The structural fault lines of the semi-peripheral South African economy mean that, notwithstanding the progress made to date in the transformation of our economy, it remains trapped in a state of dependency on the European Union, US and China for its mineral exports.

It lacks significant industrialisation beneficiation and is primarily controlled by the five banking monopolies. Large banks and businesses operating in the centre of the minerals-energy complex account for more than 80% of the market share on the Johannesburg Stock Exchange (JSE).

To expand the economy and lower unemployment in this country, it is imperative to confront the legacy of monopolies’ domination and concentration in the South African economy. Because of cartel domination in the economy, there is little space for small businesses to grow and create jobs for the millions of unemployed.

The working class has always insisted that the South African government cannot give the private sector control over its developmental agenda. Establishing a state bank and transforming the financial sector will be a developmental state’s cornerstones, helping it achieve its developmental objectives. The banking industry must transform to include more public and private banks if South Africa is to have any chance of growing its economy.

The financial system still hasn’t undergone a significant transformation, which has affected economic growth and made it harder for the government to address the terrible legacy of apartheid faster. According to a World Bank report, severe inequality is now a significant obstacle to faster economic growth. The report also revealed that South Africa is the most unequal country globally.

The survivalist or informal economy is the primary source of income for most South Africans, and the country’s banking sector has ignored and disregarded it. Based on publicly available data, there are about 6.5 million unbanked people and 15 million underbanked customers in South Africa. Big banks have consistently shown that they prefer the kind of short-term consumer loans that have put many of their customers in debt.

The South African Human Rights Commission categorised more than 11 million credit-active consumers as over-indebted, and the Reserve Bank estimates that consumer debt is currently R1.9-trillion. Due primarily to significantly higher interest rates, the cost of debt servicing for households increased from 8.8% of their disposable income in the second quarter of last year to 8.9% in the third.

This puts into context the significance of President Cyril Ramaphosa’s decision to sign the Postbank Amendment Bill into law in September 2023. This bill formally transferred Postbank’s shareholding from the South African Post Office to the government, allowing Postbank to become a fully fledged state-owned banking operation.

The non-existence of a fully mandated state bank was particularly felt during the Covid-19 pandemic. Despite a R200-billion government intervention under the loan guarantee scheme, the banks distributed only 3.5% of the funds because they implemented lending criteria unfavourable to businesses.

A successful land reform programme depends on having a state financial institution, and a state-owned bank that will shield small farmers and households from excessively high interest rates that could jeopardise their assets’ economic viability.

This country’s economy suffers from the fact that a large portion of our credit is used for speculation and consumption. More bank credit should be given for producing goods and services and applying new technologies to contribute value to the economy. Over the past 10 years, empirical evidence has disproved the theories of financial intermediation and fractional reserve, demonstrating that banks contribute to the money supply by creating new money through bank lending.

This was a significant breakthrough because it shows that bank loans increase purchasing power, influencing the economy through the decisions made by bankers regarding who gets loans and for what purposes. Because banks play such a crucial role in the economy, we need economically suitable banks to choose how much money should be created, for what purposes, and by whom.

Banking is one of the most concentrated sectors; according to current statistics, there are about 63 banks in the country, comprising 46 foreign bank subsidiaries, representative offices, and 17 local banks. The top five banks hold nearly 70% of bank deposits, a dominant market share.

In Germany, however, 1,500 regional and local not-for-profit banks hold almost 70% of all bank deposits. This structure of the German financial sector has dramatically influenced their economy to become the principal exporter nation in Europe, dominated by small and medium enterprises, also known as the “Mittelstand”. About 60% of jobs in Germany are held by these small- and medium-sized businesses (SMEs), and 82% of apprentices complete their vocational training in these SMEs.

A cursory examination of the struggling small and medium enterprises in South Africa, especially in townships, reveals that the money needed to meet these businesses’ demands is not always lent at fair interest rates. This shows that, in addition to state banks, the country also needs private community banks, cooperative banks and not-for-profit banks that concentrate on lending money for productive purposes, supporting the growth of small enterprises, and creating employment.

In framing its lending policies and carrying out its obligations, the financial sector should consider certain developmental imperatives rather than being motivated solely by profit.

A properly mandated state bank will promote productive bank lending instead of consumption lending, carry out prudent monetary policy and safeguard customers. It will compete with the current banking industry and address the problems of gouging and client abuse common in large commercial banks.

We cannot afford an economy dominated by traditional conglomerates with short-term financial interests and which have no incentive to promote industrial diversification beyond what we historically inherited from apartheid.

Municipalities and provinces will benefit from lower debt costs, public infrastructure projects will be funded, and small customised business loans will be made available at reduced interest rates and fees to promote entrepreneurship. The state-owned bank hopes to assist SMEs in boosting local economies, expanding access to goods and services, and generating new jobs.

A successful land reform programme depends on having a state financial institution, and a state-owned bank that will shield small farmers and households from excessively high interest rates that could jeopardise their assets’ economic viability.

To alleviate the housing shortage, the Gauteng government plans to make land accessible to residents, and a state bank would help provide reasonably priced funding for individuals and families to develop their land.

It will provide an open substitute for private banks engaged in illicit activities such as currency manipulation. According to the Competition Commission, 17 banks acknowledged their participation in price fixing and market allocation in trading foreign currency pairings involving the rand in 2017.

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We must discover a uniquely South African developmental economic model to fix the economy, the same way China and East Asian economies like Hong Kong, Singapore, South Korea and Taiwan did in the 1970s.

It has become apparent that greater governmental involvement is needed to help certain sections of society escape poverty. This means we must move quickly to implement policies that will strengthen the state’s economic role and contribute to building a developmental state. A state is developmental depending on what it does and how it does it.

We cannot afford an economy dominated by traditional conglomerates with short-term financial interests and which have no incentive to promote industrial diversification beyond what we historically inherited from apartheid.

President Cyril Ramaphosa’s proclamation of a state bank is revolutionary and will allow the government to shift the economy away from its prolonged stagnation, reduce inequality and tear down the old apartheid capitalist system.

Creating a state bank is a step towards fulfilling the promise of a better life for all. DM