Last Updated on May 14, 2023 by Bitfinsider

On May 12, the value of the South African currency relative to the US dollar hit a new record low of 19.51 rand to the dollar. A day after the African nation was accused by a US ambassador of covertly selling weapons to Russia, the rand fell.

With this most recent decline, the South African rand has lost over 5% in just one week and over 12% since the year’s beginning. The South African rand’s previous record low was established on April 5, 2020, before it sank to its current level.

The United States believes that Russia, which invaded Ukraine in February 2022, got possession of the weapons in late 2022, according to Reuben Brigety, the U.S. ambassador to South Africa, who made the revelation on May 11. After breaking the bombshell, Brigety spoke to the media and stated that the United States “does not consider this issue to be resolved” and that the situation was very severe. However, the ambassador claimed that the United States is still eager to see South Africa adhere to its alleged “non-alignment policy.”

However, in response to the accusations, the South African foreign affairs ministry called a meeting with the U.S. official on May 12. The ministry’s spokeswoman, Clayson Monyela, stated in a tweet the same day that his nation had “no record of an approved arms sale by the state to Russia related to the period/incident in question.” Prior to the U.S. ambassador making the charges public, the office of South African President Cyril Ramaphosa hinted that an investigation to “establish the facts and role players” was already under way.

According to a previous News 24 article, the South African rand dropped by about 30 cents just moments after Brigety alleged that a Russian ship by the name of “Lady R” had weapons and ammunition on board when it berthed in Cape Town in December 2022. While South African officials have swiftly refuted Brigety’s claims, some economists have cautioned that the nation could suffer serious repercussions if the United States chooses to react.

Nolan Wapenaar, co-chief investment officer of Anchor Capital, predicts that in response to the accusation, the American government will obstruct South Africa’s access to the American market. As Wapenaar clarified: “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.

In the meantime, the largest U.S. bank, JP Morgan, allegedly stated in its most recent research note that it now anticipates South Africa’s gross domestic product (GDP) to decline by 0.2% in 2023. In contrast, the prior forecast called for a 0.3% increase rate. The lender also cautioned that if an electricity issue is not fixed, its already dire current account outlook for the African nation might become even more dire.