SA in Bloomberg global newsletter’s spotlight: “Embracing Putin is a gamble”

Bloomberg’s influential Balance of Power newsletter, which is distributed globally, today focuses on South Africa’s destructive embrace of Russian President, international polecat Vladimir Putin.

The hugely influential newsletter opens with: “Most countries’ foreign policy is geared toward furthering their economic interests. South Africa appears to be adopting the opposite approach.

Pretoria insists it’s taking a neutral stance toward Russia’s invasion of Ukraine, yet it has done little to dispel recent US accusations that it supplied weapons to Moscow.

Moreover, President Cyril Ramaphosa has been talking to Russian leader Vladimir Putin about deepening ties, while the head of its army held similar discussions with his Russian counterpart yesterday.

Bloomberg’s Balance of Power newsletter then points its readers to the four stories that we have republished in full below, before continuing with: “US President Joe Biden’s administration, which has been on a drive to improve long-neglected relations with Africa and build opposition to Russia’s invasion of Ukraine, is understandably irked.

“Thousands of South African products enter US markets duty-free under the American Growth and Opportunity Act, an incentive that could be imperiled when the program expires in 2025 — or even sooner. That prospect sent the rand to a record low last week when the furor over the alleged weapons sales erupted.

“Pretoria’s political allegiances have also angered the European Union and the UK, two other main destinations for its manufactured goods. In addition, Africa’s most industrialized economy has sent mixed messages to the West on Beijing, conducting joint naval exercises with China and Russia in February.

“While having warm ties with China makes sense — it’s South Africa’s top trade partner — Russia’s two-way flow of goods are less than 5% of those with the US.

Bloomberg graphic

“Competition for influence in emerging nations is heating up. Leaders from the Group of Seven rich-world economies have made outreach to the Global South a key focus of their summit later this week.

“There’s no denying that ties between leaders of South Africa’s ruling African National Congress and their Russian counterparts are deep-rooted. The former Soviet Union backed the fight against apartheid and a number of ANC officials received training and sanctuary there.

“With South Africa confronting record power outages and a 32.9% unemployment rate, opinion polls show the ANC risks losing its almost three-decade hold on power in elections next year.

The obvious play would be for Ramaphosa to not alienate partners that can help him kick-start the moribund economy. His government doesn’t seem to see it that way. — Mike Cohen 

South Africa Downplays Army Chief Visit to Moscow After US Spat

By Paul Vecchiatto

South Africa downplayed reports that an army delegation is visiting Moscow for talks on enhancing military cooperation, days after a row erupted with the US over allegations that Pretoria supplied weapons to Russia.

South Africa’s army chief Lawrence Mbatha is in Moscow for talks with military officials and will visit military educational institutions, the defence force said in a statement Monday. Mbatha was invited by his Russian counterpart and the bilateral meeting “was planned well in advance,” the statement said.

“South Africa has military to military bilateral relations with various countries in the continent and beyond,” the defence force said. The army “receives numerous military delegations into the country and sends its own delegation to other countries to discuss matters of mutual interest,” it said.

Russia’s state-run Tass news service reported on the visit earlier Monday. It said a South African army delegation is visiting Russia for talks on enhancing military cooperation between the two nations and improving their combat readiness, citing the Russian Defense Ministry.  

The visit comes at an awkward time for South Africa, which has adopted a neutral stance over Russia’s invasion of Ukraine and has been trying to defuse a tit-for-tat with the US over allegations that it supplied weapons to Moscow. Pretoria has denied any knowledge of the armament shipments, but has appointed an independent judge to investigate the matter.

Its Finance Minister Enoch Godongwana said on Sunday that the spat had been resolved with the US and South Africa is unlikely to face any repercussions.

South Africa, US Look to Ease Strain After Russia Weapons Dustup

By S’thembile Cele, Antony Sguazzin and Courtney McBride

South Africa and the US sought to make amends after the US ambassador was summoned in protest over his accusation that the country had provided weapons to Russia. 

