The effects of South Africa’s greylisting remain unclear, with it unlikely to impact South Africans directly. However, over the long term, it will have an indirect effect through reduced economic growth.
On 24 February, the Financial Action Task Force (FATF) put South Africa on a list of states under increased monitoring, referred to as the greylist, for failing to meet international standards on money laundering and terrorism financing.
The FATF is an intergovernmental body that sets international standards to prevent money laundering and terrorism financing.
In the announcement of this decision, the FATF stated that being on this list “does not call for the application of enhanced due diligence measures to be applied at these jurisdictions”.
However, in practice, global companies investing in South Africa or partnering with South African companies will need to perform an extra layer of due diligence.
In a statement on Friday, National Treasury said that the greylisting should have a limited impact on the financial stability and the cost of doing business in South Africa.
This is due to the FATF not issuing preventive measures against South Africa.
South Africa is expected to address the eight concerns listed by FATF before January 2025, which include having to:
- Demonstrate a sustained increase in law enforcement agencies’ requests for financial intelligence from the Financial Intelligence Centre for its ML/TF investigations.
- Demonstrate a sustained increase in investigations and prosecutions of serious and complex money laundering activities.
- Enhance the identification, seizure, and confiscation of proceeds and instrumentalities of a wider range of crimes.
- Ensure the effective implementation of targeted financial sanctions and an effective mechanism to identify individuals and entities that meet the sanctions criteria.
Effects of being greylisted are unclear in severity and scope
Experts are unanimous in saying that being greylisted is reputationally damaging.
However, Kokkie Kooyman, co-founder of Denker Capital and financial sector expert, says that “the man in the street will not notice a difference” with South Africa being greylisted.
According to Kooyman, South African banks say that their counterparties already doing business in South Africa are aware of the risks and the greylisting is merely a formal acknowledgement of such risks.
South Africa’s banks have been preparing for this for a while, said Kooyman, and have strong safeguards already in place.
The greylisting reflects more on law enforcement agencies than South Africa’s banks, said Kooyman.
Stanlib’s chief economist, Kevin Lings, agrees with Kooyman in saying that “most households won’t notice an impact”, but there will be an indirect impact over time with reduced growth prospects.
Businesses and financial institutions, in particular, will feel a noticeable impact, with global funding becoming more difficult to source and cross-border transactions becoming more expensive and time-consuming.
The greylisting will add an additional layer of due diligence and cost for investors looking to invest in South Africa, said Lings.
Most worrying is the reputational damage for South Africa as the “gateway to Africa”. South Africa cannot be a “world-class financial centre” while it is on the greylist, said Lings.
A study by the International Monetary Fund showed that capital inflows declined on average by 7.6% of GDP at the time of greylisting.
However, contrasting studies say that greylisting does not significantly impact banking flows and economic growth.