Nov 29

‘Corrupt yes, treasonous no’

An Article By Ian Kilbride.

Were Minister in the Presidency Khumbudzo Ntshavheni’ s claims that the private sector is engineering the collapse of government to be true, then those responsible should be arrested for treason.

Yet the available evidence is to the contrary. While corrupt elements of local and international business have been and remain culpable in state capture, which is the closest approximation to treasonable conduct, large businesses in South Africa are generally well-governed and compliant corporate citizens.

Minister Ntshavheni’ s very public and televised claims were made at the conclusion of a cabinet meeting referencing the findings of the Competition Commission that international and local banks had engaged in collusive and cartel-like practices to manipulate the rand/US dollar exchange rate by fixing bids; bid-offer spreads; the spot exchange rate and the exchange rate at the Financial Information Exchange.

While Standard Chartered Bank admitted liability and has been fined some R42 million and Citi bank had settled their fine in 2017, 27 other local and international banks are threatened with prosecution.

Notably, the period under investigation is from 2007-2013, during which time the local currency strengthened marginally during 2007 to R6,85/US$, then weakened to R10,363/US$ in 2013.

Notably, in May this year the rand reached a new low of 19,72/US$. Consequently, if the rand’s continued historical weakness against the dollar can be attributed to collusive practices by banks and currency traders, the Competition Commission will have its hands full for some time.

It is cold comfort to know that South Africa is not unique in experiencing currency manipulation by banks.

For example, the 2013/14 global forex scandal identified widespread malpractice among 15 major banks operating in Asia, Switzerland, the UK and the US. Two of the traders implicated in the so-called ‘Mafia Cartel’ even served on the Bank of England Joint Standing Committee’s chief dealers’ group.

With reference to local currency manipulation, one is reminded of the April 2017 statement made by then Minister of Water Affairs, Nomvula Mokonyane, “Let the rand fall, we will pick it up”.

Unfortunately, it’s not that simple.

The rand is a relatively liquid currency that is easily traded in what is a relatively open emerging market economy. To place this in perspective, some US$7,5 trillion in forex is traded globally daily, of which the rand constitutes less than 1%.

All major currencies are subject to a host of influences such as the relevant strength or weakness of the economy, trade patterns, inflation and sovereign debt levels, together with the domestic policy and political environment.

One need only think of the catastrophic impact on the British pound of former UK Prime Minister Liz Truss’s brief tenure to be reminded of how volatile currencies can be, even in developed markets.

Moreover, currency manipulation by governments or reserve banks, such as devaluation, is a relatively common practice among many developing countries in order to achieve economic, budgetary, trade and balance of payments objectives. At the global level, the United States views China as having kept the yuan artificially low sine 1994 in order to maintain its export competitiveness.

On the African continent, in June this year, the Nigerian Reserve Bank devalued the Naira, allowing the currency to drop by 40% to date.

So, while currency manipulation is not uncommon and indeed may be criminal when conducted collusively for purely commercial gain, there is little evidence that it is politically directed and thus, treasonable.

So extreme are the bald accusations levelled at the private sector by Minister Ntshavheni as to demand not only an examination of banks’ forex trading practices, but a more general evaluation of the relationship between corporate South Africa and the government.

While this relationship is sometimes operates in tension, contrary to the claims made by the Minister, there is evidence of closer co-operation between the two recently. How else would one explain President Ramaphosa’s repeated injunction to establish a social compact between government and business?

If the private sector is actively seeking the fall of the government and collapse of the state, why then would the President host five SA Investment Conferences seeking to attract greater investment, participation and support from the private sector in the country’s development?

Indeed, public private partnerships are even being woven into government’s public policy in the energy, transport and infrastructure sectors. Government, business and labour are bound together at numerous institutional levels such as those of NEDLAC, sectoral councils, industry regulatory bodies, trade agreements and export promotion to name just a few.

The Department of Trade, Industry and Competition explicitly advocates for the importance of a partnership between government and the private sector in curbing youth unemployment.

The timing of the Minister Ntshavheni’s claims is particularly unfortunate, given that on 23 September this year, President Ramaphosa declared, “We have established an effective working relationship between government and business to tackle the most immediate challenges facing our economy … We are confident that, by working together and marshalling the significant resources and expertise that exist in our country, we will end load shedding, fix our logistics system, and tackle crime and corruption.”

Clearly, somebody in the Presidency didn’t get the memo, or failed to read it.