The rand lost 1.5% against the dollar to R13.00 on Monday afternoon as the market reacted negatively to news that the Public Protector wants the Constitution changed to shift focus onto “economic transformation” at the cost of currency security.
Speaking at a findings presentation on Monday morning, Public Protector Busisiwe Mkwebane recommended that section 224.1 of constitution be changed after finding that the South African government was allowed to recover R1.125 billion in “misappropriated public funds” given to Absa bank during the apartheid era.
The recommended change is to the working of the Reserve Bank’s primary objective, from:
“The primary objective of the South African Reserve Bank is to protect the value of the currency in the interest of balanced and sustainable economic growth in the Republic.”
“The primary objective of the SARB is to promote balanced and sustainable economic growth in the Republic, while ensuring that the socio-economic well-being of the citizens are protected.”
According to research analyst at Nomura, Peter Attard Montalto, even though he does not expect this change to happen in the near or mid-term, the mere fact that it has been raised at all is seen as a major market negative.
In a brief note following the announcement, Attard Montalto said that the independence of the South African Reserve Bank is one of the few positives for ratings agencies, and as the “last Pandora’s Box”, it was a live wire issue, and just talking about messing with it is bad news for investors.
The analyst also noted that it is unusual for a Public Protector to get this specific about changing the Constitution, or even about economic transformation. It is widely viewed that Mkhwebane is a Zuma loyalist, he said.
Attard Montalto said that the Public Protector’s mandate could be seen as a back-door entry for the “radical economic transformation” narrative to infiltrate the SARB.
“I don’t think this is going to happen in the short- to medium-run. The ANC cannot really muster the support to change the Constitution in Parliament, and would require a two-thirds majority,” he said.
“What the worry is here is that actually it’s much much easier than that. You just need a new Monetary Policy Committee (MPC) mandate, which is done by a letter from the finance minister to the MPC, and this can be done technically at any time.”
“I do not think (finance minister Malusi) Gigaba is going to do that, but this raises the risk and promotes the idea in public debate about how secure this last bastion of an institution is. The SARB is also one of few ratings positives for the ratings agencies. The very fact this issue is being raised and the SARB dragged into the debate is negative,” he said.
The analyst said that SARB leadership is likely to strongly and resolutely defend its independence and existing mandate, and may turn to court action if necessary.