South Africa

Persistently subdued growth outlook

Despite a noticeable improvement in electricity supply since the peak of the energy crisis in 2022-23, the South African economy is still stuck in a low growth regime. On the supply side, the services sector, especially finance, remains robust and the main growth driver. However, the volatility of agriculture (only 2.5% of GDP, but still 19% of employment), combined with industries (manufacturing and mining) that continue to suffer from weak domestic and external demand and logistical challenges (rail and port), is weighing on activity. Furthermore, private investment is dented by economic and political uncertainty, as well as by reduced spending by companies on independent electricity production projects relative to previous years.

In 2026, growth should accelerate, mainly on the back of domestic demand. The reforms implemented to address the structural issues of critical networks will improve overall economic conditions. Regarding electricity, Eskom plans to add 8,700 MW of capacity through embedded generation plans by 2027, which should result in higher capital expenditure and stabilise supply. On that score, load-shedding has not ended yet as higher-than-expected electricity demand, loss of generation units, and planned maintenance still result in occasional power cuts, albeit at a much lower rate than at the peak of the crisis. Public investment, although restricted by limited fiscal headroom, should contribute to growth in the medium-term as the 2025-2026 budget provides for ZAR 1 trillion (USD 56 billion) of infrastructure spending and purchases of capital goods over the next three years, mainly directed towards energy, transport and logistics, and water and sanitation. As inflation should accelerate slightly (mainly due to the adjustment of administered prices and the fuel levy), but still remain under the central bank’s target rate of 4.5% in 2026, monetary policy should remain broadly neutral, implying a repo rate in the 6.75-7.00 range (7.00% as at August 2025). Nonetheless, lower interest costs relative to previous years, combined with withdrawals from the two-pot retirement system and relatively low inflation should continue to support private consumption.

The external situation remains highly challenging and uncertain. Lower global demand for minerals will weigh on the mining industry. Furthermore, South Africa is directly exposed to an increase in US tariffs. In addition to the 30% reciprocal tariff due to take effect on 1 August 2025, tariffs of 25% on car and car parts and 50% on steel & aluminium have already been applied, which directly affects the South African automotive and metals industries The automotive industry accounts for around 5% of GDP and 18% of exports. While South Africa is still trying to negotiate exemptions from these tariffs with the US administration, a favourable outcome is far from guaranteed, and pressure on these sectors on the export front are likely to remain. In the medium to long term, the situation could lead to an increase in exports towards other markets, including China (e.g., agricultural goods), which has announced a zero-tariff policy for 53 African countries, including South Africa.

Public finances strained by a lack of revenue

South Africa’s public finances have deteriorated in the two previous fiscal years despite consolidation efforts and will remain under pressure in FY 2025-2026. While the authorities’ objective is to reduce the deficit and stabilise debt in the medium-term (by FY 2027-2028), any improvement will be slow to materialise. The ability to significantly reduce expenditure is damped by wage pressures, debt-service costs (22% of revenue, 5.6% of GDP), financial support to SOEs and by the need to support critical networks. At the same time, the economy’s capacity to generate additional revenue is meagre. This is due to sluggish growth and lower commodity prices, and also to the limited leeway to increase taxes, as South Africa’s personal (45% for the top rate) and corporate income tax (27%) rates are already some of the highest among emerging economies. Initially, the 2025-2026 budget proposed to increase VAT from 15% to 16%, but it was ultimately abandoned due to strong disagreement between the African National Congress (ANC), which tabled the measure to boost public revenue, and the Democratic Alliance  (DA) and other minority parties which opposed the measure due to the lack of public consultation and the pressure it would generate on already-strained households. The budget was redrafted as a result. Therefore, the final 2025-2026 budget includes only one single tax measure, namely, an inflation-linked increase to the general fuel levy, which is insufficient to close the medium-term fiscal gap.

The pressure on public finances will be slightly alleviated by the improvement of Eskom’s financial position since 2023. The final phase of its debt relief package has therefore been changed. The initially planned ZAR 70 billion (USD 3.9 billion) takeover by the state will be replaced by ZAR 40 billion in 2025-2026 and ZAR 10 billion in 2028-2029, enabling savings of ZAR 20 billion (USD 1.12 billion). While the sovereign debt trajectory is of some concern, with debt-service costs outpacing economic growth, the risk of debt distress remains moderate at this stage. South Africa's debt is essentially domestic (nearly 80%), is denominated in rand and has extended maturities, making it less vulnerable to external shocks. This makes the domestic market more vulnerable to the sovereign, but South Africa can still count on a large, well-capitalised and prudently regulated banking and financial sector.

