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00:10
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We know that African governments are indebted. |
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00:13
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In fact, Standard Bank and African Development Bank figures show that we are sitting at a debt-to-gross domestic product ratio of around 60% across the continent. |
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00:23
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But according to Gulen Balim, the bank's chief economist, that picture is improving. |
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00:28
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We also know that some of our policy responses have been slow and perhaps in some instances inappropriate. |
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00:35
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And this was one of the questions posed to delegates at the recent African Markets Conference in Stellenbosch hosted by Standard Bank. |
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00:43
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I am Godfrey Motizwa and I was there and I got hold of one of them and that was no other than Dr. |
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00:49
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David Masondo, the Deputy Minister of Finance of South Africa. |
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00:53
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Welcome to In Market Insights. |
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00:55
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So the... |
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00:57
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The question is simple, Deputy Minister. |
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00:59
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We are seeing an external environment, I'm going to say that is hostile. |
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01:04
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At the same time, we all know that the most domestic environment is also constrained. |
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01:10
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What kind of policy actions are you taking as government to try to respond to that? |
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01:16
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First is to keep our debt levels at sustainable levels. |
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01:21
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And sustainability is measured by whether you can afford. |
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01:26
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to service the debt that you have. |
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01:30
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And if you can't keep your debt at sustainable levels, investors get worried about the possibility of a default. |
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01:43
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And if they're going to lend you money, they are going to lend you money at high interest payment, and therefore your debt service cost will be higher. |
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01:56
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And it's not only debt to government, but also companies that are operating within your jurisdictions will be expected to pay more in as and when they raise capital, either from equity or debt itself. |
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02:16
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So putting our debt at sustainable level is critical for us to get our economy. |
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02:27
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Because you need to finance all those projects, all the things that you've got to do, investment, expansion on the continent. |
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02:36
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And therefore, we have to keep our debt at sustainable levels in order to attract more capital into the continent. |
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02:47
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Absolutely. |
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02:47
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The second thing is that our inflation needs to be low so that... |
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02:56
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You don't erode the purchasing power of the poor people because if the prices are high, poor people won't be able to afford what is being sold in the market. |
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03:06
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Things get expensive, including for the investors. |
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03:09
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And the value of your currency, your money, gets eroded. |
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03:13
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But the stability of your exchange rate, you don't want volatility insofar as the exchange rate is concerned. |
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03:23
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Because if you have that... |
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03:25
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No one can invest, can plan in that environment. |
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03:28
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So at the macro policy level, it's important for us to continue on this trajectory. |
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03:37
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And I'm very glad that in many of the jurisdictions, some jurisdictions, they used to have double digit inflation. |
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03:45
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Some of them are getting to one digit inflation rate. |
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03:48
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Their budget deficits are getting lower and lower, particularly. |
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03:54
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since the post-COVID. |
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03:59
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A lot of them are coming back to growth. |
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04:01
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And I accept that the global environment is not very favorable. |
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04:06
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And it's more important. |
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04:07
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And it's at this moment that we've got to come together as African jurisdictions and try really economically to undermine these boundaries. |
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04:21
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Economically working together more. |
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04:23
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and more around infrastructure, around synergizing of the policies just to make sure that we are self-reliant as a continent. |
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04:33
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Absolutely. |
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04:33
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And I'm going to come back and talk a little bit about that hostile external environment and perhaps the implications of some of the actions that have been taken by the new U.S. |
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04:41
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government. |
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04:42
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In particular, I'm concerned at the multilateral level where we have got our traditional institutions. |
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04:49
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like the World Bank, like the International Monetary Fund, that have dealt with us in a certain way, but that's likely to change in the new environment. |
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04:56
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I'll park that for now. |
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04:57
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I want to go back to what you said about trying to contain the budget deficits. |
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05:01
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Maybe I'm being a little bit unfair, Minister, here, because I know that the South African figures show that you have the debt-to-GDP ratio peaking at 76.2% in the 2024-2025 fiscal year. |
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05:14
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At the same time, that's higher than the average that I spoke about at the beginning, which is 60%. |
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05:20
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And as Africa's biggest economy, I'm saying to you, Deputy Minister, you're not setting a good example. |
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05:25
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What specific measures are you taking to take down that budget deficit? |
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05:30
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The debt-to-GDP ratio, it's not a major issue. |
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05:35
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The key issue is that if you're raising debt, what are you using that debt for? |
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05:40
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There are certain jurisdictions that raise debt. |
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05:44
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I think here of, I think Saudi Arabia, they raised debt. |
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05:48
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It was almost 280. |
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05:51
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And they pumped that money into infrastructure. |
