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00:00Matiba, thank you for being here.
00:08I know you complain that you see way too much of me very often,
00:11so I appreciate your indulgence yet again.
00:15Let's start with the good news since we last saw you,
00:17and that would be the S&P ratings upgrade.
00:19You are very consistent that you are quite ambivalent
00:22about these kinds of upgrades.
00:24You feel that they become a preoccupation
00:27that kind of detracts from the work.
00:28Is that still your position?
00:30Given where we're at now?
00:33The question you asked me is career limiting.
00:38Because my colleagues in the department, they like that.
00:43Just to put it in proper context,
00:46when I joined the department, we were already in junk stage.
00:50So I didn't have a preoccupation of saying I'm worried tomorrow
00:54that I'm going to be downgraded.
00:56Once you get an upgrade,
01:02you become anxious every time.
01:04How do I make sure that I don't get downgraded again?
01:07And that becomes, in a sense, become your preoccupation.
01:10I'm saying I don't want to be preoccupied with that.
01:13How far out do you think we are from investment grade?
01:17I've always worked on the assumption that I need to do what is good for the country.
01:23What is good for the country is things like, for instance, the grey listing, the downgrade,
01:38are costly for the economy.
01:40And for that reason, my preoccupation is to make sure that all of these things,
01:48which are costly to this economy, are removed.
01:52In that sense, I get a bonus of an upgrade.
01:56We have to speak about the bond curve.
01:58Yields at pretty much a record low at this point.
02:02The rand is looking very strong.
02:03There's obviously other factors that are contributing to that.
02:06But I think generally the optimism is quite high off of the back of last week's
02:10medium-term budget policy statement.
02:12There is this 1.8 trillion rand that is set to be sitting with the private sector
02:17that they seem to be reluctant to deploy.
02:19Is it a good time for them to do so now?
02:22And what assurance can you give that this is not just something that's going to pass
02:26in a couple of months' time, but these are reforms that are sustainable
02:29and we're going to keep hitting our targets?
02:32I mean, the normal narrative is that it's difficult for us to deploy these resources
02:40because there's policy uncertainty.
02:45But the difficult you have, you don't get into, Chris, what does that mean in practice?
02:57Let me just say, we accept, for instance, we spend, for instance, 16 years trying to
03:05reform an ESCO.
03:07It was a mistake because we spend most of our time trying to reform an institution than to
03:12tell you to make sure that there's power to the grid.
03:15Those two things are different.
03:17I normally say, as we deal with Transnet now, we're not going to repeat that template.
03:23It's an approach of tough love.
03:25What?
03:25Tough love approach.
03:27What's going to be critical for us, how does it make sure that our logic system as a country
03:31works in the process?
03:34We try and reform Transnet as part of that broader strategy.
03:39We're not going to get away without discussing the inflation targets.
03:43I don't know if it's your victory or the governor of the central bank's victory, but we're here
03:48now.
03:49And I want to look forward and put it in the context of next year's budget coming up in
03:53February.
03:54Yesterday, you called for comments on tax proposals.
03:57You've ruled out VATs, if I'm not mistaken, correct me if I am.
04:02There's no VAT hike that's coming, but you are looking at other tax measures.
04:07Okay, they're not convinced of your response, Minister, so can you, for the record, state
04:11that a VAT hike is out of the question?
04:15You know, I was answering this question with some people, that I was once told one aspirant
04:22president of the United States, said, I'm not going to increase taxes, read my lips.
04:31I don't think any minister of finance can make such a bold statement.
04:35But what is my focus at the moment is that there's, of course, for a number of reasons, service delivery
04:46and other things, mistrust.
04:50South Africans have got to deliver services and make sure that we regain the trust of South
04:55Africans.
04:56And in the process, what we need to be focusing on is efficiency of spending.
05:01That's my preoccupation at the moment.
05:05You will see, for instance, in the mid-term budget policy statement where, and the budget
05:11review, when we started in May now, we already have managed to recover about 6 billion rand
05:19as part of the efficient spending.
05:21That's largely going to be our main focus, not focusing on increasing taxes.
