South Africa has been greylisted but the government has promised to rectify the situation Photo Swazidailynews
South Africa – Following the greylisting of South Africa by the Financial Action Task Force (FATF) on Friday, the rand tanked to R18.42 and has continued to fall. The FATF said that while South Africa has made significant progress on its recommendations, more work is needed to combat money laundering and terrorist financing.
South Africa, along with Nigeria, were added to the grey list during a meeting in Paris last week. There are various reasons why South Africa was listed but Phala Phala is not one of them as many would believe, said Dr. Dale Kinsley, Political analyst and economist. The president has not been charged with any crime and while people may have that opinion, it “has absolutely no bearing whatsoever on what this issue is around greylisting”.
“I would suggest that whoever made that tweet probably pay much closer attention to the money laundering, the massive amounts of capital that are escaping our country from private capital, corporations, people who are abusing the tax system, abusing capital gains and transfers. Criminal syndicates that are using South Africa as a conduit for drug monies and all sorts of other things. This is where the real problems lie.”
What the FATF is al about and why a country is greylisted
The FATF is an intergovernmental body that sets the global standard to combat money laundering and terrorist financing. The FATF essentially takes an in depth look at how a country is tracking “potential money laundering activities” and whether they are prosecuting that. Based on this, it is decided whether a country should be grey listed or not.
“They then make an assessment. There’s this grey list which is more accurately called an observation list. There’s at least 30 countries on this list. Essentially what they’re saying is you need to improve one, two, three and four. In our case it’s legislation. It’s also law enforcement initiatives and investigations that need to be improved. When you do that then we’ll take you off this list and you’re back into the sort of good books so to speak.”
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The implications of being greylisted
The decision to greylist South Africa is not a surprise. While delivering the Budget in Parliament last week Wednesday, Finance Minister, Enoch Godongwana said South Africa should be “prepared for the possibility” of this happening. South Africa has been trying its best to pass legislation for the past six to eight months to avoid being greylisted, said Kinsley. They must now try and get everything in order by the next review in June.
“The implications of this in the short term are fairly minimal. The South African governments and others have been rushing for the last six to eight months to try to pass legislation that would answer some of these gaps or fill some of these gaps. They’re obviously not there yet. There is going to be a review in June from the task team again of this status and the government is saying that they’re hoping by that stage they’ll have all of the things in place.”
While the short term implications are fairly minimal, the long term implications can be quite severe. A report by research firm, Intellidex noted that capital flows, direct investment and portfolio inflows all decline after a country is greylisted. Mauritius, who was greylisted in February 2021, had their GDP drop by 1% in its first year on the list with its businesses suffering delays in conducting operations outside of their borders.
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Greylisting is a symptom of bad governance and not the main problem
The economy is suffering at the moment. The cost of living is rising quickly but one should not think that getting off the list will help our situation, warned Kinsley. While being greylisted doesn’t help our situation, being on it is not our main problem.
“Our economy is in trouble and what this greylisting is, is another symptom of that trouble. It’s not at the fundamental heart of it. At the fundamental heart of that is an economic model that simply is servicing a very small minority and leaving the majority behind and which is not catalysing economic growth and job creation and other kinds of things. These are the fundamentals that we need to take care of. We need to be careful when these things happen. Not to sort of say if we get off the greylist then everything’s going to be okay.”
It is an area that “we should pay attention to”. The remedial action needs to be done and the authorities must do their jobs. South Africa needs to deal with being greylisted but we must also “deal with all of the different symptoms of a crisis that we have in this country”. Getting off the greylist is a start but progress must be consistent and sustained to ensure our economy is repaired and we are not greylisted again.
To hear more from Dr. Dale Kinsley on who is to blame for South Africa being greylisted, you can listen to the discussion here
