A conversation with Lesetja Kganyago, Governor of the South African Reserve Bank
LM:
Governor, thank you so much for being part of this pan-African leadership conversation.
LK:
It’s a pleasure to be part of the conversation.
LM:
Tell us a bit about your early days and upbringing.
LK:
I was born in the Alexandra township, a stone’s throw away from Sandton. I have sort of a split loyalty. My mother, who was born in Alexandra, settled in Moletjie (Ga-Maribana) village in Limpopo after she married my father, who was from the village. When she was expecting me, she travelled in a car belonging to my father’s uncle back to Alexandra. My parents knew how to work the system. They wanted to make sure that I was born in Alexandra so I could qualify for section 10(1)(a) under the Pass Laws. I was raised by my paternal grandmother until my mother and younger brother joined us back in the village in 1974. My birth having been in Alexandra came in very handy later when I visited Johannesburg. I settled back in Alexandra in 1983.
I completed both my primary schooling and a junior secondary in the village, and completed high school as a boarder at Pax College, a Catholic school run by the Brothers of Charity.
LM:
What were your earliest influences, and who were the people you looked up to?
LK:
Without a doubt, my mother and grandmother were the earliest influences. Not only were they disciplinarians; they were women of very strong Catholic conviction. As I started my primary schooling, again two other women were to have a lasting impact on my life: Mrs Mojapelo and Ms Mpyana, my Sub A and Sub B teachers respectively. The person I looked up to was my uncle, the late Ntopile Kganyago. He was a carpenter, studied through correspondence and later qualified as a psychologist, and became a school inspector. As my political consciousness rose, I also started to look up to the leaders of the national liberation movement.
LM:
You were involved in the struggle for liberation at an early age. Tell us a bit about those times.
LK:
My involvement in the struggle started at Pax College in 1981, initially as a struggle against the poor food quality that was being served to us as students. In September 1981, the senior students convinced Father Jerry to dedicate Mass in commemoration of the death of Steve Biko. After Mass, there were animated debates in the dormitories. Students were pulling out old press articles to discuss and try to steer the debates. These debates got really intense, and some students kept disappearing into a cubicle, only to return more animated and passionate. I discovered five years later, at university, that the students who were moving in and out of that cubicle were actually reading from the Freedom Charter.
I became more intensely involved in the struggle when I joined the Azanian Students Organisation (AZASO), the precursor to SASCO [South African Students Congress]. This involvement sharpened my organisational skills, which I then used to help build political structures in Moletjie. We formed the Maribana Youth Organisation (MARYO) in 1984. Interestingly, MARYO was formed to mobilise the community around water and transport problems in the village. With the formation of COSATU [Congress of South African Trade Unions] in 1985, we established very strong links with local organisations in Polokwane and worked with the organisers and shop stewards to distribute political material to the villages. We would target the buses going to the different villages of Moletjie, and we’d use this to distribute our political material.
LM:
How was your student life? What are some of the highlights of those times?
LK:
One really developed a passion to serve our people from one’s involvement in the struggle. I read a lot more than was expected for my university course. In the process, I developed an interest in law and sociology. A fellow student activist at the time scolded me very strongly and implored me to continue with accounting and economics. He argued that when we would run the country one day, we were going to need those skills. As leaders, we also had to be seen to be working hard at our studies or we would be accused of calling other students to action because we didn’t care about studying.
LM:
There were fascinating debates in the late 90s about the choices facing the liberation movement: either to intensify the struggle or to prepare for negotiations. What do you remember about those times?
LK:
You mean the late 80s and early 90s? The ANC [African National Congress] released a document; I think it was called ‘Constitutional guidelines for a democratic South Africa’. I was studying through UNISA [University of South Africa] at that time, and the SANSCO [South African National Students Congress] branch asked me to lead a discussion on the economic aspects of the document. That’s when the words of my fellow student activist at Wits started to ring through my head. I realised that, even among activists studying economics, there was very little policy capacity. I wasn’t much better either. Throughout 1989 and 1990, I got involved in many discussions on economic policy and looked at lessons from other countries.
LM:
There is some criticism about the nature of the democratic settlement, with strong sentiments about a possible sell-out. With the benefit of hindsight, how do you see those times and choices made?
LK:
I still think we have one of the best constitutions in the world.
LM:
A lot of people do not know about your role before you joined government. Tell us a bit about that and how it shaped some of your thoughts.
LK:
I started working in 1988, at First National Bank, in various clerical posts. I then joined the COSATU Accounts Department in 1990 and later the ANC Accounts Department, before transferring to the ANC Department of Economic Planning (DEP). The DEP was like a factory producing future economic policymakers. I was responsible for coordinating training and facilitating economic policy discussions in the ANC regions. I was part of the team working on ‘Ready to Govern’, the policy document that came out of the first policy conference in 1991. One really got to grips with the importance of evidence in evaluating policy trade-offs.
