Reasoning is a rare skill, true reasoning that is. And what is even harder to find is sound reasoning. It is often much easier to make bold claims and assertions that appear sound and populist in thought but sometimes we need to have follow -up conversations to make sense of things.

The conversation of nationalization is a 20-year conversation that has seen itself playout as a political campaigning tool, and even as a social media stunt to remain relevant for some.

But does any of it make sense? And more importantly, which makes the most sense for you and I, as the citizens affected by it.

Reason vs Context

The main arguments that have been put forward in favour of nationalization are:

  1. To limit the foreign influence on the policy of the SARB that is currently being imposed by foreign shareholders or foreign parties who have a vested interest.
  2. Private companies act in the interests of shareholders.
  3. Decision-making on things like printing money or inflation targeting would be in line with government mandates.

At face value, these would seem justifiable to proceed. But here’s where the follow up conversations should be had.

And here’s where it becomes important to contextualize things:

  1. This is two-fold. Firstly, we already know that foreign ownership at a shareholding level is limited (DI article). Secondly, the SARB draws its mandate from the Constitution of SA, one of the few documents all politicians agree on.
  2. This is where the SARB is unique in structure. Unlike a regular Pty, the SARB operates to fulfil its mandate rather than for profit making. This is why the dividend paid to shareholders is capped at R200K regardless of how profitable the company is (The average monthly salary of the current CEO of Eskom). The remaining profits made by the institution are paid to the state. So, the financial benefit to the private sector under the current setup is 1 Kia Picanto a year between all of them.
  3. To make a decision that benefits any one shareholder would in-effect be unconstitutional.

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Have nationalized central banks worked elsewhere?

Before we can conclude on which side of the fence to sit on, it would be worth looking into the consequences of nationalization, drawing from 3 distinct examples we know clearly:

  1. China – This is a self-producing economy that promotes internalization and self-industrialization. They have achieved negative inflation in a time where developed economies have struggled with inflation. And even they felt it necessary to negotiate deals with the US at the recent G20 summit (link) because they understand that global trade remains necessary for sustained growth.
  2. Japan – A developed economy that focuses it monetary policy decisions on strengthening the value of its currency as a safe-haven, whilst targeting full employment with an unemployment rate of less than 3% for the last 7 years. This is also the only economy in the world today that remains with negative interest rates as a result of their disciplined policy-making.
  3. Zimbabwe – The most notable reference point to hyperinflation that we have in the modern era. Hyperinflation that is a direct result of simply printing money when the cost of goods increases rather than addressing the underlying issues. Printing money to the extent that the entire currency collapsed and the US dollar had to be adopted as a replacement. The literal definition of absolute destruction.

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Now that we know what nationalized central banks could look like, let’s apply that to the South African picture.

We have severe unemployment (and the highest youth unemployment in the world), a stagnant economy whose growth and industrialization are being self-sabotaged by the government (that also happens to be an importing economy), and a lack of disciplined leadership where it relates to allocation of state funds (SOE bailouts).

Therefore, any metric that would count in favour of nationalization would not apply to SA. We can graciously exclude the energy crisis and state of mismanagement of public affairs from this one (corruption), there is enough on our plate.

So, does that mean we should never look at this? Certainly not. Nationalization can provide solutions to certain problems. However, as we’ve seen, it would require a level of discipline and public benefit that we have yet to see exhibited in South Africa, pre or post Apartheid.