I was rather intrigued by news reports that Gwede Mantashe, Secretary general of the ANC, has hinted that the ANC-led government should consider nationalising the South African reserve Bank (SARB). Mantashe said that the “South African Reserve Bank is one of less than five central banks in private hands in the world”.
My first thought was a rather naive one: Surely that cannot be right? How can the SARB be privately owned? And if it is privately owned, who owns it and how can I buy some of those shares (that is, assuming I had any money to buy the shares with)? It would be rather nice to say I own part of the South African Reserve Bank and, I imagine, it would be a rather safe investment.
Well, Mantashe was right – sort of. When the SARB was established it was common practice for central banks to have private shareholders and as the Bank explains on its website:
The ownership structure of the SARB, however, has not been amended since its inception. It is a juristic person in terms of its own Act. The SARB has some 600 shareholders and its shares are pre-dominantly traded on an over-the-counter trading and transfer facility. The SARB is one of only nine central banks with shareholders other than the governments of their respective countries.
So, does this mean that getting rid of those private shareholders is a good idea or that it is constitutionally feasible to nationalise the SARB?
Section 224 of the Constitution states that the primary object of the SARB “is to protect the value of the currency in the interest of balanced and sustainable economic growth in the Republic”. In pursuit of this objective, it “must perform its functions independently and without fear, favour or prejudice, but there must be regular consultation between the Bank and the Cabinet member responsible for national financial matters”.
The constitutional position of the SARB is thus quite similar to that of the National Prosecuting Authority (NPA): its independence is constitutionally guaranteed and the government of the day is prohibited from interfering with the day to day running of the Bank or any of its decisions. (Menzi Simelane, the man purportedly appointed by President Zuma to head the NPA, might of course disagree with this blindingly obvious constitutional fact – either because he is very ignorant or very dangerous – but that would not change what the law says.) At the same time the Bank is required to interact with the government to ensure that the broad policy objectives of the Bank and the government are aligned.
Nationalising the SARB will not change this at all – unless the Constitution is amended to abolish the independence of the SARB to allow the Bank to follow the instructions of the government of the day. If Mantashe meant to say that it was perhaps necessary to abolish the independence of the Bank, he was obviously smoking the strong stuff from Swaziland or the former Transkei because we all know what will happen if the Bank started acting in the interest of a strong clique within the governing party.
If that happens the Bank will start to print money to finance the lavish lifestyles of the right kind of party faithful and to buy the loyalty of cadres and before we know it we will all become Rand millionaires and acquire terrific numeracy skills (without any assistance from the Minister of Education), as we will be running around with R10 00000000000 notes in our pockets to pay for a loaf of bread.
It does seem rather strange that the SARB has private shareholders though, but in practice this makes no difference to how the Bank operates. While seven of the fourteen members of the Board are appointed by the President and seven more are appointed by shareholders, the Governor of the Bank has a deciding vote on the Board, giving control of the bank to those appointed by the President. Shareholders cannot remove the governor or the other members of the Board and have very little power over the Bank.
The SARB Act can be amended without any constitutional problem to abolish private shareholding in the Reserve Bank – as long as those shareholders are adequately compensated. But, once again, this will make no difference to how the Bank operates as its independence is constitutionally guaranteed.
The “debate” about the nationalization of the Reserve Bank is therefore a red herring to hide disagreement in the ANC about more fundamental economic questions within the ANC alliance.
The larger economic question (which I am not in a position to address) is whether the Bank’s broad policies on inflation targeting, agreed to by the Bank and the Minister of Finance, is good or bad for the working poor and the unemployed. Those who are calling for the nationalisation of the Bank should rather engage the Minister of Finance (who the last time I checked was a communist) about the broad government policy framework on inflation targeting and interest rates if they wish to change the policies of the Bank.
Nevertheless, if anyone has some Reserve Bank shares they want to give away in the name of transformation I will be happy to accept on the basis of representing the gay and lesbian lobby! Given the overwhelming influence of money on our politics (Tokyo Sexwale gave lots of shares to influential opinion makers – remember Xolela Mangcu? – to buy some good publicity for himself and for Jacob Zuma) one of those Reserve Bank shareholders might believe if they give me some shares I will sing the praises of one politician or another.
I am happy for them to think that giving me shares will help their cause and will gladly take the shares – and then write exactly what I like in any case.
Just a (tongue in cheek) thought.
How typical of the ANC.
