- Political confusion is having a very real cost as businesses reckon with the VAT increase that wasn’t
In his second of several budget speeches this year, Finance Minister Enoch Godongwana announced two increases in the standard rate of VAT over two years, prompting businesses to spend quite a lot of time and money preparing for their impact. The increase was hotly disputed both in and outside the GNU, with legal opposition against the plan briefly uniting the DA and EFF. The VAT hike was ultimately reversed just six days before the 1 May effective date.
Now there’s a third speech, coming up on 21 May, where Godongwana will show how he intends to make up the roughly R75 billion he’d hoped for from the tax. Meanwhile, businesses are spending quite a lot of time and money reversing their previous work.
A sympathetic Mr. Edward Kieswetter, who is having to manage the same reversal at SARS, said he “understands the complexity and confusion that has resulted from this process.” SMEs in particular will rue the cost of the confusion that resulted in this process, and hope that the uneasy political alliance can find a way to avoid it in the future.
This month, Miguel da Silva, Group Executive: Business Banking at TymeBank, looks at the very real costs and implications of an unpredictable political landscape for SMEs.
International trade is increasingly volatile
Speaking of uncertainty, South African SMEs, like their counterparts across the globe, are waiting to see how the international-trade cards lie after US President Donald Trump upended the table on 2 April.
Recently released trade data for March showed SA’s balance of trade sitting at roughly R24 billion, somewhat lower than the consensus estimate of R35 billion. Of course that doesn’t take into account the spiralling effects of the so-called Liberation Day in the US. With most tariffs currently paused, trade delegations are trying to simultaneously mend relationships with the US and establish new markets that aren’t subject to the same volatility.
There will be pain for certain sectors in particular – the reinstatement of Trump’s 30% tariff on SA would fall in the peak of citrus season, and if Trump’s intention is truly to revive US manufacturing, it doesn’t bode well for SA’s automotive sector. However, opportunities will also present themselves as the rest of the world looks for better deals elsewhere.
For smaller businesses in the export chain, this uncertainty might prompt a focus on building cash reserves, more flexible supplier arrangements, and conversations with foreign buyers to prepare for all eventualities.
Government launches Spaza Shops Support Fund
The Department of Small Business Development has found R500 million to launch the Spaza Shop Support Fund (SSSF). Government aims to help the township and rural retail sectors become more formalised and financially included, and to “realise the potential of spaza shops to serve as a market for locally manufactured goods”.
The former means that individual spaza shops will get up to R50 000 through a combination of training support and a blended loan, and the latter that the SSSF will facilitate a group-buying system, helping shops to access bulk markets.
This is an understandably popular opportunity for spaza shop owners feeling pressure from retail chains, which was loudly illustrated when the launch event was nearly derailed when attendance far exceeded expectations.
SA tourism grows year on year
International tourism is changing. Visits to the United States fell approximately 14% in March 2025 compared to the same period last year. International visitors to SA increased by 10% in the same period. Overseas visits increased from France, the Netherlands, Australia, and Russia (by nearly a third). Most international tourists in the country – 71.5% – are from SADC countries.
Are we picking up some of the US’s slack? Are safety and loadshedding fears easing in the minds of prospective travellers? Either way, the steady resurgence is a lifeline for SMEs in an industry still recovering from the Covid shock.
Business sentiment is improving
The South African Chamber of Commerce and Industry (SACCI) released its composite Business Confidence Index (BCI) on 16 April, highlighting a positive trend over the past 12 months. The BCI climbed from a low of 107.8 in May 2024 (while all eyes were on the elections) to a record level of 125.8 in February 2025. SACCI gauges the improvements to be due to increased tourism and exports, and lower inflation (and the absence of loadshedding certainly played a role).
SACCI also noted that a weaker rand and poor earnings for JSE-listed companies continued to have a depressive effect. That said, rising business confidence reflects a relative calm amongst the business community, despite mounting uncertainties. Let’s hope it’s reflected in GDP growth figures – as former U.S. Treasury secretary Larry Summers said, “confidence is the cheapest stimulus.”
Reserve Bank faces tight window for interest rate cuts
South Africa’s headline inflation fell to a four-year low of 2.7% in March, down from 3.2% in February and below economists’ forecasts. Despite this positive news, the Reserve Bank’s opportunity to cut interest rates appears to be narrowing throughout 2025.
The Bank’s Monetary Policy Committee have made it clear that they’re not only watching local inflation but also keeping a close eye on global events, even hinting at possible rate hikes if global uncertainty increases and impacts the rand further. Adding to this complexity, the Bank appears to believe that South Africa’s low economic growth stems not primarily from high interest rates, but from structural economic constraints. This suggests that more aggressive rate cuts would do little to boost growth without significant economic reforms.
SMEs should prepare for a cautious approach from the Reserve Bank in the coming months, with the possibility of fewer rate cuts than initially hoped for in 2025.
