Public debate about the Reserve Bank is never too far away, and went up a notch higher in the run-up to the recent South Africa’s May 2019 national elections.
The ruling African National Congress said it intends to nationalize the central bank. “There is no hidden agenda, there is no manga-manga business,” President Cyril Ramaphosa told a parliamentary question and answer session in March 2019.
The ANC’s push for nationalization is supported by the Economic Freedom Fighters, the second largest opposition party. In August 2018, the EFF tabled the South African Reserve Bank Amendment Bill, which seeks to make the state the sole owner of the bank. It is still under consideration by the National Assembly.
Nationalization is opposed by the Democratic Alliance, the official opposition. And several economists, including Reserve Bank governor Lesetja Kganyago, say the bank should remain independent.
Yet others have argued nationalization will not make much difference.
But what does it all mean? Below is some key info that is worth knowing about the Reserve Bank, and its possible nationalization.
1. What is the South African Reserve Bank?
The Reserve Bank is the central bank of South Africa.
It was established in 1921 to protect South Africa’s commercial banks after a rise in the gold price following World War I put them at risk. It took over responsibility for holding gold and issuing bank notes.
The bank has since taken on a number of other duties and its mandate is protected by the South African constitution.
2. What does the Reserve Bank do?
Its main function is to protect the value of the rand, South Africa’s currency. The bank says a stable currency reduces uncertainty in the economy.
One way to protect a currency’s value is by controlling inflation – an overall increase in the price of goods and services.
Inflation is measured by defining a basket of goods and services that a typical person would buy. The increase or decrease in the cost of that basket over time gives you the inflation rate. A positive inflation rate means people have to pay more for the basket, even though no extra items have been added. It also leads to other “distortions” in an economy.
The Reserve Bank tries to control inflation by setting a target for price increases from one year to the next. Currently, the inflation rate should range between 3% and 6%. The bank tries to meet this target using policies such as setting the rate at which commercial banks can borrow money or requiring them to keep a cash reserve.
But why is a stable currency important?
“It ensures that what I can load in my supermarket trolley this month can also be afforded next month or in six months from now without me having to adjust my budget,” Charles Wait, professor emeritus in the economics department at Nelson Mandela University, told Africa Check.
This is particularly important for people who can’t increase their income when prices rise. “Think of pensioners or those relying on social grants from the state.”
A stable currency also helps businesses plan for the future with greater certainty. “There are less concerns about… the prices of inputs and outputs or the cost of expanding activities,” Wait said. The same is true for the government when it draws up its medium-term budget of costs for the next three financial years.
“One complication in estimating costs in year three is the degree of inflation that is likely to occur between year one and two… for example, the budget presented to parliament in February 2019 was planned during 2018 but has to forecast until [the] end of March 2022.” An unstable currency would complicate this further, Wait explained.
3. How does the bank function on a day to day basis?
The bank also provides some banking services to the central government and oversees the movement of currency between countries.
It is also the banker for commercial banks. It provides banks with cash when there are cash shortages, holds some of their cash reserves and supervises the South African banking system in general.
The Reserve Bank also issues banknotes and coins. Commercial banks then make these available to the public.
4. Is the Reserve Bank independent?
The bank enjoys a “considerable degree of autonomy”, it says on its website. Its mandate and independence are guaranteed by the constitution, which says the bank “must perform its functions independently and without fear, favor or prejudice”.
The constitution is the highest law of South Africa. Any changes to the constitution require support from two-thirds of the National Assembly and six out of nine delegations from the National Council of Provinces.
So changing the founding structure of the Reserve Bank would not be easy. Some people, including the reserve bank governor, believe this is rightly so.
“A central bank has normally got a monopoly in producing the country’s banknotes and coins,” Wait said. “It holds the key to the printing press. That key must be kept under a safe lock because if too much money is printed and put into circulation, we can get a situation where too much money chases too few goods.”
This could result in hyperinflation, seen in Zimbabwe and, more recently, Venezuela.
This could especially be the case where a government, not understanding the risks of inflation and overspending, sees a country’s central bank as a source of funding for its budget deficit.
A budget deficit is when a government expects to spend more money than it collects, according to a guide to South African government budgets.
“The SARB is legally restricted in its ability to bailout the government in cases of the latter’s budget deficits. When [Tito] Mboweni was the president of the SARB he spoke about the need to tighten these screws,” said Wait.
