Budget Speech 2019 Tito Mboweni

In this file photo, Finance Minister Tito Mboweni delivers his Medium-Term Budget Speech on 24 October 2018, in Parliament, in Cape Town. Photo: Rodger BOSCH / AFP

Budget 2020: The need – or otherwise – for a South African state bank

The president believes a state bank is required and has charged the finance minister with developing a strategy. But many think it’s unviable and unnecessary.

Budget Speech 2019 Tito Mboweni

In this file photo, Finance Minister Tito Mboweni delivers his Medium-Term Budget Speech on 24 October 2018, in Parliament, in Cape Town. Photo: Rodger BOSCH / AFP

Does South Africa need a state bank? President Cyril Ramaphosa seems to think so, as announced during his State of the Nation Address SONA) on 13 February. 

Now it’s up to Finance Minister Tito Mboweni to fill in at least some of the important blanks when he tables the National Budget in Parliament on 26 February.

One of his key challenges, though, will be to convince just about everyone that the country actually needs such an institution at a time when virtually every state-related entity has turned out to be an ineptly run burden on the fiscus.

In his brief SONA comments around a state-run bank, the president noted that plans for its establishment were going ahead and would “extend access to financial services to all South Africans”.

Will it be a consumer-focused or developmental bank?

One of the first things Mboweni and his team will need to do is decide if the new institution will be a consumer-focused bank or a developmental bank. The former provides services to individuals, while the latter will typically focus on medium- and long-term finance to the industrial and agricultural segment; possibly also the public sector.

Mboweni has already said he thinks it’s a good idea.

According to Fin 24, the finance minister said in 2019 that the establishment of a state-owned bank was critical because South Africans have complained for years that established commercial banks have discriminated against them when offering services, such as long-term loans.

“It’s a matter of responding to a cry amongst our people,” he stated. “That cry fundamentally has to do with the discriminatory nature of the banking institutions. There has to be a response.”

But others not so enthusiastic about creating state bank

Interestingly, though, the National Treasury has not been as enthusiastic and shot down the idea of a state-owned bank in 2019, telling Parliament that it would be hard to justify, Moneyweb reports.

At least 90% of adults use some form of financial service, the Treasury said, citing a 2018 report by the Finmark Trust. Also, only 1% of South Africans made use of the South African Post Office’s financial-services arm Postbank.

Nicky Weimar, an economist at Nedbank, is one of several financial experts who have cast doubts on the plan.

“If government is going to fund such a bank partly through retail deposits, its lending standards will have to be sufficient to protect depositors’ money,” she is quoted as saying by Business Tech.

“If not, or if is aimed at developmental finance, the state already has its own financial institutions designed for this purpose, including the Development Bank of Southern Africa, the Industrial Development Corporation, the Land Bank and the Post Office.”

In a hard-hitting article published in 2019 by the Free Market Foundation, foundation researcher Mpiyakhe Dhlamini contended that a state bank is unnecessary. 

Free Market Foundation criticises ‘latter-day socialists’

“In recent years, South Africans have been hearing calls from our latter-day socialists for the establishment of a state bank to service poor black people, but we already have proto-financial institutions in the form of the so-called mashonisas [loan sharks]. The problem? South Africa’s elites confuse their own wants and needs with those of everyone else, especially the poor,” Dhlamini said.

“This means that mashonisas are not recognised for the vital role they play in the lives of many poor people because their financial and credit needs are not the same as that of policy-makers.”