Waste billions of taxpayers’ hard-earned in compensation to ensure SARB hegemony – only, they already control the SA Reserve Bank. Another brilliant scheme from Luthuli House! LOL!
Think how it looks to the outside world, geniuses!
Nice move… I am not happy with these foreigners influencing the interest rates in my country in an attempt to fill their extremely deep pockets. The sooner we understand that SA resources are for South Africans and not foreigners the better.
“I was rather intrigued by news reports”
This too is a very intriguing report :
“Lax ANC leads to Marogas: Cope
Jan 28, 2010 10:31 AM | By Sapa
The Congress of the People warned that the ANC’s unscrupulous governance will continue to produce the “greedy Marogas of this world”.
Cope had noted former Eskom CEO Jacob Maroga’s outrageous and regrettable R85 million law suit against the financially ailing state power utility, Cope spokesman Mlindi Nhanha said.”
http://www.timeslive.co.za/news/article281240.ece
One small detail missing – Moroga was appointed by one of their staunch supporters, then Minister Alex Erwin.
Come on COPE – take some credit where it’s due!
@ Maggs
Erwin succeded Ngcuka who managed Eskom very well and is a Cope member.
Only in Cope where politicians relaunch themselves with a clean record.
Al of a sudden Mbhazima, Lekota, Ngcuka, Shope, Ngonyama etc are very good politicians worth leading this country.
Who are these private shareholders who are guaranteed 10% returns for life when we have an inflation at about 7% and a target 3-6%. Can anyone of us also be allowed to invest in this scheme with guaranteed returns.
Gwebecimele, as far as I can tell the names of shareholders are kept secret! But one can offer to buy shares over the counter (the price at the moment is around R11 – up from R10 before the nationalisation talk). This info is all on the SARB website. As I understand it one only gets a dividend of 10c per share tops (not 10% dividen per share), which seems like a rather bad investment given the share price of between R10 and R11. Which makes one wonder: who wants to own such shares? Probably people with big ego’s who want to say they own the Reserve Bank as well as Banks who want to go to the AGM to say nice things to bthe Governor just in case….. Be that as it may: the real debate is not about nationalisation. It is about inflation targeting and about the balance that needs to be struck between fighting inflation and stimulating growth.
Thanks Prof, I thought I heard Iraj talking about 10% on radio.
What ever happened to Xolela? almost forgot about him?
I agree though that this debate is a bit of a red herring.
The real debate is not just about inflation targeting is about nationalisation of other key sectors. Telecoms being one.
I am in favour of the nationalisation of telecoms – on the basis of one big proviso – that the government insures it has competent staff to mange it.
And that is the REAL debate. You can not have a statist state, a strong state, a socialist state, a social democratic state, choose your pic – without an exceptional bureaucracy.
How can we reach that point?
@ Pierre,
“as far as I can tell the names of shareholders are kept secret!”
Here’s one.
“Shareholder stirs up Reserve Bank AGM
September 19, 2008
By Ethel Hazelhurst
Johannesburg – A shareholder who said he and his family had a 5 percent stake in the Reserve Bank threatened yesterday to call an extraordinary general meeting to address his concerns on a number of issues. Michael Duerr said that, with friends, he could muster between 10 percent and 15 percent of the bank’s 2 million issued shares.”
http://www.busrep.co.za/index.php?fArticleId=4618353
Gwebecimele says:
January 28, 2010 at 11:14 am
Here’s an extract from a very interesting paper.
“The ANC vastly underestimated the impact of global tendencies on policymaking in South Africa. The country’s democratisation and international integration introduced it to an array of international processes. Especially, the exposure of decisionmakers to international financial institutions, coupled with the absence of direct international investments despite South Africa’s political popularity internationally, resulted in a serious reconsideration of its macro-economic principles.33
Two examples of the tacit influence of the external environment were the following: in January 1995, the IMF released a report on selected economic issues in South Africa. The unemployment problem was its key focus. A significant conclusion of the report was that the bulk of unemployment was neither voluntary nor frictional, and not cyclical, but structural.”
http://www.iss.co.za/pubs/asr/9no3/PolEconom.html
Great introduction, Gwebecimele!
Now let us examine what the godless, shameless ANC has been able to effect – in 15 years – to turn around what everybody knows is this country’s greatest problem.
I lie. Great introduction, Maggs!
