Why foreigners don’t love us anymore

The chart below is depressing as hell. It shows outflows from SA equities tanking since 2020, with just small outflows of bonds.

Imagine Donald Trump – who just recently expelled the SA ambassador to the US (actually it was his Secretary of State Marco Rubio who did that) – demanding federal funds managers stop investing in SA bonds. That would likely send the rand to R30 or worse to the USD.

There does not seem to be much understanding in government of the potential harm the US could inflict on SA in the form of disinvestment, tariffs and sanctions. The most dangerous is disinvestment. Those with memories long enough will recall the 1980s when virtually all countries imposed an embargo on SA for its apartheid policies. The feckless PW Botha in 1985 was expected to announce the relaxation of apartheid laws. Instead he gave his now infamous “Rubicon speech” promising apartheid forever or some facsimile thereof. The West could no longer coddle this fool and pulled the plug. So Barclays was sold to FNB, Standard Chartered to Standard Bank, General Motors and Ford sold out to local management, IBM went to Barlow Rand, Coca-Cola and Pepsi sold their bottling interest to local investors.

In all, 170 US firms disinvested between 1985 and 1987. The rand crashed, interest rates spiked and capital flooded through any available crevice. The Reserve Bank introduced two rands – the financial rand and the commercial rand, both trading at different rates. Needless to say, the system became rife with fraud, with round-tripping the rand (sending rands abroad at the cheaper commercial rand and recycling it back to SA at the more expensive financial rand). The gap between the two was as high as 20% at some points. Easy money for all sorts of corporate crooks.

That won’t happen, but what seems almost certain is that Trump will punish SA for human rights violations and other perceived offences.

South Africa’s days in the post-apartheid sun are drawing to a close. The graph above foreshadows a political shift that our politicians have yet to grasp. We hope it turns for the better, but that’s not likely based on recent performance.

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