Lesetja Kganyago vows to fight for Reserve Bank, whoever owns it
Any tinkering with its mandate — or its assets — will encounter a protracted court battle, he says
Reserve Bank governor Lesetja Kganyago has a fight on his hands to protect the central bank’s $50bn of reserves.
More than eight months after the ANC decided the Bank should be state-owned, like most other central banks, the governor says his main concern remains to protect the regulator’s independence and mandate.
But also at risk may be billions of dollars in reserves and a legal brawl that could last for years.
While the 97-year-old Reserve Bank’s shares are only worth about R20m based on the current share price, some shareholders have argued the Bank’s assets belong to them and they should be compensated for that when the government nationalises the institution, according to Kganyago.
Eight percent of its 770 owners are foreigners, so steps to nationalise could be challenged using bilateral investment treaties or end in international arbitration.
"This is not a fight I want to be busy with," Kganyago said in an interview in his 32nd-floor office in the capital, Pretoria. "There is sufficient emerging-market turmoil that keeps me busy. I should not be wasting my time on this thing."
‘Paid to go’
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. The currency was 0.2% lower at R14.7115 to the dollar at 7.16am in Johannesburg on Monday.
Some of the investors do feel they are entitled to a share of the reserves, but they are wrong, says Jannie Rossouw, the head of economics and business sciences at the University of Witwatersrand. He is a former secretary at the Reserve Bank and owns its shares.
SA had $50.5bn in gross reserves at the end of July and holds about R170bn of deposits on behalf of the state, according to Bank data.
Some shareholders "want to be paid to go away", Kganyago says. "‘Show me the money, show me the money!’ is what they are looking for."
SA’s central bank is one of a handful, including Switzerland and Japan, 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 central bank’s 10 nonexecutive directors.
"Why should we be paying people who are in any case at the moment very constrained," Kganyago says.
Kganyago, the 52-year-old former head of the National Treasury, fought off a proposal by Public Protector Busisiwe Mkhwebane last year to change the constitution to take away the regulator’s inflation-target mandate.
Last month, the EFF, which has won support by vowing to nationalise everything from land to banks, tabled a bill to make the Reserve Bank state-owned.
If the law is passed, the change would be mainly cosmetic — unless it is used as a gateway to meddle with the mandate again, the governor warned.
"Is this a Trojan horse?" Kganyago said. "If it leads to a point that there’s that debate about the mandate of the bank and the independence of the Reserve Bank — check what happened with Turkey, check what happened in Argentina, check what happened in Venezuela. If you want an African example, check what happened in Zimbabwe.
"Should they interfere with our independence, they’ve got a fight on their hands," he said.
The maximum price over the past six months for a Reserve Bank share, which is available over the counter since they delisted in 2002, has been R10. Investors share a maximum dividend payout of R200,000 a year.
The stock is a "horrible investment", according to shareholder Dawie Roodt, the chief economist at financial services company Efficient Group.
He bought his shares more than two decades ago because they allow him access to the central bank’s annual meetings, where he can speak to its managers, Roodt says.
Previous governors had an acrimonious relationship with some shareholders. Tito Mboweni accused one of disrespect in 2009 when the barefoot investor, dressed in lederhosen, a traditional Bavarian garment, disrupted his AGM.
During Kganyago’s four years at the helm, those gatherings have become duller affairs that last less than an hour. 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, Kganyago will not give up the nation’s assets or allow tinkering with the mandate.
"If there’s a dispute over these things, you can rest assured that we will have protracted fights in the courts," he said.
"Arbitration can rule either way, but the legal costs associated with that are going to be massive, there’s no doubt about that."