Hello and welcome to the So What podcast, in
which political economic analyst J .P. Landman
discusses the issues uppermost in the minds of
South Africans. You can find a written version
of this content on J .P.'s website, jplandman
.co .za. I am Ruda Landman, and I am your host.
This podcast goes with J .P.'s newsletter dated
the 4th of June, 2025. And the title, Budgets
and Tariffs, So Where Are We Now? I feel we've
been here before. Yes, indeed. This is the third
note that we're doing on budgets and tariffs,
because the thing has been developing so much
and in so many directions. But this is hopefully
a conclusion of the budgets and tariffs story,
certainly the budget story. Last time, you made
the point that for the first time now, Parliament
has the right, the freedom. to change the budget.
And you were quite worried. You said this was
a decisive moment. Absolutely. And you just have
to look at the US to see what can happen if parliamentarians,
in the case of the US, the Congress, dive into
the budget and start changing numbers as it suits
them. So it was what I labeled it in the last
newsletter was it was a moment of decision. And
I'm happy to say at the time of writing this
note, the correct decisions seem to have been
taken. The centre is holding in the sense that
most of the middle parties are coming together
around the budget as proposed by Treasury. Treasury's
integrity and reputation is intact. And there's
no splurge of either expenditure or higher debt.
So I'm quite happy that the moment of decision.
That moment has come and passed and we've taken
the right decisions. For you, it is mainly about
debt. Oh, absolutely. It's about debt stabilization.
There's simply no question about it. The biggest
single issue is to stabilize South Africa's debt,
bring it down and save money on interest. And
for that, the most important number in the budget,
for me at least, is the primary surplus. And
the primary surplus is simply whether your income
is more than your expenditure before you start
paying interest. We've run a primary deficit
for a long time. Three years ago, we started
with a primary surplus. This year in the budget
that has now been tabled, budget number three,
the primary surplus is budgeted to be 65 billion
this year. Now, it means you will still run on
a deficit. It means that you will still incur
debt, take on debt, but with 65 billion. more
in income than expenditure, the debt that you
take on is decreasing. And over time, that helps
to stabilize debt. So the primary surplus is
a very important number. What's happening to
the debt to GDP ratio? That has gone up a little
bit, not because there's more expenditure, but
because economic growth is budgeted to be lower.
In February, with the first budget, economic
growth was assumed that it would be 1 .9 % for
the year. After the Trump tariffs that we've
had and so on, the assumption in the budget now
is that growth will be 1 .4%. So because there's
less growth, but all the other numbers remain
the same, therefore the percentage goes up a
little bit. It goes up by 1 .2 % and it goes
to 77 .5%, which is a high number. But if you
compare it to many other countries in the world,
you know, it's still doable. The trick is to
bring that number down and you do that by way
of primary surpluses. And that can only happen
over years. It's not a short -term thing. You
need time for that. But when you start running
primary surpluses, as we are now doing, this
will be the third year, then people sit up and
they notice and the markets start responding
and your interest burdens start declining. How
has the market reacted? Actually quite good.
If you take the rate when Budget 2 was tabled
in April, the long rate, the long yield was sitting
at 10 .75%. It has slowly come down, drifted
downwards, about 38 basis points. Now, 0 .38%.
Now, you can say 38 basis points is not a lot,
but on the amount of money that the minister
wants to borrow this year, 588 billion rand,
it implies an interest saving of 2 .2 billion
rand over 12 months. So it's a huge amount of
money that you save in interest with a lower
rate. With 2 .2 billion, you can appoint a lot
of teachers and you can appoint a lot of doctors
and you can fix up a lot of hospitals. So the
long rate is not just a theoretical concept.
It's very real. It determines the interest that
you pay and the lower it is, the lower interest
you pay, the more money you have available for
other things. Well, we all know what interest
rates mean on... a bond on your house or a loan
on your car. Exactly. You mentioned something
really unexpected, a possible source of extra
money. It sounds as if the nation has a sock
full of money under the mattress. In a manner
of speaking, almost, yes. It is called the Gold
and Foreign Exchange Reserve Account, which is
held at the Reserve Bank. And basically there
are surpluses that build up in that account.
And last year, the minister drew money from that
account to pay off on debt. Where does that money
come from? Well, when the RAND depreciates against
foreign currencies, it generates a surplus on
the reserves that the Reserve Bank are holding.
