The South African economy is not in a good place and storm clouds are rolling in.

Forget about the usual issues: corruption, strikes and government incompetence. The real issue facing South Africans right now is the improvement in the United States economy.

Strange as it may seem, this is really bad news for Pretoria.

It’s not hard to see why. In recent years cash has flowed into South Africa chasing its high interests rates. Rates in Europe and the US were close to rock bottom, as a result of Quantitative Easing. But as the sun begins to shine on the American economy, so the need to chuck billions at the recession begins to evaporate. So American rates are beginning to rise.

A trader in London tells me that US yields increased from 248 to 257 in the last four days. He tells me they have already been reducing their exposure to the Brics – including Turkey, India and South Africa.

All of which is very bad news. It will mean that South African interest rates are likely to have to rise, particularly as the balance of payments is in a shocking mess:  with a 18.9 billion rand ($1.9 billion) trade gap in September. The markets already reflect the problem. The Rand weakened for a sixth day against the dollar, the longest stretch of losses in five months.

This comes as the International Monetary Fund warns that South Africa could face an outflow of capital.

“Capital flow reversal. South Africa and some frontier markets, such as Ghana and Nigeria, could also be vulnerable to a persistent, broad-based and protracted reversal of financial capital flows that could follow a possible tightening of global monetary condition, as U.S. monetary policy begins to normalize.”
This is not a happy place to be in.