Mboweni on nationalising the Reserve Bank – and the cost to South Africa

Finance minister Tito Mboweni and the National Treasury have reiterated their opposition to nationalising the South African Reserve Bank, highlighting the legal and cost implications it could have for the country.

In a written response to the EFF’s proposed bill to nationalise the Reserve Bank, Mboweni said that government has fundamental objections to the bill, specifically:

  • Its constitutionality;
  • Its lack of detail on funding and cost implications;
  • The legal and economic uncertainty it will generate.

Furthermore, the bill does not align with the current policy objectives and funding priorities of government, Mboweni said.

“Whilst government notes the preference of the ruling party for a fully state-owned central bank, this cannot be at the cost of more policy and economic uncertainty, risks to investment 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 (BITs).”

While Mboweni acknowledged that the ANC’s official position is nationalising the Reserve Bank, he highlighted that president Cyril Ramaphosa has said that it is not currently ‘prudent’ to do so given the country’ economic and financial position.


Constitutionality

The EFF’s Bill provides for state ownership of the South African Reserve Bank shares that are held privately.  This means that the bill effectively proposes a form of acquisition by expropriation, without any compensation for shareholders, said Mboweni.

“Aside from the government’s objection to such policy approach – which is going beyond land to other assets – the bill does not indicate how the requirements of section 25 of the Constitution are met for such before an expropriation to be achieved via 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 payment for 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 bypassing the potential 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 for its financial consequences, should it take effect, he said.

“Should the bill be deemed to be a money bill, it cannot be introduced by any person except the Minister of Finance, in terms of sections 73(2) and 77 of the Constitution.”


Financial Implications

Shareholders of the South African Reserve Bank comprise domestic and foreign shareholders.

Mboweni said that the foreign shareholders are citizens of countries that South Africa has entered into bilateral investment treaties (BITs) with.

“Some of these treaties, for example the German BIT, specifically provide protection to foreign nationals to allow them to claim compensation should there be state depravation of their property.”

Mboweni said that the provisions for compensation contained in the BITs pose a risk to the fiscus.

“It is also a concern that these costs are presently unknown as the provisions of each BIT would have to be assessed to determine the cost implications.

“Given the current strain under which the public purse is under, it would not be prudent for the state to acquire the South African Reserve Bank shares.


Further legal concerns

Mboweni said that the bill could also conflict with the Financial Sector Laws Amendment Bill which has been introduced in parliament.

The Bill enables the South African Reserve Bank as the Resolution Authority (RA), to resolve systemically important financial institutions in a manner which protects the stability of the financial system.

“Clause 5 of the Financial Sector Laws Amendment Bill amends section 10(1)(d) of the South African Reserve Bank Act. This amendment empowers the South African Reserve Bank, to form a company (i.e. bridge institution) in which it can take up shares,” he said.

Mboweni said that the purpose of the bridge company is to transfer critical functions of a failing designated institution, which would include a systemically important financial institution (SIFI) or systemically important payment system operator (SIPS).

In addition, clause 7 of the bill makes amendments to section 10(1)(c) of the South African Reserve Bank Act.

This amendment renders the South African Reserve Bank incapable of incorporating or forming 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 securities depository.

“The South African Reserve Bank would not be able to create such a company due to the unnecessary inhibition introduced in clause 7 of the Amendment Bill. However, as the RA, it would be able to do so.”

In addition, Mboweni said that there are general legal concerns on the bill – for instance that it lacks a transparent, consultative process through which agreement can be reached on a fair evaluation or market price for the shares in line with section 25(3) of the Constitution.

“For the reasons outline above, the bill is not supported by the executive,” he said.


Read: EFF’s plan to nationalise South Africa’s Reserve Bank takes first step

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Mboweni on nationalising the Reserve Bank – and the cost to South Africa