SA Finance Minister Enoch Godongwana

  • South Africa’s 1.8% growth limits Zimbabwe’s export potential and regional economic recovery.
  • Rising South African VAT increases Zimbabwe’s import costs, straining retailers and consumer spending.
  • South Africa’s 76.2% debt-to-GDP curtails regional infrastructure funding, slowing trade and growth.

South Africa’s Finance Minister Enoch Godongwana unveiled the 2025 National Budget on March 12, projecting an average annual economic growth of 1.8% over the next three years. For Zimbabwean businesses and policymakers, this figure raises a pressing question: is it enough to pull South Africa—and the region—out of its economic quagmire? As Zimbabwe’s largest trading partner, supplier of consumer goods, and the economic powerhouse of Southern Africa, South Africa’s fiscal health is a critical determinant of Zimbabwe’s own economic fate. With a revised VAT increase, a ballooning debt-to-GDP ratio of 76.2%, and persistent structural challenges, the budget’s implications ripple far beyond Pretoria, casting a shadow over Zimbabwe’s retail sector, financial stability, and broader economy.

South Africa’s projected 1.8% growth rate, while a step up from recent years of stagnation, falls short of the 3% or higher that economists argue is necessary to meaningfully reduce unemployment and stimulate consumer demand. For a country grappling with logistical bottlenecks—underperforming railways and ports—and an energy crisis that continues to hobble industry, this modest target reflects cautious optimism rather than bold ambition. The budget allocates over R1 trillion for infrastructure over three years, including R402 billion for transport and logistics, yet implementation delays and inefficiencies have historically undermined such promises.

For Zimbabwe, this tepid growth spells trouble. South Africa accounts for over 60% of Zimbabwe’s imports, including staples like maize, fuel, and manufactured goods. A sluggish South African economy translates to weaker demand for Zimbabwean exports—such as tobacco and minerals—while limiting the supply of affordable consumer goods. Retailers in Harare and Bulawayo, already strained by Zimbabwe’s own currency volatility (the Zimbabwe Gold, or ZiG, lost nearly half its value in 2024), may face higher import costs and reduced consumer purchasing power as South Africa’s economic engine sputters.

The budget’s most contentious measure is a phased VAT increase: 0.5 percentage points to 15.5% on May 1, 2025, and another 0.5 points to 16% on April 1, 2026. This is expected to raise R28 billion in 2025/26 and R14.5 billion in 2026/27, aimed at funding education, health, and social grants. To cushion the blow, the government has promised above-inflation grant increases and zero-rating more food items. Yet, this tax hike risks stoking inflation and curbing consumer spending—two factors that could derail South Africa’s growth efforts.

For Zimbabwean retailers, the VAT increase is a direct hit. South African goods, from groceries to electronics, dominate Zimbabwe’s shelves. A higher VAT will likely raise wholesale prices, squeezing margins for businesses already battling a 21% unemployment rate and widespread informality. Inflation, projected to stabilize at 24.9% in Zimbabwe for 2025, could climb further as imported goods become pricier, eroding household budgets and dampening retail sales. The financial sector, too, feels the strain: Zimbabwean banks, reliant on South African correspondent banking relationships, may see tighter liquidity as cross-border trade slows.

Debt-to-GDP at 76%: A Sustainable Burden?

South Africa’s debt-to-GDP ratio, set to peak at 76.2% in 2025/26, is a red flag. Debt-service costs, at R424.9 billion, devour one-fifth of the budget, leaving scant room for growth-oriented investments. While the government touts a primary budget surplus (0.9% in 2025/26, rising to 2% by 2027/28) as evidence of fiscal discipline, this focus on debt stabilization comes at a cost. Critics argue it starves the economy of stimulus, perpetuating a cycle of low growth and high unemployment.

For Zimbabwe, this debt burden has regional implications. South Africa’s fiscal constraints limit its ability to invest in shared infrastructure, like the Beitbridge border post or regional energy projects, critical for Zimbabwe’s trade logistics. A cash-strapped South Africa may also scale back imports, hitting Zimbabwe’s mining sector—gold, lithium, and nickel—which relies on South African demand. With Zimbabwe’s own debt at 87% of GDP in 2023, the region risks a twin debt crisis, stifling investment and growth.

Tackling Revenue, Restructuring, and Corruption: Is South Africa Doing Enough?

The budget aims to expand revenue through the VAT hike and a R4 billion boost to the South African Revenue Service (SARS) for tech-driven tax collection. Yet, these measures barely scratch the surface of South Africa’s revenue potential. Untapped corporate tax reforms or a crackdown on illicit financial flows could yield more without burdening consumers. On restructuring, plans to concession freight rail and ports to private players by June 2025 are promising but lack firm timelines. Corruption, meanwhile, remains a gaping wound: a “ghost worker” audit and spending reviews are steps forward, but the absence of high-profile prosecutions undermines credibility.

Zimbabweans watching from across the Limpopo see a familiar script. Their own government’s anti-corruption rhetoric has yielded little, and South Africa’s half-measures offer scant hope for a regional turnaround. Zimbabwe’s financial sector, plagued by weak governance, could benefit from a stronger South African lead on transparency, but the budget falls short of setting that example.

Zimbabwe’s Exposure: Retail, Finance, and Beyond

Zimbabwe’s economy, projected to grow just 2% in 2024 due to drought and falling mineral prices, hinges on South Africa’s trajectory. The retail sector faces a double whammy: higher import costs from the VAT hike and reduced South African demand for Zimbabwean goods. Financially, Zimbabwe’s banks, tethered to South Africa’s system, may see capital flows tighten as South African lenders prioritize domestic recovery. Regionally, trade within the Southern African Development Community (SADC), where South Africa is a linchpin, could stagnate, leaving Zimbabwe’s exporters—like lithium miners—scrambling for new markets.

Yet, there’s a silver lining. South Africa’s R219.2 billion energy investment could ease power shortages, benefiting Zimbabwe if cross-border electricity trade resumes. Infrastructure bonds planned for 2025/26 might also draw Zimbabwean firms into regional projects, provided corruption doesn’t siphon funds.

Call for Bolder Action

South Africa’s 2025 Budget is a tightrope walk—balancing debt, welfare, and growth—but it risks falling short for both itself and Zimbabwe. A 1.8% growth rate won’t lift the region from its slump; the VAT hike may fuel inflation over investment; and a 76% debt ratio, while manageable with discipline, strains the fiscus unduly. South Africa must pivot: slash wasteful spending (R60 billion, as the Democratic Alliance suggests, is just 3% of its R1.9 trillion budget), fast-track private-sector reforms, and root out corruption with teeth, not promises.

For Zimbabwean businesses, the message is clear: diversify trade partners—China, already a mining ally, beckons—and bolster domestic resilience. South Africa’s lifeline is fraying, and Zimbabwe’s economic survival demands looking beyond its southern neighbour. As the region’s giant stumbles, Zimbabwe must find its own footing—or risk being dragged down with it.

- Equity Axis