Nene: No system could stop African Bank failure | Fin24
 
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Nene: No system could stop African Bank failure

Aug 11 2014 10:48
Fin24

Johannesburg - No financial sector regulatory regime can prevent failure of all financial institutions, Minister of Finance Nhlanhla Nene said in light of the SA Reserve Bank's (Sarb) decicion to place African Bank [JSE:ABL] under curatorship.

"Effective policy includes the resolution of financial firms in trouble in a way that imposes losses on those investors, who profited from that firm’s activities, and who were in a position to exercise influence over that firm’s management," Nene said at the 17th Southern African Internal Audit Conference.

The role auditors play in providing transparency to financial markets is vital, according to Nene.

"Having said that, National Treasury had already, in 2012, begun the process of further strengthening financial sector oversight and the events that culminated in curatorship of African Bank are a powerful reminder of the urgency of this work," he said.
   
He explained that the financial services sector is at the heart of the SA economy and touches the life of each and every citizen.

"Financial services allow people to make daily economic transactions, save and preserve wealth to meet future aspirations and retirement needs, and insure against personal disaster," said Nene.

"At the level of the macroeconomy, the financial sector enables economic growth, job creation, the building of vital infrastructure and sustainable development."

Key economic challenges

While growth in developed countries has gained momentum, the expansion in emerging markets has slowed.

The key challenges to SA's economic growth are largely domestic and the growth of the SA economy is not sufficient to address challenges of poverty, inequality and unemployment, in Nene's view.

"Slower growth among some of the emerging markets has affected negatively the international price of many of our export commodities and led to a deterioration in our terms of trade," said Nene.

"Developing economies remain vulnerable to volatile capital flows and growth is constrained by supply-side issues similar to the ones experienced in South Africa."

"Supply side disruptions have plagued the domestic economy over the last couple of years, weakening confidence and reducing the level of investment and household consumption," he said.

"Private investment grew by only 1% in first quarter of 2014, while private household consumption recorded modest growth of 1.8%.

Interest rate hikes

Despite weak economic growth, consumer inflation is rising and is currently at 6.6%, above the Sarb’s target range.

"This poses a significant risk to the purchasing power of consumers and the cost of doing business in the country," warned Nene.

"The outlook for inflation led to the Sarb raising interest rates at the beginning of the year, in what is widely expected to be the start an of interest rate hiking cycle."

Business and labour

Government is working hard to improve business conditions, according to Nene.

"We recognise that improving business conditions requires not only releasing the current supply side constraints but also improving policy alignment and policy certainty," he said.

Labour unrest in the platinum sector was resolved in June 2014 with the conclusion of a three-year wage deal between mineworkers and mining companies.

"The restructuring currently taking place in the sector as well as a focus by government to implement interventions to support the improvement in social and economic conditions of mining towns are likely to restore long-term stability in the mining sector," said Nene.

Shifting resources

Since there is a limit to resources available, the new priorities and programmes government have identified for the medium-term strategic framework (MTSF) will largely be financed by shifting resources away from less urgent uses, according to Nene.

"This will require government to make difficult choices and trade-offs in the period ahead. It is widely recognised within government that the funds available in the annual budget needs to be better deployed," he said.

"To support this reprioritisation of resources, the National Treasury and Department of Performance Monitoring and Evaluation (DPME) are conducting a series of in-depth expenditure reviews that aim to improve allocations on the basis of evidence of programme effectiveness."

The expenditure reviews will assist government to identify inefficiencies, realise savings and redirect resources to priorities.

"Given the constrained fiscal environment, government will need to do more with less," he said.

- Fin24

abil  |  nhlanhla nene  |  audits  |  economy  |  financial services
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