The motive for nationalization in SA is vague. Is the central theme socialism? The belief that public ownership enables people to exercise full democratic control over the means whereby they earn their living, providing an effective means of redistributing wealth and income more equitably is a mirage. The Nationalization of banks in the USA is understandable, given the circumstances however even in the States such advocacy has been prompted as a “temporary measure” to quote Alan Greenspan.
I fail to see the urgency or long term benefits to South Africa. Did the NCA not save this country from such a fiasco? Recession comes out of many factors, prime of which is manipulation and artificial boosting of business and regressive government policy. What prompts a worrying factor is that nationalization may occur with or without compensation to the former owners. If it takes place without compensation it is a case of expropriation. I am not an expert but logic does prevail.
Government would have to be very careful about imposing any loss on senior creditors of any bank taken under their control because it could impact the senior debt of all other banks, an anchor in the system. But as it stands the current Government in SA will rule till Jesus comes back presumably.
However Polygamy A much discussed “legal principle” according to the president at the Davos world economic forum must have been the most enlightening feature thus far!
Personally I felt far more comfortable when Jacob Zuma was talking about polygamy rather than macro economics at Davos. His background clearly suggests which of the two is his greater area of expertise.
For anyone who is really interested, there’s a discussion about the private shareholding of the SA Reserve Bank here http://www.theforumsa.co.za/forums/showthread.php?t=3924 with some variety in views on the topic.
At first glance it seems crazy to have private shareholdings in central banks, but I’d suggest anyone calling for nationalisation of the SA Reserve Bank do some careful homework.
Take a careful look at the international bond market, where it comes from and the influence it has.
Then take a look at the run on the Rand in the late 1990’s.
If you’re still not convinced there needs to be a healthy balance and communication between economic and political forces, add our government’s recent track record with monopolistic parastatals (particularly Eskom) and you might just change your mind.
Pierre is missing an important point where he thinks that the SARB is already bound by the constitution to co-operate with the gov’t in pursuing a balanced and sustainable economic growth, and that hence nationalising the bank wouldn’t change that.
The question isn’t so much whether the SARB is BOUND by constitutional provisions or not, but under which conditions it would be best fit to actually REALISE constitutional provisions. A privatised body held by 600 business entities pursuing short term profit is much less likely to value “sustainability”, “balance” or any social interest over its own profit.
~A privatised body held by 600 business entities pursuing short term profit…~
And Pierre missed an important point? I’m sorry, but that statement is so inapplicable to the SARB (and its shareholders for that matter), it missed the bus entirely.
If the SARB’s articles are such that the state will always have a controlling majority vote,
then are you ‘respecting commercial law as established over centuries’? But then you/s
don’t want to respect limited-liability re. corporations which traded with the apartheid
state. So if it suits you, you use ‘law’ and other wise you use ‘equity’ ?
When the ANC took over Eskom, soon after the country ran out of electricity.
If they take over the Reserve Bank, will South Africa run out of Money too?
It’s very disturbing to learn that the reserve bank is owned by private shareholders. But, just the thought of it being nationalised also doesn’t make me comfortable. Look at how the ANC government has manipulated the NPA over the past 10 years. Looking at recent history, i’m not convinced that the government is capable of letting independent institutions function as they should, independent!
@The Future at 7.52am.
Why is it disturbing to learn that the Reserve Bank is owned by private shareholders? Can you give examples of actions by the Reserve Bank, directly attributed to its shareholding, that have disturbed you? If you can, please do.
Now that some have decided that everything that is run by government fails they can start a campaign and privatise SARS, Eskom, Water, Oxygen etc.
I love this blog – full of erudite and enlightening observation, much of it humorous, most of it thoughtful. But aren’t contributors missing the point? The SARB is already nationalised, even though it is ostensibly in private hands and for the blessed 600 who hold the shares, a snug and steady stipend that will roll in for life. It always makes me smile when Bank governors and government ministers shrilly proclaim the SARB’s “independence” whilst there, hiding in plain site in the wings, is the finance minister of the day flashing cue cards at the players on the fiscal stage. What will help the Bank, though, will be a healthy measure of honesty, and a gang of earnest folk to shovel out the bulldust, pull down the veils of secrecy and install a thought process that tackles this country’s financial problems creatively, and not simply shove up the interest rate when inflation strays out of its arbitrarily applied target bracket, and then go back to sleep. There are other ways of skinning the inflation cat. I think King would agree that it’s time the SARB shareholders insisted that the Bank’s management did an honest day’s work.