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US President Donald Trump’s threat to cut off funding to South Africa because he thinks government is confiscating land and treating “certain classes of people very badly” has local economists worried, with one questioning whether Trump is weaponising the dollar against South Africa.
Trump said in a post on his Truth Social page on Sunday that it is a massive human rights violation and that the US will not stand for it but will act. “Also, I will be cutting off all future funding to South Africa until a full investigation of this situation has been completed,” he wrote.
Professor Bonke Dumisa, an independent economic analyst, says Trump’s message unleashed the worst of the current weaponisation of the US dollar, as the rand opened significantly weaker against all the three major foreign currencies.
The rand opened at R18.97/US$, occasionally straying above the R19 psychological barrier levels, compared to Friday’s opening rate of R18.56. It also opened relatively weaker at R23.32 against the UK pound sterling compared to Friday’s opening rate of R23.06 and significantly weaker at R19.39 against the euro compared to Friday’s opening rate of R19.28.
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Dumisa says he is irritated to see that people who want all their exclusive racial privileges of the past under apartheid now use Trump to pursue their opposition to any reasonable redress of the past racial imbalances.
“It is very irritating to read Trump’s message where he claims that there will be land grabs against certain racial groups in South Africa. This is nonsense. Any proper reading of the recently signed Expropriation Act is very clear that there will be no such land grabs.
“It is unfortunate that the rand is bleeding like this due to deliberate distortion of facts about the real intentions of the Expropriation Act. We want a stronger rand, but South Africa cannot be blackmailed into ignoring economic redress because of the weaponisation of the US dollar.”
He says the ban on funding will mostly be felt in areas such as aids research and funding health-related NGOs in South Africa. “We do not expect so much negative repercussions for ordinary trade relations.”
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Louw Nel, a senior political analyst at Oxford Economics Africa, says the extraordinary broadside aimed at South Africa immediately prompted speculation about Trump’s motivations. “Indeed, no property has been confiscated in South Africa using the Expropriation Bill or any other instrument.
“However, lobby groups like AfriForum have long been lobbying US politicians, particularly members of the Republican Party, on claims of racial discrimination and threats to private property rights. Trump counts South African billionaire Elon Musk among his closest advisors, and Musk has used his X platform to amplify similar claims in the past.”
Nel points out that the Trump administration has also taken aim at diversity, equity and inclusion (DEI) initiatives at home and most recently implied, without evidence, that DEI policies somehow contributed to a fatal plane crash in Washington and will no doubt view South Africa’s black economic empowerment (BEE) policies as discriminatory.
Trump is also set to welcome Israel’s Prime Minister Benjamin Netanyahu as his first visiting head of state. The US president and his party have criticised South Africa for referring Israel, a key US ally, to the International Court of Justice (ICJ) for the contravention of the Genocide Convention in 2024, accusing both Pretoria and the court itself of bias.
He also criticised the International Criminal Court (ICC) for issuing a warrant of arrest for Netanyahu, a move South Africa welcomed and threatened to sanction ICC officials for investigating allegations of war crimes against any Israeli leaders or military personnel.
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Nel says South Africa-US relations have been fraught for some time now, with Pretoria and Washington clashing on a number of issues even before Trump’s return to office. His predecessor, Joe Biden, also took exception to Pretoria’s ICJ case against Israel, and former US ambassador Reuben Brigety claimed in 2023 that South Africa was supplying Russia with munitions.
He adds that South Africa’s membership of Brics is another matter that vexes the US, with Trump recently threatening the bloc, saying the US will require a commitment from “these seemingly hostile countries that they will neither create a new Brics currency nor back any other currency to replace the mighty US dollar or they will face 100% tariffs”.
Nel believes South African president Cyril Ramaphosa will hope he can somehow diffuse the current situation but will also recognise that some of the Trump administration’s foreign policy moves are made with a domestic audience in mind rather than a clear diplomatic objective.
Similarly, he says, Ramaphosa will be careful not to seem too obsequious, knowing that both adversaries and allies might look to take advantage of any display of weakness. “Ramaphosa will find it very difficult to reverse course on the Expropriation Act but his administration will know that it needs to tread carefully on plans, if they have any, to test the limits of the new law.”
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Prof. Waldo Krugell from the school of economic sciences, at the NWU, says it is not clear what funding Trump is threatening to cut off. “I suppose he is referring to so-called official development assistance.
“In total South Africa received just more than a billion dollars in official development assistance in 2022 according to the latest World Bank figures. Unfortunately, they do not break it down by source. Al Jazeera reports that $440 million came from the US in 2023 mainly through USAID.
“We know that USAID funding was already frozen last week, affecting programmes like the President’s Emergency Plan for Aids Relief (PEPFAR). The risk is that more programmes in education, agriculture, small business development and those combatting gender-based violence can lose US funding.”
Krugell does not think the first-round impact on the economy will be large, but specific people will suffer for it. Government will have to try and find the money themselves at a time of fiscal consolidation, which presents a challenge to the minister of finance and his budget team, he says.
However, he warns that the consequences may be bigger for markets. “This sort of uncertainty makes markets nervous. The rand and the JSE lost value this morning. A weaker rand is bad news for the fuel price and inflation. Being on Trump’s radar will complicate the process of again extending the African Growth and Opportunity Act (Agoa) agreement in a year’s time.”
Krugell says he does not think the sky is falling, but it does show the impact of the uncertainty that Trump loves to create.
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Maarten Ackerman, chief economist at Citadel Investment Services, points out that the US is a key trading partner for South Africa, ranking third after Africa (as a collective) and China. Notably, South Africa is among the top 10 exporters of motor components to the US, a crucial industry that generates significant employment.
“At this stage, no policy changes have been implemented. However, should restrictions be introduced, such as removing South Africa from Agoa or imposing trade tariffs, the economic impact could be severe.
“The South African Reserve Bank (Sarb) recently modelled a stricter trade environment during its monetary policy meeting, projecting inflation above 5% and the rand weakening beyond R21 to the US dollar. Given South Africa’s already significant domestic economic challenges, further trade restrictions from the US would add substantial pressure.”
Ackerman says a more restrictive US stance would likely be rand-negative, placing immense strain on the JSE and local bonds. “The primary concern is that such actions would introduce yet another headwind to achieving sustainable economic growth – a challenge South Africa is already grappling with.
“The Agoa review later this year is therefore critical, as maintaining our participation offers significant trade benefits, particularly for industries like automotive manufacturing.”
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Are there alternatives for South Africa if Trump makes good on his promise? Ackerman says the increasing rhetoric from the Trump administration is prompting countries and companies to explore new trading partners and diversify supply chains.
“While the immediate impact of losing US trade support would be negative, potentially causing currency depreciation and asset losses, over the long term, it may present opportunities to establish new trade agreements and partnerships. However, navigating this transition successfully would require strategic planning and proactive economic policy adjustments.”
Professor Jannie Rossouw, a visiting professor at Wits Business School, says South Africa must accept that the US hands out the money and can, therefore, make the rules.
“If their narrative is wrong, we have to correct it.”
Rossouw says he is worried about South Africa retaining its Agoa benefits.
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