SA ‘will ride commodity boom’ for two years

With mining companies riding the commodity price boom and reporting bumper profits, the fiscus is poised for a tax windfall over the next two fiscal years, economists say.

The gold price reached record levels, touching $3,431 an ounce in late 2025 as a result of global trade wars, while platinum group metals staged a comeback, resulting in a surge in the prices of platinum, rhodium, palladium and ruthenium.

Gold producers are in a sweet spot, with Pan African Resources shooting out the lights and declaring a maiden interim dividend this week in its results announcement for the half year ended December 2025.

Peers DRDGold, Gold Fields and Sibanye-Stillwater also posted strong profits, with Harmony Gold Company expected to release results next month, along with PGM producers.

The positive results and data from the mining sector are likely to get a mention in some capacity from finance minister Enoch Godongwana when he tables his budget this week.

There is going to be a lot of revenue, which will enable the government to start fixing water, schools and Transnet.

—  Niël Pretorius, DRDGold CEO

South Africa’s last blockbuster commodity supercycle was in the early 2000s. Since then, the mining sector has had to press on in unfavourable conditions that included elevated electricity costs, regular power supply interruptions until last year, and contentious regulations.

Speaking after the release of the group’s financial results, DRDGold CEO Niël Pretorius said the gold and platinum industries would enable the government this year to invest the money into capital infrastructure.

“There is going to be a lot of revenue flowing into the government, which will enable them to start fixing water in Joburg, start fixing schools, fix Transnet, and stay away from things they know nothing about, like healthcare, which they should leave to the private sector.”

A year ago, the government dropped its plan for a 0.5 percentage point VAT hike after strong pushback from civil society and political parties, resulting in a revenue shortfall over the medium term. The government revised down its tax revenue projections by R61.9bn over the three years, reflecting the decision to reverse the VAT increase and the much weaker economic outlook.

However, sentiment is shifting after the rand breached R16 to the US dollar and S&P Global upgraded South Africa’s sovereign credit rating for the first time in 16 years. The country was also removed from the FATF greylist.

Budget boost

Hethen Hira, spokesperson for Pan African Resources, said all indications were that the increased contributions from mining companies had helped fill the country’s coffers, and this boosted rand strength.

“So it will definitely help the budget. Just imagine the contribution from mining companies if our mineral rights application processes were more investor-friendly to international companies,” he said.

While some economists could not quantify the impact of the windfall on the fiscus, many said that given South Africa’s narrow fiscal space, it was “reasonable” to expect that robust mining tax receipts would help Godongwana present improved near-term fiscal metrics in the budget.

Prof Raymond Parsons of the North-West University Business School said the National Treasury’s immediate challenge was to effectively mobilise the commodity price boom in the fiscal outlook and keep its eye on the longer-term mining outlook.

“The fiscus should treat current mining profits as temporary revenue buoyancy, not a permanent structural improvement,” he said.

He highlighted the state of the nation address, in which President Cyril Ramaphosa emphasised that South Africa still had about $2.5-trillion worth of ore reserves. However, in the long term, policy must enable minerals to be mined, processed and exported.

“The potential for the fiscus, therefore, hinges not only on South Africa’s ability to sensibly exploit the immediate commodity boom but also on boosting the policy certainty and long-term investor confidence required to open new mines,” Parsons said.

The potential for the fiscus, therefore, hinges not only on South Africa’s ability to sensibly exploit the immediate commodity boom but also on boosting the policy certainty and long-term investor confidence required to open new mines

—  Prof Raymond Parsons, North-West University Business School

Johann Els, chief economist at PSG Financial Services, expects the bulk of the extra taxes generated from higher mining profits and royalties to be realised in the 2026/27 and 2027/28 fiscal years.

Els estimated that, based on the climbing commodity prices and profits, between R30bn and R40bn in extra mining company taxes should be expected in 2026/27 and the same in the next fiscal year.

He said between R10bn and R15bn a year in extra mining royalties can be expected over the next two fiscal years, adding that it was important not to spend the windfall.

“The prudent thing to do is to use it to lower the budget deficit and reduce the debt-to-GDP ratio. Through that, we can get ratings agencies to view the budget favourably and keep the pressure on them to upgrade South Africa’s credit ratings,” he said.

South Africa’s debt servicing costs were set to be more than R1.3-trillion over the next three years, meaning in 2025/26 alone, the government spent around R1.2bn per day to service our debt.

Els said economic growth is still weak, but much has been done to address electricity shortages through the private sector.

Maarten Ackerman, chief economist at Citadel, said the commodity windfall would introduce targeted incentives, similar to the previous solar tax incentive, aimed at crowding in private investment in energy, logistics and infrastructure.

He said the commodity cycle, especially the strong performance of gold and platinum, which has provided a considerable fiscal windfall, is creating a more favourable backdrop for this year’s budget.

Ackerman highlights that the country has also benefited from a stronger rand, which helped to reduce import-driven inflation. Bond yields have improved, moving from 11% to below 9% over the past year, lowering government borrowing costs, and confidence has improved on the back of positive rating reviews and the country being removed from the greylist.

“We are also seeing early signs of more diversified domestic growth, with notable improvements in energy, logistics and tourism. This should support the budget’s growth assumptions.”

Targeted incentives

He suggests using a portion of the commodity windfall to introduce targeted incentives, similar to the previous solar tax incentive, aimed at attracting private investment in energy, logistics and infrastructure.

“Much of the positive momentum is already priced into markets. Commodity tailwinds can reverse quickly, and sustainable growth depends on continued structural reform.”

Nolan Wapenaar, head of fixed income and co-chief investment officer at Anchor, said ahead of the budget speech that exposure to global commodity and rate cycles added further complexity, as if not managed prudently, these factors could undermine investor and business confidence.

“A rotation of global capital flows, a weaker US dollar, supportive commodity prices and improving domestic policy credibility have combined to create one of the most constructive backdrops for the local economy in more than a decade.

“In several respects, South Africa enters 2026 surprisingly better positioned than a year ago, contributing to a degree of economic resilience.”

Business Times