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05:53
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And as we're growing the economy, they take the ratio down. |
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05:58
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And then they could service that debt and the ratios come down. |
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06:02
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The problem is when we're raising debt. |
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06:04
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and you are not using it for productive investment. |
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06:09
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In this budget that we've presented for 2025-2026, we've said we will raise some debt, but that debt must go towards infrastructure. |
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06:20
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We'll also raise some tax, particularly VAT, even though it's still debated now within Parliament. |
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06:30
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But the key thing for us is to grow... |
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06:33
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the economy. |
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06:33
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And we've undertaken a number of structural reforms to get our economy growing, liberalizing the energy sector, liberalizing the freight, logistics sector, and also enabling companies to import critical skills into the South African economy. |
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06:56
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So I think our focus, in addition to containing... |
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07:01
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managing our expenditure, raising some tax revenue. |
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07:05
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But the most sustainable way of dealing with the macro economic imbalances, debt-to-GDP ratio, dealing with unemployment, is to grow the economy. |
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07:17
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What do you say to those who argue that as African governments, we have been resorting to traditional means of responding to the various crises that we have? |
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07:30
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are encountered and we do not see enough innovation or agility in terms of responding to these external threats. |
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07:39
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Let's talk a little bit about, you know, running away from the traditional. |
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07:43
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Are there ways in which we could be more innovative and perhaps change the way that we respond to this crisis? |
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07:49
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We are being innovative. |
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07:52
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For example, in the past, when our state-owned entities will raise money to invest in their infrastructure. |
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08:04
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We will guarantee that. |
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08:05
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And as a result, the sovereign will have a contingent liability which guarantees the debt that our SOEs are raising. |
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08:14
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And we say we've got to change that, have a credit guarantee scheme which will guarantee anything that may go wrong in that infrastructure project. |
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08:25
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And we're starting with the transmission. |
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08:29
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in South Africa through creating a credit guarantee scheme to help us to de-risk the private sector investment in infrastructure. |
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08:41
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This year, as a South African sovereign, we have issued an infrastructure bond specifically to finance infrastructure. |
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08:51
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The first one in the history of the country. |
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08:53
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The first one in the history of post-apartheid South Africa. |
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08:57
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And we For the trading services in metros, in municipalities, in cities, we've said the trading services such as City Power in Johannesburg and other trading services that collect waste, they need to be separated out of the municipality so that they've got their own independent financial statements. |
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09:24
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They can go and raise money in the market. |
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09:28
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But in addition to that, the investors must also have sight into who is an appointed contractor so that they are comfortable that whoever is contracted to roll out that infrastructure project will basically make sure that that infrastructure is delivered. |
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09:48
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Yeah. |
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09:48
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And they are assured that there will be good returns for the investment that they make. |
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09:54
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Because investors… Interesting. |
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09:56
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If you put money, you're expecting returns. |
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09:58
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You're not investing money for charity. |
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10:00
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You want returns. |
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10:02
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And if there are risks that threaten the possibility of you realizing. |
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10:07
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the returns, you are less likely to invest in that infrastructure. |
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10:12
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So there's a lot of things that we are doing to make sure that we, and this move beyond the traditional way. |
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10:19
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Orthodoxy must die in this environment. |
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10:22
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We must be agile. |
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10:23
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It is dying. |
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10:25
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Let's kill it. |
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10:25
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Let's kill it. |
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10:27
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I want to talk a little bit about how you are bringing in the private sector, because I think that is important. |
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10:32
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We all know that the demands of the fiscals are huge. |
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10:37
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And we don't have enough money to be able to cover all of them. |
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10:39
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But I wanted to bring in the external environment question. |
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10:43
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And I'm not interested in the politics of it. |
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10:45
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I'm only interested in what it will mean for us. |
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10:48
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Some people are suggesting that. |
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10:50
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We like to see changes in how institutions that have traditionally helped developing countries like South Africa and other countries on the African continent, such as the World Bank and the International Money Fund, change the way they engage. |
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11:05
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with the continent? |
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11:06
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At the policy level, at the African level, are you talking about how potentially we could see changes coming out of Washington? |
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11:14
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And I'm talking about Washington as the headquarters of the two institutions. |
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11:19
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Yes, Gaurav, we're very worried about the fragmentation of the global economy, the tariff wars, because if tariffs are raised, it means that what we're producing here on the continent we'll find it very difficult to get into those imported markets, our major trading partners. |
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11:42
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Because for us on the continent, we're not, yes, aid does help, but we don't want to rely on aid. |
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11:51
