How Our Politicians Let South Africa Stop Producing and Start Consuming

In 1996, South Africa was a young democracy. The country was hopeful, recovering from apartheid, and looking to build a strong economy. The Rand was struggling against international currencies like the US dollar and the British pound. Many saw this as a weakness. But on a radio broadcast that year, a man said something that stuck with me: “A weaker Rand is a good thing. It attracts foreign investors and creates jobs.”

He wasn’t wrong. 

The USA begins to invest in the democratic South Africa

The United States saw an opportunity and started investing heavily in South Africa. By 2004, American companies had set up shop here, creating factories and employing thousands of South Africans. Under President Thabo Mbeki, trade relations grew even stronger. For a while, the Rand recovered. It reached R5 to the dollar. But it didn’t last. The Rand began to fall again—and with it, long-term economic stability.

Still, U.S. companies stayed. They paid less for labour because the weak Rand made South African workers cheaper. They also had access to raw materials and low operating costs. So yes, jobs were created. But American companies made even bigger profits from South Africa than they gave back.

China did not want to be left behind in benefiting from the mineral resources and the resources of the country of South Africa

Then China entered the picture.

Unlike the U.S., China didn’t build anything in South Africa. No factories. No job creation. China built factories in China—and then exported the goods here. Our politicians allowed it. Suddenly, every market, every store, and every informal trader was flooded with cheap Chinese goods: paper cups, plastic containers, furniture, and toys.

We could have made those things here.

I watched this happen. I worked in a warehouse that imports Chinese goods. One day I could not believe my eyes when I saw coffee table benches being delivered into the country. I mean, how difficult can it be to make coffee table benches, paper cups and paper platters? But those are also shipped from China and if you are a local manufacturer you will not compete with their price, and consequently your firm will fall. So, local businesses couldn’t compete. One man called Nigel is said to have had 28 employees in his stoves and ovens producing factory, and they'd sell their ovens at R35000 but a Chinese made oven came and was selling at R6500, and put them out of business. That is not right.

In situations like these, one must ask themselves if Trump (Donald Trump the president of the US) is wrong or right. 

Poor economic decisions making, neglecting economists' advices

This wasn’t just a market shift. It was economic sabotage, enabled by our own government. The problem wasn’t China. China played the game. The problem was that our politicians didn’t. According to  Iraj Abedian of the Pan African Investment and Research, as quoted by the Sunday Times (link below) "...we are being screwed. "Not because the Chinese have been smart but because we've been snoozing and naïve."

I understand the geopolitical play here, but the problem is that our leaders acted as if we were begging China for BRIC instead of leveraging what we had. Clearly, we were bringing so much more to the table, so we deserved to carry ourselves with dignity; and we also had to make better deals with the USA too as much as we had to make better deals with China.

But they didn’t insist on production happening on South African soil. They didn’t protect local industries. They didn’t negotiate fair trade. Instead, they opened the gates and let everything [from China] in  —cheap, mass-produced, foreign goods that killed our factories and took away our jobs.

This is the cost of poor trade policy. South Africa went from producing to consuming. From exporting goods to importing plastic. From job creation to mass unemployment.

All because no one in power thought ahead.

Go deeper, links here

Our South African economy seems to have been and is still balanced mostly by foreign economies, so if those economies sneeze our economy shakes or takes a dive. Here is a detailed Wikipedia timeline of the Rand, from its inception, throughout presidents, till President Jacob Zuma ➜ Wikipeadia  

Here is a link to the Rand vs the then trading partners in the early years of the Rand, at Justice.gov.za website  

How China has been bleeding South Africa dry, compared to the USA which has actually been somewhat seeding South Africa, here is the link to the Sunday Times 

The VAT Dilemma: Why It Matters for South Africa’s Future

Vat is set to increase by 0.5% on the 1st of May 2025, making it 15.5%

As South Africa stands on the brink of a potential VAT increase, public anxiety is mounting—and rightly so. Value-Added Tax (VAT) is more than just a figure on your till slip; it’s a crucial lever governments use to manage national finances. Yet, adjusting this lever—even slightly—can have profound effects on the lives of ordinary South Africans, especially the poor and the middle class.

