The Investor April 2025
ShareFinder’s prediction for Wall Street for the next 3 months (top) and the JSE (bottom).
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New tax shock looms
By Richard Cluver
In last month’s issue of The Investor I focussed on the plight of South Africa’s Top One Percent, the asset-rich income-poor who number a total of 354 340 South Africans and represent just 0.56 percent of our 63.2-million population. But I was unfairly looking only at the entry-level one percenters!
Though the average wealth of this group is currently set at R11.6-million, in order to enter this wealthiest of all South African groupings one needs a surprisingly small sum of money; just R4.2-million. The graphic on the right courtesy of Businesstech explains the numerical spread so you can understand that 354 340 is one percent of the country’s 35.4-million adult population who between them own 36.4 percent of South Africa’s total wealth.
This is the group which radical politicians regularly argue should bear the bulk of the country’s taxes. And indeed they already do! Actually they have been bled to death!
When one adds items like the latest hot potato, municipal rates, to their personal income taxes, VAT on their domestic purchases and – the big one in South Africa where the collapse of most government services that are taken as normal in the rest of the world has forced even entry-level one percenters to pay for items like medicare and household security, ALL our one percenters are in big trouble right now!
As I illustrated last month, of that R4.2-million total asset, the entry-level one percenter on average owns a home worth around R3.5-million. Strip that asset away and all he has is free capital of R700 000. That, together with an average pension of R10 000 a month, is likely to give him a monthly pre-tax income of R16 142.50 or R193 710 a year.
Though his actual Personal Tax burden, after an abatement of R165,689 if he is over 75 years old, is likely to be only about R5 044 a year and his contribution to VAT some R9 000 a year, given the condition of State medicine it is inconceivable that he will not be a member of a Medical Aid Fund costing him around R113 400 a year. Given also the failure of the police, few will not be spending around R18 000 a year on an armed response service.
Add all of that up and it might be argued that his ‘real’ tax burden is R145 444 annually or 75 percent of his income.
Now some might argue that this calculation is not strictly fair since the AVERAGE South African Top One Percenter actually has assets of around R11.6-million. Given that such people might on average have indulged themselves with say a pair of late-model German cars for husband and wife and a slightly less modest home worth, in suburbs like Cape Town’s Rondebosch or Durban’s Kloof where the average three-bedrooms-and-a-study homes would range between R5.5-million and R7.8-million, stripping away these items leaves us with an assumed free investible capital of around R4.45-million.
Assuming that half of that amount was invested in SA long bonds at a yield of ten percent and half in JSE shares at an average yield of 3.32 percent and that he enjoys an average pension/annuity of R10 000 a month, one might conclude an average annual income of around R416 200.
Compared with the median South African household income of R204 359 a year, our top one percenter is clearly wealthy, but on a global scale he is actually quite poor! On a planet-wide basis the Top One percent household income is now $407 500 or R7.596-million. So our South African top one percenter’s income is only 2.7 percent of the global average. Actually it is barely more than twice the planetary average household income of R181 520 a year.
So let’s consider how the top one percent are taxed in South Africa. Assuming our average top one percenter is over 70, he will have a tax abatement of R165, 689. On the balance, his dividend and interest income will attract tax of R46 165, municipal rates on his home will cost R105 948 and he will contribute around R29 000 on VAT which suggests that in direct State and municipal taxes he will pay R181 113. Assuming also the indirect taxation of medical aid membership and home security adding R131 400, one might assume his tax and indirect tax burden will add up to R312 513 annually or, if you like, once again a real tax burden of the same 75 percent that is paid by his entry-level colleague.
Our average top one percenter is thus left with just R103 687 annually or R8 640 monthly for everything else! And I have not here dealt with the hidden tax of South Africa’s very high interest rate structure which is a direct result of the ANC Government’s reckless borrowing which makes foreign investors reluctant to lend to us for fear that South Africa might default on payments. The impact upon mortgages and hire-purchase agreements of this rate structure imposes an intolerable burden upon young families and, together with our stagnant economy and the political insecurity of living in South Africa, represents the primary reason why most retirees have children living overseas and must consequently make financial provision for regular overseas trips in order to ‘keep up with the grandchildren.’…..yet another tax perhaps!
Given that the nations with the highest income tax rates in the world are Japan with 55.95 percent, Denmark with 55.9 percent and Iceland with 46.28, it is probably fair to argue that actually South Africans are by far the most heavily taxed people in the world.
