The longer that South Africa is under increased monitoring, the worse it will be for the country’s economy
South Africa is clawing its way off the grey list — but the country’s authorities still have a lot more to do before it is in the clear.
A year after landing on the Financial Action Task Force’s (FATF’s) list, South Africa has managed to make good on five of the 22 measures set out in a plan to address the flaws in its anti-money laundering framework.
These five items have either been addressed or “largely addressed”, according to the treasury. Of the remaining 17 actions, 14 have been partly addressed.
Providing an update on the state’s efforts to get off the grey list, the treasury said addressing the remaining 17 measures by the February 2025 deadline “remains a tough challenge”.
“All relevant agencies and authorities will need to continue to demonstrate significant improvements and also that such improvements are being sustained,” it said in a statement on Thursday.
In the wake of South Africa’s greylisting, analysts warned that falling in the task force’s crosshairs would knock the country’s already fragile economy — especially over an extended period.
At the time, the treasury noted that it typically takes one to three years for a country to be taken off the grey list. This usually occurs after a final, on-site assessment by FATF when all elements of the country’s action plan have been largely or fully addressed.
Following South Africa’s greylisting, the Reserve Bank noted that the event prompted a relatively muted immediate reaction given that it was already widely anticipated. It warned that remaining on the grey list for an extended period — coupled with other reputation-bashing events, such as intensified load-shedding — would contribute to capital outflows and a higher country risk premium.
A later study by the Reserve Bank found that, unlike sovereign downgrades, the FATF greylisting did not significantly affect stock market returns and that the actual event had a limited effect on the domestic financial system.
Reflecting on South Africa’s greylisting one year on, experts at Webber Wentzel noted that South Africa seems to have weathered the initial storm.
“Though the immediate financial impact of the greylisting hasn’t been severe, the long-term consequences cannot be ignored,” they added.
“Prolonged inclusion on the grey list could translate into higher risk premiums for businesses, potentially leading to capital outflows and ultimately hindering economic growth.”