External position will continue to deteriorate

The current account deficit will continue to widen in 2026, mainly owing to a lower trade surplus, but the other components are expected to remain relatively stable. Exports will weaken on back of lower commodity prices and the potential impacts of US tariffs, while imports expand due to stronger domestic demand. While tourism receipts are expected to remain solid, the services deficit will continue to be fuelled by transportation costs (mainly freight). The primary income deficit, which is the main contributor to the current account deficit, will remain deep through repatriation of dividends by foreign companies and interest payments on private debt. The secondary income balance will also continue to post a deficit due to the outflow of expatriate worker remittances to neighbouring countries. Given South Africa's sizeable equity and bond markets, financing the current account deficit depends mainly on foreign capital flows, which will remain volatile amid a highly uncertain global economic environment, particularly for portfolio investments. However, a possible removal of South Africa from the FATF’s grey list in 2026 thanks to progress made on the action plan could support capital inflows in the medium term. After a noticeable increase in 2022-2023, FDI has returned to lower levels, but could still benefit from the ongoing reforms, e.g., in transport or renewable energy (solar, wind, batteries). Overall, this means that the rand, which is fully flexible and speculative, will remain weak and volatile. Foreign exchange reserves should remain adequate, covering around five months of imports.

Challenging road ahead for the GNU

The political landscape in South Africa changed decisively after the May 2024 general election. As heir to the victory over apartheid, the African National Congress (ANC) continues to be the dominant political force, but its popularity had been steadily declining in recent years. Voter confidence had been eroded by record levels of electricity load shedding, dilapidated infrastructure, poor management of water distribution networks, high levels of corruption and reward appointments. Discontent over poor governance was exacerbated by a tense social context marked by structurally high unemployment, poverty, inequality and crime. As a result, the ANC lost its absolute parliamentary majority in the May 2024 general election for the first time since the end of apartheid in 1994. It won 40.2% of the vote in 2024, garnering 159 seats out of 400 in the National Assembly, compared with 230 in 2019. However, President Cyril Ramaphosa secured his re-election by Parliament by forming a coalition government, the Government of National Unity (GNU) with the Democratic Alliance (centre), the Inkatha Freedom Party (right) and the conservative Patriotic Alliance. The markets reacted positively to the outcome as this centrist coalition is expected to focus on economic reforms to stimulate growth and improve governance, particularly at local level. However, confidence in the GNU has been declining, mainly due to political challenges and infighting between the ANC and the DA on key topics, such as the budget vote. Furthermore, in July 2025, a police scandal in which top officials (including cabinet members) were accused of sabotaging probes into political assassinations, forced Ramaphosa to suspend the Minister of Police and ordered a commission to investigate the matter, further increasing the fragility within the governing coalition. Thus, the GNU’s ability to survive until the end of its term will be conditional on its capacity to deliver on key reforms, as well as increased cooperation and willingness to compromise by the ANC and the DA, both of which are not guaranteed at this stage.

On the external front, the main area of concern is the diplomatic relationship with the US, which remains very tense. The current US administration has been increasing pressure on South Africa due to several factors. First, aid to South Africa (except for PEPFAR, the US’ global programme to fight HIV/AIDS) was stopped after claims of discrimination against the white Afrikaners minority, particularly farmers. Second, the two countries have had diverging positions regarding the Russia-Ukraine war (South Africa has always maintained a neutral stance) and the conflict in Gaza (South Africa brought the genocide case against Israel before the ICJ). Third, South Africa’s proximity with Russia and China, especially on the military front, remains a point of friction. Consequently, despite South Africa’s willingness to ease tensions and negotiate for more favourable tariffs, the US administration’s stance on these matters will complicate any attempts to reach a satisfactory deal.

Payment

Electronic Funds Transfers (ETF), including SWIFT payments and international transfers, are used for payments in foreign currencies. Cheques are rarely used, outdated, expensive to process, and vulnerable to fraud. Cheque payments are also subject to a clearing period of 10 working days. The majority of businesses no longer use them. Cash payments do still occur but have the same disadvantages. Letters of credit are issued between banks and serve as a guarantee for payments made to a specified person under specified conditions, including imports and exports. In most cases, irrevocable credits and confirmed irrevocable credits are issued. The terms and conditions can be onerous and should be fully understood before acceptance of these letters. Parties can sometimes secure payment on delivery via bank guarantee. Monies are deposited into a bank account, and the bank in turn issues a guarantee for payment on confirmation of delivery. This type of payment is mainly used in matters pertaining to property transfers.