While Denmark is known for being an expensive country in which its residents pay a high rate of income tax, it is also known as being the home of some of the world’s happiest people. According to the UN’s annual World Happiness Report, Denmark is always among the top spots of the world’s happiest places.
So why are the people who get so heavily taxed the world’s most happy? It’s because along with their high taxes comes the bonus of freedom from worry about the provision of many of life’s challenges! For a start, every Dane qualifies for a FREE state pension of $783 a month (R14 877). Additionally, not only is ALL education free, each university student is also given around $900 per month from the State (R17 100).
All medicare is free and those aged over 65 who have been widowed are regularly assessed to see if they require extra help, and those aged over 80 are entitled to home visits.
New parents can enjoy up to 52 weeks of paid leave when they have a child. The mother is entitled to four weeks prior to the birth, and 14 weeks afterwards. The father is entitled to two weeks following the birth, and then an additional 32 weeks can be split between both parents.
The list goes on and on. Similar benefits are, moreover, available in every high-tax country….except in South Africa!
So it is understandable why Finance Minister Enoch Godongwana’s proposed 13.33 percent VAT tax hike caused such an uproar recently and why the soaring costs of municipal rates and utility services in return for almost zero in actual services is likely to become the next national crisis.
It’s budget season for South Africa’s municipalities and in cities like Durban the uproar over proposed rates and utilities hikes is building towards a crisis crescendo with many ratepayers calling for a clean sweep of all municipal councilors at the coming election. Small wonder then that the latest IRR poll published this month has seen support for the ANC falling for the first time ever to below that of the DA. The poll suggests that ANC support has fallen to 29.7 percent of the vote against the DA’s 30.3 percent.
What our city fathers need to understand is that in an era when South Africa’s economy has been growing at 0.4 percent annually – note the IMF graph on the right – it is quite impossible for ratepayers to continue funding rates and utility increases which have grown at a compound annual average of 7.07 percent annually over the past decade. That, in simple terms implies that the cost of living in Durban has been growing 17.7 times faster than ratepayers’ incomes have been rising.
Illustratively, a householder whose combined rates and utilities bill totalled R6 582 in April 2015 is today being billed R13 928. On top of that he now faces a further 12.72 percent electricity tariff increase in the coming year, a 15 percent water increase, a 13 percent sanitation increase, a 9.9 percent refuse collection increase and a 6.5 percent property rates increase. Small wonder public anger is soaring!
Compounding the problem is the fact that a significant portion of the items in the shopping baskets of the higher income groupings are foreign-exchange sensitive and thus the steady decline of the value of the Rand in recent years also seriously affects buying power. My second graph illustrates how the rand has lost value at a compound annual rate of 5.6 percent annually: just another tax upon our hapless citizenry!
Ratepayers are being left with only one option, to sell up and move to a smaller home and here they face yet another problem. Everyone is being forced to sell and so prices have been falling steadily for the past decade at a compound annual rate of minus 1.24 percent as illustrated by my final graph.
That might not sound like much but in ten years it has knocked 12 percent off the value of the average home while the costs of rates and utilities have risen by compound 7.07 percent annually.
Clearly our politicians have a very dim grasp of economics!
Capital efficiency –the source of greatness!
By Brian Kantor
What makes a country great? In economic terms, it’s all about the efficient use of capital. We look at the lessons for South Africa from the US after the 1980s.
US President Donald Trump’s “Liberation Day” tariffs have shaken the world’s markets. Whether this leading tool in his toolbox achieves his goal to “Make America Great Again” or turns out to be disastrous is the topic for an upcoming discussion. In this article, we look at what made the US the world’s foremost economy and what lessons there are for countries like South Africa.
America has not always been great. In the 1960s and early 1970s, it engaged in a lengthy and ultimately fruitless war in Vietnam. Conscripting its young men for this costly war and the long overdue attempts to address racism divided the nation in a most ugly way. Also in the 1970s, inflation took off and rose to over 13% by December 1979.
And then came an impressive comeback. Inflation came under control in the 1980s after a short, sharp recession and the US won the Cold War under the leadership of Ronald Reagan. And something else, very important for the economy, was also underway. The revolution in corporate finance, in theory and practice, came to transform how US business would direct itself and improve its performance. Increasingly managers acted in the interest of the providers of their all-important capital, their shareholders. Return on capital became the focus of management’s attention. This was a discipline that was forced on managers by increasingly active investors, backed by access to credit made available to them on an unprecedented scale.
