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Following internal debate within the ANC between Finance Minister Tito Mboweni and Secretary General Ace Magashule, the party has decided to abandon nationalising the South African Reserve Bank (Sarb). Magashule was pushing to adopt an internal policy within the party to ensure the bank moves from having private shareholders to becoming a public entity, with profits deposited into a National Revenue Fund. Mboweni shared his reservations, stating it would be wrong to nationalise the banking institution. “As a longstanding member of the ANC and its leadership structures, I know and understand our resolutions. I don’t need lectures on that. But on the Sarb, I am convinced that we adopted a wrong resolution. What do we want to achieve? Our strategic focus: structural economic reforms,” he tweeted. Now that the Reserve Bank is no longer on the agenda for the ANC, land expropriation has taken centre stage. Terrence Corrigan of The Daily Friend looks at why that is. Published with permission from Daily Friend. – Bernice Maune.
Threat to the Reserve Bank remains
By Terrence Corrigan*
With the country emerging from the Covid-19 pandemic (and, it might be added, the economic devastation of the lockdown), South Africa had more pressing priorities.
It would, he said, require ‘massive resources’ to buy out the bank’s private investors – the bank has significant holdings, including gold and foreign reserves, which could be the basis of a compensation claim. ‘Our view is that we want these resources to be channelled rather to infrastructure projects,’ said Mashatile.
It’s fair to say that for most South Africans, the Reserve Bank is a distant and impenetrable institution, and not just in its dark, imposing architecture. Their interactions with it – mediated through commercial banks – are probably felt most acutely through interest rates, and loan payments. They know that it survived the state-capture era, and was called in to deal with such matters as the disembowelling of VBS.
But the Reserve Bank’s importance goes far beyond this. In managing the country’s money supply and overseeing the banking sector, it is a lynchpin of economic stability for the country. Left in creditable, independent and technocratic hands, it is an institution that can (and must) take difficult and often unpopular decisions. Where it is commandeered by politicians, the temptation would inevitably be to throw off the restraints and do what is immediately expedient, with the risk that in a deteriorating environment, it will ultimately lend those powers to the full-scale criminalisation of the state.
Economist Dawie Roodt put it this way to an IRR briefing earlier in the year. Economic meltdown, he remarked, proceeds across three stages. First, taxes are raised until nothing more can be extracted (‘you run out of taxpayers’). Second, assets are prescribed or confiscated until nothing more can be seized (‘you run out of savers’). Third, government tries desperately to salvage itself by running the printing presses (‘eventually the only thing left is that you have to inflate yourself out of this nonsense.’) Think Zimbabwe.
As businessman and author (and former newspaper editor) Brian Pottinger wrote in The Mbeki Legacy a decade ago, the importance of the Reserve Bank to the prospects for South Africa’s political economy should never be underestimated: ‘Above all, respect the independence of the Reserve Bank, because it is the one institution that marks the difference between a modern State and a grab-what-you-can collective.’
Given the parlous state of South Africa’s fiscus and the dismal state of the economy (South Africa has ‘run out of taxpayers’), the Reserve Bank is likely to remain a tempting target, irrespective of what Mr Mashatile has said, and however sincere he might be in saying it.
Indeed, even if the Reserve Bank has been given a reprieve, this might be temporary, since another policy threatens. This is expropriation without compensation (EWC).
Emerging out of the same policy and ideological milieu as the push to nationalise the Reserve Bank – both were resolutions at the ANC’s 2017 conference at NASREC – EWC is being actively pursued. It has been a prominent part of President Ramaphosa’s agenda since his accession to the presidency. He and numerous party colleagues have spoken emphatically in favour of it. To this end, an amendment to the Bill of Rights (the first since the Constitution was adopted) is in the works, which is certain to be followed by a revised expropriation law.
Two considerations are important here. First, although this has been phrased in the language of land reform, degrading property rights will have an impact on the security of all property. Section 25 of the Constitution makes this explicit. Second, EWC is an extension of the state’s power, and all indications are that it will be used as such – the expansion of state control and direction of assets. (The assumption that EWC would be a means to transferring ownership – specifically of land – from one group of South Africans to another has no real basis, and would imply an about-turn on policy.)
If implemented, EWC would enable the state to execute the second phase of meltdown – grabbing assets. Land certainly, but probably savings and pension funds too. (True enough, Mr Mashatile has indicated too that prescribed assets are not on the cards. Whether this argument survives the country’s accumulated economic retardation and the matching resistance to reform remains to be seen.)
Interestingly, it would also provide a neat solution to the cost concerns around nationalising the Reserve Bank. Expanded discretion for the state to seize assets without the commensurate obligation to compensate their owners could make those concerns moot.
EWC, central to the second stage of meltdown, would open the way for the third.
The independence and professionalism of the Reserve Bank will be central to South Africa’s fate. While the pause in plans to nationalise it may be celebrated, complacency should be avoided. With EWC remaining the policy of the ANC and government, a latent threat to the Reserve Bank looms. And this is a reminder about why EWC is a threat to the economy as a whole.
- Terence Corrigan is the Project Manager at the Institute, where he specialises in work on property rights, as well as land and mining policy. A native of KwaZulu-Natal, he is a graduate of the University of KwaZulu-Natal (Pietermaritzburg). He has held various positions at the IRR, South African Institute of International Affairs, SBP (formerly the Small Business Project) and the Gauteng Legislature – as well as having taught English in Taiwan. He is a regular commentator in the South African media and his interests include African governance, land and agrarian issues, political culture and political thought, corporate governance, enterprise and business policy.
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