Ramaphosa drops the EWC bomb

27 January 2025: What do the government’s broad new expropriation powers mean for South Africa? What are the implications of the Transformation Fund mooted by the trade and industry minister? What is the future of the GNU in the face of ANC intransigence? In which direction is Donald Trump pointing the United States?

Ramaphosa drops the EWC bomb

With minimal fanfare, President Cyril Ramaphosa signed the controversial Expropriation Act into law last week. The new law, which empowers the state to seize land without compensation, weakens property rights in South Africa significantly. It will diminish South Africa’s investment attractiveness, potentially impacting the stability of the financial sector, the country’s economic growth outlook, and the continued existence of the current Government of National Unity (GNU).

The president’s assent to the legislation has brought to culmination a process that has been underway for over a decade to introduce replacement legislation for the superannuated Expropriation Act of 1975. The new Expropriation Act has been intimately linked to the Expropriation Without Compensation drive of the African National Congress (ANC). Its proponents have argued that it is an indispensable tool for land reform.

The Act makes explicit provision for the expropriation of land at “nil” compensation, providing an open-ended list of conditions where this might apply. How these may be interpreted and what other considerations might apply is unclear. Concerns remain too about the Act’s constitutionality. In the event of a dispute relating to the amount of compensation payable, the Constitution requires that expropriation cannot proceed without a prior court order deciding the amount, timing, and manner of payment of compensation. As it stands, the Act would allow an expropriation to proceed without such an order.

In addition, the powers accorded to state institutions — that are often corrupt and dysfunctional — to carry out expropriations, hold significant risks for business. The uncertainty that may arise from this is likely to exercise further dampening on South Africa’s investment attractiveness.

Of practical significance is the Act’s definition of expropriation. This draws on a 2013 Constitutional Court judgement (Agri South Africa v Minister for Minerals and Energy), which — in a deviation from international norms — did not recognise expropriation as the mere deprivation of property but required that another party had to take ownership of it. Absent the latter condition, no expropriation had legally taken place. Applying this trick would allow a mass custodial taking of land — as in the case of mineral resources, in which case the state took control of them on behalf of South Africa’s people — to proceed with no obligation for compensation. The prospect of a custodial taking of all land without payment has been repeatedly raised, including by some in the government.

Tau eyes transformation tax

In a further blow to both the unity of the GNU and South Africa’s economic growth prospects, the minister of trade, industry, and competition, Parks Tau, announced that he wished to implement a R100 billion “transformation” fund.

The proposal envisages that companies should pay 3% of their after-tax profits into this fund, which would be administered by the National Empowerment Fund to channel money to black-owned companies and businesses. While contributions would not be compulsory, Mr Tau said that companies which failed to participate would be barred from doing business with the state.

Second, the proposed fund would require multinational companies to contribute up to a quarter of the value of their South African assets to the proposed fund, unless they took on South African equity partners.

Third, the Competition Act would also be used as a way of forcing companies to pay into the proposed fund by making contributions a precondition for departmental permission for mergers and acquisitions.

Mr Tau’s proposal was met with harsh criticism, including from the Democratic Alliance (DA), the Institute of Race Relations, and Business Unity South Africa, with the DA calling the proposal “madness” in a media release.

The proposed fund is bedevilled with many flaws. It clashes with several sections of the Constitution, notably those relating to non-racialism and revenue. Much like the Expropriation Act, the minister’s proposal cements the notion that the ANC, despite needing to govern with the help of other parties in the GNU, is not committed to serious economic reform. It will also exacerbate tensions within the GNU, especially with parties which are opposed to racial-preferencing policies, such as the DA and the Freedom Front Plus.

GNU under threat as the ANC flexes its muscles

Mr Ramaphosa’s signing of the Expropriation Act reflects a sense of growing ANC confidence and assertiveness. The party is demonstrating that it has taken the measure of its GNU partners — primarily the DA — and concluded that they pose no threat. Accordingly, the ANC believes that it can act as it did when it still enjoyed an electoral majority and continue to pursue its National Democratic Revolution (NDR) to move South Africa towards first socialism, and then communism. At a meeting of the ANC’s National Executive Committee last week, Mr Ramaphosa is reported to have said that the party must implement the policies of the NDR and that those who doubted that it would promote this policy would see that it would stay on this path.

The ANC’s hard line poses a significant threat to the continued existence of the GNU. It demonstrates that it is not acting in good faith in cooperating with the other nine parties of the government but is willing to ride rough-shod over their interests. If it continues, the sense of optimism that greeted the formation of the GNU will evaporate in short order. There is a strong prospect that the DA will exit the GNU before the end of 2026. A weakening GNU, whether or not it includes the DA, will be met by a weakening Rand and rising bond yields as the country’s risk premium goes up. In the medium to long term, South Africa’s ability to attract investment will suffer and its economic development will stagnate and regress.

Trump comes out swinging

Following his inauguration as president of the United States (US) on 20 January, Donald Trump signed more executive orders on his first day in office than any of his predecessors: twenty-six. One of the twenty-six reversed sixty-seven of his immediate predecessor Joe Biden’s executive orders. A further four executive orders were signed on 23 January.

The executive orders ranged across a vast array of topics, from postponing a ban on TikTok, to trade policy, border security, birthright citizenship, and much else besides. Investors, markets, and US allies as well as its adversaries would have been unsure of where to look and where to focus their energies. This will have been Mr Trump’s intention: to keep third parties off-balance and position his administration at the centre of attention.

Some noteworthy executive orders include ones suspending US participation in the Global Tax Deal, an initiative aimed at setting a minimum corporate tax rate globally; withdrawing the US from the Paris climate agreement and blocking the transfer of funds committed to the International Climate Finance Plan; easing fossil fuel extraction in Alaska; ordering departments and agencies of the executive branch to eliminate diversity, equity and inclusion programmes within 60 days; requiring that the US government recognise only two genders, male and female, on all forms and official documents and communications; establishing a Department of Government Efficiency headed by Elon Musk; withdrawing the US from the World Health Organisation and stopping to fund it; pausing all US foreign development aid pending a review; and granting full pardons to hundreds of persons prosecuted and in some cases convicted for their roles in the 6 January 2021 attack on the US Capitol.

China has, for now, been spared Mr Trump’s ire. In a Fox News interview, he said: “We have one very big power over China, and that’s tariffs, and they don’t want them. And I’d rather not have to use it. But it’s a tremendous power over China.” This apparent delay of action is likely to be Mr Trump’s attempt to keep Chinese president Xi Jinping guessing as to when he will ratchet up tariffs on Chinese imports to the US.

Of Mr Trump’s executive and cabinet nominations, Secretary of State Marco Rubio, Secretary of Defence Pete Hegseth, Central Intelligence Agency Director John Ratcliffe, and Secretary of Homeland Security Kristi Noem have been confirmed.

Mr Trump campaigned on the message that he would “get things done” and “bring change to Washington” with the aim of making the US safe, secure, and prosperous. The first week of his second tilt at the presidency indicates he aims to deliver on this promise. US allies, adversaries, and self-styled “neutral” countries such as South Africa will be kept on their toes as they find themselves dealing with a far more assertive United States that is less indulgent of those opposing its core interests.

In case you missed it: we analysed the implications of Donald Trump’s “America First Trade Policy” executive order in a recent client note: “Early Trump signal for US-SA trade”. Contact our team in case you did not receive your copy.