And the question then is, to whom does that surplus
belong? Does it belong to the Reserve Bank or
does it belong to the nation? And it's a kind
of a... iterative process between the two. So
after last year's experience, what will happen
this year is in the second half of the year,
going towards October, the Treasury and the Reserve
Bank will sit together and they will decide,
is there a sufficient surplus in the GFRAC account
that can again be drawn, 10 billion, 20 billion,
whatever. And then if you draw that money, that'll
be a bonus. You pay it off on debt and you save
the interest. Just for context, last year, the
bank paid over or the government drew 250 billion
from that account. 100 billion went back to the
Reserve Bank as equity capital. So you reinforce
the balance sheet of the Reserve Bank and 150
billion was used to repay debt. And that's why
if you look at the numbers, you will see there
was a sharp decline in interest payments last
year, precisely because there is this extra money
that was used to repay debt. There's a huge difference
between drawing the money to repay debt and drawing
the money to pay current expenditure. There are
people who would like the money to be used for
current expenditure, but that's, of course, a
crazy idea. A slippery slope. It's a very slippery
slope. So all, in your perspective, all good
news up to now, but it's still a long road. There
are still, what, four voting dates? Yeah, as
we discussed in our very first note that we did
on the budget three notes ago, there are four.
decision -making stages. The first one is the
approval of the fiscal framework. That is at
the moment penciled into the parliamentary calendar
for 11 June, basically the week after next. Then
the second decision is the division of revenue
bill that is put down for 25 June when parliament
has to decide on that. And then the third one
is the Appropriation Bill, which will start,
the discussion will start on 27 June. And the
Appropriation Bill is basically the approval
of each individual department in government.
In a jargon, it's called a parliamentary vote.
All those individual departmental budgets must
be approved. And then the final approval of the
Appropriation Bill will be on 23 July. So it's
about seven, eight weeks from now. And then in
October, we'll get the medium -term budget policy
statement. And after that, there will be the
revenue bills that will be tabled to Parliament.
So it's basically four decision -making rounds,
and each one of them is quite important. If one
of them falls by the wayside, then you don't
have a budget. You've got to have all four decisions.
And this is where the party whips come in. They
have to keep the members in line and make sure
that people vote. according to the party's position.
Now, so far, the parties, the main parties in
Parliament, all support the budget. MK and EFF
is against it, and EFF is taking the increase
in the fuel levies to the High Court. We will
have to see what the court decides on that. So,
the second half of the newsletter, post the White
House meeting that had us all glued to our screens,
when the dust has settled, it's really about
trade. Where are we on that? That's where I want
to focus. I think, you know, millions of people
have got trillions of opinions on the theater
and the theatrics around it, be that as it may.
I think the important point for us is trade.
So let me first summarize where we are now. First
of all, Agawa is dead. That's quite clear. Trump's
general 10 % import levy that he's imposed against
the whole world, not just against AGOA members,
drove a stake through the AGOA agreement. So
that one is dead. And people must, I've said
it before, people must just forget about it.
It's not going to be around. Then Trump has also
threatened to impose 31 % reciprocal tariffs
on many countries also on South Africa. It's
important those tariffs, as you know, have been
suspended until 9 July and we will have to see
whether he brings them back or not. It's important
to note that half of South Africa's exports to
the US have not been tariffed because it consists
of minerals, various mineral products that the
US is keen to have and Trump has therefore exempted
those minerals from tariffs. So there's a general
10 % on everything, but not on minerals. Minerals
have been exempted. And then there is a 25 %
tariff on steel, aluminium, automobiles, motorcars,
and also automobile spare parts, which are used
in the US to assemble motorcars there. What will
happen on the 25 % we don't know. We've started
writing this note. Trump has, in fact, doubled
down and increased the steel tariffs to 50%.
So we'll have to see how that turns out. So in
summary, half the exports are not tariffed. The
rest is subject to 10%. But steel, aluminium
and motor cars are subject to 25 % and steel
now apparently to 50%. So that's where we stand.
What has South Africa put on the table? Well,
the details of the South African proposal have
not been made public yet, but thanks to Reuters,
some of the details have come out. And South
Africa is basically offered to buy liquefied
natural gas, LNG, from the United States for
a period of 10 years at a rate of between 75
and 100 million cubic meters per annum. Now,
as listeners will know, South Africa is facing
a gas cliff by 28, 29 when gas from Mozambique
will run out and we'll have to find other gas
sources to satisfy internal demand. So buying
LNG from America is not a bad idea. And that's
one of the things that South Africa has put on
the table. South Africa has also proposed, secondly,
that 40 ,000 motor vehicles can be exported to
the U .S. every year duty -free. Now, last year,
we only exported 20 ,000. So the 40 ,000 is quite
a generous claim, if I can put it that way. Again,
we'll have to see whether that's acceptable.
And thirdly, on steel, we have proposed that
385 million kilograms of steel and 132 million
kilograms of aluminium can be exported duty -free
to the US every year. Those are the free... very
tangible things that Reuters have picked up.
