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We know that African governments are indebted.
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In fact, Standard Bank and African Development Bank figures show that we are
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sitting at a
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debt-to-gross domestic product ratio of around 60% across the continent.
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But according to Gulen Balim, the bank's chief economist, that picture is
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improving.
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We also know that some of our policy responses have been slow and perhaps in
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some instances inappropriate.
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And this was one of the questions posed to delegates at the recent African Markets
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Conference in Stellenbosch hosted by Standard Bank.
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I am Godfrey Motizwa and I was there and I got hold of one of them and that was no
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other than Dr.
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David Masondo, the Deputy Minister of Finance of South Africa.
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Welcome to In Market Insights.
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So the...
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The question is simple, Deputy Minister.
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We are seeing an external environment, I'm going to say that is hostile.
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At the same time, we all know that the most domestic environment is also
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constrained.
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What kind of policy actions are you taking as government to try to respond to that?
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First is to keep our debt levels at sustainable levels.
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And sustainability is measured by whether you can afford.
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to service the debt that you have.
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And if you can't keep your debt at sustainable levels,
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investors get worried about the possibility of a default.
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And if they're going to lend you money,
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they are going to lend you money at high interest payment,
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and therefore your debt service cost will be higher.
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And it's not only debt to government,
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but also companies that are operating within your jurisdictions will be
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expected to pay more in as and when they raise capital,
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either from equity or debt itself.
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So putting our debt at sustainable level is critical for us to
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get our economy.
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Because you need to finance all those projects, all the things that you've got
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to do, investment,
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expansion on the continent.
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And therefore,
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we have to keep our debt at sustainable levels in order to attract
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more capital into the continent.
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Absolutely.
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The second thing is that our inflation needs to be low
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so that...
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You don't erode the purchasing power of the poor people because if the prices are
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high,
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poor people won't be able to afford what is being sold in the market.
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Things get expensive, including for the investors.
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And the value of your currency, your money, gets eroded.
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But the stability of your exchange rate,
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you don't want volatility insofar as the exchange rate is concerned.
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Because if you have that...
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No one can invest, can plan in that environment.
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So at the macro policy level,
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it's important for us to continue on this trajectory.
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And I'm very glad that in many of the jurisdictions, some jurisdictions, they
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used to have double digit inflation.
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Some of them are getting to one digit inflation rate.
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Their budget deficits are getting lower and lower, particularly.
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since the post-COVID.
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A lot of them are coming back to growth.
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And I accept that the global environment is not very favorable.
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And it's more important.
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And it's at this moment that we've got to come together as African
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jurisdictions and try really economically to undermine these boundaries.
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Economically working together more.
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and more around infrastructure,
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around synergizing of the policies just to make sure that we are self-reliant as a
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continent.
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Absolutely.
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And I'm going to come back and talk a little bit about that hostile external
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environment and perhaps the implications of some of the actions that have been
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taken by the new U.S.
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government.
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In particular, I'm concerned at the multilateral level where we have got our
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traditional institutions.
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like the World Bank, like the International Monetary Fund, that have
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dealt with us in a certain way, but that's likely to change in the new environment.
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I'll park that for now.
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I want to go back to what you said about trying to contain the budget deficits.
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Maybe I'm being a little bit unfair, Minister, here, because I know that the
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South African figures show that
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you have the debt-to-GDP ratio peaking at 76.2%
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in the 2024-2025 fiscal year.
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At the same time, that's higher than the average that I spoke about at the
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beginning, which is 60%.
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And as Africa's biggest economy, I'm saying to you, Deputy Minister, you're not
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setting a good example.
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What specific measures are you taking to take down that budget deficit?
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The debt-to-GDP ratio, it's not a major issue.
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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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There are certain jurisdictions that raise debt.
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I think here of, I think Saudi Arabia, they raised debt.
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It was almost 280.
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And they pumped that money into infrastructure.
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And as we're growing the economy, they take the ratio down.