Shareholders did not need business managers to diversify on their behalf. Conglomeration became a dirty word. The share market could do it for them and big business became more specialised, efficient and profitable in the true economic sense – earning more than the opportunity cost of the capital they employed. The bar was being raised for US businesses and their CEOs and they responded accordingly, by improving the efficiency of their operations, to the benefit of workers, savers and investors.
The US equity markets tell the story of improved efficiency and enormous amounts of additional wealth creation. Donald Chew, editor of the Journal of Applied Finance, provides an incisive overview in his book The Making of Modern Corporate Finance (Columbia University Press, 2025). The improvement in the value of US equities and the strength of household balance sheets after 1985 has been nothing less than extraordinary. The value of US households’ investments in equities, adjusted for inflation, was stagnant between 1960 and 1985. Put another way, the share market was not a source of real wealth creation for about a quarter of a century. Thereafter the market value of US equities held by households took off and is now worth about 18 times more in real terms than it was in 1985. Buoyed increasingly by the gains in the market value of these equities, the ratio of household wealth after debts to household incomes has increased from 4.8 times in 1987 to the current over seven times, even as disposable incomes have risen.
Personal disposable incomes grew from $3.65 trillion in 1988 to 21.89 trillion by the end of 2024, an average compound growth rate of 4.8% a year over the 37 years. The net wealth of US households grew from $18.52 trillion in 1988 to $163.5 trillion by 2024, at a higher average compound growth rate of 5.9% a year over the same period, helped largely by the increased value of US businesses.
These wealth gains have been especially large after the Covid-19 pandemic. Between 2020 and 2024, personal incomes after taxes, assisted by Covid-19 relief, grew from $14 trillion to $22 trillion, or by 57%. The net worth of US households grew much faster and extraordinarily over the same period, from $42.2 trillion in 2020 to $163.5 trillion, or by 287%. These wealth effects have dominated the income effects on spending.
Charting the explosion of wealth in US equities
The charts below show the trends and how gains in the equity market came to dominate household balance sheets.
Figure 1: Ratio of household wealth to personal disposable incomes, 1987 to 2024
Source: Federal Reserve Bank of St. Louis (Fred), Investec Wealth & Investment International, 3 April 2025
Figure 2: US holdings of equities, adjusted for inflation (1960 = 100)
Federal Reserve Bank of St. Louis (Fred), Investec Wealth & Investment International, 3 April 2025
The value of equities in household portfolios has come to dominate household balance sheets. A fuller illustration of the trends in household balance sheets after 1990 is also shown below.
Figure 3: US household holdings of equities and financial assets, and GDP (1960 = 100) Source: Federal Reserve Bank of St. Louis (Fred), Investec Wealth & Investment International, 3 April 2025
Figure 4: US household balance sheet by category (1987 = 100)
Source: Federal Reserve Bank of St. Louis (Fred), Investec Wealth & Investment International, 3 April 2025
Figure 5: Value of equities held by households and the S&P 500 index (1960 = 100)
Source: Federal Reserve Bank of St. Louis (Fred), Investec Wealth & Investment International, 3 April 20
Figure 6: Annual increases in household wealth and incomes in US dollars (2020 to 2025)
Source: Federal Reserve Bank of St. Louis (Fred), Investec Wealth & Investment International, 3 April 2025
South Africa – a case of capital wasted
Closer to home, South African business is also under pressure from shareholders to generate economic profits for their shareholders, though the SA economy has offered fewer opportunities for growing businesses than the US economy. An important reason for this failure to grow can be found in the operating performance of the state-owned enterprises (SOEs) and the terrible waste of the capital that taxpayers have been forced to supply them with. Eskom, the state-owned electricity utility, employs as much as R700bn of capital in its operations. The return on this capital is at best about 1% a year. If Eskom were to cover its cost of debt capital (about 11% a year) it would need to generate and additional R70bn each year from its operations. Or, to put it another way, Eskom has been wasting about R70bn of taxpayers’ potential income every year. Transnet, the state-owned transport company, employing about R312bn worth of capital, at an 11% a year charge is similarly wasteful. It would need about R31bn of extra profit annually to cover its costs of capital. These numbers show the sacrifice taxpayers have made in the form of potential income, had capital been used efficiently.
