Standard Bank Group chief executive Sim Tshabalala says that while so-called ‘prescribed assets’ are not a good idea, the “proposal to nationalise the South African Reserve Bank (Sarb) is more concerning”.
Writing in the bank’s integrated report released last week, Tshabalala makes the point that has been made by the Reserve Bank itself – that its private shareholders “have no influence over monetary policy nor over any aspect of the Sarb’s operations”. Therefore, argues Tshabalala, “nationalising the Sarb by buying out the private shareholders would cost a lot of money and serve no useful purpose”.
While talk of nationalisation is certainly worrying markets, Tshabalala says “proposals to change the monetary policy mandate of the Sarb” are worse.
“Certainly – as is clearly recognised in the Constitution of South Africa – monetary policy can support growth,” he says. “It does precisely this by maintaining price stability, which supports investment and keeps up real incomes, particularly the incomes of poor people. It is also possible that monetary policy can support growth by mitigating cyclical contractions.
“If politicians try to use monetary policy to expand spending in the hope that this will boost the economy onto a permanently higher growth path, the inevitable outcome is slower growth, more inflation, more unemployment and more poverty. The integrity and independence of monetary policy formation must therefore be defended.”
Tshabalala is no fan of prescribed assets either. He writes that “proposals to require that financial institutions invest a proportion of their depositors’ and shareholders’ funds in projects unilaterally chosen by the state – ‘prescribed assets’ – are, in my firm view, not a good idea”.
In its 2019 election manifesto released in January, the ANC says it will “Investigate the introduction of prescribed assets on financial institutions’ funds to mobilise funds within a regulatory framework for socially productive investments (including housing, infrastructure for social and economic development and township and village economy) and job creation while considering the risk profiles of the affected entities”.
This caught the market unawares as the language used in the manifesto was more specific than that contained in resolutions adopted at the ANC’s 54th National Conference in 2017. Among these was that “Government should introduce measures to ensure adequate financial resources are directed to developmental purposes. A new prescribed asset requirement should be investigated to ensure that a portion of all financial institutions funds be invested in public infrastructure, skills development and job creation”.
Tshabalala says: “In the light of abundant recent evidence from South Africa and abroad, it is clear that funds gathered in this way are at considerable risk of being used inefficiently.
“Even if used precisely as intended, the imposition of prescribed assets would damage the interests of workers saving for their retirements, and those of current retirees, by shifting savings away from their optimal allocation.”
“In any case,” he adds, “a prescribed assets policy is unnecessary.
“As we have seen from South Africa’s renewable energy programme, more than enough private investment can be voluntarily attracted into public infrastructure projects when these take the form of transparent public-private partnerships.”
Sygnia CEO Magda Wierzycka made the same point in January: “The issue has not been a lack of funding for suitable, well-managed projects. There have been funds with a particular focus on socially responsible investments and there was always money available. Rather, there has been a shortage in supply of these projects and a shortage of credibility.”
Tshabalala says: “There is no question that South Africa needs much more investment in public infrastructure, and that the financial sector must be central to mobilising this investment.”
He admits that “along with many other South Africans” he was “over-optimistic about the pace at which our economy would recover during 2018” but points to institutional reforms that are “well underway”.
“If – as we expect – these institutional reforms are followed by structural reforms after the general election, we are hopeful that the growth rate of the South African economy could accelerate to around 1.3% in 2019. If the new administration is able to pursue a bold and comprehensive programme of structural reform, South Africa could see growth of 3% a year by 2020.”
* Hilton Tarrant works at YFM. He can still be contacted at email@example.com.