South African Currency Plunges to New Low Versus the Dollar a Day After the US Accused Country of Secretly Supplying Ammunition to Russia

The South African currency’s exchange rate versus the U.S. dollar plunged to a new all-time low of ZAR19.51:US$1 on May 12. The rand’s latest fall came a day after the U.S. ambassador to South Africa accused the country of secretly supplying weapons to Russia. Banking giant JP Morgan said it now projects South Africa’s gross domestic product to contract by 0.2%, down from the earlier positive projection of 0.3%.

The exchange rate of the South African currency versus the greenback fell to a new all-time low of 19.51 units of the rand for every dollar on May 12. The rand’s plunge came a day after the African country was accused of secretly supplying ammunition to Russia by a United States ambassador.

With this latest drop, the South African rand depreciated by more than 5% in just one week and more than 12% since the start of the year. Before hitting the new low, the South African rand’s previous all-time low was set on April 5, 2020.

Reuben Brigety, the U.S. ambassador to South Africa, revealed on May 11 that his country believes Russia, which invaded Ukraine in Feb. 2022, took possession of the weapons in late 2022. Addressing journalists after dropping the bombshell, Brigety said the matter was extremely serious and that the United States does “not consider this issue to be resolved.” The ambassador however said the U.S. is still keen on seeing South Africa practice its so-called “non-alignment policy.”

However, in response to the allegations, the U.S. official was summoned for a meeting on May 12 by the South African foreign affairs ministry. On the same day, Clayson Monyela, the spokesperson for the ministry, said in a tweet that his country has “no record of an approved arms sale by the state to Russia related to the period/incident in question.” Earlier, South African President Cyril Ramaphosa’s office suggested that an inquiry to “establish the facts and role players” was already underway when the U.S. ambassador went public with the allegations.

Meanwhile, an earlier News 24 report said the South African rand had lost nearly 30 cents just moments after Brigety claimed that a Russian ship named “Lady R” was loaded with arms and ammunition when it docked at a naval base in Cape Town in December 2022. While South African officials have moved quickly to deny Brigety’s allegations, some economic commentators warned of dire consequences for the country if the U.S. decides to retaliate.

According to Nolan Wapenaar, the co-chief investment officer of Anchor Capital, the U.S. government will likely respond to the allegation by blocking South Africa’s access to American markets. Wapenaar explained:

[Brigety’s allegation] is likely to have dire consequences for SA, which could lose its African Growth and Opportunity Act (AGOA) preferential duty-free market access to the US.

Meanwhile, in its latest research note, the U.S. banking giant JP Morgan reportedly said it now expects South Africa’s gross domestic product (GDP) to contract by 0.2% in 2023. This is in contrast to the previous projection of a 0.3% growth rate. The banking also warned that its already pessimistic current account projection for the African country could worsen if an electricity situation is not resolved.

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