South Africa needs a revolution in its use of capital. It needs a focus on the return on capital, and on the interests of its shareholders in the SOEs. Among the most abused shareholders anywhere are South African taxpayers. The solution is obvious: taxpayers should not be throwing potentially valuable capital after bad. They should demand that the inefficient operations of the SOEs be transferred to private operators, who need to cover their costs of capital to survive. The state can exchange assets or additional capital for a stake in more efficient businesses. A good example of the success of this approach is Temasek, the multinational investment business owned by the Singapore government. If we get it right, then the South African government can look forward to taxing their profits rather than covering their further losses.
*Co-written by David Holland, co-founder of Fractal Value Advisors and previously a senior adviser at Credit Suisse. He has long advised Investec Wealth & Investment on applying return on capital metrics using the Holt System.
Tariff-Induced Paralysis
By John Mauldin
In some kinds of surgery it is necessary to keep the patient extremely still because even small, involuntary movements can cause damage. Anesthesiologists administer “paralytic” drugs so the surgeons can do their work safely. Thus, a condition we would normally dread actually helps restore us to health.
Tariffs can have a similar effect on the economic body if applied judiciously. Like all taxes, they reduce activity and discourage goods from moving efficiently. This can be desirable in some limited circumstances (like emergencies or national security). However, across-the-board tariffs can have a much more serious effect.
This more or less describes where we are now. President Trump’s tariffs are inducing paralysis in significant parts of the economy. The harm grows more evident each day. The plan, at least as publicly revealed, is to negotiate better trading terms with other countries and then let the patient move again. President Trump said in a wide-ranging April 25 Time magazine interview:
TM: I’m just curious, why don’t you announce these deals that you’ve solidified?
President: I would say, over the next three to four weeks, and we’re finished, by the way.
TM: You’re finished?
President Trump: We’ll be finished.
Let’s hope that’s true, because otherwise the data shows that we could very well be in recession. Let me hasten to say recessions, while painful, aren’t the end of the world. We will recover if one happens.
That being said, let me emphasize something: Almost everyone agrees the tariffs will cause short-term harm. The president himself has said a recession is possible. Many of my reader comments say this is just something we have to do—go through some temporary pain to reverse an intolerable problem. I have yet to hear any serious person say we can impose this kind of a tariff regime and not have any adverse consequences. The difference is in degree—how bad the pain will be and how long it will persist before the desired benefits appear.
I don’t believe the current level of tariffs will be maintained. I think most of them will be walked back, and the country will adapt to, say, a 10% tariff here and there. The Chinese (and a few other countries) tariffs are different in that they will have a more significant impact.
However, unless the tariffs as proposed are significantly reduced, the pain will be severe and will continue for longer than a year, easily outweighing any benefits. I say that as someone who shares many of the president’s goals. I want to boost US manufacturing and put global trade on a more level basis. I don’t like depending on China or anyone else for critical goods. I want to have a rational immigration policy. I particularly want to see the regulations that are costing US businesses over $1 trillion a year reduced.
We need solutions. These tariffs aren’t going to achieve those other goals, and the attempt is going to cause significant economic disruption. If nothing changes, I think the US will be indisputably in recession within a few months, if we are not already in one. We will explore the data as to why I think that is true.
The good news: There are signs the White House is starting to see this. Both President Trump and Treasury Secretary Bessent said this week the 100%+ rates on Chinese imports are unsustainable and need to come down. There are signs the Chinese want to talk. Even though my best sources tell me there is no conversation between China and the US on tariffs today. It doesn’t appear that even interns are talking. Maybe a solution is brewing but if so, it needs to happen sooner rather than later.
Today I will show you some of the problems that are developing now. We don’t have 90 days to wait.
If you want to know what kind of pain the tariffs are causing American businesses, all you have to do is ask them. Corporate leaders have a lot to say—and they’re saying it in earnings calls, media interviews, and survey responses.
My friend Peter Boockvar does the unenviable work of listening to these comments, and he’s getting an earful lately.
“With respect to trade, from everything I’m hearing and reading, we are experiencing a Covid 19-type shutdown of global supply chains in response to the tariffs, particularly on China, except we don’t have to wear masks nor social distance. Lori Ann LaRocco wrote on CNBC.com last Wednesday that ‘Cancellations of Chinese freight ships begin as bookings plummet.’ In the piece, ‘A total of 80 blank, or canceled, sailings out of China have been recorded by freight company HLS Group. It wrote in a recent note to clients that with the trade war between China and the US leading to a demand plummet, carriers have started to suspend or adjust transpacific services.’
