WHAT YOU NEED TO KNOW
  • South Africa’s Government of National Unity (GNU) was formed last year after the African National Congress (ANC) lost its parliamentary majority. It comprises the ANC, Democratic Alliance (DA) and several smaller parties. The GNU lacks cohesion, which became apparent when the DA voted against the budget proposed by the finance minister March 12.
  • The DA said the budget’s value-added tax increases of 0.5 percent in 2025 and another 0.5 percent in 2026 would put economic pressure on the poor, but the ANC argued that the increase is necessary to fund the treasury. In the end, the DA challenged the procedure followed for the draft budget at the courts. The budget is under revision, and the finance minister is expected to table it sometime in May.
  • The relationship between South Africa and the United States is strained amid looming U.S. tariffs and the possible nonrenewal of the African Growth and Opportunity Act. South Africa’s ambassador to the United States was expelled after U.S. President Donald Trump publicly criticized his government for discriminating against white farmers.
  • Unemployment stood at 31.9 percent in the fourth quarter of 2024, and the consumer price index is at its lowest since 2020. The South African Reserve Bank governor says inflation is contained for now.
ON THE HORIZON
  • The finance minister will seek other funding sources for necessary government programs following the withdrawal of U.S. aid. This will put pressure on the treasury.
  • South Africa has taken a diplomatic approach in mending relations with the United States. The country will need to consider its role in the Israel-Palestine conflict and as a mediator in the Russia-Ukraine war.
  • The Trump administration’s tariffs will impact South Africa’s agricultural and automobile industries. Officials are prepared to negotiate the tariffs and the renewal of AGOA, which lapses in September.
  • South Africa is the current Group of 20 chair and will host the leaders’ summit November 22. This is an opportunity for Africa to highlight climate financing, debt sustainability for low-income countries, critical minerals for inclusive growth and water investments.

South Africa Market Overview and Forecast


Political Climate
A New Era of National Unity Government

The ANC’s dominance since 1994, when President Nelson Mandela led South Africa into democracy, came to an end following the country’s 2024 general election. Having lost its parliamentary majority, the party was forced to join the GNU, comprising 10 political parties. The coalition’s two largest parties are the ANC, which has advocated for pro-poor and pro-development policies, and the DA, which is supportive of the private sector the free market.

The GNU — from its inception an alliance of convenience — is already showing cracks. In a more recent episode of disunity, the DA opposed a fiscal management proposal to increase the value-added tax to fund government programs. The DA held the same position on this issue as South Africa’s far-left parties, the Economic Freedom Fighters and the uMkhonto weSizwe party, led by former President Jacob Zuma. Since forming the new government, the ANC ministers have learned that they need to consult with their GNU partners before they table policies and legislation. However, tensions within the GNU pose risks to political instability, particularly as global politics become increasingly nationalistic.

South Africa Faces Pressure Amid Legislative and International Challenges

South Africa is under pressure from the United States to remove legislative measures that address the economic hardships stemming from apartheid. U.S. President Trump has publicly said South Africa is discriminating against Afrikaner farmers and has offered asylum for them in the United States. Members of the ANC have met with organizations representing Afrikaners to discuss issues they raised when visiting Trump in Washington, D.C.

The DA is challenging the Employment Equity Amendment Act in the courts, arguing it is unconstitutional and difficult to implement based on the geographical dispersion of ethnic groups. However, the ANC has defended the act on the basis that inequalities still exist in the workforce.

South Africa has played an important role in regional and international affairs, particularly within the African Union, and is the only African country that is a member of BRICS. Nevertheless, it has received backlash from the U.S. government for its neutral position regarding the Russia-Ukraine war and for extending support to the people of Palestine, having filed a case at the International Court of Justice against Israel in December 2023.

Macroeconomic Climate
Building Resilience Amid Global Economic Uncertainty

South Africa has sought to address the structural challenges that affect inclusive growth. Business leaders are working in partnership with the government to secure electricity supply, liberalize the grid, restore and maintain infrastructure such as rail and ports and restore safety and security.

Ineffective execution at scale and a lack of cohesion between ministries has hindered structural economic reforms. In April, the president launched the second phase of “Operation Vulindlela.” Originally introduced in 2022, the joint initiative of the presidency and treasury aims to promote government cohesion, boost performance and accelerate reforms. Operation Vulindlela was instrumental in working with the ministries of Electricity and Minerals and Energy on reforms to enable private investment in energy generation and renewable energy. It also guided a major reform on ports and the rail system that opened the railway network up for competition and allowed for private sector participation in port terminals; however, the rail and port network will remain state owned. Operation Vulindlela will work with the Independent Communications Authority of South Africa, which issues spectrum licenses, to enable the spectrum auction. This is expected to attract investment in telecommunications infrastructure, benefiting consumers through reduced data costs.

Businesses have identified South Africa’s ailing water infrastructure and the slow water-use licensing process as barriers to investment. These have been included in the working groups of Operation Vulindlela, allowing projects in industries like mining to proceed without constraint.

Investment Environment
Sustained Momentum in Economic Reform Agenda

The president announced in early May that the GNU’s immediate priority will be following through on major reforms. For the government, the aim will be to attain growth despite the high unemployment rate and economic headwinds from U.S. tariffs and the possible nonrenewal of AGOA, which allows many products from sub-Saharan countries into the United States duty free, in September. Fiscal sustainability can only be maintained by implementing structural reforms. Although their benefit may not be felt in the immediate term, they have the potential to revive and reshape the economy.

The minister of electricity is creating a competitive energy and renewables regime that will produce electricity efficiently and at a competitive cost. To this end, the National Energy Regulator of South Africa has approved a 12.7 percent increase for Eskom electricity tariffs this year for Eskom direct customers and an 11.3 percent increase for municipal customers, with different rates due to timing. Eskom’s restructuring is in progress, after which an independent transmission system operator will be in place. This will enable more competitive electricity rates. Grid access has also been opened, and independent producers can sell electricity to Eskom.

The Department of Home Affairs is working to expedite work visas to remove constraints on the movement of labor within different sectors. A points-based system has been introduced to encourage highly skilled people to come to South Africa while combating illegal immigration.

In April, the Cabinet adopted a digital transformation road map that will drive the adoption of digital technologies in government and public infrastructure used by citizens. This will be rolled out to deliver government services effectively.

South Africa hosts an annual investment conference that attracts global and local investors. The sixth conference will be held in November. It is expected to showcase South Africa’s attractiveness as an investment destination and build on the ZAR 1.5 trillion ($82.2 billion) in investment commitments from the first five conferences.

We will continue to keep you updated on developments in South Africa as they occur. If you have questions or comments, please contact BGA South Africa Country Director Seara Macheli-Mkhabela at smacheli-mkhabela@bowergroupasia.com.

Best regards,

BGA South Africa Team

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