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And then they could service that debt and the ratios come down.
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The problem is when we're raising debt.
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and you are not using it for productive investment.
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In this budget that we've presented for 2025-2026,
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we've said we will raise some debt, but that debt must go towards infrastructure.
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We'll also raise some tax, particularly VAT, even though it's still debated now
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within
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Parliament.
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But the key thing for us is to grow...
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the economy.
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And we've undertaken a number of structural reforms to get our economy
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growing,
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liberalizing the energy sector, liberalizing the freight, logistics
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sector,
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and also enabling companies to import critical skills into the
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South African economy.
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So I think our focus, in addition to containing...
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managing our expenditure, raising some tax revenue.
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But the most sustainable way of dealing with the macro economic
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imbalances, debt-to-GDP ratio, dealing with unemployment, is to grow the economy.
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What do you say to those who argue that as African governments,
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we have been resorting to traditional means of responding to the various crises
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that we have?
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are encountered and we do not see enough innovation or agility
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in terms of responding to these external threats.
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Let's talk a little bit about, you know, running away from the traditional.
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Are there ways in which we could be more innovative and perhaps change the way that
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we respond to this crisis?
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We are being innovative.
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For example, in the past,
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when our state-owned entities
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will raise money to invest in their infrastructure.
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We will guarantee that.
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And as a result, the sovereign will have a contingent liability which guarantees the
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debt that
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our SOEs are raising.
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And we say we've got to change that,
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have a credit guarantee scheme which will guarantee anything that may go
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wrong in that infrastructure project.
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And we're starting with the transmission.
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in South Africa through creating a credit guarantee scheme to help us to de-risk the
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private sector investment in infrastructure.
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This year, as a South African sovereign,
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we have issued an infrastructure bond specifically to finance infrastructure.
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The first one in the history of the country.
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The first one in the history of post-apartheid South Africa.
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And we For the trading services in metros, in municipalities, in cities,
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we've said the trading services such as
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City Power in Johannesburg and other trading services that collect waste,
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they need to be separated out of the municipality so that they've got their own
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independent
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financial statements.
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They can go and raise money in the market.
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But in addition to that,
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the investors must also have sight into who is an appointed contractor so that
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they are
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comfortable that whoever is contracted to roll out that infrastructure project
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will basically make sure that that infrastructure is delivered.
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Yeah.
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And they are assured that there will be good returns for the investment that they
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make.
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Because investors… Interesting.
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If you put money, you're expecting returns.
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You're not investing money for charity.
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You want returns.
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And if there are risks that threaten the possibility of you realizing.
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the returns, you are less likely to invest in that infrastructure.
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So there's a lot of things that we are doing to make sure that we,
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and this move beyond the traditional way.
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Orthodoxy must die in this environment.
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We must be agile.
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It is dying.
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Let's kill it.
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Let's kill it.
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I want to talk a little bit about how you are bringing in the private sector,
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because I think that is important.
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We all know that the demands of the fiscals are huge.
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And we don't have enough money to be able to cover all of them.
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But I wanted to bring in the external environment question.
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And I'm not interested in the politics of it.
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I'm only interested in what it will mean for us.
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Some people are suggesting that.
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We like to see changes in how institutions that have traditionally helped developing
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countries
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like South Africa and other countries on the African continent, such as the World
11:03:
Bank and the International Money Fund,
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change the way they engage.
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with the continent?
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At the policy level, at the African level, are you talking about how potentially we
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could see changes coming out of
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Washington? And I'm talking about Washington as the headquarters of the two
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institutions.
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Yes, Gaurav, we're very worried about the fragmentation of the global economy,
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the tariff wars, because if tariffs are raised,
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it means that what we're producing here on the continent
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we'll find it very difficult to get into those imported markets, our major trading
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partners.
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Because for us on the continent, we're not, yes, aid does help,
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but we don't want to rely on aid.
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We want to rely on trade as well as investment.
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So this is a policy.
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That's a policy orientation that the continent is adopting.
