South Africa must get ready for war

South Africa’s budget this week is coming in a completely different global context than less than a month ago when it was delayed—with US President Donald Trump pulling $1.4 billion (~R25 billion) in funding and igniting a global trade war.

Business Leadership South Africa (BLSA) CEO Busi Mavuso says that the government and the National Treasury, in particular, will now need to pick up the slack and prepare for what’s to come.

This is a tough ask, given that the last budget was already extremely constrained with little room to manoeuvre.

“The United States’ global actions are forcing governments everywhere to think in completely new ways,” she said, adding that South Africa is directly impacted.

Following political fallout over an article penned by President Cyril Ramaphosa criticising Trump and US ally Israel, Washington pulled approximately $430 million a year in funding from South Africa.

This was mainly used in the fight against HIV, Mavuso said.

Last week, the USA pulled out of the Just Energy Transition deals, taking with it another $1 billion in committed funding.

“This directly affects the funding of important projects in South Africa, and the government will have to pick up some of the slack,” Mavuso said.

She added that the geopolitical landscape is also worsening. Global debt is at levels not seen since World War II, and Trump’s aggressive trade war is clouding all economic outlooks.

Mavuso said that we are facing something we have never faced before.

“The fiscal position we are in does not leave us with many options. Economies worldwide are being thrust into this environment, and governments are going where they’ve never gone before.

“As many governments are coming to realise, there is little option but to find ways to do more with less. We are facing complexity of a different kind to anything we have faced before,” she said.

Budget crunch

This context means that the National Treasury faces an even greater challenge when it presents the 2025 budget this week.

The government now faces an even bigger funding challenge just three weeks after the previous budget was withdrawn due to funding challenges.

At the heart of the problem, Finance Minister Enoch Godongwana needs to find the revenue to fund the state’s spending plans, and there are very few options to do this.

He previously opted for a VAT hike to 17%, but this was shot down by political partners within the Government of National Unity (GNU).

This left either cutting spending or finding other revenue sources—neither of which would be popular or easy to do.

Now the global trade war and the USA’s funding withdrawals are adding to the spending side, with no relief in sight for the revenue side.

Mavuso said that the task isn’t impossible, but requires the government to change what is has been doing in a big way.

She said that government spending should be directed toward economically productive activities that boost business, with the caveat that the state actually has to deliver.

In many ways the state has already shown that it is capable of this, having turned South Africa away from impending catastrophe just a few years ago when investors were rapidly pulling out of the country.

She said the GNU has been key to this, with businesses and investors building confidence in what this new government can deliver.

However, the CEO said that taxpayers also need to be realistic about South Africa’s situation.

“More tax is also going to be needed,” she said, adding that, without VAT, the options are limited.

“Higher personal or corporate tax rates just push economic activity outside of the country where taxes are lower, leaving revenue worse off.

“Some more narrow taxes could help; but in the absence of VAT increases, there is going to have to be creative thinking about expenditure savings,” she said.

The Wednesday 12 March budget will be the ultimate test as to whether the GNU can strike this balance.