes in legislation, but I’m still very much of the opinion that that is not on the cards,” Els adds.
What the ANC’s decision does do, however, is create unnecessary uncertainty in the eyes of investors.
“It just doesn’t send a positive message to investors when the country is in such difficult financial straits,” says Leon. “Foreign investors will immediately think the government is taking control of the printing presses and that the bank will no longer be independent – but fortunately the bank’s independence is guaranteed by the Constitution.
“It just sends a rather negative message to investors generally at exactly the wrong time,” Leon adds. “And you have this on top of the issue, which I think is much more serious, of amending Section 25 of the Constitution to remove the right to compensation for the expropriation of land.”
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