This week started with turmoil in South African markets following President Donald Trump’s decision to suspend all US aid to the country, making unfounded claims that rights violations were tied to a new land-expropriation law.
As global markets responded to Trump’s tariffs on Monday, South Africa’s rand saw an initial decline, while government bond yields surged after the country was named specifically by him.
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The impact of Trump’s aid suspension will mainly hit the over $400 million in annual funding that supports long-standing AIDS prevention and treatment programs in the nation. Investors are also concerned that he may target South Africa’s preferential trade status with the US.
“The USDZAR has exhibited notable price volatility in response to news from the US,” noted analysts at Nedbank Group, including Reezwana Sumad, in a report. “Foreign-exchange markets are particularly sensitive to headlines, especially those regarding tariff implementation and the halting of US aid.”
The rand fell by as much as 1.4% but made a slight recovery, trading 0.1% lower at R18.42 per dollar by 11:32 a.m. in Johannesburg. Furthermore, yields on 2035 government rand bonds increased by eight basis points, reaching 10.51%.
However, the market’s reaction was relatively mild compared to the selloff triggered by Trump’s earlier criticisms of South Africa. The rand declined nearly 2% on February 3 when he first threatened to reduce assistance, making baseless claims that the country was seizing land in a post on Truth Social.
“Without these tensions with the US, we would expect a rally in the rand and South African bonds due to improving economic fundamentals,” commented Marek Drimal, a strategist at Societe Generale SA. “Nonetheless, given the ongoing risk of escalation in US-South Africa disputes, we would advise only buying the rand and bonds on dips.”
Relations with Washington have already been fragile due to South Africa’s hesitance to condemn Russia’s invasion of Ukraine and its case at the International Court of Justice regarding Israel’s actions in Gaza, which it labeled as genocide.
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These tensions intensified last week when Trump and US Secretary of State Marco Rubio inaccurately claimed that South African authorities were confiscating property under the expropriation law, ignoring President Cyril Ramaphosa’s assertion that these allegations are unfounded.
In the last two decades, the US has provided over $8 billion in bilateral aid to South Africa, with a major focus on health initiatives. Additionally, the country has benefitted from the Africa Growth and Opportunity Act, which grants duty-free access for certain exports, including agricultural products and vehicles.
The US is South Africa’s largest trading partner after China, with bilateral trade reaching $24 billion in 2023, according to Bloomberg data.
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