“A real mess, I say, and I fear the large number of small businesses that are not going to make it through this. I’d argue that the extreme tariffs on China, and those on us, are going to hurt the US more than China. And I’ll say again, expect empty shelves of certain things in the next 30–60 days.”
None of this should surprise us. When your input costs suddenly double or more, the prudent move is to slam on the brakes. This shows up in shipping traffic. Fewer ships mean fewer American port, truck, and railroad jobs.
Craig Fuller at FreightWaves is somebody we should all pay attention to when it comes to freight tracking and shipping. Here is his tweet Thursday:
Source: Craig Fuller
David Bahnsen writes this week:
“One of the issues most missed by those trying to think about the impact of tariffs on US interests is the fact that so many of our imports are not finished goods, but intermediate goods used by US manufacturers in their production of finished goods. Fully 37% of all imports from China are intermediate products, so the US manufacturer that we are told tariffs are supposed to be helping is paying more for their own inputs. 40% of all world imports in the US are things our own domestic manufacturers are buying to finish the manufacturing of a good.
“My frequent line is that even if tariffs helped domestic manufacturers, it comes at a cost to US exporters and US consumers, who are also US economic actors. But the first part of that sentence—the concession itself—is also patently false. The very domestic manufacturers we are talking about are, almost all the time, also the very importers, incurring the additional cost.”
According to the Small Business Administration, most US manufacturing is done by small businesses, which collectively hire 4.8 million workers. David’s statistics show that 40% of those small business manufacturing companies need imported inputs from either China or somewhere else to make their product. Can they change to another supplier? In some cases, sure, though often at higher prices. But many products simply can’t be manufactured in the United States for logistical and economic reasons. Many small manufacturing businesses use machines that come from Europe and other parts of the world. They are simply not made in the US. All those businesses are in serious trouble.
President Trump can exempt Apple iPhones and other technology because they are big and visible. Those small manufacturing companies? They have no visibility whatsoever and they are on their own.
Peter went on to quote from the earnings call of Manpower Group (MAN), the world’s third-largest staffing firm.
“We began the year with a sense of optimism for economic growth in the US particularly and a greater acknowledgement among EU policymakers that Europe needed to do more to remain competitive. The last several weeks have impacted this sense of confidence and the mood is significantly more uncertain and cautious as a result of recent trade policy announcements in the US with ripple effects far beyond. At this stage, most of our clients are adopting a wait-and-see approach and it is difficult to provide any concrete assessment of how significantly this might affect demand from our customers in our major markets around the world.”
“Wait and see” is another way of saying “We’re paralyzed.” Major business decisions aren’t about next week or next month. Building a new facility, expanding your production capacity, hiring a key employee—these are multi-year commitments. You don’t make them unless you have good reasons to expect favourable conditions. Right now, no one knows what imported materials, goods, and components will cost next week, much less next year.
The result is charts like this one. Note the gray line, a measure of capital spending intentions.
Source: Renaissance Macro Research
CapEx intentions are now down to a level last seen in the COVID recession, and before that in the Great Financial Crisis. In most cases this is exactly the right call. Making big commitments when you have no idea what your cost structure and sales outlook will be, and no way to hedge them, would be foolish.
The result of this, unfortunately, will be paralysis. Companies won’t buy new equipment, hire new people, build new facilities, etc. Other companies that were expecting to get revenue from that spending will instead get zero. (Yes, I know AI is an exception.) Once this process gets going, recession is almost inevitable. And the process is well underway.
We saw above that freight out of LA is collapsing. Data shows there are literally hundreds of container ships and tens of thousands of TEUs that have been kept at sea and can’t enter port, and most of them are being routed to Mexico and Canada, where they sit in warehouses or on docks. Businesses that bought goods that were shipped before April 2 will have to pay the tariff if they accept the goods. If they prepaid they still owe the tariffs. That means whatever they bought from China is going to cost 150-245% more? That item literally can’t come out of the port until the tariff has been paid. Decisions, decisions.
Molson Hart makes another very good point:
“The White House has put itself and the country in a bad situation but doesn’t realize it yet. Around April 10th China to USA trade shut down. It takes ~30 days for containers to go from China to LA. 45 to Houston by sea, 45 to Chicago by train. 55 to New York by sea.
