South Africa’s ruling party has proposed that the central bank should be wholly state-owned rather than an institution with private shareholders.
The Reserve Bank stock being held by private investors is “an anomaly,” the African National Congress’s head of economic transformation, Enoch Godongwana, told reporters Wednesday in Johannesburg at the party’s policy conference. South Africa “is still sticking to the framework of the 1920s,” he said.
The move opens a second front challenging the central bank’s established status just two weeks after Public Protector Busisiwe Mkhwebane attempted to instigate a change in its mandate. She instructed Parliament to amend the constitution to make the Reserve Bank focus on the “socioeconomic well-being of the citizens” rather than inflation, prompting a drop in the rand as investors viewed her action as a threat to its independence.
The proposal on the central bank’s ownership concluded the institution’s independence should be guaranteed in the constitution, Godongwana said.
Resolutions taken at the policy conference, which ends Wednesday, need to be ratified at the party’s national electoral conference in December. The proposal about central bank’s shareholders isn’t immediate, Godongwana said after speaking to reporters.
The ANC has been talking about changing Reserve Bank’s ownership “but we have not been able to carry it out, it’s just a principle issue,” Godongwana said. “We don’t even have the money to pay the shareholders. It’s a sentimental thing.”
The Reserve Bank is one of a small coterie of global counterparts from Japan to Switzerland that has shareholders, a legacy of its foundation in 1921. Its investors have no say over policy or the appointment of the governor, but do vote to select seven of the central bank’s 10 non-executive directors.
“The net effect is zero but I think investors are on edge given that the mandate of the bank has been questioned and targeted in a very political way,” Rashaad Tayob, a portfolio manager at Abax Investments Ltd. in Cape Town, said by phone. “People are conflating ownership of the Reserve Bank with control of it, which isn’t the case at all. But if you see this issue simmering up again, it shows the balance of policy is shifting away from the traditional framework.”
The central bank targets inflation in a range of 3% to 6%. The rand slumped as much as 2% after the news, before paring losses to trade 1.61% weaker by 3am on Thursday in Johannesburg.
The bank’s shares were delisted from the Johannesburg Stock Exchange in 2002 and are bought and sold on an over-the-counter trading and transfer facility.
More than 600 private shareholders own the bank, and they can’t hold more than 10,000 shares each, according to its website. The dividend payable to investors is limited to 10 cents per share annually, or a total of R200,000 ($15,000), if the central bank makes a profit. Its after-tax profit for the year through March was R1.4 billion.
The bank’s shareholding has no bearing on its policy or regulatory role, Jabulani Sikhakhane, its spokesman, said in an emailed response to questions.
“The big fight will be about what is a fair price for the shares,” said Jannie Rossouw, head of the the school of economic and business sciences at the University of the Witwatersrand in Johannesburg. “Some of the shareholders will set up a big fight about that. This will be in and out of the courts forever because the Reserve Bank Act is silent on what happens in the case of nationalisation.”
© 2017 Bloomberg
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