At a moment when South Africa confronts its most severe fiscal constraints since democracy – with debt servicing costs projected to reach R478.6-billion by the fiscal year 2027/28, exceeding combined spending on health, basic education and social development – the global architecture of industrial policy has undergone a fundamental mutation.
The era of passive state intervention through subsidies and tax incentives has ended. In its place has emerged what can only be described as the age of the sovereign venture capitalist – governments taking direct equity stakes in strategic enterprises, fusing the roles of regulator, investor and national security custodian.
For South Africa and the broader Southern African Development Community region, this transformation arrives at a precarious juncture. While Pretoria wrestles with a debt-to-GDP ratio stabilising at 76.2%, fiscal consolidation measures, and the devastating impact of 30% US tariffs threatening 100,000 jobs in automotive and agriculture, the world’s major powers are rewriting the rules of economic competition.
The United States’ Chips Act equity warrants, Europe’s strategic autonomy funds, and China’s zero-tariff policies for 53 African nations represent not merely shifts in industrial policy, but a comprehensive reimagining of state-market relations with profound implications for African sovereignty, industrialisation, and development trajectories.
The death of laissez-faire industrial policy
For three decades, the global consensus on industrial policy was defined by studied detachment. Governments, wary of accusations of “picking winners,” limited interventions to the periphery – offering tax credits for R&D, grants for manufacturing, regulatory sandboxes for innovation. The state acted as gardener: watering the soil, pruning hedges, but trusting the private sector to determine what grew.
That era is decisively over. Driven by the fracturing of the geopolitical order and the rise of dual-use technologies spanning defence, artificial intelligence, quantum computing and space exploration, the state is no longer content to be benefactor or regulator. Today, governments are stepping directly onto the playing field, transitioning from grant-makers to shareholders. We are witnessing the fusion of national security and economic competitiveness into a singular strategic imperative.
The catalyst is clear: in critical sectors, traditional procurement timelines and passive subsidies prove insufficient. Private sector innovation vastly outpaces state bureaucracy, while the capital intensity required to scale deep technologies exceeds what traditional venture capital markets – obsessed with quarterly metrics and rapid exits – will tolerate.
Consequently, state-backed investment vehicles now take direct equity stakes in startups, capturing not merely procurement relationships but strategic upside and governance influence.
SA’s moment of maximum vulnerability
This global transformation arrives as SA navigates its most treacherous economic passage since 1994. The numbers tell a sobering story: the country confronts what economists term the r > g dilemma: interest rates on government borrowing exceed economic growth rates, rendering debt accumulation structurally unsustainable. SA’s social wage – comprising social grants, education, healthcare and housing – consumes 61% of non-interest spending, leaving minimal room for productive investment in infrastructure, energy or industrial policy.
A diplomatic rupture with economic consequences
The diplomatic relationship between Washington and Pretoria has entered its most turbulent phase since apartheid’s end. What began as strategic divergence over Russia’s invasion of Ukraine and South Africa’s International Court of Justice genocide case against Israel has metastasised into a comprehensive rupture, with devastating economic implications.
The Trump administration’s punitive measures
The 30% reciprocal tariff imposed in August 2025 represents the steepest duty on any sub-Saharan nation. Carnegie Endowment analysis confirms that this places SA among only four countries globally – alongside Brazil, China and Switzerland – facing “significantly higher” tariffs than their competitors. The automotive sector alone, representing 5% of GDP and 18% of exports, saw May 2025 exports to the US plunge by 82.2% year-on-year. Agricultural exports, particularly citrus and wine, face similar devastation.
Beyond tariffs, the Trump administration suspended 30 years of bilateral defence cooperation, froze Pepfar funding ($460-million in 2023 – 18% of SA’s HIV/Aids budget), and expelled Ambassador Ebrahim Rasool after he criticised the administration during a private webinar.
Most controversially, an executive order offered asylum to white South African farmers, citing alleged persecution – a narrative Cardinal Stephen Brislin of Johannesburg condemned as “irresponsible claims” that “put race relationships at risk”.
President Cyril Ramaphosa’s May 2025 White House meeting with Trump – during which Trump accused him of failing to address alleged attacks on Afrikaner farmers – produced no breakthrough. The US boycott of SA’s G20 Summit in Johannesburg signalled complete diplomatic isolation. As Foreign Policy Research Institute scholar Charles Ray notes: “Historical legacies, divergent strategic priorities, and SA’s growing ties to China and Russia all conspire against the emergence of truly friendly relations.”