“That means that there are no economic effects of what was done on April 10th until about May 10th. Around that time (it’s already started to happen) trucking work is going to dry up. Warehouses will start doing layoffs because no labour is needed to unload containers and some products will be out of stock, reducing the need for shipping labour.
“All this will start in the Los Angeles area. After about 2 weeks, it’ll start hitting Chicago and Houston. Let’s say the White House, after 3 weeks, changes its mind, on May 31st. ‘This isn’t working out like we thought it would. Tariffs back to 0.’ Let’s say China says ‘bygones be bygones, we’ll go back to how things were.’ Let’s say every factory in China that got screwed by their orders being cancelled says the same thing ‘no problem, we’ll make and ship.’
“The problem is, even under the most favourable conditions of China and the factories restarting economic ties as though nothing happened, it will be at least another 30 days before economic activity is revived. And that’s just in LA. In Chicago/Houston, you’ll need to wait another 45 days.”
He goes on but you get the point. Chinese manufacturing starts back up and it takes several weeks to get the product into the container to ship. 40% of US manufacturers need that product in order to start their manufacturing process. Which takes time. We would now be well into the second quarter—and the economic slowdown that implies.
One objection to this conclusion is that we’re looking at “soft data,” i.e., what people are subjectively saying vs. their concrete actions. That’s fair; we just went through a period when persistently negative sentiment barely dented employment and GDP growth. Maybe the tariff damage is all talk?
Joe Wiesenthal had a good response to this in his Bloomberg letter.
“In a note to clients yesterday, Neil Dutta of Renaissance Macro Research says that the recession is already here, and it’s only a matter of time before it really starts showing up in hard economic activity. He writes:
‘To summarize, recent hard data in the US, mostly for March, are overstating activity and it’s worth noting that conditions were not especially strong to begin with. The collapse across a range of survey-based measures of activity suggest that actual activity will continue to slow down, in a potentially abrupt manner. Recession may already be here.’
“To my mind, even if you had zero access to the survey data, there would be good reasons to think this is an economy heading into recession. For one thing, Trump just unilaterally instituted a massive tax hike (and there are possibilities of more tax hikes on the way). This is fiscal tightening. It does not look like the Federal Reserve is about to engage in rapid easing in any way that can offset that fiscal tightening. Financial conditions have tightened considerably. Stocks are lower. Rates are higher. Spreads are higher.
“So again, even if you didn’t have access to any sentiment data, and were just looking at actual things that have happened, you would have good reason to worry, to think that US economic growth would go negative.
“Then layer in all of the uncertainty, and physical disruption of the distribution of goods, and the dour outlook across every sector, and things really start to look bleak.
“Now as for sentiment, we got a fresh raft of horrible surveys today from the Philadelphia and Richmond Fed branches. And I do want to pull out one interesting chart.
“The chart shows what non-manufacturing (services) businesses in the Philly Fed’s region expect when it comes to pricing. As you can see, companies are seeing a big cost in prices paid (what they paid for goods) while seeing no similar uptick in prices received (what they charge for goods).
Source: Bloomberg
“Costs going up without pricing power going up? That’s a recipe for getting your profit margins eaten alive if nothing changes. (Tracy, our Odd Lots in-house MS Paint wizard, has kindly drawn monster jaws onto the chart for me).
“These are the jaws coming for your margins.”
Joe said elsewhere we are in a slower-moving version of the COVID economic crisis, but without the accompanying stimulus programs. I have to say this fits. The effect on supply chains will be similar for sure. Employment won’t collapse like it did in 2020, but we will see an impact.
Frankly, I really don’t see how we avoid recession at this point. We were likely already approaching one and the tariff drama is only raising the odds of a second-quarter recession. Torsten Sløk recently shared this handy graphic breaking down all the economic headwinds.
Source: Torsten Sløk
Tariffs are really two different issues. The higher rates are problematic in themselves, especially on trade with China which is effectively frozen. Businesses can adapt, though. Never underestimate the creativity of entrepreneurs. They will find clever solutions in even the darkest times.
But the uncertainty makes adaptation far more difficult. Solving a problem when the problem itself can morph into something entirely different at any moment is tough. Smart people will look at the situation and decide the best response is “wait.” That’s individually rational, but it adds up to a paralyzed economy. It’s somewhat akin to the Paradox of Savings. What is good for the individual may not be good for the economy as a whole.
