Why South Africa’s ANC Aims to Take On the Central Bank

The headquarters of the South African Reserve Bank in Pretoria.

Photographer: Waldo Swiegers/Bloomberg

South Africa’s ruling party isn’t done shaking things up yet. The next target is the country’s central bank, one of the few in the world that’s still owned by private shareholders. In December, the African National Congress ratified a proposal for the state to own the South African Reserve Bank, which has been in investors’ hands since its founding in 1921. Supporters say this would simply be fixing “an anomaly;” critics say the move could shake faith in an institution that’s been seen as being above politics.

1. Why change the bank ownership now?

The ANC says that it just wants to bring the Reserve Bank into line with how other nations’ central banks operate. Yet some see politics at work behind the move. At the same party meeting where the ANC ratified plans to nationalize the central bank, it also picked Cyril Ramaphosa to head the party and pledged changes to the constitution to expropriate land without compensation. While Ramaphosa has since replaced Jacob Zuma as president of the country, the party doesn’t want to be seen as turning its back on Zuma’s promises for “radical economic transformation” to accelerate the spread of wealth to the black majority. In June, the nation’s anti-corruption ombudsman said the bank’s inflation-targeting mandate should be changed to also include “the socioeconomic well-being of the citizens,” though a court backed the central bank’s request to have this instruction set aside.

2. What are the complaints about the bank?

Some critics say interest rates have moved in the wrong direction. From 2014 until 2016, the bank raised its benchmark repurchase rate by 2 percentage points, drawing criticism from labor unions who say the bank should be promoting employment rather than fighting inflation. In July 2017, the bank made its first rate cut in five years. And some say the central bank has been reluctant to issue new banking licenses to black-owned lenders.

3. What do the bank’s defenders say?

That removing private shareholders would be a blow to transparency, since they are permitted to ask questions at the bank’s annual general meeting. More broadly, they say that the bank is a last bastion of institutional strength in an economy that’s in need of stability.

4. Would the government change the bank’s mandate?

Probably not. The central bank’s mandate is “to achieve and maintain price stability in the interest of balanced and sustainable economic growth,” and this is entrenched in the nation’s constitution. Bank Governor Lesetja Kganyago has said he will fiercely defend the regulator’s independence; Ramaphosa said Jan. 13 that the party is committed to an independent central bank. Currently, the Reserve Bank’s investors have no say over its policy or the appointment of the governor, but do vote to select seven of the 10 non-executive directors.

5. What happens next?

The South African Reserve Bank’s shareholding structure is prescribed by the Reserve Bank Act, so the ANC would have to send the government a detailed plan on how to change the legislation, according to Jannie Rossouw, the head of economics and business sciences at the University of Witwatersrand who also used to work at the central bank. While the party can probably drive changes in the act because it holds 62 percent of the seats in parliament, amending the constitution to change the bank’s mandate would have been a more difficult hurdle because it would have required the votes of two thirds of lawmakers.

6. How long will this take?

If the ANC seeks to have the law changed, it will have to contact all the shareholders. They may challenge the move, and Rossouw said this could go as far as the Constitutional Court, the nation’s highest legal body, drawing out the process. International treaties may apply to foreign shareholders, protecting them against the nationalization. Further complicating this is the fact that the law doesn’t make any provision for nationalization — it only states how the bank’s assets should be divided if it is liquidated. The gap may create a debate around the price of the bank’s shares on sale.

7. How much will this cost?

It’s unclear. Options, according to Rossouw, range from using the price set at the time of liquidation, to the shares’ issue price or some other formula that the government might pick. The last traded price for the shares, which are available over the counter, was 9.60 rand on Feb. 23. The South African Reserve Bank has 2 million shares outstanding. Investors are allowed a maximum of 10,000 securities each, which gives them a prescribed maximum dividend of 1,000 rand, according to the Reserve Bank Act. These modest returns, the illiquid nature of the stocks and the fact that shareholders have no say over policy decisions or who the governor is means holding Reserve Bank shares up until now has been more about sentiment and symbolism than about chasing yields.

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