The South African banking sector cannot afford the impact of friction with its major trading partners, FNB CEO Jacques Celliers warned this week.
The “strong” sector, which can facilitate payments to trading partners, should be protected, he said.
“We have access to best practice and the best skill set; we have capital flowing. We can ill afford a journey that ventures into tighter restrictions, potentially ending up in sanctions or potentially not having access to best practice the world has to deliver.
“I am not saying there is no opportunity elsewhere in the world, [but at the moment, we find ourselves as] an unnecessary stumbling block while our economy is challenged.”
The US's hardening attitude towards South Africa comes after it alleged the country shipped arms to Russia. Earlier this month, US lawmakers called for November's African Growth and Opportunity Act (Agoa) forum to be shifted from South Africa, questioning whether the country should continue benefiting from the trade deal.
“We are not saying there are sanctions on the cards, but we are warning that if these things are left unchecked and unspoken ... [then we could end up with more friction and restrictions on our clients and their activities].
“What an economy like ours requires is proper flexibility for trade and participating in global opportunities.”
South Africa has more to lose than its participation in Agoa if tensions with the US are left unchecked, as this could affect access to its main trading partners.
“If you think about who we trade with, Agoa is one of the structures, but ultimately, if you [embark on] the journey of full sanctions in certain markets, that is extreme. If we lose Agoa, we can maybe survive. Obviously it will be very disruptive. It shows you weakening your position with your main trading partners as opposed to strengthening it.”
China, the US, Germany, India and Japan are South Africa’s biggest export markets. As an Agoa participant, this country is one of 35 in Africa with duty-free access to the US market.
Agoa, supported by favourable trading terms, is a privilege that should not be taken for granted, said Celliers.
Any time we lose the privilege or incentive to participate in a specific sector or market, that does damage. We hope the warnings are taken to heart and we can get our economic interests aligned ... to help our economy, as opposed to stifling it
— Jacques Celliers, FNB CEO
“Any time we lose the privilege or incentive to participate in a specific sector or market, that does damage. We hope the warnings are taken to heart and we can get our economic interests aligned ... to help our economy, as opposed to stifling it.”
Seelan Gobalsamy, CEO of chemicals, explosives and fertiliser group Omnia, said this week that “I don’t particularly think the government has chosen a side [in the Russia/Ukraine war]. However ... if there is a perception that [we have], you might ... have unofficial sanctions.”
In its Financial Stability Review last month, the Reserve Bank warned of secondary sanctions risks against South Africa or that “counterparts to South African financial institutions could put institutions under intensified scrutiny and decide to reduce their exposure to South Africa as part of their own-risk management processes”.
Celliers said the government and private sector need to create a long-term, stable framework for the private sector to invest
“Private-sector actors with capital to invest have an opportunity to take long-term decisions and invest for the future, [as well as] build up industries and sectors that are meaningful to our society. But ... you have short-term decisions, you have people having to sit on their hands. They cannot invest, though they want to.”
He cited the need for policy in the automotive sector.
“If we are not going to give certainty in policy [relating] to vehicle manufacturing to cater for new-energy vehicle demand, then our plants will produce products that the world does not want.
“The time has come to move from the drawing board to action. For our market, that action is needed right now.”
Celliers added that a stronger legal framework would stabilise the economic environment.
“There is a lot for us to get right to capacitate our law and order to get people to feel we are getting on top of the vulnerabilities. Whether you are in the private sector or government, we are all vulnerable to bad actors entering our organisations.”
The Financial Action Task Force greylisted South Africa in February after identifying weaknesses in the country’s measures to curb, among other things, money laundering. If South Africa remains on the list for a prolonged period, it could affect the financial sector’s access to global financial markets.
Regarding consumers, Celliers said: “Consumers should recognise that inflation and interest rates are going to be with us for longer than people would wish... meaning people must be responsible with their finances.”
In a trading update this week for the second half of its financial year, FirstRand, FNB's parent company, said it was seeing “more strain in the domestic retail books than previously forecast”. However, it expects its credit loss ratio for the year to remain below its stated through-the-cycle range, given its approach to lending.
Nedbank, Standard Bank, Capitec and African Bank have also reported that their loan customers are increasingly showing strain.
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