Let’s say the president makes deals with some countries before his 90-day postponement period ends in July. Where does that leave all this?
It will certainly help but still leaves a problem. None of those deals will be legally binding (a link worth reading for those interested in the historical and legal issues of tariffs) on the US side unless Congress ratifies them. That would be a long process at best, and special interests could easily derail it. Particularly if a recession is happening in the background.
Many governments will quickly cut a deal. But some, knowing this technical side, will be reluctant to commit themselves to the kind of concessions Trump wants.
The previous trade arrangement wasn’t great. Replacing it with a global patchwork of country-specific deals that everyone knows will change again as soon as Trump leaves office (if not before) won’t provide the certainty businesses need. Unless of course, Congress ratifies those tariffs.
To avoid that fate, we need Trump to a) stop listening to Peter Navarro and b) start over with a better plan, which can be seen as part of ongoing negotiations. It can easily be spun as being part of the plan all along. Part of the Art of the Deal. I know some people say he would never do that. I disagree. He is a supremely flexible survivor. Changing deals that are not working is his superpower. Now would be a great time to do it.
Then again, in that Time interview Trump doubled down on tariffs. Quoting (emphasis mine):
“TM: If we still have high tariffs, whether it’s 20% or 30% or 50%, on foreign imports a year from now, will you consider that a victory?
“President Trump: Total victory.”
I will admit I have a different idea of what total victory is.
Then again, I am probably wrong.
Budget 2025
The numbers in the Budget vote 60 days that changed the world
By JP Landman
The vote on the Fiscal Framework was 194 for and 182 against, thus a slim majority of only 12. However, 24 members of Parliament (MPs) did not vote. A lot of uMkhonto weSizwe (MK) and Economic Freedom Fighters (EFF) members were absent, and some MPs who spoke against the Budget left the chamber before the vote.
Some calculate that if everyone who had spoken against the budget voted, the ‘No’ votes would have been 195! As Wellington had reputedly said after the battle of Waterloo, ‘It was a damn close-run thing’.
The Democratic Alliance (DA) and EFF have both indicated they want to challenge the adoption of the Fiscal Framework in the High Court, and the DA proceeded to file papers with the court. There will probably be appeals and cross-appeals, and winding through the courts may take a while.
Approval processes
There are still several rounds of approval awaiting the Budget, and the slimness of the margin on the Fiscal Framework vote will make it a closely watched process. Parliament has 4 approvals to make on the budget, which are as follows:
The first is the approval of the Fiscal Framework, which has been done. It means that revenue, expenditure, and borrowing limits for 2025 have been set. All further changes must comply with the approved framework. Action SA’s recommendations that R31 billion must be found within 30 days to avoid the VAT increase and grant inflation relief to taxpayers does not change the revenue amount in the framework. Whether the money is found or not, the revenue remains as is.
Within 35 working days of the framework approval, revenue division between national, provincial, and local governments must be approved. Counting from 2 April, the due date is then Tuesday 27 May. If Parliament wants to give more money to a province (say for drought relief or flood damage), it has to take the money from some other sphere of government. Total expenditure must meet the Fiscal Framework.
Within 4 months from the start of the financial year (1 April), the Appropriation Bill, which authorises expenditure, must be approved. The due date is 31 July. Before that, all the different departmental budgets must be approved individually by committee vote. It is the same story: if Parliament wants to change a department’s expenditure, it must take the money from some other department. This avoids the Christmas tree effect in, for example, the United States’s (US) budget process where more and more gifts are hung onto the tree.
Lastly, the Revenue Bills must be approved before Parliament rises for the year. Effectively, the Money Bills work retroactively to the beginning of the tax year, namely 1 March.
The fact that the tax year starts on 1 March and the state’s financial year on 1 April, puts a serious constraint on delaying revenue decisions. For example, if a VAT increase was pencilled in for 1 May and then delayed until 1 July, it will impact the revenue as approved in the Fiscal Framework. The VAT increase will therefore kick in on 1 May. Otherwise, the Fiscal Framework cannot be met.
Likewise, the 35 days in which the Division of Revenue Bill must be passed put a cap on changes that can be made. If the revenue that will be divided between the 3 spheres of government are uncertain, how does one divide the revenue? It is also very unlikely that the tax tables will be changed to compensate taxpayers for inflation (so-called bracket creep).
