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Finance Minister Tito Mboweni and the National Treasury have reiterated their opposition to the nationalization of the Reserve Bank of South Africa, highlighting the legal and cost implications it could have for the country.
In a written response to the bill proposed by the EFF to nationalize the Reserve Bank, Mboweni said the government has fundamental objections to the bill, specifically:
- Its constitutionality;
- Your lack of details on funding and cost implications;
- The legal and economic uncertainty that it will generate.
Additionally, the bill does not align with the government’s current policy goals and funding priorities, Mboweni said.
“While the government takes note of the ruling party’s preference for a fully state-owned central bank, this cannot be at the cost of more political and economic uncertainty, investment risks and loss of confidence in our country,” he said.
“In addition, the proposals in the bill would expose the fiscus to punitive costs, particularly from foreign investors under Bilateral Investment Treaties (BIT).”
While Mboweni acknowledged that the official position of the ANC is to nationalize the Reserve Bank, he stressed that President Cyril Ramaphosa has said that it is currently “not prudent” to do so given the country’s economic and financial position.
Constitutionality
The EFF bill provides for state ownership of the Reserve Bank of South Africa shares that are held privately. This means that the bill effectively proposes a form of acquisition by expropriation, without any compensation for shareholders, Mboweni said.
“Aside from the government’s objection to such a policy approach, which goes beyond land to other assets, the bill does not indicate how the requirements of section 25 of the Constitution are met before an expropriation is achieved. through a law of general application.
“Section 25 (2) of the Constitution requires that a law of general application that appropriates property must be for a public purpose or in the public interest and must be subject to the payment of compensation.
“The bill does not provide for compensation and, therefore, does not meet this constitutional requirement under section 25 (2) (b) of the Constitution.”
Mboweni said that any legislation that provides for the expropriation of private property by the state, without compensation, is overlooking the possible appropriation of money for such expropriation and is therefore a ‘quasi-money bill’.
A law that expropriates private property by the state will require a money bill to pay its financial consequences, should it go into effect, he said.
“If the bill is considered cash, it cannot be presented by any person except the Minister of Finance, in terms of Articles 73 (2) and 77 of the Constitution.”
Financial implications
Shareholders of the Reserve Bank of South Africa include domestic and foreign shareholders.
Mbwoeni said the foreign shareholders are citizens of countries with which South Africa has signed bilateral investment treaties (BITs).
“Some of these treaties, for example the German BIT, specifically provide protection to foreign citizens to allow them to claim compensation in the event that the state depraves their properties.”
Mboweni said that the offsetting provisions contained in the BITs pose a risk to the fiscus.
“It is also a matter of concern that these costs are currently unknown, as the provisions of each BIT should be evaluated to determine the cost implications.
“Given the current stress on the public purse, it would be unwise for the state to acquire the shares of the Reserve Bank of South Africa.
Other legal concerns
Mboweni said the bill could also conflict with the Financial Sector Laws Amendment Bill that has been submitted to parliament.
The bill allows the Reserve Bank of South Africa, as a resolution authority (RA), to resolve systemically important financial institutions in a way that protects the stability of the financial system.
“Clause 5 of the Financial Sector Laws Amendment Bill amends section 10 (1) (d) of the Reserve Bank of South Africa Act. This amendment authorizes the Reserve Bank of South Africa to form a company (ie a bridge institution) in which it can acquire shares, ”he said.
Mboweni said the purpose of the bridge company is to transfer critical functions from a bankrupt designated institution, which would include a systemically important financial institution (SIFI) or a systemically important payment systems operator (SIPS).
In addition, clause 7 of the bill amends section 10 (1) (c) of the Reserve Bank of South Africa Act.
This amendment leaves the Reserve Bank of South Africa unable to incorporate or form a clearing, payment and settlement systems company specifically, he said.
“The confusion is created in the event that the RA has to create a bridge company that is a payment system or central depository of securities.
“The Reserve Bank of South Africa could not create such a company due to the unnecessary inhibition introduced in clause 7 of the Draft Amendment. However, like RA, I could do it. “
Additionally, Mboweni said there are general legal concerns about the bill, for example that it lacks a transparent consultation process through which agreement can be reached on a fair assessment or the market price of the agreed shares. with section 25 (3) of the Constitution.
“For the reasons described above, the bill is not endorsed by the executive,” he said.
Read: EFF’s plan to nationalize the Reserve Bank of South Africa takes the first step
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