If only SOEs’ walls were as strong as those of the Bank
If the mandates of the most important stateowned enterprises (SOEs) such as Eskom and the eternally lossmaking SAA were cast in stone in the constitution, much like the SA Reserve Bank’s inflation-targeting mandate, they would be in a far more secure state than they are at present.
Without this form of protection, the SOEs have been subject to damaging political interference. Governance plans put together by the state in the early 2000s were shelved in favour of an activist type of shareholding as the ANC demanded cadre deployment.
That loss of structure and reporting lines has resulted in the governance collapse of today, where the key funders of these institutions aren’t really interested in the plans of the executives so much as the ability of the shareholder to manage its debts.
The loss of credibility of these agencies is damaging. But how much more damaging would it have been for the country if the Bank, the custodian of the most traded and volatile of emergingmarket currencies, the rand, had lost its credibility to the same extent as the other SOEs in recent years?
Imagine a world over the past decade where instead of looking to the Bank’s monetary policy committee meeting for guidance on interest rates, investors had rather focused on what Jacob Zuma’s office was saying about monetary policy? With an administration that was notorious for its policy incoherence, the central bank and the rand itself would have lost all credibility.
That has been the case with Turkey, where its big man president, Recep Tayyip Erdogan, has usurped the powers of the central bank governor. The uncertainty and investor concern that has arisen since Erdogan’s climb to “economist-in-chief” of the world’s 17th-biggest economy has resulted in the Turkish lira falling almost 30% in the last year alone and helped propel annual inflation to an asphyxiating 25%.
Shaken by global growth concerns, the world’s other big man presidents, and those who seek to be seen as such, like US President Donald Trump, have also sought to throw their weight around when it comes to the independence of their central banks.
Earlier in April Trump put forward plans to place an ally on the board of the Fed, despite concerns about the conservative economic analyst’s qualifications, political independence and past legal troubles. It’ sa decision that has led to a barrage of criticism, especially since planting a loyalist breaks with US tradition.
The reality is that, as US president, Trump is custodian
of the world’s reserve currency, and as such he knows the globe will be tied to the dollar until that distant day when the world decides the Chinese renminbi or some other currency is the safest to hold. Were it just another economy, today we would be speaking of a currency crisis.
SA does not have the luxury of being a reserve currency, which means we are in pretty much the same position as Turkey. Were the Bank’s independence not guaranteed, the currency would become very vulnerable indeed. Imagine the damage a finance ministry, led by a minister whose economic adviser was one Prof Chris Malikane, might do. The messages that ministry would put out would send a rand already battered by a strong dollar and negative sentiment towards emerging markets into an even deeper dive.
SA DOES NOT HAVE THE LUXURY OF BEING A RESERVE CURRENCY, WHICH MEANS WE ARE IN PRETTY MUCH THE SAME POSITION AS TURKEY
Rescuing the economy from those depths would have been a monumental task even for the supposed “new dawn” brigade of President Cyril Ramaphosa.
The strength and independence of institutions such as the Bank have been our saving grace. While I may occasionally complain about the conservative nature of the Bank in light of the pressure on consumers, the alternative is a much scarier prospect.
Our leaders from a more sober age of ANC leadership ensured the independence of the Bank but could not quite protect SOEs such as Eskom from the meddling that was to come. They couldn’t set their mandates in stone as they are different beasts and face different market forces.
However, if we are to rescue these institutions from collapse, a real and imminent threat in some cases, there have to be more formal reporting lines between parliament, cabinet and the various boards of these institutions. Party politics needs to be divorced from the day-to-day decision-making of executives.
● Derby, a former Business Times editor, hosts Power Business on PowerFM.