SA’s reputation takes a knock

26 May 2025 — Was President Cyril Ramaphosa’s Washington trip a success? Could Starlink come to SA? Does Budget 3.0 kick fiscal responsibility down the road? Is the GNU serious about fixing Transnet? Will the US government default on its debt?

SA’s reputation takes a knock

President Cyril Ramaphosa’s meeting with United States (US) President Donald Trump last week laid bare the shortcomings of the South African government’s policy and geopolitical positioning choices of the last fifteen years. South Africa’s persistently low growth rate and high crime rates have placed the country and government in a weak position, during a time of significant trade and geopolitical upheaval.

In a raucous meeting at an Oval Office crammed with journalists and hangers-on of the two presidents, there was little opportunity for a conversation to unfold between Mr Ramaphosa and Mr Trump. Mr Ramaphosa’s delegation included several ministers, a billionaire and a trade union leader. Prominent South African golfers Ernie Els and Retief Goosen also had speaking roles, having apparently been invited to attend by Mr Trump.

Mr Trump appeared fixated on farm murders and expropriations, returning to this question multiple times and even subjecting Mr Ramaphosa to a video recording of South African politicians leading chants calling for the killing of farmers. The South African delegation’s strongest defence against claims of “white genocide” appeared to be that while it was true that white farmers were being killed, black South Africans were subjected to far worse.

Such acknowledgments of South Africa’s weakness were accompanied with pleas for US assistance. The performance of the South Africans did not altogether inspire confidence in South Africa as an investment destination, as a country of promise or even one that could demonstrate competence and a plan of how to get out of its current sorry state. Other known points of concern of the Trump administration, such as South Africa’s friendliness with Iran and hostility towards Israel, or its predilection for race-based laws, received short shrift if they were mentioned at all.

Although Mr Ramaphosa tried to discuss mutually beneficial trade arrangements as well as expressing his hope that Mr Trump would attend the G20 summit in South Africa in November, Mr Trump was non-committal on both issues. The South African delegation’s comments appeared ill-prepared and only weakly coordinated. Their interventions will not have served to secure a favourable view of the US towards South Africa.

If there was anything positive to take away, it might be this: that the difficulties of the conversations between Messrs Ramaphosa and Trump, as well as their governmental and non-governmental colleagues, could lend impetus towards meaningful reform, higher growth rates, and improved quality of life. But this would require a serious ideological and governance shift from the African National Congress especially.

Could Starlink come to SA?

Late last week, “as a mechanism to accelerate broadband access”, the communications minister, Solly Malatsi, gazetted changes to ICT sector regulations that would allow for equity equivalent investment programmes. Provided these amendments pass through all necessary legislative steps, this will open room for a company such as Starlink to start operating in South Africa.

However, even if the race-based BEE equity requirement is replaced with a different demand, it still means a disincentive to investment because the investor will have to spend money on non-core activities. It would be better to dispose of both BEE equity requirements and equity equivalent requirements, and let investors invest their desperately needed hard currency on South Africa without hindrance.

Budget 3.0: if at first you don’t succeed, try, try again

After years of drawing more from taxpayers and kicking fiscal responsibility down the road, National Treasury was forced to confront the near empty revenue taps and admit that inefficient spending cannot be ignored. Yet, even after an increase in value-added tax (VAT) was removed from the equation, consolidated government expenditure is set to increase at an annual rate of 5.4%, from R2.4 trillion in 2024/25 to R2.8 trillion in 2027/28. Against this, the Treasury is anticipating revenue of R2.2 trillion, or 28% of GDP, leaving a deficit of R377.9 billion or 4.8% of GDP that it will have to make up by borrowing money. Those new loans will be added to the debt pile, which will rise to 77.4% of GDP. As of 2025, debt service costs amount to R1.2 billion per day.

With VAT remaining unchanged at 15%, Treasury put forward alternative tax measures to raise R18 billion in 2025/26 and will propose R20 billion worth of tax measures in the 2026 Budget. For 2025/26, this package includes the first inflationary increase in the fuel levy in three years: a 15 cent increase per litre for diesel and 16 cents for petrol, as well as above-inflation increases in excise duties on alcohol and tobacco products, and no inflation adjustments to tax brackets and medical tax credits.

The Treasury has trimmed its growth forecasts to reflect softer global growth conditions, trade frictions, and lower projected investment. GDP is now projected at 1.4% in 2025 (down from 1.9% in March), 1.6% in 2026 (1.7%) and 1.8% in 2027 (1.9%). Given the absence of meaningful reform domestically, our call is that actual growth is likely to undershoot these projections and instead remain closer to 1%.

Is the GNU serious about Transnet?

Ailing port and rail logistics continue to serve as a major binding constraint on economic growth. Two weeks ago, ratings agency Moody’s warned that Transnet’s financial runway to fund operations and debt servicing would only last another three months because of “growing concern over the company’s unsustainable capital structure and its deteriorating liquidity”.

Despite severe concerns over Transnet’s financial sustainability, the government continues to support it, with the transport minister, Barbara Creecy, announcing last week that it would be afforded a R51 billion guarantee facility. At present Transnet has more than R135 billion worth of debt on its balance sheet.

Although the state has been talking about concessioning rail corridors for private-sector investment and operations, both the government and Transnet are not moving fast enough. Despite a marginal improvement in tonnage moved on rail over the last year, Transnet is not producing enough revenue to service its debt, maintain and expand infrastructure, and cover operational costs. To become truly financially independent, and to pose less of an existential, concentrated risk to the economy, Transnet needs to reconfigure its capital structure, even if this requires drastically scaling down the company itself. Neither more direct bailouts nor debt guarantees will fix this structural debt problem.

Transnet is long overdue for a financial overhaul. Failing this, it runs a serious risk of using the income generated from the current operational turnaround only to service its growing debt burden.

Elevated US debt concerns

South Africa is not the only country troubled by rising debt and debt service costs. The debt-to-GDP ratio in the US will increase to 118% by 2035, should current expenditure patterns continue. Faith in the US government’s ability to service this debt has come under increasing pressure through the first half of this year.

Last week, yields on longer-dated US Treasury bonds rose even further. A higher yield indicates increased risk, with markets and investors requiring higher returns for taking on greater risk. From 4.4% on 4 April, the yield on the US 20 Year Treasury bond increased steadily to a high of 5.1% on 21 May. Meanwhile, the yield on the US 30 Year Treasury bond was 5.09% on 21 May, before declining slightly below the 5% over subsequent days. The 5% point was last achieved in 2023, with the highest before that being 5.18% in 2007. Higher yields on bonds result in higher borrowing costs because a higher yield signals a higher risk premium.

With Republicans seeking to pass the “One Big Beautiful Bill Act” Americans can look forward to a range of tax cuts. However, if the tax cuts are not paired with substantive spending cuts, the US government’s deficit will widen further. Adding to the mix of a deteriorating US debt profile, on 16 May Moody’s dropped its rating of US credit from Aaa (the highest possible) to Aa1. Moody’s cited widening federal deficits, “reaching nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation”.

Should further credit rating downgrades occur, the US government would be saddled with an ever-higher risk premium, coupled with higher repayment demands, and elevated debt service costs. A theme of a declining faith in US government debt, and less willingness to buy it, might become entrenched through the second half of 2025.