“The president told the World Economic Forum in Davos that the bank would remain independent and that there’s not nationalisation on the cards, now he’s saying something different. This is very bad for investment. People won’t invest in a country where the president speaks with a false tongue.”
President Cyril Ramaphosa delivered a major blow to the rand this week after making it explicitly clear that the ANC, and thus government, will move ahead with its goal to nationalise the South African Reserve Bank.
This change of heart which speaks of lies, corruption and hidden agendas is standing in stark contrast to the message he delivered to investors at the World Economic Forum in Davos in the beginning of the year, where he said that the South African Reserve Bank’s independence was sacrosanct.
Research analyst at Nomura, Peter Attard Montalto says that markets are not taking the threat to the South African Reserve Bank’s independence seriously enough and that even if nothing changes, it could inflict major damage to the economy.
The ANC has its back against the wall, with a dire need for access to funds, and also somewhere to place the blame for the country’s poor economic performance.
“The ANC sees the SARB as a blockage to more radical transformation within the financial services sector, including allowing banks to maintain too tight a set of credit standards that are seen as restricting credit from black SMEs and black industrialists, as well as not applying enough pressure to banks on black ownership and black management criteria,” the analyst said.
“The SARB is also, through its systematic imposition of a consistent rules-based system, seen as a blockage against bank ownership by politically connected parties and frustration at its application of exchange controls in the same vein.”
According to Attard Montalto, the ANC is also currently struggling to gain traction with the narrative that the country’s low growth is the fault of the global economy or the domestic private sector.
“As the 2019 elections approach, we expect the SARB to be set up to take the blame, facing criticism for keeping monetary policy too tight since 2008, being too inflation-focused and not targeting growth or job creation enough.”
The analyst said the Nomura holds the view, agreeing with the SARB, that most of the low growth is due to political, policy and regulatory uncertainty as well as a failure to push forward meaningful structural reform – not the fault of monetary policy.
Attard Montalto said that it is unlikely that government will succeed in changing the Constitutional mandate of the SARB, as it lacks the two-thirds majority to do it, and opposition parties, even the EFF, would be loathed to support a measure that would invariably aid state capture.
However, even the threat of doing so should send alarm bells ringing among investors he said.
“A lot of damage can be done in the short term to investors’ sentiment even if there are no changes to the SARB’s objective or mandate.”