December 3, 2020

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Nationalising the Reserve Bank would be disastrous for SA economy – Treasury

3 min read

The National Treasury has argued strongly against nationalising the SA Reserve Bank (SARB), saying it would create policy and economic uncertainty and discourage investments in the South African economy.

Economic Freedom Fighters (EFF) leader Julius Malema had initiated a private member’s bill in Parliament in 2018 that seeks to nationalise the country’s central bank.

The ANC is also in favour of state ownership of South Africa’s central bank, having adopted a resolution to nationalise the SARB in 2017.

However, while the ANC believes that shareholders should be compensated, the EFF is proposing nationalisation without compensation.

Govt doesn’t support bill

In a presentation to Parliament’s standing committee on finance this past week, Treasury’s Deputy Director-General for tax and financial sector policy, Ismail Momoniat, said the government does not support the bill.

“Whilst the bill does not directly change the mandate and independence of the SARB, there is no comfort to current and future investors and savers that this is not the first step towards changing the mandate of the SARB.”

“The mere perception that this may happen sometime in the future sends a powerful negative signal to investors on how monetary policy will function in the future.”

Momoniat argued that if there is a forced takeover of SARB shares, it would create fears that such a policy could extend to other assets.

Bill is vague

“[The bill] is silent on how to fund the purchase of such shares and assumes they can simply be expropriated. It does not take into account Bilateral Investment Treaties (BITs) and rights of foreign shareholders,” he added.

The SARB Act allows for two million ordinary shares, 12.65 percent of which are currently owned by foreign nationals.

Some BITs allow foreign nationals to claim compensation should they be deprived of their property, Momoniat said.

He also took issue with a proposal in the bill for government to give the finance minister the power to appoint all the SARB’s directors.

“Given our experience [over] the last 10 years where some SOEs were captured because the government had the sole power to appoint directors and auditors, the amendments to the SARB will make it easier to capture the SARB.”

Not prudent says President

The bill’s constitutionality is also questionable because it does not provide for compensation for expropriated shares as envisaged in section 25 of the Constitution, according to Momoniat.

However, EFF deputy president Floyd Shivambu dismissed Momoniat’s presentation, saying it advances “factional” interests.

“The Reserve Bank is under the control of a faction of [Momoniat]. The basis of the National Treasury to this bill is a false alarm similar to the false alarms of racists at the end of apartheid when they said South Africa could not be governed by black people.”

The ANC itself adopted a resolution to nationalise the Reserve Bank at its national conference in 2017, but the policy remains contentious in the party and the move has since been shelved.

Political ideology

Leon Myburgh, the former head of financial markets at the Reserve Bank, said the views of the EFF and the ANC on the subject seem to be premised on a combination of political ideology and a poor understanding of the existing legislation.

“They have not presented any compelling arguments as to why state ownership will improve the existing arrangement. The reality is that the existing ownership structure is far more beneficial than the proposed state-ownership model.”

The “radical economic transformation” (RET) faction, which is associated with ANC Secretary-General Ace Magashule, is strongly pushing for its immediate implementation.

However, President Cyril Ramaphosa recently stated that it would not be “prudent” to implement it (nationalisation) now because of South Africa’s fragile economic situation.