Kganyago says Sarb debate a distraction

As the South African Reserve Bank’s shareholders prepare for its annual general meeting on Friday, Governor Lesetja Kganyago derided the debate over who owns the institution as a distraction from the real problems that the economy faces.

This AGM will be the second since the ruling African National Congress decided in December 2017 that the central bank, which is one of a handful worldwide owned by private investors, should be nationalised. While President Cyril Ramaphosa has made it clear this will be implemented at some stage, the process, which will require a change to Reserve Bank Act and an agreement on the price of shares, has barely moved forward.

However, news that the economy contracted the most in a decade in the first quarter led to Kganyago and the central bank coming under renewed criticism from labour unions and some senior members of the ANC who want interest rates to come down. They argue that the drive for low inflation is misplaced and that the Reserve Bank should do more to boost economic growth and that removing the private shareholders is an important part of changing how the institution works.

Kganyago warned in a speech on Wednesday that the shareholding debate is more damaging to the economy than it should be.

Read: Kganyago says debate over central bank’s ownership ‘damaging’

The failure to implement reforms to get the economy going “feeds the notion that the South African Reserve Bank’s private shareholding matters to the policy framework we have and the decisions made on policy,” he said. “It sends a signal to investors, both here and abroad, that our macroeconomic framework is at risk, making the cost of debt higher than otherwise and undermining confidence.”

‘Trojan horse’

The central bank has about 800 shareholders, which include individuals, commercial banks, unions and pension funds. They have no say over monetary policy or the appointment of the Monetary Policy Committee or the governors. People who want the Reserve Bank to be nationalised are “deliberately confusing” South Africans by saying otherwise, Kganyago said.

Price growth has been at or below the 4.5% midpoint of the central bank’s inflation target band since December. While the bank has to implement its inflation-targeting mandate in the interest of balanced and sustainable growth, according to the Constitution, it has made it clear that the obstacles to boosting growth fall beyond from the reach of monetary policy.

Read: June inflation flat, bolstering case for rate cuts

The shareholding debate in its current form is a “Trojan horse” and distracts from difficult conversations that must be had about economic growth, Kganyago said. “Somebody tell me that by keeping out those private shareholders we are going to have higher growth in this economy, we are going to have more people employed in this economy, we will improve education outcomes, we will improve health outcomes.”

What you need to know about the Reserve Bank’s owners and AGM

• The Reserve Bank has 2 million shares.
• Investors are allowed a maximum of 10 000 securities each, which gives them a prescribed maximum dividend of R1 000. 
• Reserve Bank shares, which are available over the counter, sold for an average of about R9.20 in the first six months of the year, but on July 12 someone bought 20 shares for R90 each.
• The shareholders will on Friday vote to fill three vacancies for non-executive directors on the Reserve Bank’s board.
• Seven of the 10 non-executive directors are elected by the shareholders and the rest are picked by the government. The governor and three deputies are executive directors on the board.

© 2019 Bloomberg L.P