Donald Trump can crush South Africa

United States President Donald Trump could plunge South Africa into a financial and economic crisis if he decides to forbid foreign investors from investing in the country’s debt. 

Such a decision would force local financial institutions to take on another 20% or so of government debt – something they are already overexposed to, according to the Reserve Bank. 

South African banks, insurers, and asset managers have had to pick up the slack left by foreign investors selling out of local government debt over the past decade. 

Around 20% of South Africa’s rand-denominated government debt is held by foreign investors, and if they are prohibited from holding these assets, the country could be plunged into a financial crisis as local institutions try to plug the gap. 

This is feedback from Efficient Group chief economist Dawie Roodt, who outlined the real threat from Donald Trump’s apparent anger towards South Africa. 

While much of the focus is on United States tariffs on South African goods, Roodt said exports to the US only make up around 8% of South Africa’s total exports. 

Tariffs will have an impact on the local economy, but are relatively insignificant compared to the other levers the United States can pull in pressuring South Africa. 

Roodt told the State of the Nation podcast that South Africa’s fiscal accounts are in a serious mess, with the country’s debt load crossing 76% as a share of GDP in the most recent financial year. 

The state is currently paying over R1 billion just to service this debt, with interest expenditure being the fastest-growing item in the Budget. 

“Approximately 20% of South Africa’s rand-denominated debt is held by foreign investors, with a further 13% being in foreign-currency-denominated,” Roodt explained. 

The vast majority is held in US dollars by American investors, with a far smaller share held by European fund managers and international institutions. 

“This is where Donald Trump really has a big stick with which he can pressure South Africa, which we have not been talking about yet,” Roodt said. 

“If he tells American pension funds or asset managers that they are not allowed to buy South African rand-denominated debt anymore and they start selling that, we will have a financial crisis.” 

South Africa heading for disaster

South Africa has failed to secure a trade deal as yet with the United States, subjecting its exports to a 30% tariff upon entering the world’s largest economy. 

This is a continuation of apparent American aggression towards South Africa, with Trump singling the country out for specific criticism throughout 2025. 

Roodt has been warning of a potential ban on US investment in South African assets, saying that it is a possibility even if full-blown sanctions are not imposed. 

“Whatever the reason, whether it is sanctions, uncertainty, or even fears of sanctions and tariffs, foreigners will begin to sell government debt if things deteriorate further,” Roodt said. 

“That means long-term interest rates will go up and the rand will weaken as money flows out of South Africa, potentially spiking inflation.”

Spiking inflation would most likely result in the Reserve Bank raising short-term interest rates. This risks collapsing the economy, as growth is forecasted at less than 1% for the year. 

While this is a dire situation, Roodt explained that the real trouble will start when local financial institutions have to pick up the slack left by investors selling government debt. 

“Somebody will have to buy that debt, and the most likely buyers will be local pension funds, the local savings industry, and local banks – all of which already hold a lot of government debt,” he said.

“When bond yields go up, the value of those instruments goes down. This will put the balance sheets of local banks under immense pressure and can result in a financial crisis.” 

Roodt was clear in saying this is nothing to do with how South African banks are run, with them being some of the best capitalised banks in the world and are extremely well managed.

South Africa’s state balance sheet is also extremely weak, exaggerating the impact of any external shock as the country effectively has no buffer in that regard. 

“The fiscal accounts, which the politicians are responsible for, have been messed up big time. Not only the national accounts, state-owned enterprises, local authorities, the Road Accident Fund and all of that sort have been messed up,” Roodt said.

This has left the country without a fiscal buffer to protect it from external shocks, a significant debt load, and poor economic growth. 

“But there is one thing that has worked very well in South Africa, and that is the Reserve Bank. Governor Lesetja Kganyago is doing a fantastic job,” Roodt said.

“The Reserve Bank is maintaining interest rates at relatively high levels, with significant room to cut rates. But the reality is, these rates are necessary to act as a counterweight to the mismanagement of the economy on the fiscal side.”