Now, whether that's acceptable to the Americans,
we'll have to see. I think one must look at the
negotiating position. America clearly wants some
of our minerals. They also want the American
companies to be involved in gas exploration in
South Africa, which we're undertaking. They also
would like to sell gas to us. On the other hand,
we would like to sell... motor car parts to them
and automotive parts and we would like to sell
steel and aluminium. So they want access here,
we want access there. We'll have to see whether
these two things, these two sets of demands can
be turned into an agreement. And that really
is perhaps the most important comment on a White
House meeting. The proof of the pudding is in
the eating. And if the meeting in the White House
can help to keep These have African proposal
on the table and at the front of the queue. And
we can negotiate it quicker than what we otherwise
would have had negotiated it. That would be a
very clear win. Trump himself has said that the
United States cannot negotiate all these agreements.
They just don't have the people and the time.
They just don't have the people and the capacity.
You're talking about something like 90 countries,
9 -0. that have indicated that they want to negotiate
with the US. Now, obviously, you would much rather
be country number 10 than country number 90 or
country number 80. And if the White House meeting
helped to achieve that, then I think it would
have been a clear win. What about Starlink? Starlink
is about a lot of dust and noise. The principle
is very simple. BBBE Act, Broad -Based Black
Economic Empowerment Act of 2003, there's a very
clear stipulation that an equity ownership requirement
can be replaced by what is called equity alternative
investments. And there are several big American
and global companies operating in South Africa
who've made use of this. For example, Citibank,
I think Amazon and so on. So what those companies
are saying is we can't give away or we can't
do a deal around equity in our South African
subsidiary, but we're happy to do more for training
or more for people development or more for enterprise
development. There we will do more than what
is required in the various scorecards and those
equity equivalents then make up. for the equity
component so that is not a new principle it's
it's an act it's also in the be each other for
the ict sector so what is in what is this fight
then about this fight is because in the electronic
communications act there's a specific requirement
that before a license can be issued under the
act there must be a 30 ownership component now
that is what the act currently says the minister
has now issued a government gazette to say that
that can be changed by way of regulations that
is very dubious because if it's an act it's an
act and if you want to change it you will have
to change the act and that's a lengthy process
it can take a couple of months to do that he's
trying to take a shortcut by saying that the
regulator icasa can take a decision around that
by way of regulations. And that's what the debate
is about. I suspect in the end it will have to
be determined by a court ruling. But it's certainly
not a new principle. It is something that has
been used in South Africa, and there's no reason
why it cannot be used again. Who will take it
to court? Well, anybody who's unhappy. You know,
anybody who's unhappy can take it to court. I
just want to point out, people are focused on
Starlink, but there are other operators in the
world who also operate LEO's low -Earth orbit
satellites. CAPER, for example, which is the
name of some galaxy somewhere in the universe,
is a project run by Amazon. Amazon has started
launching satellites to introduce Project CAPER
to do exactly the same thing as Starlink. Eurotel
is doing the same thing in Europe, exactly the
same story. They're talking to MTN. Vodacom is
talking to Project Caper. So there are other
alternatives. There are also alternatives in
China. So Starlink is not the only game in town.
But these other companies, should they want to
come in, they would also have to meet the 30
% requirement. So this exemption can apply to
more than just Starlink. In summary, so what?
Well, I think, first of all, the drama that we
had around budget when Parliament flexed its
muscles and the budget first couldn't be tabled
and then the increase in the VAT rate couldn't
go through and so on, that is now behind us.
And I think the bottom line is that the central
focus of debt stabilisation and debt consolidation
has not been lost. There's a clear political
focus on that. There's a clear political will
to bring that down. The increase that we've seen
in the percentage is because the GDP growth is
lower, not because there's more expenditure.
So I think that's a plus. The centre is holding
around the budget. There's a kind of a fiscal
conservatism or a fiscal middle -of -the -roadism,
which I think is to be welcomed. That's a very
important so what. And I think, secondly, the
mere fact that the budget in South Africa, after
the shaky start, has taken this way, stands in
very sharp contrast to the way the US is now
finalizing their budget. It went through the
House of Congress last week. So you've got a
clear comparison. If you look at how that budget
is just exploding in terms of deficit and more
debt, and you look at how the South African budget
is being... controlled or managed down by way
of discipline, it's an interesting contrast to
take note of. And then South Africa, I think
the third show what it does, that South Africa
now has tabled the proposal. We must now see
how the US reacts to it. Now, when the US will
pay attention to it, when there will be serious
negotiations, that is up in the air, we don't
know. But at least there's a proposal on the
table and hopefully that will help to stabilize
the trade relationship between the two countries.
What's the Chinese curse? May we live in interesting
times. I hope it becomes boring soon. Absolutely.
Thank you very much. Thank you. Thank you for
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