- SARB’s authority to issue banking licences questioned
- Rand fell more than 7% since reports police summoned Gordhan
With South Africa’s Treasury facing increasing criticism from state-owned companies and the finance minister under police investigation, some ruling party politicians have set their sights on the nation’s second pillar of financial stability: the Reserve Bank.
Mineral Resources Minister Mosebenzi Zwane has suggested to the cabinet that it withdraw the central bank’s authority to license banks and make it the responsibility of the finance minister, Business Day newspaper reported on Wednesday. ANC Deputy Secretary-General Jessie Duarte’s said earlier this week that the Reserve Bank should cushion the rand and the fact that it’s privately owned is a “difficulty.”
The comments heighten concern that some members of the ruling African National Congress are seeking to curb the independence of South Africa’s top state financial institutions. The ANC may adopt more populist policies after its worst election performance since Nelson Mandela led the party to power in 1994, Fitch Ratings Ltd. said after an Aug. 3 local government vote. Finance Minister Pravin Gordhan is being probed by police over allegations he set up an illicit investigative unit when he headed the national tax agency.
“These comments are the next step in trying to get control of everything, including the banks,” George Herman, head of South Africa investments at Cape Town-based Citadel Investments Services Ltd., said by phone. “As soon as they can replace Mr. Gordhan with a more ‘compliant’ minister, they’ll have free rein of the park.”
Gordhan has been at loggerheads with President Jacob Zuma over the minister’s calling for the firing of the nation’s tax chief for insubordination and the replacement of the board of the loss-making state airline. The Treasury has also clashed with power utility Eskom Holdings SOC Ltd. about its efforts to review coal-supply contracts with a company linked to the Gupta family, who are friends with President Zuma and in business with his son.
South Africa’s four largest banks closed the accounts of companies tied to the Guptas in April after the graft ombudsman said she plans to investigate the family’s relationship with Zuma and Deputy Finance Minister Mcebisi Jonas said the family offered him the job of finance minister. Both the Guptas and Zuma have denied the allegations and said there’s no truth that the family used its connections with the government for gain, which local media has dubbed “state capture.” Zwane said in July banks must rethink their decision to stop doing business with the Gupta family.
Zuma reappointed Gordhan in December to the position he held from 2009 until 2014 after political and business leaders pressured him to reconsider a decision to replace Nhlanhla Nene in the post with an unknown lawmaker. This sparked a fall in the rand and the nation’s bonds.
“This is another play at state capture and Zwane is a Zuma sycophant,” Geoff Blount, managing director of Johannesburg-based Bayhill Capital Ltd., said by phone. “What it does reflect is the internal war in the ANC.”
The Reserve Bank “does not bow to any pressure, whether it be political or from the private sector,” it said in an e-mailed statement on Tuesday. The central bank can’t comment without knowing the precise wording or context of Zwane’s proposal, Deputy Governor and Registrar of Banks Kuben Naidoo said in an e-mailed response to questions on Wednesday.
The Reserve Bank is owned by more than 600 private shareholders, according to its website. The shareholders don’t have any say over policy decisions and vote to appoint seven of the central bank’s 10 non-executive directors. The board, which also includes the governor and three deputy governors as executive directors, is responsible for the governance of the central bank.
The Reserve Bank “formulates monetary policy. Sets the target bank interest rate. The decisions are taken by the Monetary Policy Committee,” former Reserve Bank Governor Tito Mboweni said on his Facebook account. The bank also leads the “management of the South African money and banking system. Issues banking licenses -- which is what Minister Zwane apparently does not like. Hard luck mate.”
The central bank has raised its benchmark repurchase rate by 125 basis points to 7 percent since July last year in an attempt to steer inflation back toward its 3 percent to 6 percent target band even as it forecasts the economy won’t grow at all this year. The rand has lost more than 7 percent against the dollar since the first reports that Gordhan was summoned by the police. It gained 0.6 percent against the dollar at 14.6311 at 10:37 a.m. in Johannesburg on Thursday.
The attacks on the bank show that politicians and government officials are looking for someone to blame for the failure of their policies, said Dawie Roodt, chief economist at Efficient Group Ltd. in Pretoria.
“I don’t think in the short term the Reserve Bank’s independence is at risk,” Roodt said by phone. “They are trying to find a scapegoat somewhere.”