05:26I'm not ruling them out, but not focusing on increasing taxes, but in focusing on efficiency
05:33spending.
05:34Can you speak about some of the short-term pains that we might have to suffer through in
05:40the course of implementing the inflation target?
05:42What should we be prepared for?
05:44That comes to my point where you said that we had a difference.
05:46We didn't have any difference with the government at all.
05:49We disagreed on the timing.
05:53I want to clarify that.
05:55We disagreed on the timing.
05:57It doesn't have the constraints I have.
06:01They can see that there's the four of them.
06:03They make an announcement.
06:04In my case, I've got a whole contingent of political parties, 10 of them, that I've got
06:14to make sure that in whatever decision I announce, there's a buy-in.
06:20And indeed, you can see none of those 10 parties object to anything in the budget.
06:26Because we've learned in the beginning of the year that one of the things we needed to
06:30is to take into account the reality of the political environment that we operate on.
06:36So, the governor and I had agreed, where we disagreed on the timing, you will remember
06:42that in delivering the budget vote of the department, I said, lower inflation is good for this economy.
06:53But what is going to be required is the timing of that.
06:56Let me fast forward.
06:58Clearly, the long-term impact is going to be positive.
07:05The short-term things we're going to be facing is on the economic side.
07:13Because that's the first thing we're going to...
07:16Particularly, its implication on the fiscal metrics.
07:19You will see, for instance, we're beginning to see a project, a downward revision in driving
07:28over the next, over the medium term.
07:31That, in its own, is going to have a major impact on the fiscal metrics.
07:36But over time, if you were to weigh that and the short-term challenges and compare them
07:42with the long-term benefits outweigh the short-term.
07:48One of the next reforms that you're looking at, that you've promised, is a policy proposal
07:55that's going to be finalized next year, which is looking at the fiscal anchor.
08:00You have expressed previously some concerns around that, particularly that you might have
08:04a position where technocrats are making political decisions.
08:08Maybe you can speak to that and the preference that you have for what that fiscal anchor should
08:13look like, or at least the process leading up to its adoption should look like.
08:16I'm dealing with South African politicians.
08:19I don't know politicians in other countries.
08:23They've first been sceptic about inflation targeting.
08:29To win that battle, that battle of inflation targeting has been, to me, an important success.
08:39To take another battle of fiscal anchor is going to be an important...
08:45It's going to be a difficult one.
08:46Mind you, we come from an environment where a treasure, they put up a ceiling of 2% on
08:51expenditure.
08:52Didn't succeed.
08:54So, what you needed to do...
08:57I normally talk to my people.
08:59I said, you guys, you're good.
09:00You're technically competent.
09:02But you can't beat me on politics.
09:04So, when we deal with this stuff, we're going to say, what is the political economy of such
09:12a decision?
09:14Particularly now, with the change, particularly in Europe, with German, using SSK clause, and
09:22for me, pushing fiscal anchors in South Africa is going to be a challenge.
09:26Am I not going to do it?
09:28I'm preparing to do it.
09:30But the timing is going to be critical.
09:33And you spoke about the idea of setting up the council that would have sort of board
09:38consultation.
09:39I don't think that's where we're heading at the moment.
09:42At the moment, we're heading in an environment, if you look at the different proposals that
09:47we put forward in the document, it's something where you constrain a new government after the
09:56elections.
09:57It sets up proposals, and it's bound by parliamentary rules in such a manner that it's going to stick
10:03to that until the next election.
10:05So, you allow another government to do that.
10:08How we do that is a matter of detail.
10:10But, again, we're putting a proposal mild of that nature, precisely because of the challenge
10:19that we face in South Africa.
10:21People don't want even the inflation targeting, which says, we're elected.
10:25We allow bureaucrat to set policy via a technical exercise.
10:30Now you want to make fiscal policy a technical exercise as well.
10:35So, it's not an easy thing.
10:36But I think with determination, political will, all of these things are possible.
10:44Do you think that the current optimism that we're seeing is going to hold?
