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Straits Times
22-05-2025
- Business
- Straits Times
Trump ambush a sideshow, as South African investors focus on coalition
FILE PHOTO: A street vendor sells fruit as members of the South African Democratic Teachers' Union (SADTU) participate in a protest march against budget cuts and austerity measures in public education in Pretoria, South Africa, April 23, 2025. REUTERS/Ihsaan Haffejee/File Photo FILE PHOTO: Members of the South African Democratic Teachers' Union (SADTU) participate in a protest march against budget cuts and austerity measures in public education in Pretoria, South Africa, April 23, 2025. REUTERS/Ihsaan Haffejee/File Photo FILE PHOTO: U.S. President Donald Trump meets South African President Cyril Ramaphosa in the Oval Office of the White House in Washington, D.C., U.S., May 21, 2025. REUTERS/Kevin Lamarque/File Photo JOHANNESBURG - For investors, the spectacle of South African President Cyril Ramaphosa's fraught Oval Office encounter with U.S. counterpart Donald Trump was little more than a sideshow. The true test for Africa's most industrialised nation, they say, will be whether its coalition government can survive long enough to bolster lacklustre growth and contain debt. As Trump confronted Ramaphosa on Wednesday with false claims of white genocide and land seizures during a face-to-face meeting at the White House that was broadcast live, back home South African politicians were finally uniting behind a budget. Though it took three attempts, agreement on the spending bill puts to bed, at least for now, a tug-of-war that earlier this year threatened to destroy the fragile political union and had sent the rand toward record lows and bond yields spiking. The drawn-out budget saga was a painful episode for South Africa's government of national unity (GNU) - its first significant attempt at a governing coalition in the country's 30-year history as a multiracial democracy. A breakup of the GNU, which includes the African National Congress and longtime rival Democratic Alliance, would have derailed the reform momentum investors have been calling for. But risks still remain, investors told Reuters. "I'm looking for the coalition to stay together. That's the most important thing," said Shamaila Khan, head of emerging-market fixed income at UBS Wealth Management. "For now the coalition is in place, but it's a shaky coalition. So you want to be careful what you buy and make sure there's enough risk premium there." INEQUALITY, UNEMPLOYMENT AND DEBT RISKS For the past two decades, South Africa has struggled to achieve growth high enough to make a meaningful dent in gaping inequality and an unemployment rate that ranks among the world's highest. Public debt, meanwhile, has shot up as the government has failed to rein in runaway spending, prompting credit rating downgrades. For investors overall, most of the budget is market-neutral, said Kim Silberman, macro strategist at Matrix Fund Managers. "The risk is that it's unlikely that the debt will stabilise this year," she said. The revised budget, stripped of a contentious value-added tax hike, which the fiscally conservative DA had opposed, puts this year's deficit at 4.8% of GDP and lifts the peak debt ratio to 77.4% in 2025/26, up from 76.2% in March ahead of a decline. But much of the plan hinges on higher revenue collection and cost-cutting, with analysts predicting a challenge ahead. The "real work now begins", JPMorgan said in a note to clients on Thursday. 'LESSONS WERE LEARNED' National Treasury officials told an investor call on Wednesday that South Africa is committed to fiscal discipline and maintaining credibility. They also place significant faith in the South African Revenue Service, which recently received additional income. SARS has indicated it could generate an extra 20-50 billion rand (1.1-$2.8 billion) annually, which is currently not pencilled into the next budget but would enable Treasury to withdraw planned tax increases down the line. In an interview with Reuters, however, Finance Minister Enoch Godongwana warned that missing the revenue target would force substantial cost cutting. Navigating the fragile balance between shoring up finances while keeping on board all the GNU's various coalition partners - some of whom, like the ANC and DA, embrace radically different ideologies - will be a balancing act for policy makers. "Local politics play a big role," said Brendan McKenna, an executive director at Wells Fargo, who covers emerging market economies and currency strategies. If the coalition government is preserved, which is McKenna's base scenario, South Africa may gather more robust growth momentum and local markets could maintain their solid performance. "Should the GNU disintegrate, growth prospects would dwindle and (the rand) would come under pressure. The possibility of recession would rise and stagnant medium-term growth would likely be a result," said McKenna. Treasury officials acknowledged the increased political complexity when speaking to investors. The first two budget attempts collapsed under a kind of political turbulence not seen in democratic-era South Africa until the ANC, the party of the late Nelson Mandela, lost its 30-year parliamentary majority in last year's election. "The budget was the first significant piece of legislation that the new government had to consider," Treasury officials said. "Important lessons were learned." REUTERS Join ST's Telegram channel and get the latest breaking news delivered to you.