The BRICS alternative: promise and peril
As US relations deteriorate, SA’s BRICS membership offers an alternative architecture – but one riddled with complexity. China’s announcement of zero-tariff policies for 53 African nations provides immediate relief, yet Sino-African trade already quintuples US-Africa commerce. The recent BRICS foreign ministers meeting in Rio de Janeiro exposed deep fissures: Egypt and Ethiopia blocked a declaration supporting SA’s UN Security Council aspirations, demonstrating that expanded BRICS membership brings not solidarity but intensified competition among African nations.
As Africa Confidential observes, while the Kazan summit excelled at political posturing – attacking Western sanctions against Russia and Israel’s Gaza operations – it failed to operationalise alternatives to the Swift payment system or establish functional economic mechanisms. If BRICS cannot agree on policy, its capacity to rival the G20 or provide viable economic alternatives remains rhetorical rather than substantive.
Strategic implications for SA and SADC
The emergence of sovereign venture capitalism presents SA and SADC leadership with five critical imperatives:
1. Reconceptualise state-market relations
The passive state is obsolete. From the US Chips Act equity warrants in semiconductor champions to France’s Definvest stakes in dual-use technologies, major powers are directly owning critical national assets. SA’s Industrial Development Corporation (IDC) and Public Investment Corporation (PIC) must evolve from passive financiers to strategic equity holders in quantum computing, AI, renewable energy and defence technologies. The question is not whether the state takes equity stakes, but in which sectors such stakes are essential for sovereignty.
2. Navigate the capitalisation table as foreign policy
When governments become major shareholders, investor relations become indistinguishable from foreign policy. A South African technology firm accepting Pentagon equity locks itself into a specific geopolitical orbit, potentially precluding Chinese investment or market access. Conversely, accepting Chinese state capital may trigger US sanctions or export controls. SADC nations must develop sophisticated frameworks for managing these dynamics, recognising that every investment decision now carries diplomatic ramifications.
3. Address the governance paradox
When the government becomes both regulator and shareholder, conflicts of interest proliferate. If a state-backed quantum firm fails safety standards, will it be allowed to fail, or will “too big to fail” morph into “too strategic to fail”? How does the Competition Commission impartially adjudicate cases involving firms where the Treasury holds board observer seats? SA’s hard-won independence of institutions like the Reserve Bank and judiciary must be protected even as the state deepens market participation.
4. Mobilise patient capital in a crisis
With debt servicing consuming 21.7% of revenue and infrastructure backlogs exceeding R1-trillion, SA cannot afford the luxury of passive industrial policy. The African Development Bank’s Desert-to-Power initiative demonstrates how strategic capital deployment – solar mini-grids enabling vaccine refrigeration in rural Niger – transforms abstract targets into lives saved. SA must similarly deploy patient capital toward Mission 300’s goal of connecting 300 million Africans to electricity by 2030, recognising that energy access is the foundation of all industrial strategy.
5. Leverage AfCFTA as counter-architecture
The World Bank estimates full African Continental Free Trade Area (AfCFTA) implementation could lift 30 million Africans from extreme poverty and raise incomes by 7% by 2035. As US and European markets erect tariff walls, intra-African trade becomes not merely aspirational but existential. Transport corridors financed by the African Development Bank are already cutting clearance times and logistics costs. SA’s industrial strategy must prioritise regional value chains over bilateral dependence on declining Western partners.
The age of economic statecraft
Economist Carlos Lopes warned that Africa “must not develop new dependencies”. The sovereign venture capitalist model presents exactly this risk: exchanging colonial extraction for neocolonial equity stakes where foreign states own critical domestic assets. Yet refusing to adapt while major powers rewrite global economic architecture ensures marginalisation.
SA confronts this challenge from a position of structural weakness. Debt servicing exceeds health and education spending combined. US tariffs threaten 100,000 jobs. Diplomatic isolation intensifies. Yet history suggests that constraint breeds innovation. The same fiscal discipline forcing hard choices about budget allocation should compel strategic thinking about which sectors merit state equity stakes, which partnerships serve genuine sovereignty rather than symbolic alignment, and how regional integration through the African Continental Free Trade Area can reduce dependency on any single power.
The government is no longer merely the referee. It is player, partner, and increasingly the most demanding shareholder in the room. For South African and SADC leadership, navigating this convergence requires not just economic acumen but diplomatic sophistication that understands the new rules of geoeconomic statecraft.
The state has pulled up a chair at the table. The question is whether it plays its hand with strategic wisdom or squanders its remaining chips on losing bets dictated by others. DM
Thato Mmereki is president of SBM-Devco, Chairperson of South Africa’s National Gambling and Wagering Policy Council, and CFO of the China-South Africa Forum.