Top banking CEO warns that South Africa is getting too close to Russia

 ·2 Mar 2023

FIrstRand chief executive officer Alan Pullinger says that the South African government’s “open support” of Russia is presenting significant geopolitical risks for businesses and could bring extremely negative consequences to bear.

Commenting on the FirstRand interim results for the six months ended December 2022 on Thursday (2 March), Pullinger flagged the most significant risks to the company’s and South Africa’s prospects in the period ahead.

While the CEO flagged the Financial Action Task Force’s (FATF) greylisting of South Africa as one such risk, he said that the geopolitical risks from South Africa cosying up to Russia were more worrying.

China, Russia, and South Africa wrapped up a ten-day joint naval drill this week – an exercise that overlapped with the one-year mark of Russia’s full-scale invasion of Ukraine.

While the South African government’s official stance on Russia’s war in Ukraine – which has been going on for over a year – is to remain neutral and push negotiations for peace, the country has come under close scrutiny by several nations opposed to Russia.

The government’s position on these drills is that they make up standard procedure and are routine in dealing with various militaries – noting that similar drills are run with South Africa and US and UK – and dismissing any outright support for Russia and its invasion of Ukraine.

However, the optics around the participation with Russia, at a politically sensitive time, have been seen as South Africa effectively throwing its lot in with China and Russia in support of the war.

South Africa’s office of international relations has also described its relationship with Russia as friendly, while president Cyril Ramaphosa has echoed pro-Russia talking points – such as blaming NATO for the “conflict”.

Pullinger said that despite claims of neutrality, South Africa’s relationship with Russia is being seen as open support, and it’s starting to reverberate among the country’s trading partners.

“Our government’s open support for Russia is increasingly being called out by our major trading partners,” he said.

“This could have extremely negative consequences for the country, which benefits far more from trade with and investment from the USA, UK and Europe than from Russia.”

FirstRand CEO Alan Pullinger

For the banking sector in particular, Pullinger said that the sector – including the South African Reserve Bank – crucially relies on access to the US dollar, global clearing and settlement, which is a privilege and can be revoked at any time.

“For all of these reasons, FirstRand does not share the government’s enthusiasm for Russia,” he said.

Pullinger said that compared to these risks, the FATF greylisting is less impactful.

South Africa was officially added to the FATF’s watch list at the end of February for failing to have the necessary checks and balances in place to clamp down on money laundering and terrorism financing.

The FATF flagged issues with South Africa’s dirty money laws as far back as 2019, and in 2021 gave the government until October 2022 to get its affairs in order. The government tried to fast-track a host of new laws and regulations to deal with the issues raised, but fell short at the deadline.

Pullinger said the greylisting is “unfortunate”, but noted that it was not unexpected and should be manageable.

The main headwinds for South Africa and the banking sector, in particular, are increased compliance and transaction costs, and perhaps lower capital flows to the country, he said.

“National Treasury, the FSCA and SARB put in a concerted effort to avoid this outcome, but some of the necessary deliverables were not within their control. As a sector, we will continue to work hard in partnership with them to get off the grey list as soon as possible,” he said.

Read: South Africa’s army in crisis ahead of war games with Russia: report

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