Grey listing still avoidable, but time is running out for South Africa

South Africa faces a serious risk of being ‘grey listed’ by the international Financial Action Task Force (FATF), which will cause irreplaceable damage to the country’s reputation and credibility as an integral link in the global financial system. It will have broad economic implications for South Africans and make it harder to do business during a time when several disruptions are already complicating matters worldwide.

What you will learn:

• The government has been given until October 2022 to address a list of priority areas before FATF convenes for a plenary vote in February, which will decide South Africa’s fate. Although progress in addressing the deficiencies has been sluggish, there has been increased urgency lately as financial institutions warn of the potential impact of a grey listing.
• Although it looks increasingly likely that South Africa will be grey listed, one positive aspect is that procedures are already in place that would help strengthen the country’s case to be removed from FATF’s list in the not-too-distant future. Unless policymakers act with haste, the legacy of state capture will continue to undermine Africa’s most industrialised economy.
• If the country were to be grey listed, it would only add to negative sentiment. However, given South Africa’s dismal sovereign credit status, many economic shortcomings and relatively weak growth prospects, the grey listing in itself is unlikely to have a severe market impact, or precipitate sizable capital outflows. That said, such an event would weigh on FDI inflows and possibly delay South Africa’s economic recovery.