Top banking CEO sends a warning to South Africa

 ·8 Apr 2024

South Africa faces an uphill climb to escape a global dirty-money monitoring list by next year, according to the outgoing chief executive officer of Nedbank Group Ltd.

“I think it will be very difficult for us to get off the list by 2025 largely because of the slow progress in investigations and prosecutions,” Mike Brown said in an interview in Bloomberg’s Johannesburg office on Monday. “That is going to be the hardest bit to get us off the list.”

The Paris-based Financial Action Task Force (FATF) placed South Africa on its watchlist in February 2023, citing deficiencies in tackling illicit financial flows and terrorism financing. It gave the country until Jan. 31, 2025, to address the shortcomings.

Inclusion on the so-called grey list means financial transactions with a South African component are subject to enhanced due diligence.

While an extended stay on the list risks damaging investor sentiment toward South Africa, Brown said the impact has been muted so far, and will likely remain so as long as the country remains committed to remedying FATF’s concerns as soon as possible.

“It’s something that nobody wants as a country because it doesn’t have a good smell about it, so inherently, it is negative to the investment case for a country,” Brown said. “But from a bank point of view, it really has not changed the ability for us to do business on a global basis with global banks.”

According to Brown, lenders started doing additional checks on South Africa as early as 2016 when the country’s issues were becoming widely known, meaning the FATF decision made little practical difference. Nedbank is one of the nation’s largest lenders by assets.

State Capture

South Africa’s move onto the FATF gray list followed an era of endemic government corruption — referred to locally as state capture — under former President Jacob Zuma. His successor Cyril Ramaphosa estimates the graft cost the economy at least 500 billion rand ($25.6 billion).

While the government has stepped up efforts to tackle white-collar crime and exit the list, the National Treasury acknowledged in February that it would be a “tough challenge” to meet the 17 remaining items from FATF’s 22-point plan within the timeframe.

“FATF has already recognized the material improvements that have taken place since when they gray-listed us, so definitely the worst is behind us, not in front of us,” said Brown, who is due to step down as Nedbank CEO on May 31.

Elections Outlook

Brown also said Nedbank was optimistic about next month’s elections and expects the ruling African National Congress to keep power or form the majority in any coalition government, suggesting continuity for its policies.

These include efforts to resolve bottlenecks in the energy sector, in transport and logistics and in crime and corruption.

“Most analysis says the energy problems costing us maybe 3% of GDP and the logistics problems probably also costing us 3% of GDP,” Brown said in a separate Bloomberg TV interview.

“So if we are able to resolve those through things like public private partnerships, there’s certainly a few percent of GDP growth extra, and South Africa growing at three or four percent is a very different economy than South Africa growing at one to 1.5%.”

Read: Kganyago banking on South Africa exiting the grey list in 2025

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