EFF’s Bank bill puts ANC on the spot

EFF leader Julius Malema has stolen a march on the governing ANC by proposing legislation to nationalise the Reserve Bank.

The Bank is owned by private shareholders, although they have no power over how it operates, its monetary policy or who leads it.

Bank governor Lesetja Kganyago has warned that nationalisation could have costly implications for the state, though it would not necessarily affect the independence of the institution, which is enshrined in the constitution.

President Cyril Ramaphosa has insisted that the Bank’s independence is sacrosanct.

Malema’s initiative has thrown down the gauntlet to the ANC, which resolved at its December conference to nationalise the Bank.

The ANC has launched what is expected to be a drawn-out process to look into the modalities of achieving this. It withdrew a parliamentary motion to debate the issue in the National Assembly in March to allow the governing party to consult with key stakeholders.

Banking Association SA MD Cas Coovadia said the EFF’s proposal was a political issue within the context of the broader nationalisation debate the party has put on the table. It came at a time of uncertainty about land expropriation without compensation, which the EFF spearheaded and the ANC had endorsed, he said.

“The perception is that the EFF is leading this debate. The ANC needs to take charge … the government has to be clear that our critical priority is investment and growth.”

Coovadia said nationalisation of the Bank was in some ways a diversion because the majority of the Bank’s board was appointed by the government, and its shareholding had no bearing on monetary policy decisions.

“There are serious limitations on the holding of the shares and on the dividends earned on those shares, so it is not the case that anybody is making a great deal of money from it.

“But we also believe … it will send the wrong message … it will create the perception that the independence of the Reserve Bank is being encroached upon.”

In a briefing to parliament’s finance committee last week, Kganyago said the Bank would engage with the process with the sole intent of preserving its independence and the mandate given to it by the constitution.

“Whether the Bank ends up being wholly owned by government or continues as it is, for us the prize is preserving the independence of the Reserve Bank.”

IT WILL CREATE THE PERCEPTION THAT THE INDEPENDENCE OF THE BANK IS BEING ENCROACHED UPON

He anticipated there would be wrangling with shareholders over the value of the Bank’s share price should it be nationalised, and a long court process was likely to ensue over this.

Depending on the outcome, nationalisation could be a costly exercise for the state.

In terms of the South African Reserve Bank Amendment Bill introduced in parliament by Malema, the state should be made the sole holder of shares in the Bank and the finance minister should have the power to exercise the rights associated with this shareholding.

The bill proposes that the directors of the Bank’s board be appointed by the minister rather than being elected at an ordinary general meeting of shareholders, and that the annual report and financial statements be submitted to the minister and parliament.

Politicians and banks make for a toxic mix anywhere in the world. That is one reason why the independence of the Reserve Bank is paramount. It is also why the laws and regulations governing banks must ensure they operate to the highest global standards.

The “nationalisation” of the Bank has been put back on the agenda by the EFF, although it is not clear why. It tabled a bill last week that seeks to make the state the sole shareholder of the Bank and for its directors to be appointed by the finance minister, rather than by shareholders.

I doubt the EFF’s constituency cares whether the Bank has private shareholders or not, especially as it functions according to statute, not to shareholder whim. It does provide an avenue to embarrass the ANC, which adopted nationalisation of the Bank at its elective conference in December but has since done nothing about it.

It also potentially creates a windfall for existing Bank shareholders who may demand a premium to be bought out.

The Bank earned the ire of a faction of the ANC during the Guptas’ desperate fight to keep bank accounts open during 2016 and 2017. It refused a pathetic attempt by the Guptas to buy Habib Overseas Bank in mid2016. It also supported the commercial banks when they closed the Guptas’ bank accounts.

The Guptas’ brownshirts, Black First Land First, marched on the Bank’s Pretoria headquarters in February 2017, after a report from public protector Busisiwe Mkhwebane called for a constitutional amendment to the Bank’s mandate.

The reasons were ludicrous, tied to the Absa lifeboat saga. That report has been solidly overturned by the courts, which have also ordered Mkhwebane to pay some of the costs personally. When the dots are joined, it is clear that a wide campaign was mounted to attack the Bank on multiple fronts.

The ANC’s resolution was surely a part of it.

We must also not forget the pathetic scene in 2016 of thenmining minister Mosebenzi Zwane announcing that cabinet had approved an investigation into the banks for closing the Guptas’ bank accounts. That was denied by the cabinet. It is interesting that the terms of reference for the Zondo commission into state capture include investigating if politicians improperly intervened with banks over the closing of Gupta accounts.

The EFF has not given much explanation of their move on the Bank. The ANC’s official reasons proffered for nationalisation make no sense, so can be dismissed as not the real ones. The Bank is already under the control of the Treasury, which appoints the majority of its board and all of the governors and deputy governors. Its functions are set out clearly in law and private shareholders have no say on monetary policy or banking regulation. The only thing private shareholders gain is a seat at the table, providing for an important level of transparency of the Bank.

Central banking requires a trust-based relationship with commercial banks to best protect the stability of the financial system. The role of private shareholders helps to protect that relationship.

Bank governor Lesetja Kganyago has come out against nationalisation, noting also that it would be a needless expense to have to buy out shareholders. Apparently there are some shareholders who are rather keen on nationalisation as it may offer them a windfall. Has the EFF formed a relationship with them, I wonder? Could it be a source of finance in the run-up to the 2019 elections?

All the EFF’s bill achieves is to undermine transparency and to compromise the independence of the Bank.

The toxicity of politics and banking has been made clear from the VBS Mutual Bank mess. VBS was enabled by billions in deposits from municipalities. Those deposits, it appears so far, were motivated by “commissions” that were being paid to municipality representatives and middlemen, but also by instructions from senior ANC politicians.

Limpopo ANC party provincial treasurer Danny Msiza and ANC Youth League secretary David Selan have been implicated by the EFF in directing municipalities to deposit their cash in VBS. The ANC also benefited from a R250,000 donation from VBS.

The Limpopo ANC has proposed a rescue plan for VBS, incorporating it into the Limpopo Development Board, though this has been thoroughly rejected by the national ANC and the Bank. The R7.8m loan VBS made to then-president Jacob Zuma, which may have been above board, added more political toxicity to the VBS story.

The money lost by municipalities in VBS has undermined municipalities’ ability to deliver basic services, with some having lost a large chunk of their annual operating budgets. That too will have political consequences as voters hold their politicians accountable.

Were there evidence that the private shareholding of the Bank has had negative consequence, I’d be more willing to hear arguments for its nationalisation. But there is none. All there is evidence of is how the independence of the central bank undermines the will of certain politicians. And when that will is self-serving, that is exactly how it should be.