South Africa’s State Bank Plan Under Fire: Free Market Foundation Warns of Deep Flaws

The Free Market Foundation (FMF) has raised serious concerns about South Africa’s plan to establish a state bank, calling the initiative “deeply flawed” and warning that it could impose additional burdens on taxpayers while failing to address the root causes of financial exclusion. The criticism comes as the government moves forward with the Postbank Amendment Act, which paves the way for Postbank to become a fully-fledged state bank.

A Misguided Solution?

The FMF argues that the push for a state bank is based on a flawed narrative that the private banking sector is systematically denying black South Africans access to financial capital. Ayanda Zulu, an associate of the FMF, pointed to a 2023 DearSA survey showing that only 1% of respondents supported the creation of a state bank. “The idea that banks are racist and exclude black people is objectively false,” Zulu said. “The real issue lies in systemic failures, such as high unemployment and the lack of property rights.”

Zulu emphasized that access to financial capital has improved significantly over the past two decades. However, challenges remain, particularly for black entrepreneurs who often lack stable incomes or collateral. “Banks are risk-averse institutions. If someone cannot demonstrate the ability to repay a loan, they are unlikely to receive one,” he explained. “This is not racism—it’s basic financial prudence.”

Unemployment and Property Rights: The Real Barriers

The FMF identified unemployment and the lack of property rights as the primary barriers to financial inclusion. Unemployment disproportionately affects black South Africans, making it difficult for many to qualify for loans. Additionally, the ANC’s failure to grant property rights to millions of black citizens has left them without the collateral needed to secure financing.

“The ANC has denied millions of black people the right to property ownership,” Zulu noted. “This is a far more significant barrier to financial inclusion than any perceived racism in the banking sector.”

Concerns About a State Bank

The FMF outlined two major concerns about the proposed state bank. First, it could impose an additional tax burden on South Africans. “Running a bank is expensive,” the organization stated. “Taxpayers will likely foot the bill for this venture.”

Second, the FMF pointed to the ANC’s poor track record in managing financial institutions. Ithala Bank, for example, is facing liquidation due to mismanagement, while Postbank has consistently incurred billions in losses annually. “Given this history, why should we trust the ANC to manage another bank?” the FMF asked.

The organization also argued that governments are inherently ill-suited to compete in the private sector. “Governments lack a profit motive, which is essential for efficient management,” they said. “When state institutions fail, they don’t simply close—they rely on taxpayer money to stay afloat.”

A Call for Alternative Solutions

Instead of establishing a state bank, the FMF urged the government to focus on addressing systemic issues like unemployment and property rights. They also called on the Government of National Unity (GNU) to encourage black communities to mobilize resources to support local entrepreneurs and social programs.

“Even banking giant Absa began at a community level,” the FMF noted. “Empowering communities to create their own financial solutions is a far more sustainable approach than relying on a state bank.”

As the Postbank Amendment Act takes effect, the debate over South Africa’s state bank plan is likely to intensify. Critics like the FMF argue that the initiative is a misguided attempt to address systemic issues that require deeper, more structural reforms. For now, the question remains: Will the state bank provide the financial inclusion it promises, or will it become another burden for South African taxpayers?

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