On Wednesday evening, the 21st of May at around 18:45, we all watched as Cyril Ramaphosa took the hot seat in the White House opposite Donald Trump. We all remember the roasting of Volodymyr Zelenskyy by President Trump and JD Vance not so long ago and expected something similar to happen to our president. The lights were dimmed and videos of Julius Malema singing “Kill the Boer, Kill the farmer” were played on a big screen. There were also images of a thousand white crosses planted next to a road commemorating all the white farmers killed in farm attacks. Make of it what you will, but good and bad things will flow from this. The saddest part of this whole endeavour is the fact that even if our government can convince the US government to invest more in South Africa, most of the money will never reach its intended targets, due to corruption.
On the same day, our Minister of Finance presented the Budget for the third time after its having been rejected on the first two occasions. The controversial VAT increase was dropped but not much good news flowed from the speech. The country now spends 22 cents of every tax rand on interest payments for state debt, which is not sustainable. The debt-to-GDP ratio is expected to peak at 77.4% in the current fiscal year, up from 76.2% projected in Budget 1.0 two months ago, and the Treasury now forecasts GDP growth of just 1.4%, down from 1.9% in February.
Some more bad news came in the form of an increase in the fuel levy, of 16 cents per litre for petrol and 15 cents per litre for diesel as from June. Another stealthy tax increase is the absence of any increase in the tax brackets. All of these negatives will see the pressure on the rand remain elevated, even after the healthy strengthening we have seen of late.
On the positive side we have seen a remarkable rebound in the performance of equities in most countries. Most of the good news comes from the relaxation of the US tariff increases and hopefully this will stay in place. As we have mentioned before, the negative tariff shock was not the result of some fundamental breakdown in the economy, but merely the ridiculous policy rhetoric of Donald Trump. Let us not forget the unpredictability of short-term movements in equity markets, and the long term tenacity thereof .
