In 2021, South Africa once again made international headlines for less than commendable behaviour. While our country’s resilient citizens are known for satirising shortfalls and making alternative plans in the face of adversity, a position on the FATF’s grey list could significantly impact our ability to attract vital economic opportunities.

Photo by Simone Viani on Unsplash

What is grey listing?

If a country finds itself in the unfortunate position of being grey listed, it typically means that the Financial Action Task Force (FATF) has identified serious issues with that country’s anti-money laundering and terrorism financing policies and systems.

It’s more than just a naughty list —— the implications of being identified as a grey list country could seriously harm the wealth and financial opportunities available to citizens of such nations.

Who is on the grey list?

Currently, 23 countries are on the FATF’s grey list. From Albania to Yemen, there are numerous regions throughout the world that have been identified as “jurisdictions with strategic deficiencies.” In essence, these countries are considered safe havens for money laundering or supporting terror funding. For non-cooperative countries or territories (NCCTs), there’s the blacklist which bears even weightier consequences.

Recently removed Mauritius found itself on the grey list back in 2020. After taking remedial action, the island nation has once again positioned itself as a respectable financial player. On average, however, it may take a country up to a decade to redeem itself.

Why is South Africa potentially being grey listed?

In October 2021, the FATF’s evaluation of South Africa revealed shortfalls in the nation’s policies and efforts to counter money laundering and terrorism financing. As a country that once took great pride in its young and thriving democracy, South Africa has sadly struggled to break the stereotypes that many African countries are confronted with. From corrupt government institutions to state capture scandals, it has become increasingly difficult for our leaders to enforce and maintain a position of strong constitutional authority.

What is the impact on SA?

Standard Bank’s chief executive, Sim Tshabalala, warns that being grey listed will weaken the rand, spike inflation, and increase interest rates. For ordinary South Africans, this results in higher food, petrol, home and car prices —— as a developing country that’s only just emerging from the recent pandemic, these consequences could be dire.

A spot on the grey list will also make South Africa an undesirable destination for business. A high-risk profile also brings high trading costs and damages relationships with offshore investors. Existing and prospective partners will apply more scrutiny to any business deals with the country, potentially excluding South Africa from international markets and banking systems. The end result: far more paperwork and hoops to jump through for anyone wanting to trade in or out of South Africa.

What grey listing looks like in real terms:

  • Capital and investment quickly syphoning out of South Africa.
  • More bureaucracy —— intense audits, assessments and regulations applied to all deals with the country.
  • Delays in payment.
  • Reluctance to form relationships that may compromise public relations.
  • International funds such as the IMF or World Bank may impose economic restrictions.

In summary, the outcomes for trade and businesses are bleak, and the repercussions will trickle down to the masses, significantly impacting growth and development initiatives throughout the country —— not a good look for a nation that aspires to be taken as a serious contender in the global economic landscape.

Should investors be worried?

The FATF is expected to meet from the 12th to the 17th of February, 2023, when a decision will be made as to whether SA should be grey listed, but don’t start packing your money bags just yet.

The first thing to know is that if the fateful day arrives and South Africa is grey listed, it won’t cause an immediate financial apocalypse. Instead, expect a slow burn that diminishes the country’s economic prospects over time —— if nothing is done to remedy the situation. This is because a lot of the impact is already baked into our current markets when looking at current valuations, and the knock-on effect of a credit rating downgrade will also take some time to manifest.

South Africa has several advantages when compared to its potential neighbours on the grey list —— in reality, we aren’t that wayward. South Africa boasts deep capital markets, a well-developed financial system, and a rational monetary policy that may act as a buffer for the negative implications of grey listing. In addition, our political and business leaders aren’t twiddling their thumbs about the issue (we hope) –– proactive steps are underway to course correct.

Grey listing: Can South Africa course correct?

The first step in reassuring the global markets that South Africa is a sound business partner is to take the FATF’s Mutual Evaluation Report (MER) seriously. This means addressing the deficiencies it has identified and enacting corrective measures into law.

As things stand, South Africa has to make a significant effort to fight corruption, money laundering, and terror financing, which needs to be addressed through legislation. So far, Cabinet has urgently approved the submission of the following bills:

  • The Financial Intelligence Centre Act;
  • The Non-profit Organisations Act;
  • The Trust Property Act;
  • The Companies Act;
  • The Financial Sector Regulations Act; and
  • The protection of Constitutional Democracy Against Terrorist and Related Activities Act.

The above are hugely positive amends that will help to ensure South Africa complies with international standards and also empower accountable institutions and other law enforcement agencies to tackle money laundering and financing of terrorism proactively.

The silver lining for South Africa

While the potential of earning a spot on the grey list is nothing to be proud of, it may be a catalyst for genuine and meaningful reform.

For the majority of South Africans, fraud, corruption, and terrorism financing have no place in the vision we hold for our country. As Mauritius has demonstrated, its two-year stint on the grey list was enough of a wake-up call to roll out large-scale improvements that have repositioned the country as a welcoming destination for trade and foreign investment. And, if South Africa’s leaders require some motivation, in 2021, Mauritius ranked as the richest country in Africa. There are plenty of lessons to learn; if we sit up and take note, the grass may once again be greener on our side of the continent.