Who should decide a central bank’s mandate?

Stop feeding me your English from London…mfana wami [my boy]”. Not my words. They are Jacob Zuma’s, the South African president, in the week just past. In his now often drily way, President Zuma was responding to a question from the youngish and pioneer black leader of the mostly white Democratic Alliance (DA) opposition party, Mmusi Maimane. They regularly spar when the embattled president visits parliament to answer questions. In those words, though, is the deep-seated resentment of the country’s colonialist past harboured by most black South Africans. It was thus a scathing rebuke of Mr Maimane, who not only speaks English quite well but is also married to a white woman, from a very traditional Zulu man. Of course, the refrain came handy for the wily Mr Zuma in response to what he clearly considered an annoying question. (He deploys similar tactics when trying to hide his embarrassment from what are oft-repeated allegations of malfeasance, irregularities in governance or just plain public sector incompetence.) In those words, the discerning would likely muse, is also evidence of some ironic admiration of the English. A declining power these days, there is much to love and hate about England. Incidentally, the modern-day central bank, the South African Reserve Bank (SARB) no less, is modelled after the English one. Mr Zuma would certainly not mind if the SARB took on one more characteristic of its English counterpart: state-ownership (albeit it was once privately-owned, hence the SARB’s structure).

That the SARB is still privately-owned is a sore point for a lot of black South Africans. And unlike other leading central banks which over time have expanded their mandates to suit the times, that of the SARB has not been similarly evolving. So it is not totally farfetched if some want its nationalisation and/or a change of its mandate. Were such a call to come from Nelson Mandela, the deceased father of the nation, there would not be the slightest controversy. Amongst his comrades, that is. That it didn’t whilst he had the power to do so is a taint on his legacy, it is argued in some quarters. In any case, the ultra-leftist Economic Freedom Fighters (EFF) party has left no one in any doubt, that should it seize power, the SARB would almost certainly be state-owned. To be fair, the ruling African National Congress (ANC) has similar goals, albeit over a longer time horizon. But with Mr Zuma now trying to ensure he would still be able to wield enough clout come an all-important leadership conference of his party in December, the ANC, which he leads till then, has put its foot on the gas pedal. For it is doubtful Mr Zuma gives a hoot about whether the SARB is privately- or publicly-owned; insofar as he can control it for his own ends. At least, so goes the narrative by his traducers.
Sneaky surprise

There is much evidence to suggest Mr Zuma’s critics are not entirely being mischievous. He faces myriad corruption allegations, for instance. And it cannot soon be forgotten how little he thought of the Treasury when he appointed a neophyte, Des van Rooyen to its charge, in place of a widely-acknowledged competent predecessor, Nhlanhla Nene. And even as he eventually succumbed to pressure to appoint someone more capable, Mr Zuma did get his way in the end. A pliant replacement, Malusi Gigaba, was made to the stubbornly effective Pravin Gordhan in late-March. The always dapper Mr Gigaba makes a good first impression. Scratch the surface a little? Some investors are not impressed. It is probably too early to tell. Even so, he has the unenviable record of being the trigger for a credit ratings downgrade to junk status of his dear country by two major agencies. Mr Zuma ultimately gets credit for that though.

Against this backdrop, try imagining the uproar in the markets when anti-corruption czar, Busisiwe Mkhwebane, another Zuma acolyte and former government spy, recently made recommendations that not only should the mandate of the SARB to protect the value of the rand be expunged but that the bank’s price stability focus be changed to one seeking “balanced and sustainable economic growth…while ensuring that the socio-economic well-being of the citizens are protected”. It is arguably an overreach on her part. Incidentally, her office benefits from the goodwill of her predecessor, Thuli Madonsela, whose quiet effectiveness helped establish the quite far-reaching powers of her office. Of course, it would not require much rumination to see how Mr Zuma may be behind Ms Mkhwebane’s actions. One would certainly be foolish to think it was not a well-thought move. Congress of South African Trade Unions (COSATU), a tripartite alliance partner of the ruling ANC, and hitherto estranged with Mr Zuma, was unequivocal in its support of Ms Mkhwebane’s proposals. Officially, the ANC opposes the move though. So does the parliament it controls.
Not your call

More importantly, the SARB has announced plans to challenge the proposals in court. To be clear, the advocacy here is not that the SARB is just right as it is. It is not. It should be state-owned for instance. But as it is probably South Africa’s only surviving bastion of institutional excellence and independence, even the slightest perception of interference in its affairs would be greatly injurious to the economy at this time. Besides, should a change be contemplated, it certainly should not emanate from the good offices of Ms Mkhwebane.

Rafiq Raji