South Africa's Coalition Faces a "Battle" Over Fiscal Policy: Implications for Investors

South Africa’s fragile coalition government, formed after its historic 2024 election, now faces existential challenges as internal disputes over fiscal policy and political strategy threaten its stability. The African National Congress (ANC), which has governed since the end of apartheid, lost its parliamentary majority for the first time, forcing a coalition with the Democratic Alliance (DA) and smaller parties. Yet tensions over spending priorities, procedural disputes, and ideological divides have investors questioning the government’s ability to address the country’s deepening economic crisis.

A Coalition in Flux

The current coalition, which holds over 70% of parliamentary seats, was formed to tackle South Africa’s staggering 33% unemployment rate, crumbling infrastructure, and a shrinking tax base. While President Cyril Ramaphosa retained the presidency, the DA secured six cabinet positions, including agriculture and public works. Smaller parties like the Inkatha Freedom Party (IFP) and the right-wing Freedom Front Plus (FF+) also gained ministerial roles. However, the ANC retained control of key portfolios—finance, foreign affairs, and energy—prompting DA leader John Steenhuisen to accuse the party of clinging to power: “If they bought their own groceries or filled their own tanks, they would know how expensive life already is.”

Fiscal Standoff: VAT Hike Sparks Legal and Political Crisis

The coalition’s first major test came in April 2025, when parliament narrowly approved a 1% VAT increase to fund public services. The DA opposed the move, arguing it would burden low-income households, and filed a court challenge alleging procedural flaws. The ANC, however, defended the hike as necessary to stabilize public finances. The vote’s narrow passage (194–182) highlighted the coalition’s fragility. Analysts warn that further disputes could trigger a collapse, with the ANC’s internal factions and far-left allies like the Economic Freedom Fighters (EFF) pushing for more radical policies.

Economic Risks and Investor Concerns

South Africa’s economy remains in a precarious state, with infrastructure failures (e.g., power shortages, water crises) and high unemployment exacerbating social unrest. The DA’s pro-business stance clashes with the ANC’s focus on social spending, complicating reforms. Meanwhile, U.S. tariffs of 30% on South African exports—imposed over land reform disputes—add external pressure. Investors are watching closely: the JSE index has underperformed global benchmarks amid political uncertainty, while sectors like mining and financial services face risks from policy volatility.

The DA’s Strategic Tightrope

The DA’s leadership is torn between leveraging its coalition role to influence policy and resisting ANC dominance to preserve its electoral base. While some DA members argue the VAT vote crosses a “line in the sand,” others, like former leader Helen Zille, urge pragmatism: “You can’t get it all... the ANC also can’t get it all.” This internal debate reflects broader investor concerns: a coalition exit could destabilize governance further, but staying risks alienating supporters.

Conclusion: A Tipping Point for Stability and Growth

South Africa’s coalition government faces a critical juncture. If it survives, it could unlock reforms to address unemployment and attract foreign investment—but only if fiscal discipline and infrastructure upgrades are prioritized. Conversely, a collapse would likely deepen economic stagnation. Key data points underscore the stakes:
- Unemployment: At 33%, South Africa’s jobless rate is among the world’s highest, stifling consumer demand.
- Fiscal Deficit: The VAT increase aims to plug a budget gap, but public resistance could limit its effectiveness.
- External Debt: With public debt at 80% of GDP, investors are wary of further spending without growth.

The JSE’s performance, which has dipped 12% year-to-date amid political turmoil, signals investor pessimism. For now, the coalition’s survival hinges on whether the ANC and DA can reconcile their differences—or whether South Africa’s political experiment will unravel into a broader crisis. Investors should monitor parliamentary votes on spending plans, the outcome of the DA’s legal challenge, and the JSE’s volatility as leading indicators of stability. The stakes are clear: without unity, South Africa’s economy risks becoming a cautionary tale of governance failure.