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We want to rely on trade as well as investment. |
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11:55
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So this is a policy. |
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11:56
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That's a policy orientation that the continent is adopting. |
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12:01
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that we have to be self-reliant and being self-reliant is that we want to produce things and sell them and generate incomes for ourselves as the continent. |
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12:11
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So when there's more fragmentation in the economy, we get worried that it's going to affect our potential to grow our economies because part of the equation in the GDP equation... |
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12:28
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it's your exports. |
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12:30
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And if your export performance is good, it has huge positive impact on our GDP. |
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12:36
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So we're very worried about that. |
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12:39
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But thirdly, secondly, we will continue to engage this measure, trading partners, but also in the multilateral platforms. |
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12:50
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In South Africa, we recently held the G20 finance track in which all of us We really emphasize the importance of multilateralism, that the problems that we have today in the world, they require more than one nation states. |
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13:09
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They require many states to come together to solve the environmental crisis that we have. |
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13:17
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They require us to come together to grow our economy. |
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13:22
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So fragmentation is not... |
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13:26
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in the interest of everyone, including those developed countries. |
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13:30
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Absolutely. |
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13:31
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And of course, we know that there are others who are pursuing it nevertheless. |
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13:34
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And it's important to know that we are talking collaborative about this and that we also are listening to each other. |
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13:39
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So the private sector, you spoke about bringing them in. |
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13:43
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They want a return. |
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13:44
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How do we balance that requirement for a return with the need to provide services that we know are in the national interest across the continent? |
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13:54
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So given the... |
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13:55
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constraints that we have financially, fiscally. |
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14:01
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The triple P's, public-private partnerships, it's our policy position that we've got public-private partnerships. |
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14:14
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And we've done it in South Africa and many parts of the continent in which we say, look, we want to build a public road, a freeway. |
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14:23
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we're going to give it to someone who's got money to build it, and they will recover their revenue or their expected investment returns by charging services on the users of that road. |
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14:41
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It's been expensive in the past. |
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14:43
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Is there ways in which we could tweak that model so that perhaps it serves the requirements of now? |
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14:50
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I think the issue is about you've got to make sure that the returns, they make sense for an investor. |
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14:55
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And there will be instances where the users may feel the pinch for a while. |
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15:01
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But over time, those services may come lower depending on the model that has been installed to facilitate the. |
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15:11
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infrastructure which is necessary for investment. |
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15:17
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But one of the key things that we are doing in South Africa is what we call pledging. |
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15:22
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So you know that you're going to have, for argument's sake, $10 billion for your municipal infrastructure grant. |
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15:32
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But allocations are made annually. |
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15:35
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Financially, you're allocated, you know, three point something. |
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15:41
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billion over three years. |
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15:44
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So if you have a project of 10 billion, we say you can go out and raise money in the market and do that project and complete it. |
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15:54
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And when there's cash flow coming from the fiscals based on your fiscal allocation, you can simply use that money to pay your debt. |
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16:05
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So these are some of the innovative ways that we found to make sure that we are invest, we attack private sector to invest money into the into the economy, but also reducing the bureaucracy. |
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16:19
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Right. |
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16:19
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Reducing the bureaucracy for the public private partnerships. |
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16:26
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So if you're going to project, which costs two billion, you no longer need the treasury approvals. |
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16:34
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In the past, you had to have treasury approvals and that delayed the rollout of infrastructure. |
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16:40
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projects. |
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16:41
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So there's a lot of things that we're doing to get service delivery and sorting out our infrastructure because it's out of the infrastructure strength that you are going to be competitive by reducing the cost of doing business in South Africa. |
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17:00
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It should be easy for you to transport goods in the continent. |
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17:06
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It should be easy for you to get cheaper energy. |
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17:09
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as a critical input into your business activities. |
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17:12
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It should be easier for you to get skills, either from the kind of education that we're providing as Africa. |
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17:20
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It should be easy for you to get cheap water in order for you either to use it for household or for businesses. |
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17:27
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So Africa is on the move, and we're really committed to make sure that we grow in order to deal with unemployment, poverty on the continent. |
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17:38
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Deputy Minister, thank you for the fighting talk. |
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17:40
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I love it. |
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17:41
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And it's great to know that there's a lot of work that's taking place behind those important government buildings, and you are responding to the threats that we are facing as a continent. |
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17:51
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And thank you for watching. |
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17:53
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And thank you for listening. |
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17:55
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And until next time, goodbye. |
