The London financial set rarely pays attention to the dusty corners of sub-Saharan Africa. But when a government tells its foreign population to get out or face machete-wielding mobs, the market takes notice. That is the current reality in South Africa, where an ultimatum for undocumented migrants has expired and vigilante gangs are enforcing the deadline with crude blades.
This is not a story about humanitarian compassion; it is a story about state failure, capital flight, and the bottom-line cost of broken governance.
Let us start with the numbers. South Africa hosts an estimated 3 million undocumented migrants, according to the South African Institute of Race Relations. That is roughly 5 per cent of the population. They come from Zimbabwe, Mozambique, Somalia, and further north. They drive taxis, run spaza shops, and sell vegetables on street corners. They also, according to xenophobic rhetoric peddled by politicians like former president Jacob Zuma and the Economic Freedom Fighters’ Julius Malema, steal jobs and spread disease.
Nonsense, of course. Migrants in South Africa are net contributors to the fiscus. They pay VAT on goods, they rent property, and they rarely claim state benefits because they are terrified of deportation. But rationality has no place when the currency is crashing and unemployment sits at 33 per cent. Desperate times make for desperate scapegoats.
The ultimatum was issued by Home Affairs Minister Aaron Motsoaledi: a 30-day window to register or leave. The window closed last week. Since then, reports have emerged of armed groups blocking roads in Johannesburg’s inner city and the township of Diepsloot, demanding proof of documentation. Those without are beaten or chased. Machetes are a favourite tool, because they are cheap and they terrify.
What this means for the market is simple: volatility. South African rand has already lost 20 per cent against the dollar this year. That is not because of migrants; it is because of Eskom’s blackouts, Transnet’s rotting ports, and a ruling party that cannot decide whether to court investors or nationalise the central bank. But now we add a humanitarian crisis and the risk of sanctions. The European Union and the United States have already expressed concern. If they decide to withdraw preferential trade access under the African Growth and Opportunity Act, expect South Africa’s current account to blow a wider hole than the Marikana massacre left in the ANC’s conscience.
The parallel with the 2008 xenophobic pogroms is unavoidable. Then, 62 people died and thousands were displaced. The government did nothing. The perpetrators were never punished. The cost? Billions in lost investor confidence. South African bonds are already pricing in junk status; this is not help.
For the hedge funds that hold South African sovereign debt, the calculation is brutal. Yields on the 10-year benchmark have spiked to over 12 per cent. That is a screaming signal of distress. If capital flight accelerates, expect the South African Reserve Bank to hike rates further. That will kill what little growth remains. A recession is already priced in for 2025.
The migrants themselves face a different kind of mathematics. They can stay and risk a machete. They can leave and lose everything they have built. Or they can bribe officials at the border. That is a thriving business. The cost of a fake permit is roughly 1,500 rand, less than the price of a machete. But going home is not a real option. Zimbabwe’s economy is even worse. Mozambique is in insurgency. Somalia is Somalia.
What do I expect? More of the same. The South African state is too weak to enforce immigration law humanely and too proud to admit it. So it outsources enforcement to gangs. That is what happens when fiscal discipline collapses and politicians prefer xenophobia to tax reform. The bottom line for South Africa is a spiralling risk premium. The bottom line for the migrants is a blade in the ribs.
The City of London will watch and hedge. The rand will fall. The migrants will bleed. And the machine will keep grinding.
