GNU passes budget stress test

28 July 2025 — Has the GNU proved its staying power by passing the budget? Has the DA won key victories — or just delayed the next crisis? Is Ramaphosa losing his grip amid growing MK pressure? Why is the SARB warning about distracted leadership and global headwinds? Will US sanctions and tariffs push SA into economic collapse? Is SA’s trade policy too timid to stop a looming export crisis?

GNU passes budget stress test

On Wednesday, the National Assembly passed the Appropriation Bill, a law that allocates funds to government departments and entities. The Appropriation Bill is the last major component of the national budget that has to be adopted by the lower house of Parliament for the budget as a whole to be passed.

During the months-long, contested budget process, the Democratic Alliance (DA) leveraged its votes to extract two major concessions from the African National Congress (ANC). The first was the reversal of a tax increase which would have raised the Value-Added Tax rate from 14% to 16% over two years. The second was to secure the firing of the ANC minister of higher education and training, Nobuhle Nkabane.

The DA had demanded that Ms Nkabane be axed for having misled Parliament about how ANC cadres were deployed as chairpersons of Sectoral Education and Training Authorities (SETAs). Ms Nkabane is only the third minister to be dismissed since 1994, following Noluthando Mayende-Sibiya in 2010 and Pravin Gordhan in 2017.

What the budget war tells us

Several important conclusions can be drawn from the tug of war over the budget. The first is that currently, neither the ANC nor the DA has any appetite to break the Government of National Unity (GNU), even when the temptation to walk away is great. This means that as things stand, the GNU is likely to hold for another year.

Secondly, from the DA’s perspective, it has realised it cannot rely on a gentlemanly statement of intent to govern its relationship with the ANC but must instead deploy matching ruthlessness and a hard negotiating stance.

The sweet spot for the DA currently is to be inside the GNU but standing up publicly to the ANC on matters affecting the material circumstances of voters, such as taxes and corruption. Polling suggests that this is popular with voters. However, maintaining this posture represents a tightrope walk for the DA. In time it can provide an additional reason for the ANC to dismiss the DA from the GNU.

Thirdly, from the ANC’s perspective, the fact that it backed down in the face of determined opposition, albeit unwillingly, weakens President Cyril Ramaphosa’s position in his party. His opponents — who oppose the ANC’s working with the DA — will use the budget dispute as evidence that the DA is an undesirable coalition partner and that Mr Ramaphosa is not controlling it properly.

MK piles the pressure on Ramaphosa

The Mkhwanazi-Mchunu affair is creating further headaches for Mr Ramaphosa. The suspension of his ally and police minister, Senzo Mchunu, the setting up of multiple parliamentary inquiries, and the establishment of a judicial commission of inquiry into police corruption will have a destabilising effect on the ANC’s internal power balance. The actions threaten to disturb patronage networks and reveal compromising information which factions have been holding back to control their opponents.

Mr Mchunu has a long history in KwaZulu-Natal (KZN) politics and is an important ally for Mr Ramaphosa in that province, where the ANC was decimated at the hands of former President Jacob Zuma’s uMkhonto weSizwe Party (MKP) in the 2024 elections. That the attack on Mr Mchunu came out of KZN — from the provincial police commissioner, Lieutenant-General Nhlanhla Mkhwanazi — might not be a coincidence.

The MKP was quick to send a letter of demand to the Presidency demanding that Mr Ramaphosa resign and withdraw all the measures he had taken in response to General Mkhwanazi’s allegations. When this was ignored, the MKP took its demands to the Constitutional Court, filing an urgent application to be heard as early as today, 28 July.

Last week, the MKP also submitted a motion of no confidence in Mr Ramaphosa, claiming that this was “not politically motivated”, but necessary to restore public trust in governance. John Hlophe, MKP caucus leader and an impeached former judge, cited governance failures, economic mismanagement, leadership instability, national security concerns, and a lack of accountability and transparency in the submission. He called for an urgent special sitting of the National Assembly, which went into recess on Wednesday, until the end of August.

While much of this is performative, it adds to the pressure on Mr Ramaphosa and will make it harder for him to manage his party. Expect to see him seek solace in the National Dialogue and on the international stage, where he can demonstrate his statesmanship while remaining above the petty squabbles of vicious domestic politics.

However, for Mr Ramaphosa and much of his cabinet, this means that their attention will be distracted from governing. The chances of substantive reforms that will lift the economic growth rate are receding further.

SARB highlights growth risks

Writing in the South African Reserve Bank’s (SARB) Annual Report 2024/25, Governor Lesetja Kganyago noted the economic risks that lie ahead for South Africa. While volatility was rising and conditions remained uncertain, he considered it likely that the global environment would be “less benign than before” and emphasised the importance of getting domestic policies right. He noted South Africa’s “protracted growth stagnation” in the context of heightened geopolitical risks and pointed out that the country remained vulnerable while growth remained low and the public debt continued to rise. He warned that while South Africa had had it easy over the past three decades because the environment was favourable to the country and its economy, a less open and less tolerant world order would present “profound challenges to our society.”

The risk is that the captain of the good ship South Africa is distracted while steering his unseaworthy vessel into stormy waters.

US targeting sights settle on SA

Any false sense of comfort that might have been engendered following Mr Ramaphosa’s visit to the White House in May was misplaced. SA-US relations were not “reset”, never mind improved.

The US-South Africa Bilateral Relations Review Act of 2025 is wending its way towards President Donald Trump’s desk, as we reported in a Client Note last week. If passed, it exposes senior South African government officials and ANC leaders involved in corruption or human rights abuses to the risk of sanctions under the Magnitsky Act.

Sources tell us that there is appetite on the Hill for passing the Review Act quickly, that this would be considered a warning shot for South Africa, and that US attention would then move on to more important priorities. The implication is that Pretoria should not expect friendly treatment or even leniency from Washington.

Mr Ramaphosa’s assessment of the situation is fanciful. Last week he said: “We are very positive that the outcomes of our engagement with the United States will be comprehensive and all-encompassing, so that we can return to good dealings with the United States.” His counterparts in Washington do not share his positivity.

Timidity in trade

Of greater risk to the South African economy than sanctions on ANC leaders are incoming 30% US reciprocal tariffs. Set to come into operation on 1 August, South Africa has made little headway in clinching a lowered rate. The country faces an additional 10% for aligning with BRICS policies. The automotive and agricultural sectors stand to be the most affected.

Trade deal proposals submitted by South Africa have been rejected as lacking in ambition and vision. The issue of non-tariff barriers, such as Black Economic Empowerment (BEE) requirements and Localisation Master Plans, remains unaddressed by the South African government. These dissuade trade and investment not only from the US, but the European Union, China, and elsewhere.

Former senior World Trade Organisation official Johann Human recently highlighted that the US deems non-tariff barriers as constituting unfair trade practices. He mentioned sanitary standards, local content rules, and BEE policies as examples of non-tariff barriers, adding: “The US has been raising these issues for years. Has South Africa done its homework on these non-tariff barriers? I don’t think so. The public hasn’t been informed. The government keeps saying the US figures are wrong, but that’s not a strategy. That’s denial.”