The merits of a state-owned bank for South Africa
JOHANNESBURG – The Fervour generated by the discussion of a possibility of a state bank, or the nationalisation of the existing commercial banks, is bound to come to a head in the short term, or sometime on the early horizon of the fifth democratically elected administration.
The considerations that drive it, and as is mostly the case, the political wizardry to intensify or attenuate their grip on the imagination of the populace, announce themselves in windows of opportunity that flutter open and shut, depending on the strength of the gusting political winds of the moment.
Yet this topic, long in the making, is a reality whose time has come.
Depending on the political instincts of the proponent, the call for the establishment of the bank assumes various tones and completely diverse attribution of purport.
The very latest version, espoused by the EFF, adorns the nationalisation garb, whose sights are locked squarely on the big commercial banks.
Other strands imply the establishment of a new bank wholly owned by the state. With a shared gripe against the established monoliths of capital, this strand seeks to ensure that certain transactions which the commercial banks do not fund should be underwritten by the state bank.
They believe, and with some valid anecdotes to back their claim, some meritorious transactions are unfunded by the big banks on account of a deliberate stratagem to marginalise transactions introduced by BBBEE-qualifying entrepreneurs.
Even in the flux of an ever mutating discussion, and impassioned, I might add, some fundamental things remain clear and rather constant.
For one, banking is a financial service, pure and simple. Notwithstanding its many layers of complexity, it remains a regulated market economic activity.
In practice, therefore, a state bank, nationalised or otherwise, must submit to two quintessential forces: the market and regulation.
What is uncertain, however, is that if there is such great need to provide a financial service to a definable market segment, with a business plan capable of returning value to its shareholders, why therefore not form a company wholly owned by the state that will provide such service?
And it must be apparent that a whole bank formed purely for underwriting some transactions is too narrowly defined and may portend outcomes wholly underwhelming relative to the opportunity cost of doing so.
If the shares of these banks are a target, it should be possible to buy more shares in the open market or through a private charter and achieve what may turn out to be an uncomplicated objective.
No matter, each proponent is entitled to their own version, which will in the fullness of time find sharper expression as it interacts with all other constitutional guidelines and legal precepts which keep the South African polity functional.
To the extent that there is a need for a state bank, it is not lost even to a casual observer that the state already owns a number of banks, prominent among them being the Post Office Bank, the Land Bank, the Development Bank of Southern Africa and Ithala.
Before the nationalisation project commences in earnest, it must be remembered that the state could, by a resolution in Parliament, consolidate the balance sheets of all its banking assets nationally, and in one fell swoop create a massive state bank comparable to none.
Besides, the state already holds some shares in commercial banks through the state-owned entities.
Understandably, the surgical prescience of neatly creating a viable balance sheet out of the primordial soup of the current banks will require skill, care and patience.
Yet, notwithstanding the level of complexity attending its task, it will be a patriotic duty well worth undertaking, at least compared to the uncharted territory of nationalisation.
And for that reason, the purpose of a state bank should be singularly focused: to make the state wealthy very wealthy. Ask the Chinese.
For, a poor state, as we have come to appreciate, is incapable of cohering too many moving economic parts, and is decidedly unsuited to be the primary agent to deliver the promise of a qualitative and secure livelihood for its citizens.
The idea of a state bank contrived and accordingly structured to make the state wealthy is deliberately contrasted to the kind of state bank solely designed to benefit some individuals and a select slew of politically connected corporations.
State capture, of any kind, will always remain an indelible facet of power. So the bank must accumulate a lot of capital and lend it to other commercial banks.
This version of our state bank should be incapable of being captured.
The bank has massive and immediately available sources of funding without robbing Peter to pay Paul.
They are three. First, South Africa is the world’s only middle-income country that has no sovereign wealth fund for all the minerals it produces.
Even pegged at one dollar a kilogram, a ton or an ounce, whatever is the pricing measure of the mineral concerned, the country would arguably become the wealthiest nation in a decade.
The sovereign wealth fund mooted here must be locked and remain inaccessible for 100 years for the benefit of the future generations who may not find these minerals to be available anymore.
Second, the R1.3trillion collected every year through the revenue service must be managed by the state bank.
Third, all the state-owned entities, without exception, must bank with the state bank.
It is not difficult to conceive of different tasks for the state bank at different times along its growth path.
In its first five years, the bank must focus on consolidating all the liquid assets of the state.
In the second phase, of between six and 10 years, the state bank must concentrate on accumulating gold, thus strengthening the currency of the country; eliminate state debt; underwrite infrastructure; and, in the same vein, accelerate the industrialisation phase. Third, in the matured phase beyond that, the state bank must acquire more shares for South Africa, both in the Bank of Settlements and the Brics Bank.
If there’s anything to be learnt from the Chinese experience, nationalisation is possible, but it is not that important or effectively applicable for all situations.
Create your own and grow it as big as you wish. It needs resolve.
And therefore, only the willingness of the representatives of the people and their government can take us to this point.
Advocate Bheki Gila was South Africa’s ambassador to Kazakhstan and Venezuela and is currently executive chairperson of Rand & Bullion.
The views expressed here are not necessarily those of Independent Media.
– BUSINESS REPORT