The rand tanked to R18.42 on Friday (24 February) following the Financial Action Task Force (FATF) officially adding South Africa to the global grey list.
This marks the rand’s worst levels against the US dollar since May 2020 and only slightly worse than the levels seen in November 2022.
The greylisting was largely priced into the markets following the finance ministry’s and related officials’ indications that it was likely to happen. The rand has been trading under pressure all week but caught its breath following a better-than-expected budget speech on Wednesday.
However, the looming greylisting dampened sentiment as markets awaited the official announcement.
The FATF confirmed on Friday that South Africa – as well as Nigeria – would be added to the list, which names countries that do not meet the necessary standards of combatting money laundering and terrorism financing at a policy and execution level.
They join other African nations such as Tanzania, Mozambique and the Democratic Republic of the Congo – which were all greylisted during the FATF plenary meeting in October 2022.
The greylisting comes despite a last-ditch attempt by the South African government for fast-track rafts of legislation in the latter months of 2022 to try and address the shortcomings identified by the FATF in 2021.
The impact of the greylisting on South Africa remains to be seen – but there will be consequences.
According to Intellidex lead Stuart Theobald, the impact of being greylisted is difficult to quantify. Most of the fallout from the listing would be for businesses conducting international transactions, he said: costs and admin will go up, and it might be a deterrent to multinationals looking to set up shop in the country.
“The consequences of greylisting are that other countries must treat SA with a heightened level of suspicion. Several countries require their institutions to apply the ‘enhanced due diligence’ of SA counterparts.
“In practice, this means more frequent assessments, requests for more details on sources of funds and procedures, and more senior management engagement with foreign counterparts. That is if those counterparts will do business with South Africans at all,” he said.
However, the reputational damage to South Africa will be immense, exposing South Africa’s failures and shortcomings to the world.
The question now moved from whether or not South Africa will be greylisted to how long it will take to get off the list.
James George, compliance manager at professional services group Compli-Serve SA, said in 2022 that if South Africa can follow the example of other greylisted countries like Mauritius, it could be a relatively short stint.
Mauritius took a blow when it was greylisted in February 2020. The country’s GDP dropped by 1% in the first year of its listing, and businesses suffered delays in conducting their operations across borders.
However, the Mauritian government responded decisively. It swiftly reinforced existing Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) laws and worked closely with the private sector, which also showed great commitment.
In October 2021, FATF members visited Mauritius and met the government, financial sector associations and bank representatives. Soon afterwards, the FATF reported that it was satisfied with Mauritius’s progress in reinforcing its dirty money framework and removed the country from its greylist.
Other greylisted countries have not been as fortunate and have been on the grey list for years.
Finance minister Enoch Godongwana already signalled to markets that the government was anticipating being added to the list, mentioning in his Budget Speech this week (22 February) that the move should be expected.
In the Budget documents, National Treasury cemented this position by mentioning that “over the longer term, government has asked the FATF to formally reassess South Africa’s compliance during its June 2023 plenary”.
This advance alert for another review signalled that a greylisting was likely, and even expected by the government.
Source : Business Tech
