Debate on Financial Matters Amendment Bill by Cde Nathi Nhleko in the National Assembly
12 March 2019
The ANC’s economic vision rests on the Freedom Charter’s call that the people shall share in South Africa’s wealth. Through economic transformation we intend to build an equitable society in which there is decent work for all.
The 53rd ANC Mangaung Conference resolved to taking economic transformation to new heights by fast tracking the development of entrepreneurs, small-medium entities, including large-scale infrastructure development and enhancing the capacity of the state to intervene in key sectors of the economy in pursuit of inclusive economic growth and development, employment creation and broad-based empowerment. For renewal to have a far-reaching transformative impact, it has to propel the process of eradicating unemployment, poverty and inequalities in our society by dealing with structural manifestations of colonialism of a special type. It must further ensure the mainstreaming of women in the economy across all sectors as a deliberate commitment to increase their access to finance, employment, and assets
The Financial Matters Amendment Bill (FMAB) is aimed at updating a number of acts, amongst them the Banks Act of 1990 to enable state-owned companies, example the Post Office, to apply for banking licences subject to executive approval
Decades of neoliberal restructuring have side-lined alternative financing practices, and propagated mainstream myths about state-owned banks. The ANC is arguing instead that public financing remains a crucial part of progressive, sustainable and democratic strategies for investments in long-term development and infrastructure. We therefore point to the potential to revive – and improve – state-owned banking as a viable option for financing public services.
It is estimated that by the 1970s state-owned banks controlled 40 per cent of combined banking assets in developed countries, and 65 per cent of assets in developing economies. The subsequent rise of neoliberal orthodoxies challenged this growth, asserting that state-owned banks are bad for development, leading to their restructuring along market lines or their ultimate demise; but both neoliberal theory and evidence are found wanting, rooted more in ideological presumptions than in substantiated case study experiences. Significant state-owned banks assets remain with state authorities who control an estimated 22 per cent of banking assets in emerging economies and 8 per cent in advanced economies.
The ANC is of the view that many of the largest and well-run banks remain in state hands. The ANC see these remaining institutions in developing countries as offering an important material basis and institutionalized form of social power that needs to be defended and improved.
More than three decades of neoliberalism have yet to substantiate mainstream hopes that private regulation is sufficient. Bank privatization and financial liberalization have left major gaps in the financing of development and public services. Private finance often baulks at financing long-term, complicated projects and imposes conditions on their loans that protect their interests over and above that of the project’s viability and sustainability, not to mention the public good. There remains great need for financing without neoliberal conditionalities, for financing that is subordinated to public service delivery and social developmental needs.
A state-owned bank can provide low interest loans to Small and Medium Enterprises (SMMEs) and individuals which is critical for dealing with unemployment and poverty. State-owned banks also provide financial flexibility, particularly in times of economic need or natural disaster, and focus its services directly on the needs of the citizens of the country. It also can serve as a significant source of revenue for a state. We argue that a well-run state-owned bank can aid state and local governments through budget shortfalls, thereby averting impairment of government services. State-owned banks can purchase municipal bonds for infrastructure and economic development, serve as a secondary market for in-state mortgages, provide loans for income-producing projects such as transportation, energy and housing, and can make loans that commercial banks are unwilling to make.
In times of crisis, private banks tend to withdraw lending to reduce risks and protect profits (deleveraging), thereby worsening the crisis. That is, private banks are pro-cyclical. By contrast, state-owned banks are able to and often do lend counter-cyclically during a crisis. Even the World Bank had to begrudgingly accept this, as the private banks withdrew credits during the global financial crisis and the state-owned banks stepped in to offset the impact. A country’s state-owned banks also facilitate counter-cyclical trends through their holdings of Treasury bonds, that is financing the government, which tend to be more stable than when the private sector holds public debts. This helps hold down public debt costs and extend the terms. Even a Federal Reserve Bank of Boston report recognizes that, while not without complications, owning a state bank can be useful for public policy, especially when economic downturns, instability and budget shortfalls arise. That state-owned banks can effectively lend in difficult times has gone a long way to reviving support for them in development circles.
There exists remarkable diversity as well, as each state bank is an institutional crystallization of historical and contemporary social relationships of political economic, and class relationships of power. Understood in this way there are no necessarily good or bad state-owned banks. Individual state banks must be assessed according to criteria relevant and valid for each particular case, while accounting for overarching structural forces such as neoliberalism. Thus, we can recognize that there is much to commend in state-owned banks as potential and real progressive alternatives to privatization and neoliberalism. Not least among these reasons is because state banks, unlike private banks, can be released from profit imperatives and directed to serve the public good. Saying this does not gloss over the problems state-owned banks face, but it does suggest that societies can address such challenges democratically and with an open view to the role people and state institutions can play in determining the collective nature of finance.
To limit fiscal risks of state-owned banks which may, in terms of its founding legislation, be able continue to operate despite being not a going concern, it is proposed that only qualifying state-owned companies that are financially sound may apply for authorisation to establish bank. The Bill also proposes that a state-owned company must first obtain approval of Minister of Finance, acting with concurrence of Minister responsible for state-owned company to apply for authorisation to establish bank. The assets of company, its holding company and, if applicable, holding company of its holding company, must exceed its liabilities. These are all measures to ensure that state banks do not rely on the fiscus for their survival but are self-sustainable.
The Bill addresses the long outstanding issues of transformation in the financial sector and the licensing of the Post Office as a Bank. Just as the 53rd ANC Mangaung conference resolved that the ANC must take urgent and practical steps to build the capacity of the democratic state, within the context of the National Development Plan so that it can act truly as a developmental state that has capacity to drive and implement our transformation agenda. Ensure that all spheres of government have the human resource capabilities and financial resources to contribute and implement the development and transformation priorities contained in the NDP.
We intend to transform the structure of the economy through industrialisation, broad-based black economic empowerment, addressing the basic needs of our people, including women and youth, strengthening and expanding the role of the state and the role of state-owned enterprises. The ANC therefore supports the Financial Matters Amendment Bill.