3 April 2025

April 2, 2025, marked a pivotal moment for South Africa, characterised by significant domestic political friction surrounding the National Budget (Fiscal Framework and Revenue Proposals) vote and concurrent major shifts in international trade policy stemming from new US tariff announcements.

The passage of the budget, achieved without the full support of the governing coalition in the GNU, coupled with substantial new US tariffs targeting South African exports, presents a complex and challenging landscape for the nation’s political stability and economic outlook. These interconnected events necessitate careful consideration by businesses and policymakers regarding their potential ramifications.

The South African National Budget 2025

The passage of the South African National Budget framework for the 2025/26 financial year through the National Assembly on April 2, 2025, proved contentious. Presented by Finance Minister Enoch Godongwana, the Fiscal Framework and Revenue Proposals (often referred to as the “2025 Budget framework”) secured approval despite significant opposition.

The primary point of contention was a proposed phased increase in Value-Added Tax (VAT) and the lack of any substantive pro-growth reforms. The VAT hikes, became a major point of division, contributing to an initial delay in the budget’s presentation. The narrow margin of vote that passed the Fiscal Framework and Revenue Proposals underscored deep fissures, particularly within the Government of National Unity (GNU), as the successful vote relied on support beyond the core coalition members.  

• Passage: Approved on April 2, 2025, by the National Assembly with 194 votes in favour and 182 against.  
• Key Measure: Includes a phased VAT increase: 0.5 percentage points in 2025/26 and another 0.5 percentage points in 2026/27, reaching 16%. The report included a recommendation to seek alternate revenue sources in order to do away with the VAT increase, but this seems highly unlikely to materialise (despite claims to the contrary by some opposition parties) within the 30 day deadline given the lack of proposals and serious points of disagreement between parties leading up to the debate.
• Support Base: The African National Congress (ANC) secured the passage of the framework with support from its smaller GNU partners: the Inkatha Freedom Party (IFP), the Patriotic Alliance (PA), Good, Rise Mzansi, the United Democratic Movement (UDM), the Pan Africanist Congress of Azania (PAC), Al Jama-ah, and Build One South Africa (BOSA). Notably, ActionSA, which is not formally part of the GNU, also voted in favour.
• Opposition: The Democratic Alliance (DA), the second-largest party in the GNU, vehemently opposed the budget framework due to concerns over the proposed tax increases, a lack of a spending review and key reforms aimed at driving economic growth. By all accounts an agreement was reached on these reforms, but after further discussion the ANC decided ultimately to ignore the DA’s suggested reforms. Parties voting against the adoption of the report included the Democratic Alliance (DA), the Economic Freedom Fighters (EFF), uMkhonto weSizwe Party (MKP), the Freedom Front Plus (FF+), the African Christian Democratic Party (ACDP), the United African Transformation (UAT), and the African Transformation Movement (ATM). The opposition’s numbers were somewhat reduced by the absence of ten MKP members.
• Legal Challenge: The DA announced its intention to challenge the budget’s passage legally, citing alleged procedural irregularities during the Finance Committee’s review and constitutional concerns.  

Next Steps for Budget Approval

The vote on April 2nd represents the initial parliamentary approval of the Fiscal Framework and Revenue Proposals. However, this is not the final step in the budget process. Several more legislative stages must be completed before the national budget is finalised. The next crucial step involves the Appropriation Bill, which outlines the specific allocation of funds to different government departments and state entities.

This bill will be presented to Parliament for scrutiny and debate. Parliamentary committees will conduct detailed reviews of the proposed allocations, and further debates and votes will take place in the National Assembly.

Following approval by the National Assembly, the Appropriation Bill will also need to be considered by the National Council of Provinces. Only after both houses of Parliament have approved the Appropriation Bill, and it has been signed into law by the President, will the national budget for the 2025/26 financial year be formally adopted, which is expected to occur within approximately two months.

