Fundamental reasons why SARB must be nationalised


By: Mzwandile Masina

The ANC resolution on the SARB was a capture by a German is the new orthodoxy of those who want to keep to the status quo in the ownership and control of the South African economy, particularly the financial sector. The Sunday Times article is meant to frame and discredit this ANC resolution as something that must be revised and reversed. It is part of a campaign. What this campaign does not deal with is the fact that the Reserve Bank is a creature of the Constitution. The constitution provides the central bank with the legal powers to issue paper money, to set national interest rates and to regulate the financial system.

These very functions cannot reside outside of the state, just like the powers of the judiciary cannot be partially owned by the private sector. The actions of the reserve bank are in the name of the sovereign state and therefore the sovereign state must 100% own the bank. The appropriate ownership structure of central bank must depend on the goals of economic policy, those goals are voted for and shaped by ANC supporters and members. The bank
cannot be an island within the state and political superstructure.

The article is also an attempt to close down the debate on the central bank policy and financial sector transformation. Indeed, the central bank policy has become an important object of policy debate and political struggle given the lack of transformation in the financial sector where 5 banks continue to own over 90% of total financial sector assets without any
transformation. With this in mind, the mobilization of financial resources, granting of licenses, printing of paper money should be guided by a 100% state institution. In a country like South Africa (with very high rates of unemployment and underemployment), a central bank policy
must promote productive investment and bridge the transformation divide. This must happen without suspicion of influence from the private shareholders.

While cognizant of the constitutional mandate for the bank to conduct monetary policy without fear or favour, the delegates of the conference 53rd and the 54th Conferences of the ANC were clear that this bank is an important national asset and the anomaly of private ownership must be corrected. The delegates called for the bank to deal independently with the regulation of the credit system; the regulation of the banks and the financial markets. The management of the flows of money into and out of our economy must be done purely by a state owned institution just as the courts are independent yet they are 100% state.

The delegates therefore rejected the notion that in seeking to correct the anomaly of
ownership, and broaden the mandate of the South African Reserve Bank, there is any impact on the independence of the South African Reserve Bank, as Section 224 (2) which gives effect to such independence.

A state owned reserve bank must be able to effectively mobilize and channel financial resources towards a variety of economic transformation objectives. In order to inject competition in the banking sector, better the credit conditions of the majority and to improve allocation of financial resources for development in working with Treasury.

The ANC conference delegates sought a central bank that should be made more
accountable to the public firstly by making it a 100% state institution. Secondly the delegates rejected the notion idea that monetary policy has no legitimate goals besides inflation targeting. Thirdly, the delegates rejected the idea of assigning monetary policy making to an authority that does not possess the same development motives as the development needs of the country as misguided.

The Reserve Bank should be truly an institution of the people, of the sovereign state and respond to the fundamental circumstances found in South Africa which are low levels of credit extension to emerging black businesses and the underrepresentation of black people in the financial sector.

The ANC manifesto of 2019 says in part that the ANC believes that the South African Reserve Bank must pursue a flexible monetary policy regime, aligned with the objectives of the second phase of transition – without sacrificing price stability, monetary policy must take
into account other objectives such as employment creation and economic growth. Our Macroeconomic Framework, through fiscal and monetary policies, must thus be aligned to support the commitments made in this manifesto.

Now, the historical task of the National Democratic Revolution (NDR), and the social forces leading it, is not merely to contend themselves with tinkering with the colonial framework of racialized economic ownership but it is to fundamentally alter the existing colonial social and economic relations and thus develop the capacity of the post-independence state to become
compatible with the historical task of total emancipation.

The ANC is resolute in pursuing a radical socio-economic transformation agenda that would ensure that it accomplishes the tasks of social revolution imposed on it by history, to avoid the chilling observation made by Uncle Jack Simons that the transfer of power elsewhere in Africa had not meant they had carried out a social revolution, that the tendency had been to
maintain the old economic and political system.

One of the ways the Country can rescue the economy from the state of stagnation (and recession made far worse by the Corona virus) that it finds itself in is through expanding the mandate of the South African Reserve Bank. Currently, the primary mandate of the Reserve Bank is to achieve price stability. This is generally interpreted to mean stable and low
inflation of between 3 percent to 6 percent in our case. In other cases, like Britain and the United States, it is between 0 and 2 percent.

As delegates at the Nasrec Conference we were clear that the Reserve Bank should have at least two primary mandates: price stability and growth/employment. What this means is that the Reserve Bank should be given a sustainable employment target over and above the inflation target. This is a global practice done in developed countries such as the USA and New Zealand. This resolution did not seek to alter the independence of Bank but rather
nationalize its ownership.

We believed that having an employment target would prevent the economy from being in prolonged recessions, due to interest rates being high. An employment mandate would moderate the interest rate policy so that it is more sensitive and explicitly so, to the pulse of the real economy. The central bank needs to have both the price and employment target to
do that.

It is a matter of historic fact that on the 9 September 2010, Government amended Act no 4 of 2010: South African Reserve Bank. The amendment effectively reduced shareholding of individuals/ Entities and subsequent challenging the amendment was upheld by the Courts.

To date, there are 2 million issued shares to about +-765 entities/individuals and ceiling is 10,000 shares per person/entity based on 2010 amendment. Shareholders in turn receive only, an annual dividend of R200k (Dividend policy is limited to 10% based on Stated Capital of R2m).

The issue of valuation of the SARB (Assuming that expropriation without compensation is not applied in this instance) has never come up anywhere there requires some ventilation since the shareholders seem to be under the impression their shares are worth billions,
which is untrue.

It is upon government to appoint an independent valuation specialists based on the SARB Act as it stands. This will help us with the balance of evidence.

The contention both from the media and within our ranks that suggest it will cost billions to nationalize the bank have no basis in history or economic theory. The question is what stopsthe bank from amending the SARB Act to effect Nationalisation of SARB without having to
compensate private shareholders?

The so-called German Tycoon and other foreign shareholders hold less than 10% of the total shares. In addition, the country needs to amend this Act, and should not be held at ransom by the so-called German treaties that expires in 2034 or any other foreign shareholders who are earning a 10% return and have no voting rights.

As we move to the NGC, we will once again add our voices as ordinary membership of the ANC, guided by prevailing condition.

Time to Nationalize and Bank is now, given the recession and the critical state of
unemployment. No amount of bullying tactic will scare us from pushing for the
implementation of this critical resolution.

*Mzwandile Masina is the Executive Mayor of the City of Ekurhuleni Metropolitan Municipality