Chris Midgley
16 Apr 2025
South Africa’s Government of National Unity (GNU), was formed in June 2024 as a result of the African National Congress’s (ANC) loss of its parliamentary majority. The GNU has brought together 11 political parties in a coalition aimed at fostering economic recovery and stability. While the GNU has sparked optimism for political co-operation, its internal challenges have created uncertainties that ripple across the economy, particularly impacting the hospitality industry and tourism-related businesses, which are critical to South Africa’s economic growth.
The GNU’s Promise and Its Challenges
The various political parties in the GNU came together to address South Africa’s pressing socioeconomic issues, including unemployment, poverty, and infrastructure deficits. The ideal was to make use of a collaborative approach prioritising economic growth and job creation. The hospitality industry, which contributes approximately 2.9% to the GDP and supports over 1.49 million direct and indirect jobs, would be ideally placed to benefit from policies promoting tourism and economic stability. However, the coalition’s diversity, while inclusive, has led to tensions that undermine its overall effectiveness.
Ideological Clashes: The GNU comprises of political parties with vastly contrasting agendas, and this has led to a major clash in terms of political party ideology. One such example is the Democratic Alliance (DA), pro-business and pro-private sector approach, vs. the ANC, leans more toward welfare-oriented policies. Most recently a dispute, notably over the 2025 national budget’s Value Added Tax (VAT) increase from 15% to 15.5% (with a further rise to 16% planned for 2026), highlights these divisions within the GNU. The DA’s opposition to the VAT hike, saw them voting against the GNU, forcing the ANC to rely on smaller parties to pass the budget, exposing coalition fragility.
Policy Incoherence: The lack of a unified policy framework, has created uncertainty for businesses. For instance, disagreements over the National Health Insurance (NHI) bill and education reforms have delayed reforms critical to improving consumer confidence and spending, both vital for hospitality. Both of which directly impacted the tourism and hospitality industries.
Governance Delays: Coalition dynamics have slowed decision-making processes and the GNU’s reliance on consensus, where no agreement often defaults to “sufficient consensus,” risks stalling initiatives like the National Air Access Strategy, which aims to boost tourist arrivals through new direct flights. These issues foster an environment of unpredictability, which directly affects the hospitality sector’s ability to plan and thrive, as well as consumer confidence in South Africa as a destination.
Economic Ripple Effects on Hospitality
We have seen time and again, that the hospitality industry is highly sensitive to economic conditions and consumer sentiment, both of which have been are influenced by the GNU’s performance. The following are some of the GNU’s challenges:
Reduced Consumer Spending: The VAT increase, raises the cost of goods and services, including dining out and domestic travel. For restaurants and hotels, this squeezes profit margins as businesses face higher costs for supplies like food, beverages, and utilities. The 0.5% VAT increase is estimated to raise inflation by 0.1–0.2 points, potentially prompting tighter monetary policies from the South African Reserve Bank. Higher interest rates could further curb consumer spending, leaving hospitality businesses with fewer guests. Industry leaders warn that South Africa’s appeal as a “value-for-money” destination is eroding, particularly for domestic tourists who make up a significant portion of demand.
Tourism Uncertainty: Tourism, a cornerstone of hospitality, relies on stable governance to attract international visitors. In 2023, South Africa welcomed 8.5 million international tourists, a 48.9% increase from 2022, contributing R95 billion to the economy. However, the GNU’s internal squabbles risk deterring investors and tourists. For example, delays in implementing the National Air Access Strategy could limit direct flights from key markets like India, constraining arrivals. Additionally, global perceptions of instability may discourage bookings, as travellers prioritise destinations with a more predictable environment.
Operational Cost Pressures: Hospitality businesses face rising operational costs due to the VAT and inflation increase. Hotels, which offer a mix of taxable (e.g., dining, spa services) and zero-rated services (e.g., room rentals for foreign guests), must navigate complex cost structures. Smaller establishments, already recovering from post-COVID losses, may struggle to absorb these costs without raising prices, risking reduced bookings. The GNU-related uncertainties make the sector more vulnerable.
Investment Hesitancy: The GNU’s goal of fostering inclusive economic growth is highly dependent on attracting international investment, but political infighting undermines confidence. The hospitality industry, is projected to reach USD 1.76 billion by 2030 with an annual growth rate of 4.43%, but in order to achieve this, the hospitality industry will requires capital for expansion and modernisation. However, investors may hesitate if coalition disputes signal policy reversals or economic stagnation. One such example is the DA’s court challenges to legislation such as the land expropriation act most certainly alarms investors who are wary of any regulatory unpredictability.
Opportunities Amid Challenges
Despite these challenges, the GNU’s focus on economic recovery offers potential upsides for the tourism and hospitality industries:
Tourism Promotion: The Department of Tourism’s five-year plan directly aligns with GNU priorities – targeting 15 million arrivals by 2030. Successful implementation of strategies like the National Convention Bureau, which secured 19 international business event bids for 2024–2025 worth R84.1 million, will most certainly boost hospitality revenue.
Safety Investments: The GNU’s emphasis on inclusive growth includes R174 million allocated towards tourism safety monitors, addressing a critical concern for travellers and potentially increasing visitor confidence.
Luxury Market Resilience: Businesses targeting less price-sensitive luxury travellers are likely to weather cost pressures better.
Adapting to the GNU Era
To navigate these GNU-related challenges, tourism and hospitality businesses can adopt a number of proactive strategies that may help their bottom line:
Cost Management: By leveraging zero-rated goods and optimising supply chains, businesses can mitigate many of the VAT impacts. Offering off-season promotions or partnering with local businesses for package deals could help stabilise income.
Digital Innovation: By accelerating technology adoption, such as data-driven personalisation and upselling, can improve overall efficiency and appeal to more guests.
Advocacy: Engaging with associations like FEDHASA to lobby for favourable policies can amplify the industry’s voice amid the constant coalition debates.
While the GNU’s formation marked a bold step toward collaborative governance in South Africa, its internal issues - ideological divides, policy gridlock, and governance delays – pose significant risks to the tourism and hospitality industries. Rising costs, reduced consumer spending, and tourism uncertainties threaten an already fragile sector. However, there are numerous opportunities that exist for businesses who are able to adapt, pivot and strategically change their ways of working. The GNU’s success in delivering cohesive policies and economic stability will be crucial to unlocking tourism and hospitalities potential as a driver of jobs and economic growth. For now, the industry should brace for a bumpy ride while advocating for a unified vision that prioritises its recovery.