Here comes trouble for South Africa
Citadel Global Director Bianca Botes says that the election of Donald Trump as the 47th president of the United States spells trouble for South Africa and the rand, as global markets enter into a “new era of uncertainty”.
The US election outcome, with Trump winning in a landslide victory, has led to “notable volatility” in the South African rand, she said, noting that as much as 2.5% of its value was erased on Wednesday.
The unit recovered to around R17.50 on Thursday in early trade, but markets are still processing the outcome.
Botes said that the volatility is due to uncertainty over potential shifts in US policy from the Biden administration, which could have a significant impact on global markets.
“The reaction, albeit volatile, does not reflect a ‘shock’ factor, and Trump trade has been priced in over the past few months. We are, however, entering a new era of uncertainty,” she said.
The main points of trouble for South Africa include:
| Trouble Point | What it means for SA |
|---|---|
| Likely US protectionism | Higher tariffs, global tensions, weaker rand |
| South Africa’s ties to countries seen as anti-West | Diplomatic friction with allies, weaker rand |
| The future of the AGOA trade deal | Disruption of exports, blow to economic growth prospects, weaker rand |
| Anti-China stance | Trade war, fuelling risk aversion, weaker rand |
| Russia/Israel conflicts | Fuelling risk aversion, weaker rand |
| Risk aversion / Emerging Market downturn | Weaker rand, higher import costs, higher fuel costs, higher inflation, affecting interest rates |
Trump trouble this way comes
The core trouble has to do with Trump’s belief in American protectionism, and South Africa’s global positioning and ties with countries seen as ‘anti-West’.
“South Africa’s ties with seemingly anti-west countries, as part of the BRICS countries, and Trump’s previous hardline stance against Iran which now forms part of BRICS, puts South Africa in a precarious position on the global stage,” Botes said.
“South Africa’s neutral or positive diplomatic and economic ties with Russia and Iran could strain its relationship with the US under Trump. Should the US pressure South Africa to scale back these associations, it may create diplomatic friction with current allies or even lead to punitive trade measures, negatively impacting investor confidence and the rand.”
Another big concern for South Africa is the long-standing African Growth and Opportunity Act (AGOA).
Botes said this may become a sore point.
“AGOA allows South Africa duty-free access to the US for certain exports, which play an important role in supporting the South African economy.
“Trump has in the past questioned the benefits of AGOA for their economy and might consider revising or even restricting South Africa’s access under this act if he perceives South Africa’s policies as misaligned with US interests, including the interests of their local manufacturers.
“Any loss of AGOA privileges would likely disrupt South African exports, affecting growth projections and placing further pressure on the rand,” she said.
Trump has placed a strong emphasis on protecting American industries and reducing trade deficits – and this could mean tighter trade barriers, ushering in a new era of America protectionism that is likely to cause major disruptions to current global trade dynamics.
“Should he resume tariffs or restrict imports broadly, it could slow global trade, diminishing demand for South Africa’s exports and weakening the rand due to reduced foreign exchange inflows.
“Trump’s protectionism may create ripple effects that will weaken demand for commodities, a major export for South Africa,” Botes said.
As global commodity demand fluctuates, so does the rand, which is highly sensitive to shifts in export volumes and prices, particularly in metals and minerals, she said.
The China problem
Another trouble spot is Trump’s adversarial approach to China – another BRICS ally of South Africa.
Botes noted that Trump’s presidency could trigger another round of trade or geopolitical tensions, which generally increases risk aversion in global markets.
As a result, investors may pull back from emerging market currencies, including the rand, in favour of ‘safer’ assets like the dollar, leading to further rand volatility.
“South Africa’s broader trade relationships with countries like China will likely be scrutinised. If trade tensions between the US and China escalate, it could impact South Africa indirectly, given its strong export and investment ties with China. This uncertainty could increase volatility in the rand as investors weigh potential trade slowdowns,” she said.
Beyond the direct impacts on South Africa, Trump’s position on various geopolitical conflicts—Russia’s invasion of Ukraine, war in the Middle East—could have a ripple effect on global markets. This usually results in risk aversion, which is bad for emerging economies and currencies like South Africa and the rand.
This will be particularly hard-felt in the energy sector and commodities market, where South Africa, as an importer of fuel, would face higher costs, weakening trade balance and impacting South Africans directly through higher fuel and production costs (in turn, impacting inflation, and interest rates).
“Conversely, if global trade tensions ease, it could support emerging market currencies like the rand, promoting long-term stability. We will have to wait and see what happens,” Botes said.
Caution ahead
The Citadel Global director said that, over the long term, the Trump administration is likely to keep the rand under sustained pressure.
She warned that the rand’s performance is always closely tied to global commodity demand – and it may be too early to tell how a Trump presidency might affect this demand.
“If Trump’s policies disrupt global growth, particularly in major economies like China, South Africa’s mining and commodities sectors could suffer, putting further pressure on the rand.
“However, if global economic recovery continues, demand for commodities could bolster the rand, particularly if emerging markets see increased capital inflows,” she said.
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