Nedbank chief economist Nicky Weimar. Photo: Supplied
With US tariffs threatening global trade and South Africa’s fiscal reserves depleted, Nedbank chief economist Nicky Weimar laid out a pragmatic plan for economic survival on Friday.
She called for sharp cuts in government spending, a boost in efficiency, and a deft diplomatic strategy to counter America’s economic pressure—warning against populist tax hikes or a reckless tit-for-tat with the Trump administration.
Her remarks come amid a fiscal crisis underscored by last week’s unprecedented delay of Finance Minister Enoch Godongwana’s Budget, now postponed to March as Government of National Unity partners scramble for consensus.
A proposed 2% VAT hike—scrapped after backlash over its impact on the poor—exposed the government’s dire straits.
“They’re finally out of money. Solidly,” Weimar said, noting debt at 76% of GDP and a struggle to shrink the deficit to 3%.
South Africa’s economy showed flickers of life in late 2024, with household income rising, inflation easing, and consumer spending lifting retail sales. But Weimar cautioned that this is no lifeline. “We’ve returned GDP above pre-pandemic levels, then started drifting sideways,” she said, pointing to faltering exports, stagnant investment, and “very limited sources of demand.”
Growth, she argued, won’t save the day: “Even if we accelerate demand to 2% GDP, loadshedding will come back with a vengeance.”
She projects a sluggish 1.5% growth in 2025, edging to 1.6% in 2026 if reforms take hold.
The real fix, Weimar stressed, lies in structural reforms after 15 years of underinvestment. “Our economic infrastructure has imploded. The supply curve is stuck at a low level—demand picks up, supply strains, prices spike, interest rates rise, and demand slows again.”
It was important to carry on fixing Eskom, Transnet, municipalities, specifically water systems, as well as crime.
“There’s progress, but this will be South Africa’s focus for the next decade,” she said.
There has been more talk about a 1% VAT hike, not the 2% VAT hike in the shelved Budget.
However, Weimar rejected the benefits of a VAT hike, saying,“ They are going to have to find that saving somewhere else,” as she recalled its failure last time it was instituted. It depended on the fiscal multiplier.
“They got less revenue than before,” she said. However, she noted that the 1% VAT could be the compromise.
South Africa can’t grow itself out of trouble and the only choice was fiscal consolidation, Weimar noted.
She said South Africa has two choices,“ Either you raise rates and taxes or you cut spending or do a little bit of both.”
To save money government inefficiency must be dealt with.
“I would also concentrate on setting a path whereby government revenue grows at a slower pace that the rate of inflation. So that’s a real cut in government spending going forward. I would focus my efforts on finding those efficiencies,” she said.
This might require looking at the size of the civil service.
Currently investors were giving South Africa the benefit of the doubt, despite the global uncertain environment.
She cautioned against mimicking the chaotic US cuts under Elon Musk’s DOGE initiative.
“South Africa has to use the money we’ve got more effectively,” she added. Consumers, already stretched thin, can’t bear more: “Personal consumption is growing, but it’s flat. A VAT hike could shrink the tax base further.”
Globally, US tariffs -10% on China, 25% on steel and aluminium - spell trouble for emerging markets like South Africa, risking inflation and higher interest rates.
Trade tensions with the US have intensified under US President Donald Trump’s criticism, but Weimar advised restraint. “Don’t fight fire with fire. We’re up against a stronger opponent.
“My advice to the government would be maintain a low profile and fly under the radar. It will be difficult. Elon Musk doesn’t appear to like the country he left.”
Citing Mexico’s success in quietly negotiating past Trump’s insults, she urged South Africa to work diplomatic back channels.
However, despite this, Weimar said South Africa is in a better place than it was last year.
The Reserve Bank is going to be cautious, but has room for another 25 point basis cut in July and then they are going to hold, she said.
BUSINESS REPORT