Debt Collection

Amicable phase

The National Credit Act states that the creditor must try to contact the debtor via a phone call, before issuing a formal letter of demand (outlining the outstanding obligation, and sent via email, registered post, or delivered by hand). Once this is done, the parties attempt to negotiate a settlement over an acceptable period of time. As creditors are not obliged to accept payment in instalments, they can opt to proceed with legal action to secure a full one-time payment. This phase is much less costly than immediately proceeding with legal action. This phase also provides greater insight for preparing for the litigation phase. Depending on the nature and value of the claim involved, it is sometimes possible to skip this phase and proceed immediately to litigation.

Legal proceedings

The administration of justice and application of law in South Africa is carried out by the civil and criminal courts. The ordinary courts are the district and regional magistrates’ courts, the provincial divisions of the High Court and the Supreme Court of Appeal. The Constitutional Court is the highest court for constitutional matters. Specialist courts have been established for various legal sectors, including Labour Courts, the Land Claims Court, Special Income Tax Courts, and the Electoral Court.

Determining whether to proceed in a lower court or in the High Court will depend on the type and value of the claim. Decisions of the lower courts can be passed for review or brought to appeal in the higher courts. Some types of cases can only be heard by the High Court, regardless of the quantum of the claim. As a general rule, a court will exercise jurisdiction on the basis that the defendant is resident or domiciled in the area of the court, or if the cause of action arose in that?area.

Proceedings in the Magistrates and Regional Courts generally involve a trial (action) process. Motion (by way of affidavit) proceedings are limited to certain cases only. The High Court can hold both trial (action) and motion (application) proceedings. In action proceedings, the process commences with a summons and is concluded with a trial stage, where witnesses give testimonies. With application (motion) proceedings, the matter will be determined with reference only to written documents and, as a general rule, no oral evidence is permitted. Evidence is set out in affidavits and cannot be contested by cross-examination. Although motion proceedings were generally quicker and cheaper than actions, applications can now end up costing more than action proceedings. When the court is faced with an application in which it is evident that there is a material dispute of facts between the parties, it will then refer the matter to trial.

The alternative to court proceedings is to refer the dispute or claim to arbitration, although few parties are willing to agree the required costs. Arbitration can be faster than court processes and the costs of proceedings are divided equally between the parties. Disputes or decisions at the arbitration hearing can be reviewed through an application to court. Arbitrations can be made an order of court by application, for the purposes of execution.

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Enforcement of a Legal Decision

The High Court deals extensively with execution against property, whether movable or immovable. The rules of the Court provide for the attachment and sale of property in order to satisfy the judgment made on the debt.

Foreign judgments are enforced in South Africa by way of provisional sentence proceedings. They are not directly enforceable. The courts which pronounced the judgment must have had the necessary jurisdiction required to entertain the case, according to the principles recognised by South African law on the jurisdiction of foreign courts.

Insolvency Proceedings

CREDITOR COMPROMISE PROCEDURE

A compromise can be initiated by a resolution of the board of directors, or by direction of a liquidator. They can propose a compromise to all creditors, or a specific class of, creditors and must notify the Companies and Intellectual Property Commission (CIPC) of the proposal. A receiver is appointed to supervise the process. The proposal must be approved by a majority of at least 75%, in value, of the relevant creditors or proxies present at the meeting. If the proposal is accepted, it can be presented to court for confirmation. Once confirmed, the order must be filed by the company with the CIPC within five?days.

BUSINESS RESCUE

The objective of a business rescue is to allow financially distressed companies to restructure and reorganise, in order to avoid insolvency. A business rescue is initiated by a resolution of the company’s board, adopted by a simple majority. Supervision and control is conducted by a business rescue practitioner, appointed by the company and licensed by the CIPC. The process concludes when either: the court sets aside the resolution or order that initiated the proceedings; the court converts the business rescue into liquidation proceedings; the practitioner files a notice of termination of business rescue proceedings; the business rescue plan is rejected; or the business rescue plan is adopted and a notice of substantial implementation is filed.

LIQUIDATION

Liquidation proceedings for a company begin with either a court order on the request of any persons and on the grounds set out in the Companies Act 2008, a request for voluntary liquidation, or an application to court by the shareholders, the creditors, or the company for liquidation (when the company is insolvent). A liquidator is appointed to wind up the company. The liquidator collects all the assets and claims due to the company, sells them and distributes the proceeds amongst the creditors. It is essential that the creditor lodges its claim with the liquidator, regardless of whether it has a judgment or a court order. Once all the proceeds have been distributed, the liquidator files its final liquidation and distribution accounts and makes any payments set out within it. The liquidator then advises the Master of the High Court that the administration of the estate is complete.

Last updated: July 2025