South African Reserve Bank ownership and its impact on Namibia and SACU members
14 May 2021 | Opinion
Namibia's currency, the Namibian dollar, is pegged to the South African rand. The Southern African Customs Union (SACU) is also a Common Monetary Area (CMA) where the rand is dominant in trade and banking within the region. The main banks operating in the SACU countries are primarily owned by South African owners.
These are First National Bank, Standard Bank, ABSA Bank and Rand Merchant Bank, to mention a few. Although the banks are regulated by the central banks (CBs) within their respective countries, ownership and governance policies where initially structured in South Africa (RSA).
Also, the SACU countries adopted RSA bank policies, some were changed, others left unchanged and the monetary principles remain highly homogenous. Additionally, RSA is the main export, import and trade driver within the region, granting RSA an autonomous position as a currency of choice. According to historians the rand currency derived its name from the Witwatersrand Gold Basin discovered in the Johannesburg area in 1886.
This enormous gold rush played a key role in the mineral revolution and stemmed with various political conflicts in that era including the Boer War. The South African Reserve Bank (SARB), established in 1921, is the central bank of South Africa, but its private ownership has been in the spotlight and political scrutiny recently. Suggestions of total nationalisation were discussed based on its independent governance even though it is regulated under the South African government. It is very important to unpack the impacts, limitations and effects of such a major player within the SACU Common Monetary Area, presiding mainly over SACU countries, but also a dominant player within the SADC region.
In short, a central bank provides banking services for the governmental accounts and also other commercial banks. In 2020, Dr Cobus Vermeulen, an economics lecturer from the University of Pretoria, drafted a paper titled 'On the mandate, ownership and independence of the South African Reserve Bank', published by the SA Journal of Economic and Management Sciences.
He indicated that SARB is owned by 750 individual shareholders, with a cumulative two million shares divided at different ratios among them. The dividends are paid out annually but capped to only 10c per share to the respective shareholders, which is quite a reasonable fee, however according to a journal published by Prof J Roussouw (Wits) and Ms C Rousouw in 2017, the two million shares of the SARB are valued around R1.55 or R1.38 per share, but when the shareholders were approached for proposed selling of the shares, prices were inflated to as much as R4 700.
According to the SARB annual report of 2019/2020, the bank has total cash reserves of R6.1 billion. It also has other unspecified contingency reserves and gold reserves. C Vermeulen (2017) indicated that SARB's key monetary instrument is the repo rate.
He stated that “a higher repo rate makes it more expensive to borrow, slowing down consumption, investment and can harm economic growth”.
As broadly defined a high repo rate indicates the rate at which the central banks lend money to other banks, which in turn determines its revenue and gains for its shareholders. If the repo rate is high, then it subsequently benefits to the shareholders, however since the dividends are capped at 10 cents per share, the bank can still keep its reserves very high. Apart from the rand peg, Namibia is known to have kept its repo rate on par with South Africa's repo rate and with very minimal change between the two. Currently in RSA the rate is 3.5% and 3.75% in Namibia.
According to C Vermeulen (2017), SARB is known for adjusting the repo rate according to exogenous price factors such as petrol, fuel, energy or food costs and this has a direct implication on the Gross Domestic Product (GDP) growth in response to inflationary responses. Before the Covid-19 pandemic in 2020, it is widely known that average interest and repo rates in Namibia and RSA were higher than 7% (CPI), 8% (repo) on average and banks would apply base ratios of 10% to 11% on mortgage and vehicles loans. Unlike Namibia, South Africa has developed an inflation targeting band to keep the Consumer Price Index (CPI) between 3%-6% to achieve price stability and manage inflation (C Vermeulen, 2017).
Other questions were raised if the bank is responsive enough to the country's development needs. Other central banks in SACU or SADC or owned by the government and operated as independent under set regulatory rules and guidelines. RSA finance minister Tito Mboweni is known to be strongly advocating for the full nationalisation of the SARB.
The ownership of the SARB has a strong apartheid-era bearing and shares were distributed along the lines of racial, social preferences and thus needs a clear liberalisation strategy to relieve the possible influence by private interest at the expense of national development.
The key questions against regional policy discussions should be an impact assessment of the private ownership of the SARB and impact on SADC decisions and regional growth, hence its clearly dominant position and monetary outreach.
These also include the dependence of Namibian Bank on policies made in RSA in terms of operations, revenue, national roles, ownership, exchange rate fluctuations, RSA's political decisions to use its monetary policy stability to strengthen monetary policies within the region, protection of currency devaluation and currency backing of countries facing hyperinflation, i.e.
Zimbabwe, its further and deeper role to strengthen development banks using its reserves. Lastly, the need to provide securities for regional development projects to create cross border employment and also to assist other members within its CMA to establish Sovereign Wealth Funds for structural growth and fiscal stability.
Amidst its domestic challenges and increasing debt, RSA has always continuously committed to contributed towards the development of its regional partners, however a directly bilateral monetary structure is required to realise this objectives and regional milestone without leaning towards setbacks or interference from private or somehow privileged individuals.
* Rodney !Hoaeb is an Economic Researcher and Consultant with a passion to witness economic freedom in Namibia