Straits Times
05-05-2025
- Business
- Straits Times
South Africa's DA party fights new racial targets for employers
Helen Zille, Chairperson of the Federal Council of the Democratic Alliance, addresses supporters at an election rally in Soweto, South Africa May 22, 2024. REUTERS/Ihsaan Haffejee/File Photo JOHANNESBURG - South Africa's Democratic Alliance party is going to court to challenge a new employment law that sets racial targets for large employers in an attempt to address the economic inequality that is a persistent legacy of former racist white minority rule. The Employment Equity Amendment Act, which came into effect in January, allows the labour minister to set targets per sector for the number of non-white people and women who should be in management-level and professionally qualified roles. The DA, the second-biggest party in government, will argue in court on Tuesday that it is unconstitutional, party officials said on Monday, in a case that is causing further friction with its bigger coalition partner, the African National Congress. The topic is especially heated since U.S. President Donald Trump condemned South Africa for alleged racial discrimination against its white population, and offered white South Africans refugee status. "We opposed it from the beginning, for the key reason that it will continue to drive unemployment up (and) economic growth down," DA Federal Chairperson Helen Zille told a news briefing, saying this was because it would discourage companies from investing in South Africa. The DA also says it discourages companies from growing because those with 50 or fewer employees are exempt. Firms larger than that need to obtain a compliance certificate or justify their failure to meet the targets in order to do business with the state. Three decades after the end of white minority rule, racial divisions in South Africa remain stark. White people make up about 7% of the population but occupy 66% of top management level posts in the private sector, while Black people are more likely to be unemployed or in low-level jobs. Last month, the government published five-year targets for 18 sectors include mining, manufacturing and agriculture. In mining, for example, it wants 57.5% of top management to be Black, Indian or "coloured" people, a term for South Africans of mixed race. "This move is a clear attempt to reverse the progress made since 1994 and maintain the unfair status quo," the labour ministry said of the DA's court case. South Africa has been trying to empower its Black population for years through a rewards system which previously allowed companies to set their own targets. But cheating is high and critics say it has mainly enriched a handful of politically connected businessmen. REUTERS Join ST's Telegram channel and get the latest breaking news delivered to you.
Mail & Guardian
29-04-2025
- Business
- Mail & Guardian
DA to fight employment equity law in court
The Democratic Alliance (DA) has filed an application in the Pretoria high court challenging the employment equity quotas in the Employment Equity Amendment Act which it says are merely 'racial exclusion under a new name'. (Photo by Ihsaan Haffejee/Anadolu via Getty Images) The Democratic Alliance (DA) has filed an application in the Pretoria high court challenging the employment equity quotas in the Employment Equity Amendment Act which it says are merely 'racial exclusion under a new name'. It sets hiring quotas for 18 economic sectors, from mining and transport to construction and agriculture, in a bid to increase employment opportunities for 'designated groups' including blacks, women and people living with disabilities. Companies with 50 or more employees must align their employment equity plans with the new sector-specific targets and these must be implemented between 1 September 2025 and 31 August 2030. Bagraim said his party had launched a 'constitutional challenge' to Section 15A of the Act, which introduces 'rigid national race quotas' in The law is one of several pieces of legislation and policies the government has implemented since the fall of apartheid in 1994 in what it says is a drive to reverse the racial inequalities which favoured white people. 'We are taking the minister of employment and labour to court because Section 15A represents a radical and harmful departure from previous employment equity law. These quotas will destroy jobs, undermine the economy and violate the constitutional rights of all South Africans,' Bagraim said. Section 15A represented a 'radical and harmful' departure from previous employment 'Where companies once set their own equity goals, based on context and the available labour force, they are now compelled to meet government-imposed demographic targets, regardless of skills, local realities or business viability,' Bagraim said. 'It is about protecting people's rights under the Constitution, the rule of law and the livelihoods of South Africans. The DA believes that real redress does not mean implementing policies that bring more division. We believe that true transformation can only be achieved by focusing on inclusive economic growth that creates opportunity for all.' He said the legal argument against the amendment was two-fold, focusing on 'constitutional invalidity' and 'abuse of state power'. 'Section 15A violates Section 9 of the Constitution, which guarantees equality before the law and prohibits unfair discrimination. A law that forces employers to fire or refuse to hire people based on race, whether they are black, coloured, Indian or white, is not redress. It is unconstitutional discrimination,' Bagraim said. He added that the minister's powers under Section 15A were 'vague, unchecked and dangerously broad'. 'The so-called 'targets' are not guidelines — they are 'This is not just a theoretical concern. The final quotas, published last week, make it virtually impossible for some communities, particularly coloured workers in the Western Cape and Indian workers in 'This isn't transformation. It is Bagraim said the government had 'tacitly' admitted that the quotas were damaging by exempting businesses with fewer than 50 employees. 'Our court action will expose the real issue — the problem is not the quotas themselves but the law that enables them. That is why we are challenging Section 15A directly, not just quotas that flow from it. Every law must be judged on whether it grows the economy and creates jobs. These quotas fail that test spectacularly. 'We are standing up for the right of every South African to be employed on the basis of their skill, character and contribution — not the colour of their skin. And we will not stop until this unconstitutional law is overturned.