“At times of undesirably high levels of inflation, this independence is essential for the bank to be able to carry out its constitutional mandate of protecting the value of the currency.”
5. Who owns the Reserve Bank?
The bank is owned by about 750 private shareholders who together hold 2 million shares. Most shareholders are individuals but some shares belong to companies, trusts, provident funds and unions.
For example, Anglo American, a multinational mining company, and Discovery, a South African financial services group, own 10,000 shares each. The National Library of South Africa owns 200 and the Nelson Mandela Children’s Fund owns 100.
During the March 2019 parliamentary question and answer session, Ramaphosa expressed concern about the bank’s “external shareholders who live in various countries in the world”. The bank’s latest Shareholder Index report shows that about 11% of its 2 million shares are foreign-owned.
6. Who can buy shares?
Anyone can buy shares over the counter. The bank regularly publishes the price of its shares and the number of shares available.
As at 7 May 2019, shares were trading at R8 each. There are currently 3,786 shares on offer to sell.
Investors may not buy more than 10,000 shares each. And a prescribed maximum yearly dividend has been set at 10 cents per share. This means that even if an investor owns 10,000 shares, the most they can make in a year is R1,000.
7. What powers do shareholders have?
Shareholders have the power to:
- Elect seven of 15 board members
- Attend the annual “ordinary meeting of shareholders” at the bank
- Approve the annual report on the state of the economy
- Appoint external auditors
Shareholders do not have the power to:
- Influence monetary policy
- Instruct the day to day management of the bank
- Appoint executive board members.
These last three functions are carried out by the Monetary Policy Committee, the bank’s governors, and the South African President respectively.
8. What other assets does the Reserve Bank have?
The bank is almost 100 years old. In that time it has built up a portfolio of assets that include shares, gold and foreign exchange reserves.
As at March 2019 these assets totaled R793 billion.
9. What would ‘nationalizing’ the Reserve Bank mean?
Nationalizing the bank would make the government its sole owner. According to Ramaphosa, this would “confirm” South Africa’s sovereignty.
Prof Jannie Rossouw, head of the school of economic and business sciences at Wits University, wrote in August 2018 that a change of ownership would not necessarily be a bad thing.
“A large number of central banks have been nationalized since 1945,” he told Africa Check. “So the world trend is in favor of nationalization with shareholding becoming a rare exception.”
(Disclosure: Jannie Rossouw was previously employed by the Reserve Bank and owns shares in the bank.)
There is a misconception that ownership would give the government control over the bank’s monetary policy. “The shareholding structure and whether we nationalize or not will have no impact whatsoever on the constitutional mandate of the bank,” Rossouw said.
Prof Andrè Roux, head of the Futures Studies programs at the University of Stellenbosch Business School, agreed.
“Shareholders actually have very limited rights,” he said. “So nationalizing the reserve bank won’t make much difference unless the Constitution is changed, which I think is very unlikely.”
For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email marketing@relocationafrica.com, or call us on +27 21 763 4240.
Sources: [1], [2]. Image sources: [1], [2].
Key Facts to Know About the SA Reserve Bank, and Its Potential Nationalization
Public debate about the Reserve Bank is never too far away, and went up a notch higher in the run-up to the recent South Africa’s May 2019 national elections.
The ruling African National Congress said it intends to nationalize the central bank. “There is no hidden agenda, there is no manga-manga business,” President Cyril Ramaphosa told a parliamentary question and answer session in March 2019.
The ANC’s push for nationalization is supported by the Economic Freedom Fighters, the second largest opposition party. In August 2018, the EFF tabled the South African Reserve Bank Amendment Bill, which seeks to make the state the sole owner of the bank. It is still under consideration by the National Assembly.
Nationalization is opposed by the Democratic Alliance, the official opposition. And several economists, including Reserve Bank governor Lesetja Kganyago, say the bank should remain independent.
Yet others have argued nationalization will not make much difference.
But what does it all mean? Below is some key info that is worth knowing about the Reserve Bank, and its possible nationalization.
1. What is the South African Reserve Bank?
The Reserve Bank is the central bank of South Africa.
It was established in 1921 to protect South Africa’s commercial banks after a rise in the gold price following World War I put them at risk. It took over responsibility for holding gold and issuing bank notes.
The bank has since taken on a number of other duties and its mandate is protected by the South African constitution.
