Since its founding almost a century ago, South Africa’s central bank has been owned by private shareholders.
Now President Cyril Ramaphosa is pushing ahead on a plan to nationalize the Reserve Bank in order to address its anomalous ownership structure and assert the nation’s sovereignty.
Critics say the move could shake faith in an institution that’s been seen as being above politics and be the first step toward infringing on its inflation-fighting mandate.
1. Why change the bank ownership now?
The ruling African National Congress says it wants to bring the Reserve Bank in line with how most other central banks operate.
Yet some see politics at work behind the move. At the same meeting where the party ratified plans to nationalize the central bank, it also pledged to change the constitution to make it easier to expropriate land without compensation.
The ruling party’s manifesto released ahead of May 8 elections stating that the bank must pursue a flexible policy regime heightened fears that the ANC not only seeks to change the ownership structure but will also try to prescribe policy decisions.
2. Why is the bank’s role so hotly contested?
Labour unions say punitive interest rates stifle economic growth, employment and investment, and the bank should be promoting job creation and shoring up the economy rather than fighting inflation.
Other critics argue that it will be easier for black-owned lenders to get banking licenses if the regulator is owned by the state.
The bank’s defenders argue that changing the bank’s ownership would be a blow to transparency since private shareholders are permitted to ask questions at its annual general meeting and help ensure the management and board are held to account.
They also say the bank is a last bastion of institutional strength in an economy that’s in dire need of stability and the poor will be hardest hit if inflation isn’t kept in check.
3. Who are the shareholders and what are their powers?
While the bulk of the Reserve Bank’s 785 shareholders are individuals, its investors include trusts, pension funds, unions, a library, an archbishop and even an Athens-based mental health hospital.
South Africa’s biggest commercial lenders own just over 2% of the shares.
The bank has 2 million shares outstanding and investors are allowed a maximum of 10,000 each, which gives them a prescribed maximum annual dividend of R1,000 ($70), according to the Reserve Bank Act.
These modest returns, the illiquid nature of the stock and the fact that shareholders have no say over policy decisions or the appointment of the governor and other members of the monetary policy committee means owning the shares up until now has been more about sentiment and symbolism than about chasing yields.
4. Would new ownership change the bank’s mandate?
Probably not. The constitution requires the bank to “protect the value of the currency in the interest of balanced and sustainable economic growth,” a mandate Ramaphosa says is “sacrosanct” and will remain so.
While a change in ownership would be mainly cosmetic, Governor Lesetja Kganyago has warned it could be used as a “Trojan horse” to reopen the debate about the institution’s role.
5. What happens next?
The South African Reserve Bank’s shareholding structure is prescribed by the Reserve Bank Act, so a change in the ownership will require the law to be amended.
The ANC can probably drive through those changes because it holds 62% of the seats in parliament, a majority it’s likely to retain after the election.
Altering the bank’s mandate would be harder because it would require a constitutional amendment that would need the backing of two-thirds of lawmakers to pass.
The opposition Economic Freedom Fighters in August introduced a proposed change to the Reserve Bank Act to abolish the private shareholding.
The National Assembly won’t have time to process the law before it adjourns on March 22, meaning it will be referred to the next parliament that will be sworn in after the May 8 vote.
6. How long will this take?
If the ANC seeks to have the law changed, the bank’s shareholders will have to be consulted and they may challenge the move, drawing out the process.
International treaties may apply to foreign shareholders, protecting them against nationalization. Further complicating the issue is 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.
7. How much will this cost?
It’s unclear. Options range from using the price set at the time of liquidation, to the shares’ issue price or some other formula that the government might determine, according to Jannie Rossouw, the head of economics and business sciences at the University of the Witwatersrand in Johannesburg.
The shares trade over the counter and last changed hands for R9 each on March 1 – valuing the bank at just R18 million.
However, some shareholders argue that the bank’s $50 billion in reserves belongs to them and they should be appropriately compensated should institution be nationalized. Kganyago has warned that the process will be protracted and expensive.