Much has been said about South Africa’s flip-flopping on the VAT increase. While the reversal may have satisfied some in the short term, the political tug-of-war and ensuing legal drama exposed deeper cracks in the country’s policymaking framework.
Rather than providing clarity, the episode raised fresh concerns about the stability and coherence of decision-making under the government of national unity (GNU) and the long-term cost of growing economic uncertainty.
While the finance portfolio committee’s failure to follow proper legal and procedural steps may have made the court challenge inevitable, the investor response told a different story. The rand strengthened and government bonds rallied, suggesting that markets welcomed the reversal. But this short-term relief masks a more troubling concern — the erosion of government credibility and rising uncertainty around how decisions will be made (or unmade, in this case) under our new administration.
Whether this was a calculated course correction, or a political misstep, matters less to investors than the precedent it sets. If every major fiscal or tax decision is vulnerable to reversal, litigation, or political wrangling, the risk profile of investing in South Africa increases significantly. South Africans don’t need reminding — it’s been widely discussed — that the country remains in junk status, with its credit rating still classified as non-investment grade by major international agencies.
This year has already brought several firsts: the first postponement of the national budget, and now, the first reversal of a VAT increase. These firsts may point to the growing pains of a maturing democracy — or to a worrying pattern of instability. Either way, they create indirect costs for businesses and investors, who prioritise predictability and policy certainty above all else.
Investors aren’t necessarily averse to change, but they do demand clarity. In a global environment already fraught with uncertainty — from slowing economic growth to wars in Europe and the Middle East, and the renewed threat of unpredictable tariffs under President Donald Trump’s administration — South Africa can ill afford to score own goals. With the IMF revising our growth forecast down to just 1%, largely due to external pressures, it’s even more important for the GNU to avoid self-inflicted instability that could further erode investor confidence.
Coalition governments often face a steep learning curve. Disagreements and delays may be expected in the early stages, but should these issues not have been anticipated and addressed when coalition agreements were signed? If prolonged disputes and legal battles become the new normal, we risk four years of paralysis — and the consequences will fall squarely on businesses, SMEs, and everyday South Africans.
Investor confidence isn’t easily shaken by a single event. But when short-term confusion turns into a pattern of indecision and instability, confidence erodes — slowly at first, then all at once. Global credit rating agencies are already watching closely, particularly as South Africa’s debt-to-GDP ratio sits at 76%, with debt servicing costs exceeding R376bn. In such a context, policy instability becomes a material risk that cannot be ignored.
For investors weighing risk and return, South Africa must remain a competitive, stable destination. If we fail to deliver that, capital will flow elsewhere
A volatile tax environment, inconsistent policy signals and slow implementation create headwinds for economic recovery and growth. For investors weighing risk and return, South Africa must remain a competitive, stable destination. If we fail to deliver that, capital will flow elsewhere.
In the short term, consumers may benefit from the VAT reversal, but the longer-term consequences of uncertain policymaking may outweigh those gains. When market sentiment shifts, it is SMEs, entrepreneurs, and ordinary citizens who feel the brunt of capital flight and economic stagnation.
The GNU now faces its first real test in showing it can lead with clarity, consistency and conviction. Failure isn’t just a local risk — it’s an open invitation for Trump and others to mock us on the global stage.
We need unity, not chaos. Because, like it or not, teamwork isn’t just a dream; it’s our only shot — and our country and the economy can’t afford anything less. And if it ever feels overwhelming, I’m reminded of that old Cannonball Adderley jazz classic I used to play on cassette tape — Mercy, Mercy, Mercy.
• Mtwentwe, AGA(SA), is MD of Vantage Advisory and host of the SAICA Biz Impact Podcast
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