Nationalise SA Reserve Bank! Covid-19 pushes the debate back up political agenda – analyst

The South African Reserve Bank, delisted from the Johannesburg Stock Exchange in 2002, has more than 750 private shareholders, each limited to a maximum of 10,000 of the 2m shares in issue. Miyelani Mkhabela, founder of Antswisa Transaction Advisory Services, puts nationalisation of the central bank back on the table. His view is that this move is necessary if the South African economy is to bounce back from Covid-19 containment measures. – Jackie Cameron

Covid-19: A Private Central Bank is limited to serve the nation

By Miyelani Mkhabela* 

The South African Reserve Bank (Sarb) as the country’s central bank is supposed to provide financial and banking services for the country’s government and commercial banking system, as well as implement monetary policy and issuing currency. The bank must fully comply to this end.

Miyelani Mkhabela

We cannot have a central bank that’s owned by individuals and those individuals must decide whether we release a stimulus package for our deeply impoverished and while the country is experiencing unprecedented high unemployment rates. 

In a document titled “How the European Central Bank helps firms and families”, ECB President Christine Lagarde says: “Our response to coronavirus is designed to reach the firms and families facing a steep loss of income and rising anxiety about the future.” She adds that “full alignment of fiscal and monetary policies is the best way to protect productive capacity and employment”. This clearly shows the importance of the independence of a central bank and how efficiently and effectively the Sarb can be should it be freed from its structured capture.

The central bank of Norway’s aim is price stability and financial stability, and to generate added value through investment management. Norway’s central bank said on Tuesday it would offer an F-loan in US dollars with a maturity of three months on April 2, with a maximum allotment volume of $5 billion, to mitigate the impact on financial markets from the coronavirus outbreak. The Norwegian central bank also said in a separate statement its extraordinary F-loans in Norwegian crowns would be offered to the end of May 2020. 

In March, the Norwegian central bank cut rates to the lowest level in 200 years, it cut its key policy rate to a record low 0.25% from 1.0% on Friday in a bid to alleviate the economic impact from the coronavirus outbreak, and may reduce rates further. 

We partly appreciate the great move by the Sarb to reduce interest rates by 200 basis points in a space of a month, however, the Sarb is supposed to, like many other federal banks, act in providing stimulus packages during times of disaster. 

The Sarb has failed to deliver on its primary mandate to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa. The bank needs to be redefined to understand that the main shareholders are ordinary South Africans who live with the socio-economic complexities of extreme inequality and harsh unemployment, bruising the confidence of the more than 60% of our youth that are unemployed and living in extreme poverty. Instead it has the same ownership structure like Capitec Bank, which is owned by individual innovative industrialists. It has completely failed to operate with independence as the central bank of the Republic of South Africa.

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South Africa needs a revised plan beyond Covid-19 that would include the restructuring of the economy with a big focus on mining and the nationalisation of the Sarb.

South Africa has the world’s richest mineral deposits – our platinum, gold, iron ore and coal reserves are estimated to be worth $3.3trn (R62trn) – still because of poorly managed industries such as mining pre- and post-apartheid the majority of black South Africans are living in extreme poverty. There has been no change for the communities that live in places like Alexandra and Gugulethu.

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The mining industry has been the bedrock of the South African economy for over 100 years. The sector has made many positive contributions to the development of our economy, and some of the infrastructure and industries thriving today are as a direct result of mining.

Unemployment, inequality and poverty have been growing over the years, creating an untenable situation. South Africa has struggled with premature de-industrialisation and its manufacturing sector is much smaller than those in comparable emerging markets and developing middle-income countries. This weakness has proved to be an important reason for the country’s sluggish economic growth. It was made to depend to other global manufacturers, leading the economy to rely excessively on imports of basic consumables.

Covid-19 will be a true reset of the global economy and South Africa has to take advantage of this period to propose unexpected propositions that will turn and expand the economy to realise a better future for all.

For this, the Sarb will have to be a Federal bank in its true essence, independent of individual shareholders.

  • Miyelani Mkhabela is an Economic and Capital Markets Strategist, Founding Director of Antswisa Transaction Advisory Services, contactable at: [email protected] or [email protected].
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