Can a state bank work?
ECONOMY: SA PRESENTS GLOOMY PICTURE
Any metric that would count in favour of nationalisation would not apply to SA.
The conversation of nationalisation is a 20-year one that has seen itself play out as a political campaigning tool and even as a social media stunt by some to remain relevant. But does any of it make sense? And, more importantly, which makes the most sense?
Reasons and context
The main arguments that have been put forward in favour of nationalisation are:
▶ To limit the foreign influence on the policy of the South African Reserve Bank (Sarb) that is currently being imposed by foreign shareholders or foreign parties who have a vested interest;
▶ Private companies act in the interests of shareholders; and
▶ Decision making on things like printing money or inflation targeting would align with government mandates.
At face value, these would seem like justifiable reasons to proceed. But here’s where the follow-up conversations should be had. And here’s where it becomes important to contextualise things:
▶ First, we already know that foreign ownership at a shareholding level is limited. Secondly, the Sarb draws its mandate from the constitution of SA.
▶ This is where the Sarb is unique in structure: Unlike a regular Pty, the Sarb operates to fulfil its mandate rather than for profit making. This is why the total dividend paid to current shareholders is capped at R200 000 between all 800+ shareholders holding the two million authorised shares (that’s less than the average monthly salary of a Cabinet minister), regardless of how profitable the company is. The remaining profits made by the institution are paid to the state.
▶ To make a decision that benefits any one shareholder would, in effect, be unconstitutional.
Have nationalised central banks worked elsewhere?
Before we can conclude which side of the fence to sit on, it would be worth looking into the consequences of nationalisation, drawing from three distinct examples we know clearly:
China: This is a self-producing economy that promotes internalisation and self-industrialisation. It has achieved negative inflation at a time when developed economies have struggled with inflation. And even it felt it necessary to negotiate deals with the US at the recent G20 summit because it understands that global trade remains necessary for sustained growth.
Japan: A developed economy that focuses its monetary policy decisions on strengthening the value of its currency as a safe haven while targeting full employment. It has had an unemployment rate of less than 3% for the last seven years. This is also the only economy in the world today that remains with negative interest rates due to its disciplined policymaking.
Zimbabwe: The most notable reference point to hyperinflation that we have in the modern era. Hyperinflation is a direct result of simply printing money when the cost of goods increases rather than addressing the underlying issues. Zimbabwe printed money to the extent that the entire currency collapsed, and the US dollar had to be adopted as a replacement.
So, what about SA?
Now that we know what nationalised central banks could look like, let’s apply that to the South African picture. We have severe unemployment, a stagnant economy whose growth and industrialisation are being self-sabotaged by the government, and a lack of disciplined leadership where it relates to the allocation of state funds (bailouts for state-owned enterprises).
Therefore, any metric that would count in favour of nationalisation would not apply to SA.
Nationalisation would require a level of discipline and public benefit that we have yet to see exhibited in South Africa, preor post-apartheid.