Treasury warns of uncertainty as business group criticises bill to nationalise SARB

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Ishmail Momoniat.
Ishmail Momoniat.
  • The South African Reserve Bank Amendment Bill, which would place the central bank under complete state ownership, was introduced to Parliament by EFF leader Julius Malema in 2018. 
  • National Treasury director of tax and policy, Ismail Momoniat, says if passed into law the bill could cause great uncertainty. 
  • EFF MP Floyd Shivambu, meanwhile, says a wholly-owned central bank would improve SA's economic fortunes. 

Business lobby group Business Leadership South Africa has said that the country could not afford to worsen its already severe economic uncertainty by tampering with the independence of the South African Reserve Bank as proposed in a bill introduced by the Economic Freedom Fighters. 

BLSA and others were addressing Parliament's Standing Committee on Finance on Wednesday morning. 

The South African Reserve Bank Amendment Bill was introduced in Parliament by EFF leader Julius Malema in 2018. It proposes the complete state ownership of the central bank.  The bill would also give more power to the minister of finance over the bank's directors, a change from the current setup where the bank's Monetary Policy Committee operates independently.

Reserve Bank governor Lesetja Kganyago has been vocal in criticising any legislative decisions which would tamper with the central bank's independence.

The question of the bank's independence is a tricky policy issue for the African National Congress. The party resolved in its 2017 national elective conference that it would work to buy up privately-owned Reserve Bank shares and change the institution's mandate.

The central bank, meanwhile, has emphasised that its mandate does not stem from the composition of its shareholders, but is rather enshrined in the Constitution.

On Wednesday National Treasury director-general for tax and financial sector policy, Ismail Momoniat, noted that while the 2017 ANC conference resolved to nationalise the bank, the governing party did this whilst appreciating the complexities that the process would involve.

Momoniat pointed out that EFF MP Floyd Shivambu said upon the submission of the amendment bill to Parliament in 2018 that it was first step in changing the bank's mandate. This, said Momoniat, would cause uncertainty. 

"It ignores the rights of shareholders as codified in the original act. If there is a forced takeover of SARB shares, it raises a fear of whether or not this will stop at SARB and if it will be extended to other assets.

Shivambu took exception to Momoniat's submission and accused him of using National Treasury's platform to advance internal and factional interests.

"This Reserve Bank is under the control of a faction of the person who has just presented. The basis of the National Treasury to this bill is a false alarm similar to the false alarms of racists at the end of apartheid when they said South Africa could not be governed by black people," said Shivambu.

Shivambu maintained that the amendment bill was critical to changing South Africa’s economic fortunes, saying the countries with the biggest foreign investments are countries with wholly state-owned central banks.

An island of good governance 

Business Leadership South Africa policy and business coordinator, Nonhlanhla Mhlaba, said the business interest group does not support the proposed bill because of the risks the policy adjustment would present to SA's already-beleaguered economy.

"Changing the governance structure will negatively affect the bank's credibility, its monetary policy approach and South Africa’s standing in the world," said Mhlaba.

Mhlaba said the committee should seriously consider the importance of the institution’s role in foreign direct investment. She said that given the extent of degradation of key institutions caused by state capture, the Reserve Bank is mostly alone as an independent entity of good governance.

"The shares of the Reserve Bank are a form of property. Section 22 of the SARB Act contemplates that shares can be bought and sold and shares in the Reserve Bank can have a value in the market. Repealing this section will amount to expropriation and will be unconstitutional," Mhlaba said.

Chief of staff at the South African Institute of Race Relations, John Endres, said the think tank rejected the amendment bill as it would bring too much volatility to currency management and monetary policy, as well as prejudice shareholders.

"This bill is unconstitutional and will deprive shareholders of compensation through their property. It is bad for the Reserve Bank and it is bad for South Africa. The Reserve Bank has been one of the most successful and well-run entities in South Africa. It shines like a diamond among the rest of the state’s entities," said Endres.

He raised Turkey as an example of central bank interference gone wrong, saying President Tayyip Erdogan fired the reserve bank governor over differences in monetary policy. Inflation in Turkey has been above 10% for the past three years and billions have since been spent on managing the Turkish lira, Endres warned. "An institution with such a stellar track record should not be meddled with lightly, but this is what this bill proposes to do."

There was some support for the bill.

Ngoako Selamolela from the African National Congress Youth League Crisis Committee said a wholly state-owned central bank was a norm around the world and that it was time to bring the Reserve Bank in line with its global peers, calling SARB's structure an "anomaly". 

Selamolela expressed misgivings about private shareholders owning SARB shares, saying he believed they might use those shares to advance personal agendas. However, the SARB Act clearly secures the independence of the bank's Monetary Policy Committee from the state as well as shareholders.

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