National Treasury has warned that nationalisation of the SA Reserve Bank (Sarb) could expose the central bank to corruption or capture similar to that experienced by some state-owned enterprises.
The proposed amendments do not strictly call for a change in the mandate of the bank, but Treasury director general Ismail Momoniat says should the amendments be adopted by Parliament, it would create a perception that the central bank’s independence could be in jeopardy in the future
He told Parliament’s standing committee on finance on Wednesday that the government is “fundamentally opposed” to amending the Sarb Act because of its potential impact on the future investment prospects in the country and the potential conflict with other financial legislation. The proposed amendments also do not align with government’s current policy and funding priorities, he said.
EFF leader Julius Malema initially introduced a private member’s Bill to amend sections of the Sarb Act in 2018. The proposed amendments would allow for the state to have sole ownership of the bank, and give the minister of finance extended powers to appoint auditors and directors of the bank as well as the power to make regulations relating to the appointment of directors.
Seven of the Sarb’s directors are appointed by an independent panel while the governor, three deputy governors and four directors are appointed by the president.
The bank currently has some 650 domestic and international private shareholders. The Act prohibits shareholders from holding more than 10 000 shares of the total number of two million issued shares; there are no other limitations on shareholding.
Should the Bill be adopted by Parliament, the shareholders would be entitled to compensation from the government which would be required to buy out the shareholders.
Foreign shareholders are protected under various bilateral investment treaties and buying them out under the country’s “fragile fisus” would not be prudent, Momoniat said.
The central bank is constitutionally mandated to protect the value of the currency in the “interest of balanced and sustainable growth,”and to do so without “without fear, favour or prejudice.”
In a presentation to Parliament, Momoniat said the amendments could send a “powerful negative signal” to investors on the future of the currency and monetary policy in the country.
The amendments could also generate fears among investors about expropriation and more uncertainty on property rights beyond land ownership, he said.
Avoiding state capture
Many of South Africa’s state-owned enterprises including South African Airways, Denel and Eskom have been implicated in allegations of looting and corruption by various witnesses at the ongoing State Capture Commission of Inquiry. The government has on several occasions been required to search its piggy bank to find funds to bail out these companies, which have suffered massive losses as a result of the alleged capture.
Momoniat told Parliament that the proposed amendments to the ownership structure of the central bank do not explain how the SOEs would be protected from similar capture.
“Given our experience (over) the last ten years where some SOEs were captured, because [the] government had the sole power to appoint directors and auditors, the amendments to the Sarb Bill will make it easier to capture the Sarb,” he said.
The Banking Association South Africa (Basa) and Business Leadership South Africa (BLSA) have echoed Treasury’s views. In its submissions to Parliament, Basa says that changing the ownership structure of the central bank would not be in the public interest and that “the cost of redeeming the shares or litigation costs could be better allocated to other important projects.”
BLSA says changing the ownership structure of the Sarb could jeopardise the central bank’s credibility, given the country’s “creeping state control and failures that we are experiencing in the country.”
The ANC’s 54th National Conference resolution in 2017 resolved to have the bank 100% owned by the state. This resolution has however been placed on the back-burner given the country’s current economic and fiscal situation. In a submission to the finance standing committee, ANC alliance partner Cosatu however called for the bank’s ownership to be versed within the state, saying the current ownership structure is an outlier compared with other central banks which are owned by the state.
The standing committee on finance will now consider the Bill and then will either recommend that Parliament adopt or reject it.