Harsher race laws in South Africa

22 April 2025 — What is contained in the new employment equity regulations? What are the growth implications for the South African economy? Why is Donald Trump targeting the Fed chair? What is the outlook for China’s economy?

Harsher race laws in South Africa

Racial employment laws are being ratcheted up in South Africa in accordance with the transformation objectives of the African National Congress (ANC). One effect of the laws is that people can be denied job opportunities because of their race or gender.

Last week, labour minister, Nomakhosazana Meth (ANC), promulgated two sets of employment equity regulations. One set provides administrative rules. The other specifies numerical targets.

Together with the Employment Equity Act under which they fall, the regulations impose five-year race, gender and disability targets on all private companies with more than 50 employees, as well as all organs of state irrespective of the number of their employees, from 1 September.

The numerical targets are provided in tables broken down by 18 economic subsectors, 4 race groups, 2 genders, 2 disability statuses, and 4 occupational levels. The regulations state that “the sectoral numerical target excludes white males…and foreign nationals”.

In a plurality of table entries, the target for white males and foreigners is set at 4.1%. That means if a company has 100 employees at a particular level and 4 are white males and/or foreign nationals, then the company cannot hire a fifth person of either kind unless it plans to expand the workforce or let  one of the existing white males go by the end of the reporting year.

All races and genders are exposed to the risk of being excluded from jobs, as is made clear by the regulation which states that all employers with more than 50 employees “must avoid perpetuating the over-representation of any group if their representation exceeds the applicable [Economically Active Population] in a particular occupational level.”

That means if a large company has a C-suite in which 60% are black women, then it must aim to reduce the “over-representation” of black women by refusing to hire black women in that management category. The same holds for all race-gender pairs.

Mrs Meth promised last year to hire 20,000 labour inspectors, who are empowered by the new regulations to issue compliance orders that must be “prominently” displayed in the workplace, and which can be challenged “by making written representations to the Director-General [of the Department of Employment and Labour] within 21 days after receiving that order”.

For the first failure to comply with the regulations, the maximum fine is R1.5 million or 2% of annual turnover, whichever is greater. This climbs to a maximum of R2.7 million, or 10% of annual turnover, on the fourth failure to comply. Civil society groups including IRR Legal, Sakeliga and the National Employers Association of South Africa have announced plans to challenge the legislation in court.

Warning: rockfalls ahead for the economy

In its April 2025 Monetary Policy Review, the South African Reserve Bank (SARB) optimistically forecasts that the economy will grow at 1.7% in 2025, almost tripling the 2024 rate of 0.6%.

This 1.7% will only be achieved if the rate of gross fixed capital formation (GFCF) accelerates significantly. In 2024, writes the SARB, “all components of GFCF detracted from growth”, contracting by 3.7%. For 2025, in contrast, the SARB expects real fixed investment to grow by 2.1%. It is on the back of higher rates of real investment that the SARB forecasts average GDP growth of 1.9% over the medium term. For comparison, the International Monetary Fund forecasts emerging markets’ average GDP growth over the same period to be 4.2%.

However, because the government is adding to the rules that make doing business in South Africa costly, cumbersome and risky — such as the Expropriation Act, the National Health Insurance Act, and the amended Employment Equity Act — the country is unlikely to achieve a growth rate anywhere near that of its emerging market peers.

The trade front presents further risks to economic growth. The SARB’s worst-case scenario, as presented in its latest Review, includes the end of Africa Growth and Opportunity Act benefits and a 25% blanket tariff imposed by the United States (US) on South Africa. In this scenario, the Rand depreciates by 15%. Headline inflation will increase by one percentage point, with the country’s GDP growth rate negatively impacted by 0.69%.

Regardless of the ultimate outcome of US President Donald Trump’s reordering of global trade, South Africa needs to create an environment conducive to investment. In this context, a US administration seeking access to markets open to US companies and goods represents an ideal opportunity for South Africa to attract investment from the world’s deepest capital markets.

Last week PSG Financial Services’ chief executive officer, Francois Gouws, highlighted this challenge and opportunity for South Africa: “Without a catalyst — such as more market-friendly policies, or more market-friendly legislation — it is very hard to see how the growth is going to be funded”.

Trump takes aim at Fed chair

Mr Trump has been ramping up his verbal attacks on Federal Reserve (Fed) chairman, Jerome Powell, writing in a social media post last week that “Powell’s termination cannot come fast enough!” Mr Powell finishes his third term as chair on 15 May 2026, although his term as a Fed governor only expires in January 2028. Mr Trump has taken verbal potshots at Mr Powell for several years because he believes that the latter has stood in the way of more rapid interest rate cuts.

Mr Trump has reportedly been flirting with the idea of firing Mr Powell since 2018, although it is unclear whether that is permitted under US law. The Fed forms part of the US government but considers itself an independent central bank. It does not receive funding appropriated by Congress and does not need to get its monetary policy decisions approved by anyone in the executive or legislative branches of government.

Although the seven Fed governors are appointed by the US president and confirmed by the Senate, their 14-year terms are staggered and members serving a full term cannot be renominated for a second term. The chair and vice chair are appointed for four-year terms by the president and can be renominated to serve in that position but cannot serve past their term as governor.

It is generally considered desirable for central banks to be independent of the executive. Their independence allows them to base monetary policy decisions on long-term economic grounds rather than on short-term political reasons. It also enhances their credibility, which allows them to keep inflation low by anchoring inflation expectations. Finally, it insulates them from fiscal pressures, as when a government is tempted to fund its spending by pressuring the central bank to print money, which would fuel inflation.

Consumer price inflation in the US registered at 2.4% in March, still above the Fed’s 2% target but down from January’s 3% print. It is expected to remain above 2.5% for the remainder of 2025, with upside risks from trade policies. Mr Trump’s verbal attacks on the Fed chair could seed doubts about the central bank’s independence, adding to inflationary pressures. This sets the stage for further conflict between Mr Trump and the Fed, as higher inflation is likely to be met with higher interest rates from the Fed — the opposite of what Mr Trump wants, especially if economic growth slows down, as many analysts now expect to happen.

China’s GDP growth beats expectations, but outlook darkens

The Chinese economy grew at 5.4% year-on-year in Q1 2025, beating analyst expectations of 5.1% growth as well as the Chinese government’s 5% target. A major contributor to this figure was exports, which expanded by 6.9% over the same period. In March alone, exports grew by a remarkable 13.5%.

However, much of this is believed to have been driven by a “pre-tariff rush”, as Chinese exporters rushed to get their goods out before steep US tariffs kicked in. Global banks have downgraded their growth forecasts for China by around half a percentage point in response. Citi now forecasts 4.2%, Goldman Sachs forecasts 4%, and UBS forecasts 3.4%.