CBE governor’s conflict over EEC tariff hike
‘‘The institutional frameworks that include the MPCC which the bank has put in place ensure transparency in formulating and implementing monetary policy through set objectives,” Luphondvo said.
MBABANE – Two reputable economists and a corporate governance guru are in agreement that Dr Phil Mnisi’s positions as CBE Governor and EEC Chairman present conflict.
The economists have pointed out that, on one hand, Mnisi is head of the Central Bank of Eswatini (CBE) whose mandate, from a monetary policy perspective, is to control prices (inflation) and economic growth.
There are suggestions that Mnisi should step down from his position at EEC so as to avoid the conflict.
“The central bank essentially spends time trying to shoot down inflation using interest rates,” said one of the economists.
On the other hand, the experts said, Mnisi is Chairman of the Eswatini Electricity Company (EEC), yet electricity and other energy prices form a big percentage of the inflation basket.
INCREASES ENERGY PRICES
“So, if the governor chairs the body that increases energy prices in the country and chairs the body that controls inflation, isn’t that counterintuitive?” wondered one of the experts.
All three experts spoke on condition of anonymity because they sometimes work closely with both the CBE and EEC, so they want to avoid any potential repercussions that may occur because of their professional views on the subject matter.
The issue of Mnisi’s conflicting roles comes in the wake of EEC having made an application to the Eswatini Energy Regulatory Authority
(ESERA) for an average 21.31 per cent tariff increase for the next two financial years.
This is happening at a time when the country’s economy is not a healthy one as consumers are faced with high prices of basic goods and utilities.
Mnisi was appointed Governor of the CBE effective July 1, 2022, after serving six years as Chief Executive Officer (CEO) of Eswatini Sugar Association.
Previously, he held positions that included; CEO of Standard Bank Eswatini, Assistant Governor of the CBE and CEO of Institute of Bankers South Africa.
At the EEC, Mnisi was announced as the Chairperson towards the end of March 2021 and he replaced African Alliance boss Sithofeni Ginindza.
“This is conflict. He will authorise this tariff increase which will propel inflation and then go to the central bank to control inflation. This is counterintuitive,” opined this one economist.
The economist stated that one of the reasons that the CBE would give for increasing rates would be the increased energy prices, including electricity.
“What’s that then?” he asked rhetorically, before adding: “The governor needs to be independent; he cannot participate in policy implementation because policy implementation is the one that causes the cycles in the economy. The central bank has to come in and help stabilise the prices. As any economist worth their salt, they will pick up this conflict.”
SENSITIVITY OF HIS ACTIONS
Indeed, this was picked up by the other highly regarded economist who said even though he was not aware about what the CBE Board Charter provided, but his view was that the governor should not be allowed to sit in a Board for any entity, based on the sensitivity of his actions.
“Based on this, this was not a good move. It compromises policy. Actually, in most countries, as a central banker you are not even allowed to comment on anything to the media or press because the central bank’s move is critical towards economic policy ,” said this economist.
He stated that in developed countries, a central banker’s perspective had an impact, ‘so this would definitely be not allowed in countries with a financial sector that is deep’.
Asked if there were central bank governors in the Southern Africa region who held Board positions, the economist said he was not sure as he had not taken time to research but presumed there was none.
RECEIVE ANY SALARY
Section 11(5)(a)(b)(i)(ii) of the Central Bank Order states that the governor and deputy governor shall devote the whole of their professional services to the bank and, while holding office, shall not, without the written approval of the minister, receive any salary or supplement thereto from any source other than the bank; occupy any other office or employment, whether remunerated or not, except as nominee of the bank or Board; provided that the governor or the deputy governor may act as member of any board, committee or commission established by government; become governor, director or member of the Board or other body of any international financial institution of which Eswatini is a member.
The corporate governance guru, meanwhile, said the points that had been raised regarding the governor’s conflict were valid.
He briefly opined: “It will be unhealthy for the economy for him to maintain EEC chairmanship.”
During a recent business and financial reporting training for journalists, which was hosted by the CBE, it was stated that the Monetary Policy was the governor’s prerogative and that the Monetary Policy Consultative Committee (MPCC) was just there as a consultative body, otherwise the Governor had the final word.
PERCEIVED CONFLICT
Mandla Luphondvo, the CBE’s Head Strategy and Communications, has defended the governor’s perceived conflict by saying that the office of the governor did not have any relationship with the energy regulatory body, ESERA.
It is worth pointing out though that the governor, in his EEEC chairman position, does have a relationship with ESERA.
On the suggestion that Mnisi should consider stepping down from his EEC
Board position, Luphondvo reiterated the context that approval or otherwise of energy prices vests with ESERA and not the EEC.
“The question of the governor’s appointment and tenure in the EEC Board is governed by the terms prescribed by EEC’s shareholder and the bank cannot comment on this, except to highlight that the bank’s independence is safeguarded through institutional frameworks that are supported by its legislation,” he said.