The government in Pretoria said Reuben Brigety “admitted that he crossed the line and apologized unreservedly.” That followed South African officials expressing “utter displeasure with his conduct.” 

Both sides pledged partnership and a commitment to working together, even as neither addressed the veracity of his claim that South Africa is sending weapons to Russia for the war in Ukraine. 

Brigety said in a tweet late Friday that he was grateful for the chance to “correct any misimpressions left by my public remarks.” A State Department spokesperson didn’t dispute South Africa’s characterization of his statement as an apology.

Brigety had been summoned to a meeting Friday, a day after he told a media briefing he would “bet my life” on the claim that weapons had been loaded onto a Russian cargo ship, the Lady R, at Cape Town in December.

The spat had led to a new round of tension between the US and a country it has been trying to win over as part of its campaign to project global unity against Russia’s invasion of Ukraine. South Africa has so far refused to condemn Russia’s invasion despite pressure from the US and its allies.

The tit-for-tat caused the rand to slump to its weakest level on record against the dollar and yields on government bonds to soar Friday, amid investor concern that any escalation in the diplomatic dispute may put trade worth billions of dollars at risk.

The US is “confident that weapons were loaded into that vessel,” Brigety said. The direct accusation was decidedly blunt for a  US government representative looking to maintain relations with a key partner, and amounted to a breach of diplomatic protocol at the very least.

In a further sign of the US determination to patch things up after the back and forth, the State Department said Secretary of State Antony Blinken spoke with Minister of International Relations and Cooperation Naledi Pandor and “underscored the importance of the US-South Africa strategic partnership.”

South Africa’s presidency said Brigety’s comments were “disappointing” and no evidence had been produced to back up the claim. At the same time, officials agreed to start an independent investigation. Pandor’s spokesman said the country welcomed any inquiry by President Cyril Ramaphosa to “establish the facts and role players.”

“If any crimes were committed, the law will take its course,” said Pandor’s spokesman, Clayson Monyela.

‘Misled by Officials’

The inquiry ordered by Ramaphosa will consider whether South Africa’s defense department was “misled by officials” about the contents of the Russian vessel, Minister in the Presidency Khumbudzo Ntshavheni said by phone.

European diplomats contacted by Bloomberg said that while they weren’t given warning of Brigety’s comments, the remarks came as no surprise. They said the shipment has been the subject of unanswered queries made by diplomats to the South African government for months.

The US ambassador’s comments were almost certainly sanctioned by Washington, they said, and while they don’t expect South Africa to face immediate economic consequences — at least from the European Union — the furor served as a warning that decisions have consequences, they said. 

The diplomats noted that South Africa’s ruling party has frequently provoked the US in recent months, and that while Pretoria has the right to choose its allies, so does America. They asked not to be identified as their countries haven’t commented publicly on the dispute.

Putin Call

Russian President Vladimir Putin spoke with Ramaphosa on Friday at Pretoria’s initiative and discussed the “strategic partnership” between the two nations, the Kremlin said in a statement. The two leaders also noted “the importance of continuing close coordination” ahead of a Russia-Africa summit in St. Petersburg in July and a BRICS summit that South Africa will host in August, it said.

South Africa is wrestling with Putin’s participation at the meeting of the economic bloc after the International Criminal Court in March issued an arrest warrant for him for alleged war crimes in Ukraine. As a signatory to the court, it would be obliged to detain Putin if he arrives in South Africa.

The Kremlin statement made no mention of the controversy over Brigety’s remarks.

A group of special envoys sent recently by Ramaphosa to the US to “share information and exchange ideas” will brief the media about the trip on Saturday, the department of international relations said in a statement.

–With assistance from Tony Halpin, Paul Burkhardt, Monique Vanek and Iain Marlow.

Russia Row Raises South Africa Investor Risk as Economy Founders

By Selcuk Gokoluk and Khuleko Siwele

Investors have spent months fretting about everything from South Africa’s daily blackouts to inadequate laws on terror financing and political instability before next year’s elections. Now they have a new concern: geopolitical tensions.

