South Africa on thin ice

South Africa is trying to navigate numerous headwinds that include macroeconomic issues, geopolitical tension, and potential trade disruptions. 

The government will have to be very careful in how it navigates these challenges. The country is at an inflexion point, and its decline needs to be arrested. 

This is feedback from Standard Bank chief economist Goolam Ballim, who explained that the global economy is structurally changing for the first time in a while. 

Over the past forty years, the global economy has experienced several cyclical changes which have benefitted some countries and harmed others. 

One constant has been the presence of a rules-based international order promoting globalism and forming a tightly integrated economy. 

This is now being threatened, surprisingly, by the economy that has benefitted the most from this system – the United States. 

Ballim said Trump’s imposition of tariffs on trading partners to extract concessions is a symptom of a fracturing global economy. 

As a highly open and small economy, South Africa is set to be significantly impacted by these changes. 

Elevated levels of uncertainty as the global economy undergoes structural changes should weaken the rand versus the dollar and limit export growth. 

This uncertainty is also bad for investment generally as companies will be unwilling to commit capital for the long-term, particularly in a country with a high risk premium such as South Africa. 

Ballim said that such an environment produces clear winners and losers, which often translates into discontent and creates the conditions for populism and radical change. 

South Africa is already facing these challenges and would be walking on thin ice even if it was not receiving direct attention from US President Donald Trump. 

Trump has already halted aid to South Africa, and Secretary of State Marco Rubio has said he will boycott the G20 Summit in Johannesburg. 

“South Africa is trying to cross the river whilst feeling the stones. It sounds easy, but the river is gushing,” Ballim said. The graph below, courtesy of Ballim, shows just how elevated global uncertainty is in 2025.

These significant global changes also occur when South Africa is in a vulnerable position, given the declining strength of its institutions and poor economic performance.

Ballim explained that the rule of law in South Africa has steadily declined in the past two decades as crime has become rampant and the judicial system is beset with delays. 

In the decade after 1994, South Africa enjoyed strong economic growth, and individuals saw their quality of life greatly improve. A key reason for this was the strengthening of the rule of law.

Ballim said that since the mid-2000s, the South African state has become increasingly ineffective in implementing new legislation and enforcing existing laws. 

This has translated into declining trust in the rule of law, not because of poor legislation but a lack of government efficiency.

As such, the government’s reform process should be viewed in light of the deterioration of South African political institutions.

The process should be judged as an institutional reform process and not merely an opening up of the electricity and logistics sectors to private companies. 

The process aims to strengthen local institutions through improved performance at key state-owned enterprises (SOEs), which should renew trust in the government. 

Furthermore, new reforms set to be implemented in the second Ramaphosa administration are set to focus on local government and the civil service. 

This aims to make the state much more efficient and effective to rebuild trust in its capacity and key political institutions. 

Ballim said the most difficult part of these reforms is proving to be the third prong of crime and corruption, which is far more challenging than electricity and logistics. 

While those issues are largely technical, crime and corruption involve significant social elements which cannot be engineered or mechanically altered. 

All of these challenges mean that South Africa is in the midst of a generational moment, with the ongoing reform process and political decisions impacting the country’s course for the coming decades. 

The creation of the Government of National Unity (GNU) has freed up significant space for accelerating existing reform processes.