/ 24 August 2018

ANC divided over Reserve Bank

The Economic Freedom Fighters’ Bill proposes that the Reserve Bank be nationalised
The Economic Freedom Fighters’ Bill proposes that the Reserve Bank be nationalised, a decision the ANC took at its elective conference in December. (Oupa Nkosi/M&G)

ANC president Cyril Ramaphosa has raised concerns in the party’s national executive committee (NEC) that steps to nationalise the central bank could cost the government billions of rands.

With the introduction of a Bill in Parliament by the Economic Freedom Fighters (EFF)to nationalise the South African Reserve Bank, it emerged that the ANC is divided on the matter.

The party took a resolution at its December elective conference to nationalise the Reserve Bank. But Ramaphosa, at the party’s last NEC two months ago, warned ANC leaders of the possible implications of implementing the resolution.

At the heart of the concern appear to be questions about how the Reserve Bank is valued and what private shareholders stand to be paid out if it is nationalised.

An NEC member, who asked to remain anonymous, told the Mail & Guardian this week that Ramaphosa raised these concerns in his closing remarks. This was confirmed by another NEC member who was present when Ramaphosa was making his closing address.

“The president did it in the NEC. He made an analysis… he told the guys here are the shares of R20-million and said there is this valuation that will be a challenge for us.”

The bank has two million shares in issue in the hands of private share holders. No one shareholder or their associates may hold more than 1000 shares.

The shares trade over the counter, and, according to the most recent Reserve Bank data, traded at a value of R10 ashare.

But there is concern that, should nationalisation be pushed through, some private shareholders will not accept the prevailing share prices and may opt to take the matter to international arbitration if their shares are expropriated or they are forced to sell.

“There are two million private shares. If we had to multiply that, it will give us about R20-million, which is a walk in the park,” the ANC leader said.

The NEC member said the major concern is that “speculative investors” do not want to pay the market price but want to base the value of the Reserve Bank on its total assets, including its foreign holdings.The NEC member was not sure how much this would cost but it was “in the billions”.

According to the Reserve Bank’s most recent data, the bank holds about $50-billion in gold and foreign exchange reserves.

“They want us to nationalise because this triggers a forced sale of shares … and that triggers a dispute,” the ANC leader said.

Should such a dispute go to international arbitration, the “likely ruling” could be based on a much higher valuation of the Reserve Bank, the NEC member said.

The December resolution to nationalise the Reserve Bank came with the caveat that the government develop a proposal to ensure full public ownership “in a manner that does not benefit private shareholder speculators”.

Similar concerns have previously been raised by the Reserve Bank. In a statement last year, after the elective conference, the Reserve Bank warned that nationalising the bank would be expensive “as its shares currently trade for much less than the price at which some existing shareholders are willing to sell their shares”.

“The ‘buying-out’of existing shareholders will therefore result in paying large sums of money to effect cosmetic changes that will have no bearing on the manner in which the Reserve Bank carries out its mandate or executes its policy responsibilities,” it said.

It stressed that, under the current regime, the Reserve Bank’s private shareholders have no influence on monetary policy, financial stability or banking regulation —which remained the preserve of the governor and the deputy governors, who are appointed by the president.

Policy-making and execution are likewise the preserve of the governor and the deputy governors, so the rights of the private shareholders are highly circumscribed.

Last Friday, the EFF introduced a private members’Bill in the National Assembly proposing to nationalise the Reserve Bank, a move that was interpreted as trying to force the ANC’s hand.

The South African Reserve Bank Amendment Bill proposes to make the state the sole owner of all the shares in the bank, and gives the finance minister the right to appoint its directors.

The Bill comes after the ANC in Parliament withdrew a scheduled motion to debate nationalising the bank in March.

It was reported that Finance Minister Nhlanhla Nene had the motion withdrawn because credit ratings agency Moody’s was in South Africa conducting a country review at the time.

But a third NEC member dismissed this, telling the M&G this week that Nene, who had recently been appointed to the post as finance minister, requested time to settle into his new role.

The EFF used similar tactics to push the ANC to address the question of land expropriation without compensation.Last year, the EFF proposed that an ad hoc committee be established to review and change section 25 of the Constitution to make it possible for the state to expropriate land in the public interest without compensation. The motion was supported by the ANC.

Enoch Godongwana, the ANC’s head of economic transformation, this week could not say whether the governing party would support the red berets’ bank Bill. He said the ANC would implement its resolution to nationalise the Reserve Bank but that this would be done at its o

wn pace.The way in which it would be done would ensure the Reserve Bank’s independencewas retainedand that private shareholderswould not benefit.

Nationalisation will ‘serve no purpose’

The South African Reserve Bank’s mandate would not change if it was nationalised, it said in response to questions from the Mail & Guardian.

Its mandate, which is derived from the Constitution, is “to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa”.

The central bank noted that the Bill will not affect this mandate and “it therefore serves no purpose to nationalise the Reserve Bank”.

The Reserve Bank was accountable to South Africans through Parliament, it said, and would continue to participate in parliamentary processes and make a submission at the appropriate time.

In the wake of the Bill’s introduction, the currency weakened sharply, trading at almost R14.70 to the dollar.

But the central bank said it was “inappropriate to solely attribute the performance of the rand to the debate to nationalise the SARB [South African Reserve Bank”.

There are other global factors driving the exchange rate movements.— Lynley Donnelly (Disclaimer: The author owns shares in the South African Reserve Bank)