Who Should Own The Reserve Bank?

Staff Writer | The Republic Mail

Why do people, so far from South Africa, remain interested in the affairs of our key institutions; asks Lazola Belle.

Who can forget the South African Reserve Bank’s (SARB) 88th Annual General Meeting that took place on September 19 2008?  The meeting gave us the much published spat between the then Governor of the Reserve Bank Tito Mboweni and Michel Duerr, a German national who once came to the reserve bank bare foot.  According to reports, Mboweni was a subject to consistent interruption by Duerr, a shareholder who at the time admitted to owning a total of 5% worth of shares throughout direct holding and his family ‘clan’;  this is despite SARB share ownership capped at 0.5%.  Duerr obviously felt that his voice should be louder given this fact, this clearly annoyed Mboweni.

The basis of his interruptions were around the real value of the reserve bank shares he owned.  Duerr was subsequently not allowed to vote as his residency was called into question.  The drama of the 88th AGM ended in the exchange of words between Mboweni and another shareholder; Mario Pretorious who ended up at the equality court on claims of defamation against SARB and Mboweni.  The case dragged for two years, but finally saw the ruling going in favour of Mboweni with the judge saying: “Mboweni’s comment were nothing but a storm in the tea cup”.

My wonder has always been why do we need private shareholders in the Reserve Bank to begin with. Since its founding on June 30 1921, the SARB has always had private shareholders.  I suppose whats worse than private shareholders at the reserve bank is the knowledge that commercial banks printed their own notes before 1921,  that’s even scarier considering some of their unsavoury conduct we have witnessed in recent times.

The primary mandate of the reserve bank is to achieve and maintain price stability in support of a sustained economic growth of South Africa, while there are other focus ares; the bank has no profit mandate as such 90% of all profits made gets passed to the Government of South Africa.  The bank archives this through an appointment of a 15 member board. Eight out of the 15 board members including the Governor, are appointed by the President of the Republic, with the balance appointed by the private shareholders through a nomination and voting process.

So here is how the SARB shares work: there are two million shares in issue which are now traded over the counter (OTC) since the delisting from the JSE in 2002.  Anyone is eligible to purchase shares at the bank keeping to the following restrictions:

  • No one person or organisation can own more than 10 000 shares;
  • For every 200 shares owned, the shareholder has one vote with a maximum of 50 votes;
  • The dividend on shareholding is capped at 10c per share; and lastly
  • Since the Reserve Bank Amendment Act (4/2010) which came into effect on September 13 2010, non South African residents no longer have rights to vote at the AGMs.  The 2010 Amendment Act also sought to address the undue influence shareholders like Duerr.

In consideration of the restrictions imposed on the SARB shares, it is clear that ownership of the shares has nothing to do with making money, why then have shareholders and why so many foreign holders?

Since SARB is one of only seven central banks that have private shareholding in the world, it is difficult to accept that all other nations have the wrong end of the stick and that SARB is under sufficient advise in line with the objectives of the country.  According to the SARB, the continued inclusion of private shareholders is to foster participation from the South African public and to ensure positive corporate governance policies.

The shareholders also participate in the choosing of auditors and take part on the remuneration of board members.  It is clear that despite government enjoying a majority on the board, the private shareholders have significant influence over the affairs of the bank and the foreign participation continues to be worrying.  The 2010 Amendment  Act sought to address this, but fell short on forcing shareholders who had access shareholding through associates to sell, yet rather it called for disclosure.

According to the SARB shareholder index report dated 30 April 2017, Duerr and associates still own 90 000 shares and according to a letter signed by the transfer secretary date 7 March 2014, Duerr failed to formally disclose his associates and was asked to dispose of his shareholding, and here we are…

Duerr’s response to that letter clearly stated that they would not be selling, and instead, they submitted sell offers of R7,911 per share on the SARB’s OTC share trading platform.  This is despite the fact that the nominal value of the SARB share is R1,00, and that a 2014 KPMG valuation suggested a current fair value of R1.55 for the SARB share.  Subsequently, Duerr’s 2014 sell offer of R7,911 remains unmatched. Of course, Duerr is not the only shareholder who holds more than the prescribed limit though associates, seven other families including a family trusts (Barit, Guizzardi, Harthon, Joubert, Lang, Meyer, Priebatsch and H Meyer Family Trust,) were included in the 2014 affidavit which was submitted to the Pretoria High Court as the bank and shareholders went back-and-forth over the 2010 Amendment.

I use Duerr as a subject of illustration to the fact that these shares are held for influence, influence that transcends our boarders forever driving the question of why do people, so far from South Africa, remain so interested in the affair of our key institutions?  To this end, the SARB shareholder list remains untransformed as reflected by the board members voted in by the shareholders over the years.

On March 2 2017, Lesetja Kganyago, the current SARB Governor, announced that a forced sale of 149,200 shares following a 2016 court order – which supports that all shareholder who hold in access of 10,000 shares either directly or through associates – should dispose of those shares.  This is perhaps the biggest chance for ordinary South Africans to participate in one of the most powerful institutions in our country.

In my view, SARB needs to drive a broad-based PR campaign to generate awareness of the available shares and why it is important to own these shares. One of the challenges within our society is the misconception that shares are expensive and, as such, you are likely see further non-representation on the uptake of the shares. Granted, the current shareholders like Duerr et. al. are actively trying to hold on to the shares despite that it is no longer legal for them to do so.

Investment Clubs like Social Invest and Trade (SIT) are important groupings which should be buying into the shares. The impact of this would be to bring a large population of South Africans who hold the right level of interest in the affairs of the country, closer to the one institution that impacts them on a daily basis.

We need to deliberately attract the youth to participate in this process in order to create substance to their economic participation. By in large, the youth, given that they are the future of the county, should be playing a major role in the appointment of the seven board members voted-in by the shareholders.

In my view, the South African government needs to review the SARB private shareholding to ensure its relevance. And if we still agree on its relevance, then we definitely need to scrutinise who owns those shares and whether we need to redistribute the shareholding in line with the SARB’s mandate and the developmental needs of the country.

The question of who should own the SARB share is still open, the answer is that it should not be owned by Duerr et. al. Rather, it should be owned by South Africans.

Lazola Belle is a professional speaker and a thought leader with a vast array of experience in leadership and development. His work with Toastmasters International and Velisa Africa Academy has landed him in the people development space.