On Thursday, US Ambassador Reuben Brigety accused South Africa of supplying weapons to Russia. The allegation escalated growing tensions over South Africa’s refusal to back the US stance on Russia’s war with Ukraine, and the African nation’s deepening relationship with the BRICS economic bloc. President Cyril Ramaphosa said his government was probing Brigety’s claim and called his remarks “disappointing.”

The rand slumped to its weakest level on record against the dollar on concern that any significant deterioration in its relationship with the US — its second-biggest trading partner — may put trade worth billions of dollars at risk. 

While President Joe Biden’s administration dialed back its envoy’s hawkish tone and Brigety on Friday sought to “correct any misimpressions” created by his remarks, investor concerns about South Africa’s growing challenges remain.

Many businesses in the continent’s most-industrialized nation have no electricity for almost half each day because of rolling blackouts, known locally as loadshedding. Mining companies and food producers are struggling with the state-owned freight monopoly’s inability to fix logistical constraints, and as many as half of the population of 61 million depend on some form of welfare payment.

“The pressure points that are now coming to a head — load shedding and inferred political alliances — are rippling through financial markets and will increasingly weigh on the economic outlook,” Adriaan du Toit, London-based director of emerging market economic research at AllianceBernstein Ltd., said on Friday “A higher risk premium is clearly justified based on what we know today.”

Even before Brigety’s remarks, South Africa’s political risk had risen to a record while the nation’s economic risk score is at the worst in seven years. 


In an effort to prevent the economic and political fallout from worsening, Ramaphosa’s government summoned the US envoy, while the International Relations and Cooperation Minister Naledi Pandor spoke to US Secretary of State Antony Blinken Friday. Statements issued in the wake of both of those meetings didn’t address the veracity of the envoy’s claim.  

That may leave investors unimpressed. Foreign direct investment into the nation has remained stagnant, while fund managers are shunning stocks that rely on the domestic economy. 

Shoprite Holdings Ltd., which is dependent on South Africa for about 90% of its revenue, has dropped 10% this year. That compares with a 48% gain for local billionaire Johann Rupert’s Cie Financiere Richemont SA, the luxury-goods maker that sources most of its revenue from Asia and Europe. 

Meanwhile, AngloGold Ashanti Ltd. is speeding its retreat from South Africa, where the gold miner was formed more than a century ago, with plans to list in New York and make London its new headquarters.

“It does seem that South Africa continues to shoot itself in the foot, with many of the current issues self-made,” Michele Santangelo, a portfolio manager at Independent Securities in Johannesburg. The recent news reinforces the firm’s investment strategy, which is to have a “strong bias towards offshore investments and rand hedges,” he said, referring to investing in companies that make most of their revenue overseas.

‘Maybe I am Crazy’

Still, the volatility may entice some fund managers. 

“I still like South Africa, maybe I am crazy,” said Ray Zucaro, the Miami-based chief investment officer at RVX Asset Management LLC. Zucaro said he wasn’t “panic selling” and hadn’t reduced his South African bond and rand holdings. He would consider adding if some of the noise around the US accusations died down.

Relations between South Africa and the US have soured over Pretoria’s insistence that it’s taken a non-aligned stance toward Russia’s war in Ukraine. 

The former Soviet Union supported South Africa’s governing African National Congress during the decades-long struggle against apartheid and the party has maintained ties to Russia’s current leaders since the end of White-minority rule in 1994. Ramaphosa spoke to Russian President Vladimir Putin to discuss the “strategic relationship” between the two countries, the Kremlin said on Friday. It made no reference to the controversy over Brigety’s remarks.

The government’s stand on the alleged arms shipment alienated even local companies. Business Unity South Africa, a lobby group, said the administration’s response has been “unsatisfactory as it introduces uncertainty that we simply cannot afford.”

–With assistance from Colleen Goko, Paul Vecchiatto and S’thembile Cele.

