The power struggle behind South Africa’s budget delay

On Sunday, South African President Cyril Ramaphosa wrote on X that he remained “confident” about his government’s ability to “develop a shared approach to unlock inclusive growth, job creation and a secure fiscal future.”

Control of port and rail privatization is just one of the main issues of contention. The DA wants the controversial expropriation law to be amended to remove the possibility of land seizures without compensation.

One senior ANC official with direct knowledge of the budget talks told Semafor that the party had agreed to a number of the DA’s demands including hiking VAT by only 0.5% — rather than the previously proposed rise of two percentage points. The official also said the ANC were prepared to make other concessions which include increasing personal income tax, and abolishing medical aid tax credits.

But the budget deadlock persists. “Time is almost up,” DA leader John Steenhuisen wrote on X on Tuesday. “Last night, the ANC refused to finalise an agreement on growth and spending reforms… The DA will oppose the budget unless and until a written agreement is reached.”

South Africa’s coalition government was formed after the African National Congress lost its majority last year for the first time since the end of apartheid in 1994. The budget negotiations have exposed fissures within the coalition between the left-leaning ANC and the center-right DA, its longtime rival.

The government’s broad structural reform plans have identified increasing the performance of the country’s logistics infrastructure, by attracting private sector equity partners, as well as through the devolution of the political oversight of the Cape Town port from the national to the Western Cape province, which the DA controls.

Transport Minister Barbara Creecy on Mar. 23 invited private sector players to submit details of their interest in partnerships in the rail sector. This is ahead of officially inviting businesses, including mining companies, to formally bid for rail lines and ports.

The DA wants oversight of the Cape Town port to be devolved from the national government’s authority and fall under the control of the Western Cape government, which is solely run by the Democratic Alliance, the three people said. But, they said, the ANC is wary of handing over such levels of economic power to the party.

On the budget-specific issues, the parties may be closer together than they make out. The contentious issues include VAT and personal income tax, which the ANC believes have been settled.

It looks like pure brinkmanship to include the partial privatisation of the logistics infrastructure in negotiations about the budget. Under normal circumstances, such discussions would not be considered part of the annual fiscal plans.

Privatizing aspects of the public rail infrastructure is one of the government’s plans to improve the economy’s performance. Most of the infrastructure is owned by state rail and ports company Transnet, which is facing a debt cliff. Therefore, the government needs to recapitalize it as a shareholder or strategic equity partner.

The DA is being shrewd in naming the ports and logistics reforms as one of the conditions for its support of the fiscal plans. But it could also make things difficult for itself by voting against the budget. In the event the ANC and the DA did not resolve the budget deadlock, this could seriously jeopardize public and financial market confidence in the coalition government at a time when investors are already concerned about the impact of tariffs expected to be imposed by the US.

As with so much in this coalition government, it’s almost unthinkable that a compromise will not be reached. The main players need the coalition too much to let it fall apart.

Tussling over the budget exposes deep disunity in the governing coalition, according to Peter Attard Montalto, managing director of Johannesburg-based consulting company Krutham. “The Democratic Alliance is trying to get a quasi-coalition agreement when the ANC doesn’t want one. It’s a bizarre fight because, looking at the asks, there isn’t much distance.”

“What is clear is that there is a complete lack of trust, and it’s not going to improve. We are in an ‘undead’ coalition where no one can leave, but no one is especially happy,” he said.