It will be fatal for South Africa to rest on its laurels following its removal from the Financial Action Task Force’s grey list, warns Roxanna Naidoo, head of global strategy at Latita Africa.
“While delisting is an important milestone, it’s not of itself going to be a game changer for structural and economic issues. It’s not going to sweep away the constraints and frustrations holding up economic growth, things like labour productivity, logistics, power supply.
“The expectation is not an immediate, dramatic transformation of the economy but rather a meaningful improvement in conditions for sectors reliant on international finance, trade and investment,” she says.
“The change is substantial in institutional credibility but less so in actually delivering overnight economic revival.”
She’s concerned that the delisting is going to give the country a false sense of well-being.
“The biggest fear is that South Africa is going to take its foot off the pedal now, when in fact we need to be moving full steam ahead to ensure that we never again get onto that grey list.”
Up to and past the next FATF deadline, “it has to be consistency year on year on year to keep us off that grey list”.
The systems that helped get South Africa delisted need to be maintained and strengthened. That means continuing to enforce the rules, keeping company and trust ownership records that are accurate and ensuring that suspicious financial activity is recorded.
“The FATF’s decision reflects confidence in South Africa’s reforms; but keeping that trust depends on how seriously we continue to uphold those standards.”
The grey listing in February 2023 created a stigma that made global investors “very cautious” of South Africa.
“Being removed tells the world that the country’s financial system meets international standards, and that directly improves investor confidence. So while we may not see buoyancy flowing in overnight, the environment becomes far more welcoming for investment.”
The central challenge is bringing in vastly more investment, without which South Africa is going to go over the cliff.
“We live off investment from other countries. International trade and investment into South Africa is so, so important. Without that, the country doesn’t stand a chance.”
It is a trade hub that depends on international investors trusting that they can invest in the country.
We have to rebuild that trust. When we went onto the grey list, it was a huge deterrent. We saw a reduction in trade and investment immediately
“We have to rebuild that trust. When we went onto the grey list, it was a huge deterrent. We saw a reduction in trade and investment immediately, with countries pulling out of investments and stopping or reducing trade with South Africa. Whatever trust we had was broken, and that’s going to take time to rebuild.”
There’s no quick fix.
“Yes, we’re off the grey list now, but now we need to start building that trust again with all these different trade sectors and industries and countries so that they can start investing again in South Africa and looking at trade with South Africa.”
How does the country build trust in the context of perceptions that it’s a mafia state?
“We’re going to have to prove that we’re not. We’re going to have to show that our economy is stable. This is not about talk, it’s about actions. International investors are definitely going to be looking at South Africa’s economy very closely. They’re going to be watching the JSE, looking at the rand, at how it’s fluctuating.
“So we’re going to have to prove our chops before they decide that South Africa’s the place to invest.”
A large part of this is demonstrating that South Africa has the structural and institutional capacity and commitment to turn the tide on money laundering.
“We’ve now proven that we have the systems and that the systems work. We now need to prove that the follow-through is there and that the consequences are there for those who try to defraud the system.”
For South Africa to attract substantial foreign investment, demonstrable rule of law in the financial environment is critical.
“We have the right systems and structures, but demonstrating our ability and willingness to follow through is really going to be challenging. The delisting is a confidence booster for the financial system, but the real impact is going to depend on sustained reform and enforcement.”
The fact that no major crime syndicate boss has been successfully prosecuted doesn’t bode well, says Naidoo.
“This is something that should concern all South Africans, wondering at what point will that type of justice be served. I can’t speak to the rationale behind this. I’m hoping that the government has some type of plan and that something will come to light soon.
“There’s hard work to do, and that work is going to have to start now. I’m definitely looking forward to hearing answers from the Financial Intelligence Centre and the national prosecuting authority,” she says.
Removal from the grey list shows South Africa has taken credible steps to strengthen its systems to prevent money laundering and terrorist financing “but we need to see the results of that; we have to see the proof in the pudding”.
She’s encouraged by how far the country has come since being grey listed in 2023.
“In that time, we’ve really managed to turn things around. It’s important to recognise how co-ordinated the effort was. If you look at our governance structures, it was the government, Reserve Bank, FIC and South African Revenue Service working together to strengthen those systems and detect and prevent financial crime.”
Most important, Naidoo believes, was enhancing the way financial institutions report suspicious transactions, and Sars improving its data sharing and enforcement capabilities by linking tax compliance more closely to anti-money laundering frameworks.
“For me, that was about showing the FATF that South Africa doesn’t only have the right legislation in place, but that we’re enforcing it effectively. Now we have to demonstrate our commitment and ability to pursue successful investigations and prosecutions.”
FATF will complete its next evaluation of South Africa in 2027.
“So we don’t have much time. That’s why it needs reiterating that getting off the grey list is not enough. It really is important for us to continue upholding the rules that have now come into play. If not, then we’re going right back onto that grey list.”
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