2. What does the Reserve Bank do?
Its main function is to protect the value of the rand, South Africa’s currency. The bank says a stable currency reduces uncertainty in the economy.
One way to protect a currency’s value is by controlling inflation – an overall increase in the price of goods and services.
Inflation is measured by defining a basket of goods and services that a typical person would buy. The increase or decrease in the cost of that basket over time gives you the inflation rate. A positive inflation rate means people have to pay more for the basket, even though no extra items have been added. It also leads to other “distortions” in an economy.
The Reserve Bank tries to control inflation by setting a target for price increases from one year to the next. Currently, the inflation rate should range between 3% and 6%. The bank tries to meet this target using policies such as setting the rate at which commercial banks can borrow money or requiring them to keep a cash reserve.
But why is a stable currency important?
“It ensures that what I can load in my supermarket trolley this month can also be afforded next month or in six months from now without me having to adjust my budget,” Charles Wait, professor emeritus in the economics department at Nelson Mandela University, told Africa Check.
This is particularly important for people who can’t increase their income when prices rise. “Think of pensioners or those relying on social grants from the state.”
A stable currency also helps businesses plan for the future with greater certainty. “There are less concerns about… the prices of inputs and outputs or the cost of expanding activities,” Wait said. The same is true for the government when it draws up its medium-term budget of costs for the next three financial years.
“One complication in estimating costs in year three is the degree of inflation that is likely to occur between year one and two… for example, the budget presented to parliament in February 2019 was planned during 2018 but has to forecast until [the] end of March 2022.” An unstable currency would complicate this further, Wait explained.
3. How does the bank function on a day to day basis?
The bank also provides some banking services to the central government and oversees the movement of currency between countries.
It is also the banker for commercial banks. It provides banks with cash when there are cash shortages, holds some of their cash reserves and supervises the South African banking system in general.
The Reserve Bank also issues banknotes and coins. Commercial banks then make these available to the public.
4. Is the Reserve Bank independent?
The bank enjoys a “considerable degree of autonomy”, it says on its website. Its mandate and independence are guaranteed by the constitution, which says the bank “must perform its functions independently and without fear, favor or prejudice”.
The constitution is the highest law of South Africa. Any changes to the constitution require support from two-thirds of the National Assembly and six out of nine delegations from the National Council of Provinces.
So changing the founding structure of the Reserve Bank would not be easy. Some people, including the reserve bank governor, believe this is rightly so.
“A central bank has normally got a monopoly in producing the country’s banknotes and coins,” Wait said. “It holds the key to the printing press. That key must be kept under a safe lock because if too much money is printed and put into circulation, we can get a situation where too much money chases too few goods.”
This could result in hyperinflation, seen in Zimbabwe and, more recently, Venezuela.
This could especially be the case where a government, not understanding the risks of inflation and overspending, sees a country’s central bank as a source of funding for its budget deficit.
A budget deficit is when a government expects to spend more money than it collects, according to a guide to South African government budgets.
“The SARB is legally restricted in its ability to bailout the government in cases of the latter’s budget deficits. When [Tito] Mboweni was the president of the SARB he spoke about the need to tighten these screws,” said Wait.
“At times of undesirably high levels of inflation, this independence is essential for the bank to be able to carry out its constitutional mandate of protecting the value of the currency.”
5. Who owns the Reserve Bank?
The bank is owned by about 750 private shareholders who together hold 2 million shares. Most shareholders are individuals but some shares belong to companies, trusts, provident funds and unions.
For example, Anglo American, a multinational mining company, and Discovery, a South African financial services group, own 10,000 shares each. The National Library of South Africa owns 200 and the Nelson Mandela Children’s Fund owns 100.
During the March 2019 parliamentary question and answer session, Ramaphosa expressed concern about the bank’s “external shareholders who live in various countries in the world”. The bank’s latest Shareholder Index report shows that about 11% of its 2 million shares are foreign-owned.
6. Who can buy shares?
Anyone can buy shares over the counter. The bank regularly publishes the price of its shares and the number of shares available.
As at 7 May 2019, shares were trading at R8 each. There are currently 3,786 shares on offer to sell.
Investors may not buy more than 10,000 shares each. And a prescribed maximum yearly dividend has been set at 10 cents per share. This means that even if an investor owns 10,000 shares, the most they can make in a year is R1,000.
