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The National Treasury has warned that the nationalization of the South African Reserve Bank (Sarb) could expose the central bank to corruption or capture similar to that experienced by some state-owned companies.
The proposed amendments do not strictly require a change in the bank’s mandate, but Treasury CEO Ismail Momoniat says that if the amendments were adopted by Parliament, it would create the perception that the central bank’s independence could be in jeopardy in the future.
He told Parliament’s standing finance committee on Wednesday that the government is “fundamentally opposed” to amending the Sarb Act due to its potential impact on future investment prospects in the country and possible conflict with other financial legislation. The proposed amendments also do not align with current government policy and funding priorities, he said.
EFF leader Julius Malema initially introduced a private members bill to amend sections of the Sarb Act in 2018. The proposed amendments would allow the state to have sole ownership of the bank and give the finance minister extended powers to appoint auditors and directors of the bank, as well as the power to regulate the appointment of directors.
Seven of the Sarb directors are appointed by an independent panel, while the governor, three lieutenant governors and four directors are appointed by the president.
The bank currently has some 650 national and international private shareholders. The law prohibits shareholders from owning more than 10,000 shares out of the total number of two million shares issued; there are no other limitations on shareholding.
If the bill were adopted by Parliament, shareholders would be entitled to compensation from the government that would be required to buy out shareholders.
Foreign shareholders are protected by various bilateral investment treaties and buying them under the country’s “fragile fisus” would not be prudent, Momoniat said.
The central bank has a constitutional mandate to protect the value of the currency in the “interest of balanced and sustainable growth”, and to do so without “fear, favor or prejudice.”
In a presentation to parliament, Momoniat said the amendments could send a “powerful negative signal” to investors about the future of the currency and monetary policy in the country.
The amendments could also raise fears among investors about expropriation and more uncertainty about property rights beyond land ownership, he said.
Avoiding state capture
Many of South Africa’s state-owned companies, including South African Airways, Denel and Eskom, have been implicated in allegations of looting and corruption by various witnesses in the ongoing State Capture Investigation Commission. On several occasions, the government has had to search its piggy bank to find funds to rescue these companies, which have suffered massive losses as a result of the alleged capture.
Momoniat told parliament that the proposed amendments to the central bank’s ownership structure do not explain how state-owned companies would be protected from a similar capture.
“Given our experience (during) the last ten years in which some state companies were captured, because [the] The government had the exclusive power to appoint directors and auditors, the amendments to the Sarb bill will facilitate the capture of the Sarb, ”he said.
The Banking Association South Africa (Basa) and Business Leadership South Africa (BLSA) have echoed the views of the Treasury. In his presentations to parliament, Basa says that changing the central bank’s ownership structure would not be in the public interest and that “the cost of rescuing the shares or the costs of the litigation could be better allocated to other major projects.”
BLSA says that changing the ownership structure of the Sarb could jeopardize the credibility of the central bank, given the “progressive state control and failures we are experiencing in the country.”
The resolution of the 54th National Conference of the ANC in 2017 resolved that the bank be 100% owned by the state. However, this resolution has remained in the background given the current economic and fiscal situation in the country. However, in a presentation to the permanent finance committee, Cosatu, a partner in the ANC alliance, called for the bank’s ownership to be controlled within the state, saying that the current ownership structure is an outlier compared to other central banks. that are owned by the state.
The standing finance committee will now consider the bill and then recommend that Parliament approve or reject it.