Will the DA leave the GNU?
At the time of writing, this is uncertain. There are factions in both the African National Congress (ANC) and DA who would prefer a break. It depends on who prevails in which party. It may well be another ‘damn close-run thing’.
At the time of writing, talks between the parties were still going on. A “settlement” will most likely involve that the DA withdraw its court action against the budget, whilst the ANC will likely offer the DA some say in economic matters, like the co-chair of Vulindlela.
The DA’s departure would mean the ANC and supporting parties can command a slim majority in the National Assembly, but it will be a very slim majority.
So What the budget?
Approving the Fiscal Framework was an important decision in the budget approval process. The VAT increase will likely go ahead as well, and personal tax tables will remain as they are.
There are further rounds of approval that the Budget still must go through. Given the slim margin of the first round of voting, the whips from the ANC and supporting parties will have their hands full to ensure a majority is reached. Should the DA persist in not voting for the Budget, further approvals may be ‘a damn close-run thing’.
Tariffs
Trump levied tariffs on friends and foes alike. Some 60 countries that are deemed to have unfairly high tariffs against United States’ goods have been hit with a ‘reciprocal tariff’ ranging up to 50%. South Africa attracted a 30% tariff (some reports indicate 31%). Interestingly, Russia and Belarus are two countries against whom no levies were instituted.
Minerals the United States needs from South Africa will not be hit with tariffs. Iron ore and diamonds will be hit, but copper, zinc, manganese, gold, the platinum group metals, certain chemicals, and wood and nickel products are exempt. Mining commodities make up more than half of all South African exports to the United States, and most of those have been exempted. The other half consists of vehicles, agricultural products, mining equipment, and so on – those will be hit hard.
A White House poster Trump waved around indicated that South Africa has tariffs of 60% against American imports. However, a US agency, the International Trade Administration, has this to say about South African tariffs: ‘South Africa reformed and simplified its tariff structure in 1994. Tariff rates have been reduced from a simple average of more than 20% to an average of 7.1% in 2020. Tariff rates mostly fall within 8 levels ranging from 0 to 30%’ (dated 1 January 2024 and accessed on 3 April 2025).
Professor Johan Fourie from Stellenbosch University analysed trade data and found that there are only 4 categories from a thousand for which South African levies are higher than 60% tariffs on US’s goods. The total value of those imports was $379 000 out of about $6 billion dollars imported from the United States (or 0.0063%).
The White House is as well informed on South African tariffs as it is on land confiscation by the South African government.
African Growth and Opportunity Act
It looks as if these tariffs will replace the African Growth and Opportunity Act (AGOA) arrangements and thus effectively bring AGOA to an end 5 months before its expiry date in August 2025. The previous administration was willing to extend it for 10 years, but Trump was never going to do that as these decisions has proven.
Vehicle exports, in particular, benefited from AGOA, and that gain has now been lost (Ford, BMW, and Mercedes-Benz are all exported from here to the US under AGOA). Likewise for certain agricultural products like citrus, wine and fruit juices.
Impact
The tariffs will no doubt hit SA along with the rest of the world. Its precise impact will only become clear over time, but growth will be slower and jobs will be destroyed. It is only the quantum that is uncertain. We will see in the next weeks how the economists and various researchers adjust their growth forecasts.
The South African government is preparing to table a comprehensive trade and relationship agreement with the US government. Whether the latter would be amenable to such an agreement remains to be seen. I doubt it as Trump has his knife in for SA. Given the issues he is upset about, I do not see scope for concluding a deal.
Diversify
The US is often touted as SA’s second-biggest trading partner, but it must be pointed out that it takes less than 10% of SA’s exports. The East takes 35%, the European Union (EU) and Africa each 25%, the Middle East 4%, and South America and Australasia the rest. SA has already diversified its trade a lot and further diversification will no doubt follow.
So What?
Trump has essentially launched a global trade war against the world. It will hit the US, the world, and SA. It will be bad for everybody. Therefore, whether SA can hit the growth target of 1.8% over the next 3 years remains to be seen. Population growth is 1.33% (labour force growth is 1.4%), and one wants economic growth at a higher rate than that.
Given the matters the Trump administration is upset about, the prospect of concluding a deal with the US is very slim.
SA would have to move on and diversify its exports even more.