7. What powers do shareholders have?
Shareholders have the power to:
Shareholders do not have the power to:
These last three functions are carried out by the Monetary Policy Committee, the bank’s governors, and the South African President respectively.
8. What other assets does the Reserve Bank have?
The bank is almost 100 years old. In that time it has built up a portfolio of assets that include shares, gold and foreign exchange reserves.
As at March 2019 these assets totaled R793 billion.
9. What would ‘nationalizing’ the Reserve Bank mean?
Nationalizing the bank would make the government its sole owner. According to Ramaphosa, this would “confirm” South Africa’s sovereignty.
Prof Jannie Rossouw, head of the school of economic and business sciences at Wits University, wrote in August 2018 that a change of ownership would not necessarily be a bad thing.
“A large number of central banks have been nationalized since 1945,” he told Africa Check. “So the world trend is in favor of nationalization with shareholding becoming a rare exception.”
(Disclosure: Jannie Rossouw was previously employed by the Reserve Bank and owns shares in the bank.)
There is a misconception that ownership would give the government control over the bank’s monetary policy. “The shareholding structure and whether we nationalize or not will have no impact whatsoever on the constitutional mandate of the bank,” Rossouw said.
Prof Andrè Roux, head of the Futures Studies programs at the University of Stellenbosch Business School, agreed.
“Shareholders actually have very limited rights,” he said. “So nationalizing the reserve bank won’t make much difference unless the Constitution is changed, which I think is very unlikely.”
For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email marketing@relocationafrica.com, or call us on +27 21 763 4240.
Sources: [1], [2]. Image sources: [1], [2].
Opinion: Africa’s Success Relies on its Capacity to Harness its Youth’s Potential
Although the headwinds facing globalization are growing in force around the globe, it has not yet managed to stem the desire by many to relocate in search of better prospected. Africa is no exception. According to the most recent round of the Afrobarometer survey, a continental public opinion survey conducted in 34 countries, more than one in three Africans have considered emigrating at the time of the interviews between 2016 and 2018.
This sentiment was particularly strong within the young and educated cohorts of the sample. About half of young adults (aged 18-25 years), and the same proportion and highly educated respondents indicated that they have given thought to the possibility of leaving their home countries in search of better opportunities. This has implications for the continent’s development.
According to the Population Division of the United Nations’ Department of Economic and Social Affairs (UNDESA), Africa’s demographic profile currently displays a youth bulge.
Although fertility rates are slowly declining, the continent still has the fastest-growing youth population, with about 60% below the age of 25. The possibility of a so-called ‘demographic dividend’ to be derived from the continent’s youthful population, can only materialize if young people are educated and employable. If, however, those who fall within this category are keen to look for opportunities elsewhere in the world, the prospects for leveraging this potential demographic windfall are diminished. The chart below shows the proportion of those who have considered emigrating by socio-demographic group using the latest Afrobarometer data from 34 countries.
There may be several reasons why young people are considering the possibility of emigrating. Arguably, the lack of sustainable economic opportunities counts among the them. Youth unemployment might be a global phenomenon, particularly in the context of international economic stagnation, but the lack of congruence between the promise of a demographic dividend, and the and growing unemployment certainly does not encourage the prospect for a better life among young Africans. Research shows that a significant majority of young Africans are currently facing unemployment. It may be a virtue, but patriotism does not put food on the table, and according to the Afrobarometer data, shown below, finding work and escaping economic hardship count among the most frequently cited reasons to consider emigrating.
Given that migration is mostly driven by social and economic factors, policy responses should be on the creation of opportunities for young people to enter economic supply chains. Their ability to leverage such opportunities will, in turn, depend on the quality of education that they received. As such, investment in relevant education pathways into the economy would be critical. In light of this, developed countries, governments and public organisations should to create the room for young Africans to thrive. Failing to heed the needs and expectations of young people will come at a high price for the prosperity of the continent, its governance and the ability to retain and up-skill this essential constituency.
Gugu Nonjinge is a Project Leader at the Institute for Justice and Reconciliation (IJR). Are you interested to read more about IJR’s research and community reconciliation work? Visit their website on www.ijr.org.za, like their Facebook page or follow them on Twitter.
For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email marketing@relocationafrica.com, or call us on +27 21 763 4240.
Sources: [1], [2]. Image sources: Josh Nezon [1], [2].
