What does it mean if South Africa is on the grey list

With increasing petrol prices, food prices, interest rates as well as load shedding – the average South African cannot be blamed for feeling a little weighed down by the state of our economy.   

When the global money laundering and terrorist financing watchdog, the Financial Action Task Force, placed South Africa on the ‘Increased Monitoring’ list, also known as the greylist, in February, there were many citizens worrying about how the listing will affect our economy in general and how it will filter down to the consumer. 

What the experts have to say 

While the initial listing did cause the rand to slump to its worst level in months, Old Mutual Investment Group’s chief economist Johann Els, said the listing is not expected to have a significant impact on consumer pockets.   

According to Els, there will be more scrutiny on international transactions and these transactions may be a little bit more expensive. There will also be more admin involved when transacting and it will be more onerous to get transactions through, but this will not impact the man on the street in any way when it comes to his general income and expenditure.  

Where it could start to affect consumers is when it comes to applying for loans, for example. As banks and lenders may be charged more to borrow from abroad, the related costs will most certainly be passed on to the consumer when they extend a line of credit. Overseas travel could also become more expensive if the greylisting causes the rand to lose further value.  

Going forward it remains to be seen if there will be a retraction in foreign investment in the country, as investors look for more stability in other markets. Historically, this does happen. Should this occur, many industries will be affected but in particular, the property industry may see developers having to source local funding for projects or finding new foreign investors, which more than likely will see any increase in costs being passed on to the buyer. 

The road ahead  

Essentially, the greylisting means that South Africa has deficiencies in its anti-money laundering and combating the financing of terrorism policies and frameworks.  In October 2021, the FATF put South Africa under a one-year observation period, giving time for the government to address 67 ‘recommended actions’. During that time significant progress was made and two major Amendment Acts were passed in 2022.   

A year later, the FATF recognised the significant and positive progress that had been made by the government in reducing the 67 recommended actions to eight strategic deficiencies but said that more progress is required. As a result, the greylisting was put in place while these are addressed. 

According to Els, the government treasury and the South African Reserve Bank have indeed done much to address the issues highlighted by the FATF, but it was just done too late, to avoid the listing. 

Dean de Nysschen, portfolio manager at Glacier Invest, says it can take five to 10 years for a greylisting to be removed. However, this is not the rule as Mauritius’ greylisting was removed after less than two years. This was achieved by improving their process of detecting threats of fraud, prosecuting criminals, and confiscating illegal proceeds as well as increasing training, and capacity and raising awareness of AML/CFT obligations. 

Meanwhile, the government says it is actively working with the FATF to address the deficiencies highlighted within agreed time frames. Until such time, the country will be subject to increased monitoring. 

Other countries that are also currently on the grey list with South Africa include the United Arab Emirates, the Cayman Islands, Mozambique and Jamaica, to name a few. Only time will tell if South Africa will do enough to get itself out of the greylisting. Until such time, we can only wait and observe any progress made.