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Alarm over symbolic Reserve Bank proposal amid ANC's economic war

Jul 06 2017 07:29
Yolandi Groenewald, Tshidi Madia and Matthew le Cordeur

Johannesburg - The Reserve Bank’s nationalisation proposal might be symbolic, but the ANC policy conference of the past week confirmed that the bank is a target of factions in the ANC.

The draft resolution highlighted that the South African Reserve Bank (SARB) is now mired in political controversy, even if others paved the way for this. But the Reserve Bank debate is just one of many in the ANC where economic and politics are deeply entwined.

The hardest battles in the commissions centred around economic policy, with several emotional outbursts marring discussions.

The final day of the national policy conference was dominated by the proposal to nationalise the SARB.

Economic warfare

It was no surprise that the Reserve Bank ended up as a target in the discussions. It is clear from issues discussed at the conference that there is an economic war in the trenches of the ANC.

Although the discussions and resolutions at the conference was a weathervane of the battles that will be fought in December at the ANC, many of the specifics will only be decided and adopted there.

Ever since the Public Protector painted a red target on the Reserve Bank, it has been open season on the bank.

Last month, Public Protector Busisiwe Mkhwebane recommended that the mandate of the SARB be changed – a matter that she was not asked to consider.

One of her remedial actions is an instruction to the chairperson of the Portfolio Committee on Justice and Correctional Services to “initiate a process that will result in the amendment of Section 224 of the Constitution”.

This would remove the mandate of the SARB to protect the value of the currency. It currently does this by managing the country's repo rate (currently at 7%) with the aim of keeping the country's inflation target between 3% and 6%.

Markets as a result are jittery around the Reserve Bank. When Bloomberg published leaked information from the conference on Wednesday, the rand devaluated by 2.2% when, hitting R13.50 to the dollar at one stage. 

READ: Traders on edge dump rand as SARB becomes target in politics

Storm in a teacup

But the drama around nationalisation at this point is no more than a  storm in a teacup. ANC head of economic transformation Enoch Godongwana, reporting back on the Economic Transformation commission, said changing the ownership of the bank would not change much, as the government and constitution regulates the bank in any case. He said the idea of nationalisation is a “sentimental thing”.

But it might just shift the target if some in the ANC feel that the bank is no longer privately owned, even if that ownership is only symbolic.

Peter Attard Montalto, chief emerging-markets economist at Nomura International, said the proposed nationalisation of the SARB has been on the agenda for some time.

“But it clearly fits into a different political context now after the Public Protector’s report,” he said. “We see no advantage from ownership by the state for government in view of the terms of the SARB Act as it stands and the constraint of the constitutional objective.”

But he said it was highly symbolic and important and a hint at the direction of things to come.

No money to buy shares

South Africa’s Reserve Bank is one of a handful around the world still owned by private shareholders. Godongwana said SARB stock being held by private investors is “an anomaly,” and that South Africa was “still sticking to the framework of the 1920s,” when the bank had started up. 

He admitted that the state did not have the funds to buy out private shareholders.

“Even if we wanted to there is no fiscal space for that ,” Godongwana said . “Why should you be prioritising paying people and buying shares of the reserve bank and paying private individuals cash instead of building roads, clinics and all that stuff?”

It would cost the government a pretty penny to buy out the current shareholders.

The Reserve Bank has two million issued shares, held by about 650 private shareholders. These shares sold at between R1.50 and R12 in the past year. It delisted from the Johannesburg Stock Exchange in 2002, and its shares are now traded over-the-counter.

Shareholders have no say in the appointment of governors.

“The government appoints the governors so there’s nothing really as things stands, in my own opinion, which is really going to change dramatically,” Godongwana said.

At the moment shareholders all get a standardised dividend.

About 90% of its profit is channelled to government in any event, said Godongwana. He added that the government would not be able to buy the bank’s shares back tomorrow, and that there were other critical priorities in South Africa that needed funds.

State capture

Commenting on concerns that nationalisation could lead to state capture, Godongwana said the only way to capture the Reserve Bank was by appointing the governor and the deputies.

“And that does not require change of ownership because you are appointed by the government as things stand,” he said. “It is irrelevant to how the bank functions because it is unlike an ordinary shareholder situation where shareholders have got influence.

“That to me is not worrying at all,” he said.

Reserve Bank: It has no bearing

The Reserve Bank told Fin24 that it has noted the draft resolution by the ANC policy conference, which is still to be submitted to the ANC elective conference.

“While typically we would refrain from commenting on internal processes of political parties, high public interest in the issue warrants this explanation," it said.

“The shareholding of the SARB has no bearing on the policy or regulatory role that the SARB plays."

The SARB reiterated that it is a public institution that derives its mandate from the Constitution. “Any notion that a change in the shareholding of the SARB will amount to a higher degree of control over the SARB is incorrect," it argued.

“Even with a change in shareholding, the SARB will continue to derive its primary mandate and independence from sections 224 and 225 of the Constitution of the Republic of South Africa, a mandate it must carry without bowing to any pressure, whether it be political or from the private sector.”

READ: Reserve Bank speaks out on ANC resolution to nationalise bank

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