SA Home Affairs Asks United Nations HRC for Help with Refugee Backlog
The Department of Home Affairs has approached the United Nations Human Rights Council (UNHRC) to help it clear the 150 000 refugee status appeals backlog, according to Director of Asylum Seekers, Mandla Madumisa.
Madumisa was speaking at the South African Human Rights Commission (SAHRC) on recently, GroundUp reports.
The SAHRC subpoenaed Acting Home Affairs Director-General, Thulani Mavuso, to address complaints that the department takes an inordinately long time to process asylum applications and permanent residence permits.
SAHRC chairperson Bongani Majola, said his institution had struggled to engage with Home Affairs for the past year so a subpoena was necessary.
Majola said: “Home Affairs is a central structure that affects so many people’s lives.”
A working relationship should be established between the commission and Home Affairs so that individual cases could be dealt with efficiently, he said.
Progress
Majola asked Home Affairs representatives if any progress had been made on the backlog of refugee appeals.
Madumisa said a consultant from UNHRC was appointed and started in May. The consultant would assess the situation at Home Affairs and would come up with a comprehensive plan to deal with the backlog.
“By the end of July the department will receive that report and we will have a clear way forward on how we will deal with the backlog,” he said.
Mavuso said Home Affairs also struggled with the verification of information when it came to spousal visa applications. He said the turnaround time for the department is currently eight months but he said it was looking into extending it to 18 months.
“Eight months becomes a challenge because an adjudicator cannot touch an application before the inspector can put a stamp on the verification of information including supporting documents,” he said.
He said this meant that the inspectors would need to do various interviews and confirm that the information presented to Home Affairs is verified.
“You have cases where people submit police clearance documents but the documents have been totally manipulated… so because of the constraints on the ground of the inspectors, we will have to ensure that the [turn around] period increases,” he told the panel.
Mavuso said the turnaround time depended on whether the information provided was easily verified.
SAHRC commissioner Angie Makwetla asked Mavuso whether Home Affairs kept the applicants informed on the status of their application “because a person can’t wait from 2016 to 2018 and not know what is happening”.
Jackie McKay, Deputy Director General of Immigration, responded: “We would love to do that. In fact any good department would do that. But I have 22 people who deal with all of these cases… I’m working my staff to the bone.”
He said Home Affairs did not have systems in place that could automate those updates but he said it was currently working on a system that would make it more efficient.
For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email marketing@relocationafrica.com, or call us on +27 21 763 4240.
Sources: [1], [2]. Image sources: [1], [2].
Home Affairs Focusing on People Working in South Africa on the Wrong Visa
The Department of Home Affairs has published its first directive for 2019, aiming to clamp down on foreigners working in the country on ‘business trip’ visas.
According to Marisa Jacobs, director at Xpatweb, the directive clarifies that Section 11(2) visas are not to be used continuously and are specifically to allow for ‘short term project resources in South Africa’.
“The issuing of this directive indicates a common misuse of the visa category by employers where they are making use of the relaxed nature of visa requirements of this category to bring resources into South Africa and then continuously extending or applying for new visas when they should, in fact, be pursuing a long term work visa,” she said.
“The directive now sets out clearly that the visa may only be applied for once in a calendar year and only extended once for a period not exceeding three months. The maximum period is thus six months.”
Misrepresentation
According to Jacobs, there is a broad misrepresentation by business travelers – especially those travelling from visa exempt countries – who enter South Africa on a holiday/business visa while in fact conducting work in South Africa.
“When an employee comes to render employment services in South Africa, make sure they get a valid short-term work visa,” she said.
“Do not take a chance and tell the immigration official this is only a business trip, when the purpose is work.
“It is easy to be compliant and not worth the risk. The process takes 5 – 10 working days and the short-term visa is issued for three months and may be extended in South Africa for a further three months.”
Consequences of working on a Business Visa
Where an expatriate is found on your premises conducting work without the necessary authorization on their visa to conduct such work, the Immigration Act clearly sets out the implications for both the expatriate and the employer, said Jacobs.
This includes arrest and deportation for the foreign national and a fine and/or arrest for the employer depending on the offence, she said.
“The issuing of the above directive points to a more vigilant Department with their eye on individuals and businesses who do not comply with the conditions of their visas.
“This is a good time to ensure all employees are compliant and your organisation is in the green.”
For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email marketing@relocationafrica.com, or call us on +27 21 763 4240.
Sources: [1], [2]. Image sources: [1], [2].