10:48Have we really turned a corner, or is it just superficial at this time and point?
10:52Look, if you ask me, I'm quite positive.
10:56I'm quite positive because the decisions we've taken, whether it's on the structural reform
11:02side, whether it's on the fiscal metric side, whether it's on anything, those are decisions
11:10which have been taken politically, having mobilized everybody else, it's going to be difficult
11:16for anybody to change it.
11:18So, we're on the right course.
11:21With the implementation of the inflation target, obviously you're saying that you have buyout,
11:25and I suppose politically you do, but we're going to have to see that also across departments.
11:30Something like the wage bill, which is a massive concern.
11:33Can it be contained over the next few years?
11:35Are people going to play along with you and throw the line?
11:38The problem we have at the moment is a three-year agreement.
11:41So, we have two out-hires of that agreement.
11:50For that reason, that part of the expenditure is still going to be sticky despite the inflation
11:56targeting.
11:58But we're quite convinced that as we start the next round of negotiations, we'll be guided
12:05by the new inflation regime.
12:07The tariffs coming from the U.S., we've not really seen as dire of an impact as what had
12:15maybe initially been expected.
12:16Do you think that's going to hold?
12:18Are there still going to be surprises?
12:19We know they've made this amendment now, especially with regards to agriculture.
12:22Is that good news for you?
12:24Yeah, that's good news.
12:26But parallel to that, what people are knowing is that we have been discussing with the Americans
12:31from day one.
12:34We're still in discussion with them as of today.
12:37So, they are still talking to us.
12:38The door is not closed.
12:39Yeah, the door is not closed.
12:41In fact, we made a substantive submission to them.
12:45They've come back and kind of critiqued it.
12:49We're revising our submissions with them.
12:52I can't go into detail because what we have not avoided to do is to negotiate with them
12:57through the media.
12:58But we are in serious discussions with the United States of America.
13:02And at the beginning, the negotiations were not that constructive.
13:06They are constructive now.
13:07I mean, I know I'm not up to take about it.
13:12There was a ridiculous thing.
13:13They would make submissions.
13:15They say, you guys are not ambitious enough.
13:18We make another ambitious submission.
13:20They said, no, no, no.
13:21You're still not ambitious enough.
13:23Oh, what does ambition mean?
13:24But they've made all of a sudden a trend in 60 degrees and put proposal on the table.
13:33We may not be happy with them.
13:34No one is happy.
13:35This isn't the nature of negotiations.
13:37Yeah.
13:38Let's end it off on the politics as we draw to an end.
13:42You've always had this position and you've touched on elections.
13:45Obviously, we've got the municipal ones coming next year.
13:48But your view is that the markets like to see the ANC in power.
13:52You believe, and if I'm putting words in your mouth, you can correct me.
13:55There's a level of stability to that.
13:58My sense is that the ANC is not going to make a comeback next year.
14:03Again, correct me if I'm wrong.
14:06What does that mean for investor confidence if we see this change or an additional change
14:14to what we saw last year in terms of the trend continuing with the loss of electoral support for the ANC?
14:19Let me put, to answer that question, you must pose a question to yourself.
14:26Is there any other party in the country that's likely to get 40%?
14:32Which will make that the ANC then will go, will not be part of the equation.
14:38My answer is no.
14:40No party in the country at the moment will national votes to the extent of being about 40%, even 2029.
14:47If that happens and the ANC sink, I don't know, I can't recall what are the implications of that,
15:03whether any, you can see a DA and an MK or a DA and an EFF trying to forge a deal.
15:11I don't know how practical that is.
15:16So the ANC is not going to make a recovery though, you agree on that?
15:19No, we are.
15:22No, we would not be in this space if we don't want, unlike the ACO, I nearly made a reference to another party.
15:32I'm saying we don't belong to a political party just for the sake of being in a political party.
15:36You belong to a political party because you want to run the government.
15:42Maybe the last part then, what can the ANC do between now and next year's election to win some favour back from voters?
15:47Watch the space.
15:53On that note then, Finance Minister Inokotongwana, thank you very much for your time this afternoon.
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