The possibility of further amendments or even the non-approval of the Appropriation Bill remains, although the initial approval of the fiscal framework provides a strong indication of the likely direction of the final budget.

The Future of the Government of National Unity (GNU)

The divisive budget vote has placed considerable strain on the GNU, fuelling speculation about its continued viability. The DA’s strong opposition, culminating in a legal challenge, signifies a severe breakdown in relations with the ANC, moving beyond typical political disagreement.

Public statements from both parties, including the Presidency questioning the DA’s continued participation in the GNU while opposing the budget, suggest the coalition has never been more fragile. This uncertainty has negatively impacted financial markets, reflecting investor concerns about political stability and future economic policy direction should the business-friendly DA exit the government

• Stability Risk: The budget vote outcome has placed the GNU under immense pressure, with widespread speculation regarding its future.  

• ANC-DA Rift: The DA’s opposition and legal challenge indicate a fundamental breakdown in the relationship with the ANC. Negotiations had already deadlocked before the vote.  
• Market Reaction: Following the approval of the fiscal framework on Wednesday, April 2nd, the Rand experienced a notable weakening against the US dollar, reaching its lowest levels since mid-January. By Thursday, April 3rd, the Rand was hovering near this three-month low. This decline reflected investor concerns regarding the political instability arising from the budget debate and the potential fracturing of the GNU. Simultaneously, South African government bonds also reacted negatively, with yields on benchmark bonds, such as the 2030 maturity, increasing. The yield on the 10-year government bond surged to its highest level in almost a year, reaching around 11.14%. This increase in bond yields indicates a rise in government borrowing costs, further reflecting the financial markets’ apprehension about the prevailing political and policy uncertainty. Analysts suggested that the market jitters stemmed from fears that the DA might leave the coalition. The combination of domestic political uncertainty and external factors, such as potential new tariffs announced by the US, further exacerbated the Rand’s decline.
• Presidency Stance: The Presidency questioned how the DA could remain in a government whose budget it opposed, potentially hardening the ANC’s position.  
• Potential Power Shift: If the DA exits and ActionSA joins the GNU, the ANC and its allies would hold a narrow 202-seat majority in the 400-seat Assembly, potentially complicating governance. This would assume that the FF+, a GNU partner who also voted against the budget would be removed.  The dynamic behind the latest division between the ANC and DA has several significant stress points beyond DA opposition to tax hikes. These include: a belief that the ANC has dishonoured by word and deed the statement of intent of June 2024 governing coalition relations; a serious division of opinion within the factitious ANC on continuing with the ANC-DA partnership; and allied to the latter, a power play withing the ANC on its leadership succession.

US Tariffs Imposed by President Trump

Simultaneously, on April 2, 2025, the US administration under President Trump announced significant new import tariffs. This included a baseline 10% tariff on all imports globally and higher, country-specific “reciprocal” tariffs on nations with large US trade deficits.

South Africa was specifically targeted with a 31% reciprocal tariff, among the highest introduced worldwide, alongside critical remarks from President Trump about the country’s internal dynamics.

Furthermore, a substantial 25% tariff was levied on imported automobiles and related parts, directly impacting a key South African export sector. These measures compound earlier tariffs on steel and aluminium and effectively negate the benefits South Africa received under the African Growth and Opportunity Act (AGOA), prompting the South African government to seek negotiations for a new bilateral trade agreement.

• Baseline Tariff: A 10% tariff on all goods imported into the US from all countries, effective April 5, 2025.  
• South Africa Specific: A 31% reciprocal tariff imposed on South African goods, effective April 9, 2025. President Trump made specific negative remarks about South Africa.  
• Automotive Tariff: A 25% tariff on imported automobiles, light trucks, engines, transmissions, batteries, tyres, etc., effective April 3, 2025.  
• AGOA Impact: The new tariffs override duty-free access previously enjoyed by South Africa under AGOA, under which vehicle exports were significant (64% of AGOA exports in 2024).  
• Pre-existing Tariffs: Added to tariffs imposed earlier in 2025, including a reported 25% on steel and aluminium imports from South Africa (effective March 2025).  
• Cumulative Rates: Total tariffs reach 25% for vehicles, 56% for steel and aluminium (31% + 25%), and 31% for other non-exempt goods as of April 9, 2025.  
• Trade Context: In 2024, the US had an $8.8 billion goods trade deficit with South Africa. Key exports included precious metals/stones, vehicles, base metals, minerals, chemicals, machinery, and agricultural produce.  
• South African Response: The government intends to seek talks with the US for a new bilateral trade agreement.  