Rand at Record Low on Fears Russia Row Will Hit US Trade Ties

By Robert Brand and Selcuk Gokoluk

The rand slumped to its weakest level on record against the dollar and government bond yields soared amid investor concern a diplomatic row between Pretoria and the US may put trade worth billions of dollars to South Africa at risk.

The currency fell as much as 1.6% to 19.5148 per dollar on Friday, breaching the all-time low of 19.3508 set during the Covid-19 lockdown in April 2020. It had narrowed losses to 19.2337 by 12:51 p.m. in Johannesburg.

South Africa’s preferential access to US markets under a two-decade-old agreement is in focus after the US ambassador to Pretoria, Reuben Brigety, accused the country of supplying arms to Russia. The nation’s Presidency described the comments as “disappointing,” adding that no evidence had been produced to back up the claim, but that the countries had agreed on an independent investigation.

“The rand hitting a record low versus the dollar clearly highlights that investors have lost confidence in domestic policy makers in South Africa and are fearful that the US will impose sanctions,” said Lee Hardman, a currency strategist at MUFG Bank Ltd.

Some of the market reaction:

Yields on benchmark government bonds due 2032 trade flat at 11.6% after rising as high as 11.8%. They jumped 34-points on Thursday

The yield on dollar bonds due 2032 pare earlier rise; up 3 basis point to 7.69%

The cost of insuring South Africa’s debt against default using credit-default swaps is up 34 basis points this week, and at the highest level since October

The country’s sovereign risk premium — the extra yield investors demand to hold South Africa’s dollar yields rather than US Treasuries — has widened 42 basis points since Monday, while the emerging-market average has been flat

The US ambassador’s claim that armaments were collected by a Russian ship at the Simon’s Town naval base in Cape Town in December came with the rand already under pressure because of ongoing energy shortages that are undermining the economy. Investors are now asking questions about President Cyril Ramaphosa’s grip on his administration. 

The rand has plunged 4.6% since Monday, heading for its biggest weekly decline in a year, while the cost of hedging in the options market against further weakness has soared the most since March 2020.

“It’s more than a currency crisis, it’s a re-rating of South Africa’s risk profile,” said Adriaan du Toit, the London-based director of emerging-market economic research at AllianceBernstein Ltd. “All asset classes are affected by this, and the powerful political dynamics mean that there is little hope of an effective policy response.”

Thousands of South African products enter the world’s biggest market duty-free under the African Growth and Opportunity Act, or AGOA, and the so-called Generalized System of Preferences, or GSP. South Africa shipped goods worth more than $15 billion to America in 2021, with $2.7 billion’s worth cleared under the two accords, US government data show. AGOA is due for review by Congress in 2025.

The US has not explicitly threatened to cut trade ties or impose sanctions, though Brigety said AGOA’s terms require that “no recipient of AGOA privileges should take actions that are directly in contrast to the national security interest of the United States of America,” according to a transcript of his comments seen by Bloomberg.

“How the government’s position and in particular the uploading of ammunitions to a sanctioned Russian cargo vessel in Simon’s Town will be perceived in the context of that legislative requirement has yet to be determined,” he said.

Relations between South Africa and the US — its second-biggest trading partner after China — have soured over Pretoria’s insistence that it is taking a non-aligned stance toward Russia’s war in Ukraine. Even so, South Africa participated in naval exercises with Russia recently, while officials of the ruling African National Congress have expressed support for Russia’s invasion of Ukraine.

State Department spokesman Vedant Patel wouldn’t be drawn on whether the US would consider sanctions against South Africa should the arms claim prove true, but added during a regular State Department briefing Thursday that the US had “serious concerns” about a sanctioned Russian vessel docking in a South African port.

“The political stakes are high, with trade deals and market access all now in question,” economists at Rand Merchant Bank wrote in a client note. “This will add an additional layer of risk until the debate around this has cleared, and the rand should reflect that risk premium.”

–With assistance from S’thembile Cele and Colleen Goko.

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