Battle looms over $50bn reserves of central bank

Lesetja Kganyago, governor of the South Africa Central Bank. Photo: Bloomberg
Lesetja Kganyago, governor of the South Africa Central Bank. Photo: Bloomberg

South Africa’s Lesetja Kganyago has a fight on his hands to protect the central bank’s $50bn (€43bn) of reserves.

More than eight months after the ruling African National Congress decided that the South African Reserve Bank should be state-owned, like most other central banks, the governor has said his main concern remains to protect the regulator’s independence and mandate.

But also at risk may be billions of dollars in reserves, raising the possibility of a legal brawl that could last years.

While the Reserve Bank’s shares are only worth about 20 million rand (€1.2m), based on the share price, some shareholders have argued that the bank’s assets belong to them and that they should be compensated when the government nationalises it, according to Mr Kganyago.

Eight percent of its 770 owners are from outside South Africa, so steps to nationalise could be challenged using bilateral investment treaties or the dispute could even end in international arbitration.

“This is not a fight I want to be busy with,” Mr Kganyago said, adding: “There is sufficient emerging-market turmoil that keeps me busy. I should not be wasting my time on this thing.”

The rand slumped to its weakest level against the dollar in two years last month as upheaval in Turkey spilled over into other emerging markets.

Some of the investors feel that they are entitled to a share of the reserves, but they are wrong, according to Jannie Rossouw, head of economics and business sciences at the University of Witwatersrand.

He is a former secretary at the Reserve Bank and owns shares in it.

South Africa had $50.5bn in gross reserves at the end of July and holds about 170bn rand of deposits on behalf of the state, according to central bank data. Some shareholders “want to be paid to go away,” Mr Kganyago said, adding: “‘Show me the money!’ is what they are looking for.”

South Africa’s central bank is one of a handful still owned by private individuals. However, shareholders are limited to 10,000 shares each and have no say over monetary policy. They get to vote for seven of the 10 non-executive directors.

“Why should we be paying people who are, in any case at the moment very constrained?” said Mr Kganyago.

He fought off a proposal by the anti-graft ombudsman last year to change the constitution to take away the regulator’s inflation-target mandate.

Last month, the radical Economic Freedom Fighters political party – which has won support by vowing to nationalise everything from land to banks – tabled a bill to make the Reserve Bank state-owned.

However, if that law is passed, the change would be mainly cosmetic. That is unless it is used as a gateway to meddle with the mandate again, the governor warned.

“Is this a Trojan horse?” Mr Kganyago asked. “If it leads to a point where there is that debate about the mandate of the bank and the independence of the Reserve Bank, check what happened with Turkey, Argentina, Venezuela.

“Should they interfere with our independence, they’ve got a fight on their hands.”

The maximum price over the past six months for a Reserve Bank share has been 10 rand.

Investors share a maximum dividend payout of 200,000 rand a year.

The stock is a “horrible investment,” according to shareholder Dawie Roodt, economist at financial services firm Efficient Group.

He bought his shares more than 20 years ago because they allow him access to the central bank’s AGMs, where he can speak to its managers.

Previous governors had an acrimonious relationship with some shareholders. During Mr Kganyago’s four years at the helm, those gatherings have become duller affairs.

If the government does become the sole owner of the bank, the meetings could be over in minutes, he said. The central bank would prefer to leave things as they are. Should nationalisation take place, Mr Kganyago won’t give up the nation’s assets or allow tinkering with the mandate. “If there’s a dispute over these things, you can rest assured we will have protracted fights in the courts,” he said.


Irish Independent

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