Exemptions and Impact of US Tariffs on South African Exports

While the newly announced 31% tariff on South African goods by the US will affect numerous sectors, a significant portion of South Africa’s exports will be shielded from these duties due to exemptions granted by the White House.

Key exports that have been exempted include:

• platinum group metals,
• base metals such as copper, zinc, and manganese,
• precious metals including gold,
• certain chemicals like pesticides and fertilisers,
• various wood products,
• various nickel products, and coal.
• Mining commodities, which constitute more than half of South Africa’s exports to the US, are largely covered by these exemptions. In 2024, South Africa’s exports to the US included R55 billion worth of gold, platinum, diamonds, jewellery, and precious metals, along with R7 billion of ore metals like chrome and manganese, and R900 million worth of nickel.
• Coal, crude oil, petroleum, and electricity exports, valued at R2 billion in the previous year, have also been exempted. Certain chemical and fertiliser exports, which exceeded R10 billion in 2024, and wood, pulp, and paper products, with exports of over R680 million, may also be included in the exemptions.

However, several important South African industries that account for a substantial share of exports to the United States have not received exemptions.

These include:

• agriculture,
• Automotive sector,
• wine, and
• shipbuilding industries.

Notably, around 40% of South Africa’s agricultural exports to the US, which benefited from duty-free access under AGOA (including citrus, macadamia nuts, avocados, grapes, and sugar), may now face the full 31% tariff, potentially making them significantly more expensive for American consumers.

South Africa is a major global producer of macadamia nuts and the second-largest exporter of citrus. Similarly, South African wine exports, primarily white wine which entered the US duty-free under AGOA, could now be subject to a 31% import tariff. Wine exports to the US amounted to approximately R650 million in 2024.

The existing 25% tariffs on vehicles and vehicle parts, which represented over R32 billion in exports in 2024, will remain in place and will not be increased by the new measures.

President Trump indicated that these tariffs could be adjusted in the future if countries retaliate or threaten US economic or national security. Other notable exemptions from the “reciprocal” tariffs include semiconductors, and pharmaceutical and medical products.

The full list of exempted products, published by the White House last night, can be found here.

US-SA Trade Negotiations: Domestic Hurdles and Political Instability

Despite the South African government’s ambition to negotiate a new trade agreement with the United States, several significant obstacles are likely to impede these efforts. The failure of the ANC and DA to reach a consensus on key policy reforms, such as the Expropriation Act, in exchange for the DA’s support of the budget, underscores the deep policy divisions within South Africa’s political landscape. This domestic context suggests that the ANC may be equally unwilling to make concessions on these core policy issues to the United States, which are likely to be key demands from the Trump administration.

President Trump has previously criticised the South African government over the Expropriation Act and alleged discrimination against Afrikaner farmers. These statements indicate that the United States’ agenda in any trade negotiations with South Africa is likely to extend beyond standard trade imbalances to include these contentious policy areas. This broader scope will undoubtedly complicate the negotiation process.

Moreover, the potential collapse of the Government of National Unity, particularly if the business-friendly DA withdraws, could further weaken South Africa’s negotiating position with the United States. The US administration is more likely to negotiate favourably with a government that includes the DA due to perceived alignment on contentious policies. The US may also view a less unified and potentially unstable government in South Africa as an unreliable partner for a long-term trade agreement, potentially leading to a less favourable negotiating stance.