South Africa’s central bank governor says ownership debate is 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 nationalized.

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 labor 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.

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.”

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 nationalized are “deliberately confusing” South Africans by saying otherwise, Kganyago said.

While the central 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.

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.”