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that we have to be self-reliant and being self-reliant is that we want to produce
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things and sell them and generate
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incomes for ourselves as the continent.
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So when there's more fragmentation in the economy,
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we get worried that it's going to affect our potential to grow our
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economies because part of the equation in the GDP equation...
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it's your exports.
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And if your export performance is good, it has huge positive impact on our GDP.
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So we're very worried about that.
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But thirdly, secondly, we will continue to engage this measure,
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trading partners, but also in the multilateral platforms.
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In South Africa, we recently held the G20 finance track in which all of us
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We really emphasize the importance of multilateralism,
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that the problems that we have today in the world, they require more than one
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nation states.
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They require many states to come together to solve the environmental crisis that we
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have.
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They require us to come together to grow our economy.
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So fragmentation is not...
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in the interest of everyone, including those developed countries.
13:30:
Absolutely.
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And of course, we know that there are others who are pursuing it nevertheless.
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And it's important to know that we are talking collaborative about this and that
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we also are listening to each other.
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So the private sector, you spoke about bringing them in.
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They want a return.
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How do we balance that requirement for a return with the need to provide services
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that we know are in the national interest
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across the continent?
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So given the...
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constraints that we have financially, fiscally.
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The triple P's, public-private partnerships,
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it's our policy position that we've got public-private partnerships.
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And we've done it in South Africa and many parts of the continent in which we say,
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look,
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we want to build a public road, a freeway.
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we're going to give it to someone who's got money to build it,
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and they will recover their revenue or their expected
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investment returns by charging services on the users of that
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road.
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It's been expensive in the past.
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Is there ways in which we could tweak that model so that perhaps it serves the
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requirements of now?
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I think the issue is about you've got to make sure that the returns, they make
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sense for an investor.
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And there will be instances where the users may feel the pinch for a while.
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But over time,
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those services may come lower depending on the model that has been installed to
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facilitate the.
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infrastructure which is necessary for investment.
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But one of the key things that we are doing in South Africa is what we call
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pledging.
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So you know that you're going to have, for argument's sake,
15:27:
$10 billion for your municipal infrastructure grant.
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But allocations are made annually.
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Financially, you're allocated, you know, three point something.
15:41:
billion over three years.
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So if you have a project of 10 billion,
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we say you can go out and raise money in the market and do that project and
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complete it.
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And when there's cash flow coming from the fiscals based on your fiscal allocation,
16:01:
you can simply use that money to pay your debt.
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So these are some of the innovative ways that we found to make sure that we are
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invest,
16:13:
we attack private sector to invest money into the into the economy, but also
16:18:
reducing the bureaucracy.
16:20:
Right.
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Reducing the bureaucracy for the public private partnerships.
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So if you're going to project, which costs two billion,
16:29:
you no longer need the treasury approvals.
16:34:
In the past, you had to have treasury approvals and that delayed the rollout of
16:40:
infrastructure.
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projects.
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So there's a lot of things that we're doing to get service delivery and
16:48:
sorting out our infrastructure because it's out of the infrastructure strength
16:55:
that you are
16:57:
going to be competitive by reducing the cost of doing business in South Africa.
17:00:
It should be easy for you to transport goods in the continent.
17:06:
It should be easy for you to get cheaper energy.
17:09:
as a critical input into your business activities.
17:12:
It should be easier for you to get skills,
17:14:
either from the kind of education that we're providing as Africa.
17:20:
It should be easy for you to get cheap water in order for you either to use it
17:27:
for household or for businesses.
17:29:
So Africa is on the move,
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and we're really committed to make sure that we grow in order to deal with
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unemployment,
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poverty on the continent.
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Deputy Minister, thank you for the fighting talk.
17:40:
I love it.
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And it's great to know that there's a lot of work that's taking place behind those
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important government buildings,
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and you are responding to the threats that we are facing as a continent.
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And thank you for watching.
17:53:
And thank you for listening.
17:55:
And until next time, goodbye.