LM:
There is a lot of talk about the role and importance of National Treasury. What is its role, and how did the founding fathers and mothers see its role?
LK:
National Treasury is a creature of the Constitution and its role is spelt out in there. Treasury has won several international awards for the transparency of its budget process. I learnt a lot during the 15 and a half years I spent at Treasury.
LM:
There is constant reference to ‘the class of 1996’ or ‘the Washington consensus’. What is meant by this, and how do you respond to this criticism?
LK:
I suppose ‘the class of 1996’ refers to the team that had to see to the implementation of GEAR [Growth, Employment and Redistribution: a Macroeconomic Strategy for South Africa]. GEAR was in no way ‘a Washington document’. It was a policy document drafted to give effect to section 6.5.3 of the RDP [Reconstruction and Development Programme] base document. The RDP base document also emphasised that, in engaging international institutions, we must protect the integrity of domestic policy.
LM:
In a recent speech, you spoke about the dangers of economic populism and its dangers in countries such as Brazil, Venezuela, Argentina and, closer to home, in Zimbabwe. Could you elaborate on this, particularly on the impact on the poor?
LK:
There is no such thing as a free lunch in economics. Policymaking is about trade-offs. The policies we adopt must be subject to the availability of resources and our ability to generate resources in the future, and importantly what’s in the best interest of the country. Put simply, policies must be affordable and sustainable.
LM:
What has been the full extent of the corruption and looting on the state of our economy and the viability of some of our state-owned enterprises?
LK:
Wait for the Zondo Commision report. What is clear is that there was a concerted effort that spanned many departments and other public institutions with the intent to weaken governance in order to take decisions that were not in the best interest of the country.
LM:
There are a lot of discussions on the role of the South African Reserve Bank (SARB) and the need to nationalise it. Could you explain the constitutional role of the SARB, the role of its Board of Directors, its policy framework, and the role of its shareholders?
LK:
The SARB is a creature of the Constitution. Its mandate is spelt out in section 224 of the Constitution. The primary object of the SARB is to protect the value of the local currency in the interest of balanced and sustainable growth in South Africa. The SARB thus protects the buying power of the rand. The policy framework that is in place to protect the buying power of the rand is flexible inflation-targeting. The target of 3-6% was adopted in consultation with the Minister of Finance and has been in place since 2000. Prior to that, we had a framework that was based on money supply guidelines. Some countries use the exchange rate as an anchor; this requires significant levels of forex [foreign exchange] reserves. The majority of central banks target inflation.
The Board of the SARB is purely one for proper governance. It plays no role in monetary policy or payment system policies or financial regulation etc. The Board ensures that the SARB adheres to good corporate governance subject to the SARB Act. The President of the country appoints 8 of the 15 directors, including the Governor and the 3 Deputy Governors. The shareholders elect the remaining 7 directors at the annual Ordinary General Meeting (OGM). The role of the shareholders at the OGM, apart from electing 7 directors, is to approve the appointment of the auditors and their remuneration. The shareholders are paid a dividend of 10c per share. This dividend is curbed by the SARB Act. After providing for the reserves of the SARB, 90% of the profits are paid over to National Treasury.
LM:
The SARB took the Public Protector (PP) to court and won a case against her. What was the essence of this case, and why was it so important for the SARB to challenge the PP?
LK:
We saw the recommendations in the PP’s report as an attack on the SARB. The PP had investigated a case over which we believed she didn’t have jurisdiction. We still cooperated and assisted the PP in her investigation. We were shocked when we found that one of her recommendations was that the mandate of the SARB be changed. The Speaker of Parliament and the Minister of Finance also filed papers opposing the recommendations of the PP. In essence, a key recommendation would have taken away the SARB’s mandate of price stability and given it to no one. We felt duty-bound to defend the independence of the SARB as a key institution of our democracy. We are glad the courts agreed with us.
LM:
There is a changing environment on regulation of the financial sector, with a market conduct regulator and a prudential regulator. How will this Twin Peaks regulation work, and what benefit will it have for consumers?
LK:
The Twin Peaks regulatory framework has moved South Africa from regulating by function to regulating by objective. The Prudential Authority focuses on promoting the safety and soundness of financial institutions, while the FSCA [Financial Sector Conduct Authority] ensures that financial sector customers are treated fairly.
LM:
How is the VBS saga different from the African Bank matter? Why would it be difficult or not advisable to bail out VBS?
LK:
From the Great Bank Heist report, it is clear that serious fraud was committed against VBS and its customers. The financial statements of VBS had to be restated. The High Court ruled that the bank be liquidated, and that process is underway. The case of African Bank was a classic liquidity crisis. The Myburgh investigation didn’t find any evidence of fraud in African Bank, and the bank could be resolved. Creditors of the bank had to take a 10% haircut to move to the new African Bank. The old African Bank surrendered its banking licence.