Luphondvo stated that it was important to, at the outset, place issues into perspective and mention that the principal objectives of the bank included, formulating and implementing monetary policy, through various objectives or set of tools that are supported by legal obligations and are discharged through existing institutional frameworks that include the MPCC which is chaired by the governor.
He said the law indeed places the responsibility of the policy decision with the governor, but such a policy stance was taken after consulting the MPCC.
“An appreciation of how the bank implements monetary policy through set of tools (which include maintaining stable prices) through institutional frameworks that include the MPCC that is chaired by the governor is important. The institutional frameworks that include the MPCC, which the bank has put in place ensure transparency in formulating and implementing monetary policy through set objectives,” Luphondvo said.
MONETARY POLICY COMMITTEE
He said to place this in line with best practice, the legal framework was being reviewed to allow for a Monetary Policy Committee. This upcoming body, he said, will make the decision and will be chaired by the governor.
He said decisions would be made through a voting process whose results shall be published with the minutes of the meetings.
“It is also important again to place issues in proper perspective and highlight that energy prices or increases in electricity tariffs are subject to regulatory approval of an independent body, the ESERA, an entity that the office of the governor has no relationship with,” Luphondvo said.
He acknowledged that the rise in the cost of utilities also contributes to rising headline inflation given that the weight (of housing and utilities) in the Consumer Price Index (CPI) basket currently stands at 27.60 per cent, which is ‘the largest contributor to changes in inflation’.
He was asked if the governor did not need to be independent, in the sense that he could not participate in policy implementation because policy implementation was the one that caused the cycles in the economy and the CBE had to come in and help stabilise prices.
To this, Luphondvo responded: “Preserving the bank’s independence, (including that of the office of the Governor) and transparency in monetary policy remains key and again it is important to reiterate that neither the bank nor the office of the governor has any relationship with the regulatory body responsible for the approval or otherwise of energy prices.”
OPERATIONAL COSTS
Besides the perceived conflict, one of the economists questioned the sense in EEC increasing prices to cover operational costs, considering that the company recently effected the 15 per cent value added tax (VAT), which was actually an indirect increase because the consumer purchases electricity units that are now less by the VAT (15 per cent).
Luphondvo said it would not be proper for the bank to comment on the underlying rationale for the tariff increase requested by EEC for a number of reasons, ‘including but not limited to the fact that EEC is an independent entity and it is public knowledge that the proposed tariff hike is currently the subject of discussion and determination by ESERA’.
The economist also questioned the EEC’s justification that one of the reasons for the tariff hike was the need for the power utility to finance its capital projects, such as financing a new power station.
“Why doesn’t EEC go to the capital markets to seek such funding or have government inject money into the company through equity funding or have the company go to the stock exchange to look for funding or seek bank loans, instead of increasing prices to embark on these big projects?” he asked.
Luphondvo could not provide responses to this because, as he said, EEC is an independent entity and questions of such a nature should ordinarily be addressed to the company’s management that is responsible for the entity’s operations.
RELINQUISHED
For one reason or the other, Mnisi has relinquished a number of positions following his appointment as CBE Governor.
One of these positions was that of being Chairman of the Royal Commission on the Terms and Conditions of Service for the Members of Parliament and statutory boards and commissions, where he has been replaced by Standard Bank Eswatini Chief Executive Mvuselelo Fakudze.
He has also been the Chairman of the Resource Mobilisation Committee; Chairman of EswatiniBank, Deputy Chairman of the Eswatini Revenue
Service (ERS) and Deputy Chairman of the Swaziland Building Society.
The EswatiniBank, EEC and ERS are Category A public enterprises.
His appointment at EEC is for a two-year period, while at EswatiniBank it was for three years; and at ERS he resigned with a year remaining in his tenure.
Last year, Mnisi told the Times SUNDAY that he had to resign from ERS and Swaziland Building Society because he was going to be extremely stretched by holding all the Board positions.
“I don’t want to be overly extended because I believe each and every person has to be effective on what he works on. And if you are in too many boards you end up being ineffective and that’s why I minimise them,” he said.
He said had he not withdrawn from the ERS and Swaziland Building Society boards, he would have been overly extended.
ALLEVIATE THE BURDEN
“I withdrew at ESR after I was appointed to the EEC Board so that I would alleviate the burden,” he said.
The main reason for his resignation from the Swaziand Building Society Board was that a conflict of interest arose after he was appointed into EswatiniBank Board.
“It was myself who said it wouldn’t be proper to be in these two boards, hence I resigned on my own accord so that I could prioritise serving the nation. I resigned and then observed a cooling off period,” Mnisi said.
At that time, he said his position at the Royal Commission for Politicians’ Remuneration was not too demanding or taking up a lot of his time because this was an assignment that was not always there, but assembled as and when the need arose.
This publication also understands that Mnisi has had to step down from his other position as Board Chairman at Liberty Life Eswatini.