Worries over South Africa being ‘greylisted’ – here’s what it could mean for you

 ·11 Aug 2022

The possibility of South Africa being greylisted by the Financial Action Task Force (FATF) could make doing business with the country even tougher.

Rebecca Thomson, a senior associate at Allen & Overy, told CapeTalk that if the country is deemed a high-risk jurisdiction to transact, anyone wanting to do business with South Africa will need to jump through an additional layer of compliance hoops.

Thomson said that it could also lead to an overall decline in GDP – as seen in Mauritius when they were greylisted, and GDP dropped by 1% in the first year of its listing. She added that South Africa could see the export and import of goods becoming more difficult.

A report from the FATF, an international watchdog, recently identified significant weaknesses in parts of South Africa’s financial regulation. Shortfalls resulting in high cases of money laundering and terrorism funding were uncovered.

According to Nedbank’s Interim Results presentation for 2022, the government has before October of this year to demonstrate that it has a credible plan to address its deficiencies – failing to do so would result in the country being greylisted in February of next year.

Nedbank noted that greylisting could have adverse economic consequences for trade and transactions and possible restrictions on international banks transacting with domestic banks.

At the beginning of July, the National Treasury said it is “pretty confident” that the country will have addressed its deficiencies by year-end.

The acting director-general of the Treasury, Ismail Momoniat, said that changing the laws will be tough but doable – however, difficulty may arise in that most of the measures relating to the deficiencies concern the investigation and prosecution of financial crimes.

Momoniat called for a significant turnaround regarding the effectiveness of the criminal justice sector.

“While it will take about three years to effect all necessary changes, the country must demonstrate that we’ve got a credible action plan,” said Momoniat.

Mike Brown, the CEO of Nedbank, said that it is not up to the Treasury to tackle the possible greylisting alone.

Brown said that ten out of the eleven areas that concerned the FATF require the government to show that the local environment, laws and work done by investigating authorities and courts to clamp down on money laundering as well as corruption have improved, reported News24.

Brown said that the effect of a greylisting has already been priced in by markets, adding that it is not as damaging as a credit rating downgrade.

Standard Bank group chief executive Sim Tshabalala, however, said that a possible greylisting classification could be worse than a credit rating downgrade and risks South Africa being kicked out of the global financial system.

Tshabalala noted that being flagged by the task force would effectively lead to South Africa being blacklisted by both the United Kingdom and the European Union.

Not only would this make borrowing more expensive, but it will likely also have several knock-on effects, said Tshabalala.

“The rand will weaken, inflation will spike, interest rates will go up, it will be more expensive to buy food, pay for petrol, buy homes, buy cars. The country can’t afford it.”

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