South Africa's financial markets took a hit on Monday as the rand, stocks, and government bonds all slumped following comments from U.S. President Donald Trump. Trump announced that he would suspend aid to South Africa, claiming—without citing evidence—that the country was "confiscating land" and that "certain classes of people" were being treated "very badly." He added that funding would be cut off until the matter was investigated.
In response, South African President Cyril Ramaphosa stated that his government had not confiscated any land and emphasized that the country's land reform process followed specific legal conditions. Ramaphosa, who recently signed legislation allowing land expropriation under certain circumstances, said he would engage with Trump to foster a better understanding of the situation.
Following Trump's remarks, the South African rand weakened against the U.S. dollar, trading at 18.8450 by 13:30 GMT, a 0.7% decline from its closing level on Friday. Earlier in the day, the currency had fallen nearly 2%. The Johannesburg Stock Exchange also reflected market unease, with the Top-40 index dropping by 0.5%. Additionally, the benchmark 2030 government bond price slid, and the cost of insuring South African debt against default rose to its highest level since early August.
U.S. financial support to South Africa is largely directed toward the country's HIV/AIDS programs. However, Trump's comments created uncertainty among investors, raising concerns about the potential for a broader review of diplomatic and economic ties between the two nations. Analysts warned that key South African industries, such as the automotive and agricultural sectors, could be particularly vulnerable if the U.S. were to restrict trade benefits. Currently, South Africa enjoys duty-free access to the U.S. market under the African Growth and Opportunity Act, a Clinton-era trade initiative.
Casey Sprake, an investment analyst at Anchor Capital, highlighted the risks posed to these industries, while Investec economist Annabel Bishop pointed out that the rand was already under pressure due to broader global trade tensions. Trump's tariffs on Canada, Mexico, and China have pushed many global currencies to multi-year lows, further compounding the strain on South Africa's currency.
Meanwhile, South Africa's manufacturing sector continued to struggle, with business conditions deteriorating for the third consecutive month. The market uncertainty, coupled with global economic pressures, has left South Africa's financial landscape on shaky ground as investors weigh the implications of Trump's statements and potential shifts in U.S. policy.
Source: CNBC Africa