A double reckoning for South Africa

South Africa is facing two major economic challenges on Wednesday (2 April): parliament is set to vote on the highly contested 2025 Budget, and US President Donald Trump is expected to announce tariffs.

Locally, the crucial budget vote will occur at 14h00 after the ANC secured a majority in the Standing Committee on Finance to adopt the budget framework report on Tuesday.

ActionSA, which is not a member of the GNU, voted with the ANC to support the framework.

The party voted to support the framework on condition that its “recommendations” to the National Treasury were included—but these are not legally binding.

ActionSA proposed removing the one percentage point VAT hike over two years, and the Treasury’s decision not to adjust tax brackets for inflation gave the Finance Minister 30 days to adjust the budget.

However, this does not constitute an amendment to the budget, with the framework ultimately approved as-is.

There is uncertainty over the legal position of approving the framework and then attempting to amend it after the fact.

The DA also proposed scrapping the VAT hike and then cutting expenditures to balance the books; however, this would have required a formal amendment, which would have delayed the parliamentary budget vote.

The ANC supported ActionSA’s proposal and, along with the IFP, approved the framework, allowing it to proceed to parliament—VAT and tax hikes included.

The proceedings in the Standing Committee have shaken things up in South Africa quite significantly, with the GNU now also in serious question.

The DA noted that the ANC sidestepping the party to get support for the budget from outside the GNU forms a “serious infraction”.

The ANC, meanwhile, has drawn a line, saying that if the DA does not now support the budget, it will have cut itself out of the GNU.

ANC’s budget blues

Frank Blackmore, lead economist at KPMG South Africa, said that the most beneficial outcome for the country would be the DA’s proposal—removing VAT hikes and making expenditure cuts.

Blackmore added that the budget should focus more on economic growth over time. He believes this will benefit bond and equity market viewpoints and the rand.

He warned that South Africa could end up with a budget that is not passed.

Without the DA, the GNU has 200 votes in the National Assembly, requiring one additional vote from a non-GNU partner to pass the budget.

Although the IFP said it would support the budget, several other GNU members, including Rise Mzansi, Good, FF Plus, the PA, UDM, PAC, and Al Jama-ah, will also need to support the proposal.

If the budget is not passed, South Africa will have to follow the path set last year in the Medium-Term Budget Policy Statement.

This updates the country’s revenues but is less ideal as it doesn’t account for current strategic objectives.

Notably, the ANC could easily pass the budget without the DA, bringing in ActionSA to cross the majority line.

However, this would be a negative indicator of the GNU’s collaboration and could lead to its collapse, with a negative reaction from capital markets and the rand.

Blackmore said that the most severe negative outcome would be for the GNU to break down and for a new coalition made up of the EFF or MK.

However, the EFF is widely opposed to the VAT hike and also did not support the ANC and ActionSA’s “backdoor” manoeuvres in the committee meeting.

Regardless, a coalition without the DA and instead MK or the EFF would signal to the market potentially dire consequences for the economy moving forward, impacting growth and the rand.

The rand has already weakened significantly due to the turmoil, hitting R18.54 to the dollar as markets await the parliamentary outcome.

Trump’s plan

Moving outside of South Africa’s internal woes, the country also faces significant external pressures.

US President Donald Trump is expected to announce global tariffs on Wednesday, in what his administration has dubbed “Liberation Day”.

Reports suggest Trump could implement a 20% across-the-board tariff on all imports, as the US feverishly seeks reciprocal trade relations with all countries.

The United States is South Africa’s second-largest trading partner, and any tariffs could seriously hurt the local economy.

Trump has already confirmed that 25% tariffs will be levied on any vehicle or vehicle components imported into the USA.

The Department of Trade, Industry and Competition said that Trump’s tariff announcements will override the African Growth and Opportunity Act (AGOA), which gives South Africa duty-free access for auto exports.

The department said that this could potentially negatively impact the South African economy, with auto exports accounting for 64% of South Africa’s shipments to the US under AGOA.

It added that South Africa shipped cars and parts worth R45 billion last year. The nation’s car industry accounts for over 5% of GDP and employs over 116,000 people.

With reporting from Bloomberg