Nationalisation of SA’s central bank will not deliver miracles
• More modern shareholding structure welcome, but mandate and terms will remain the same
It has become common cause that personalities, and not necessarily conference deliberations and resolutions tend to take centre stage during elective political party conferences.
This unwittingly becomes the public discourse, relegating to the back burner an important aspect that has a direct effect on the lives of citizens — the conference resolutions.
This trend is to some extent understandable for a variety of reasons. Contestation at party conferences is a welcome trend and not emphasising figures who are elected becomes almost impossible.
The only danger is relegating resolutions to the periphery in the public discourse.
But now that the Nasrec dust has cleared and the political contests settled, it must be noted that delegates at the ANC’s conference made some of the most bold and assertive pronouncements on land, wealth tax and competition policy.
Of particular interest is the conference pronouncement on the long-standing debate on the nationalisation of the South African Reserve Bank.
Several commentators have expressed themselves on this question, advancing a variety of arguments — some common, some divergent.
Among these is the public protector, who suggested the mandate of the Bank be changed to focus on economic growth instead of on price stability.
The ANC conference resolved that the Bank be nationalised, that the existing structure of private shareholders be done away with and that the central bank should have greater interaction with the minister of finance.
It also resolved that the Bank should take job creation and economic growth into account without sacrificing price stability when deciding on monetary policy and interest rates.
After the ANC conference, the Bank said its private shareholders received nominal returns and had no say over monetary policy.
The history of modern central banking, anchored on the role of lender of last resort, can be traced to the 17th-century establishment of the Bank of England and the Swedish Riksbank. Before then, central banks had been established to finance expensive government operations. At establishment, most central banks were privately owned, but this has changed over the past decade.
Nationalising central banks is nothing new. The trend began in the late 1930s as part of governments’ responses to the aftermath of the Great Depression, with the Reserve Bank of New Zealand being the first to be nationalised in 1936. The Oesterreichische National Bank of Austria was the most recent to be nationalised, in 2010.
Today, the majority of central banks are publicly owned.
The South African Reserve Bank was established in 1921 as a privately owned entity. Its mandate includes achieving and maintaining price stability in the interest of balanced and sustainable economic growth. This is quantified by setting an inflation target against which to measure price stability.
The mandate of the Bank of England includes delivering monetary and financial stability through regulating and supervising certain financial institutions, issuing bank notes and operating monetary policy by setting the interest rate. It also monitors and identifies risks in the financial system.
There are 2-million issued shares in the South African Reserve Bank, with about 660 shareholders. The shares are traded over the counter on an exchange co-ordinated by the private shareholders. There is a maximum 10% shareholding by private individuals; the state holds no less than 90% of the Bank’s shares.
As argued by the Bank, its governing act limits shareholding by individuals and their associates. No shareholder shall hold, or hold in aggregate with his, her or its associates, more than 10,000 shares.
There is also a limit in terms of the aggregate of dividends to be paid per share of R10,000. The dividend payable to shareholders is limited to 10c a year, translating into a total of R200,000 each year.
The Bank was listed on the JSE until 2002, when it was delisted because of its failure to meet new listing requirements. Consistent with the number of shareholders, the volume traded is very thin.
A few years ago, former Bank governor Gill Marcus emphasised that the Bank was a public entity and shareholding could not have a profit motive. She said profit making should never be a motive for holding shares in the central bank, as it was a public entity that acted in the public interest.
Consistent with this view, central bank investment return across the world is constrained by their mandates or laws capping the amount of aggregate dividends that can be distributed to private shareholders. In all central banks, with the exception of those of Belgium and Greece, shareholding is seldom considered a growth investment by investors.
Private shareholders of SA’s central bank have no say over the mandate, functioning, governance and independence of the Bank in undertaking its work. The mandate and independence of the Bank is derived from the people through legislation and provisions in the Constitution. Key appointments to the bank are made by the president.
When done for the right reasons, nationalisation is not such a bad idea.
One issue that has muddied the waters around the nationalisation issue is politicking. Whether intentional or as a consequence of ignorance, there is a false narrative that seeks to suggest that nationalising the Bank is part of radical economic transformation, which will ultimately benefit the masses. This gives the impression that private shareholding is a stumbling block to the Bank’s ability to deliver miracles.
We should not create the impression that by doing away with private ownership the government will suddenly turn the central bank into an instrument for undoing poverty and other ills that beset society. The Bank’s mandate is derived from the Constitution and is not open to any form of manipulation — be it public or private.
Contrary to the buzz created and the raised expectations, the ultimate nationalisation of the Bank will be a nonevent, a damp squib if anything.
Its nationalisation will result in the modernisation of the ownership structure in line with global central bank ownership trends. Perhaps it will also help us move beyond the smoke and mirrors created to cast doubt about private shareholding in the Bank.
Beyond this, no miracle will occur as a result of the nationalisation of the Bank.
A FALSE NARRATIVE SEEKS TO SUGGEST THAT NATIONALISING THE BANK IS PART OF RADICAL ECONOMIC TRANSFORMATION
Ntsaluba is executive chairman of NMT Capital, cofounder of SizweNtsalubaGobodo and cofounder of venture capital firm WZ Capital.