LM:
There have been a lot of statements made by government officials and political parties about a state bank. What international examples do we have of successful state banks and where have they failed? What are the features of a regulatory environment for a state bank?
LK:
A state bank must be subject to the same regulatory requirements as other banks. If government would like to establish a bank, it must submit an application in terms of the Banks Act.
LM:
How can South African banks transform and respond to the socio-economic needs of the country while remaining strong, well-capitalised, well-managed and globally competitive?
LK:
One of the key regulatory objectives is financial inclusion, which is also good for the banking sector as a whole. It means that banks can grow their customer base, while at the same time driving financial inclusion. We have seen the increasing use of technology in the financial sector driving financial inclusion in a fairly cost-effective manner.
LM:
As you know, Parliament is working on the land question, with public hearings and a lot of deliberations. How would expropriation without compensation affect banks that have significant exposures in the commercial agriculture sector? Is the SARB working on possible scenarios?
LK:
The banks have conducted various stress tests. Please see the Financial Mail of the past month or so.
LM:
We have just emerged from a very difficult time of macroeconomic instability. How did you feel when we were downgraded? How could we make sure that we do not go through such times again?
LK:
We still have macroeconomic stability in South Africa, and the institutions that are tasked with it, namely the SARB and National Treasury, remain strong. We need to make sure that we retain a prudent macroeconomic policy stance to address the problems we face today.
LM:
What are the current views from the rating agencies? What do they wish to see in South Africa? Do you think these are achievable?
LK:
Ratings agencies, like other institutions, play an important role in the economy.
LM:
Do the country’s leadership, stakeholders and other players have the will to drive the change required to grow the economy and to tackle poverty and underdevelopment?
LK:
The past decade or so saw us go off-track as a country. I believe we are now seeing the right signs from all sectors in refocusing on the main issue at hand, which is getting the economy to a level where it can tackle poverty and unemployment in a meaningful and sustainable manner.
LM:
How do you see regional integration within SADC [Southern African Development Community] and broader Africa? What policies would assist with intra-Africa trade?
LK:
The SARB does not deal with trade, but we do play a key role in the region when it comes to regional integration. We are an active participant in various forums on the continent, which include SADC, the Association of African Central Banks (AACB), and the Common Monetary Area (CMA). The main aim of SADC is to promote economic and financial integration in the interest of sustainable economic development in the region. In 2016, the SADC Heads of State adopted the revised Regional Integrated Strategic Development Plan. The SARB’s regional initiatives are mainly conducted through the Committee of Central Bank Governors (CCBG), which is chaired by the SARB.
The main objective of the CCBG is to undertake initiatives in support of the SADC Finance and Investment Protocol. A notable achievement of the CCBG in recent years relates to the implementation of the SADC Integrated Regional Electronic Settlement System, known as SIRESS. Through SIRESS, 14 regional central banks and 76 commercial banks are electronically linked to effect cross-border payments and settlements in real time.
LM:
How is the development of people and talent proceeding within the SARB? Are you building a strong talent pipeline and bench strength?
LK:
The development of people is going very well but we still have a long way to go. We have focused on building a strong succession pipeline. We still face a challenge in getting more women into senior roles in the SARB, and we have been deliberately going out to look for talented women to become part of our bench strength.
LM:
You are married to Zbu, your beloved wife, and have beautiful kids. How do you balance your time with them and your high-powered role?
LK:
Zibusiso has been the one doing the heavy lifting. Parenting can’t be outsourced, so one just has to find time to raise one’s children. We try to balance the responsibility. She is an executive in her own right and is also very busy. I have to play my role in making sure family is a priority, so we take stock now and again to make sure it’s not just all work. We reserve Sundays for the family. We normally go on holiday in December.
LM:
What do you do for relaxation?
LK:
I go to the gym, I try to play golf, and I also do some hiking. I read a lot and listen to jazz. I am a member of the Melodi Jazz and Fusion Club – a group of eight jazz-loving enthusiasts who have been together since 1997.
LM:
How can we inculcate a culture of ethical behaviour among professionals to avoid another VBS and Steinhoff, and state capture?
LK:
Ethical behaviour is something that must be part of the culture of an organisation. But you also have to make sure there are strong governance rules that apply to hold people accountable. It’s not just about the bad behaviour of one or a few individuals; organisations must make sure there are checks and balances in place and do regular assessments to see if people are still playing by the rules. Those who don’t, must be sanctioned.
LM:
What was the darkest moment in either your personal or your professional life, and how did you survive those times?
LK:
The darkest moment was the passing away of my mother in 1992. She was just 49, and had been a pillar of strength and inspiration.
LM:
Thank you so much, My Leader. I know my readers will certainly enjoy these pearls of wisdom.