Let’s unpack why VAT increases happen, what happens if they don’t, and how both outcomes have ripple effects—some necessary, some painful.

Why Do Countries Increase VAT?

1. Revenue Generation for Public Services
   Governments, especially in developing economies like South Africa, rely heavily on VAT to fund essential services—education, healthcare, social grants, infrastructure, and policing. When a country faces budget shortfalls due to poor economic growth, corruption, or external shocks (like pandemics or global inflation), VAT becomes an appealing option. It’s broad-based, relatively easy to collect, and hard to avoid.

2. Reducing Budget Deficits
   A growing national debt limits a country’s ability to borrow affordably. Increasing VAT is often seen as a responsible step to reduce fiscal deficits and reassure lenders and investors that the country is managing its finances prudently.

3. Compensating for Narrow Tax Bases
   In many countries, income tax is paid by a small portion of the population. In South Africa, fewer than 8 million people shoulder most of the personal income tax burden—out of a population of over 60 million. VAT allows the state to widen the net.

What Happens If VAT Is Not Increased?

While increasing VAT is painful, not increasing it can be just as damaging in the long term:

• Collapse of Public Services: Hospitals, schools, and municipal infrastructure could suffer from chronic underfunding. Load shedding, water cuts, and deteriorating roads become part of daily life.

• Rising Debt and Borrowing Costs: If the government keeps borrowing to fund basic services without increasing revenue, credit ratings drop. This raises the cost of borrowing and crowds out spending on the poor and vulnerable.

• Inflationary Pressures Elsewhere: To avoid VAT increases, governments might resort to borrowing more or printing money, which fuels inflation—ultimately hitting the poor hardest through food and fuel price hikes.

But What About the Negative Effects of Increasing VAT?

Make no mistake: raising VAT hurts. It especially pinches the poor and middle class.

1. Regressive Nature of VAT
   VAT is a consumption tax. That means everyone pays it, regardless of income. But poorer households spend a larger share of their income on essentials. Even with zero-rated items like bread, maize meal, and vegetables, many necessary items—like soap, electricity, school shoes, and transport—still attract VAT. A 1% VAT hike can make the difference between having enough for the month and going into debt.

2. Shrinking Middle-Class Disposable Income
   For the middle class, VAT increases chip away at already-thin margins. This class is the backbone of consumer spending. As their disposable income shrinks, so does demand for goods and services, slowing economic growth and job creation.

3. Impact on Small Businesses
   VAT increases can dampen consumer demand, leading to lower sales. For small businesses already fighting high fuel prices, red tape, and crime, a VAT hike might be the final nail in the coffin.

4. Erosion of Trust in Government
   When citizens see corruption and mismanagement, VAT increases feel like punishment. People may resist compliance or reduce consumption, further undermining government revenue.

So What's the Middle Ground?

If a VAT increase is unavoidable, protective buffers are essential:

• Expand the list of zero-rated essential goods.

• Provide larger or more frequent social grants to offset the burden.

• Improve transparency: show citizens exactly how VAT revenue will be used.

• Clamp down on corruption and wasteful expenditure, so citizens feel they are getting value for their money.

Conclusion: A Balancing Act with Human Costs

VAT increases are a double-edged sword. While they can stabilize public finances and support critical services, they also risk deepening inequality if not carefully managed. The poorest and most vulnerable in South Africa are already teetering under the weight of unemployment, inflation, and service delivery failures. A VAT increase may tip some over the edge—unless paired with bold, fair, and transparent policy action.

South Africa’s economic future hangs in the balance—and the decisions made now will shape not only the national balance sheet, but the daily lives of millions.