The potential economic consequences of SA being greylisted

FIFI PETERS: Let’s get to the big business story right now, and that is the potential greylisting of South Africa’s economy. It is interesting to see that the race to prevent that eventuality from happening is featuring quite a lot of finger-pointing at this stage [as to] whose fault it is that the country is in quite the fix it is right now. It was interesting to see yesterday to see that parliament accused National Treasury of dragging its feet to put in place the measures that could prevent South Africa from being seen as a country with weak anti-money-laundering and terrorism-financing controls by international authorities like the Financial Action Task Force [FATF]. Parliament said this because Treasury has known about this and the risk and the threat, and has reportedly been tasked to avoid this eventuality since 2017 – with little success, it would seem.

But joining us for more on the story and why [it is] so important is Busi Mavuso, the CEO of Business Leadership South Africa. Busi, I know that you guys were quite busy today, along with Intellidex, just releasing the outcomes of the research that you guys have done into what could happen or could not happen.

But, before we get into those findings, I’d like to know what you thought would happen in Parliament yesterday, with this finger pointing and the blame game.

BUSISIWE MAVUSO: Fifi, good evening and thank you very much for inviting me. I think you’re absolutely right. People knew about this in 2019. Something should have been done at that time. There was no reason whatsoever why we actually had to run around at the eleventh hour to look at the action list which was given by FATF to address some of the issues we were asked to address.

We knew that our control environment was weak. There were clear interventions that we were supposed to have [made] but, for whatever reason, we rested on our laurels and nothing was done. We have now put the country and the very ailing economy in an environment where we could be greylisted, which makes it more difficult for us. [As] if whatever … we’re experiencing at the moment as a country [were] not bad enough – the Transnet strike, the load shedding, the impact of Covid, the impact of the July unrest, the impact of the KZN floods, you name it – we are now giving ourselves this severe blow, which is a clear own goal. Something could have been done but, for whatever reason, we took [our] time to actually implement the recommendations and now we are sitting in this very unfortunate situation.

But I was very encouraged when I spoke to National Treasury yesterday, and we learnt the interventions that they’ve actually put in place. I was encouraged when we also spoke to [ National Prosecuting Authority’s National Director of Public Prosecutions] Shamila Batohi yesterday as well, and she was talking to us about the work that they’ve done. A lot of recommendations are for the NPA.

And I think FATF’s deep gripe is that we as a country have had this state-capture project and yet so many years later nothing has happened. No prosecutions have been done, no one has actually been taken to jail.

It shows that our control environment is weak and, if our control environment is weak, it means that, as South Africa, we could be the weak link through which money laundering is done by all the other countries in the world.

South Africa is going to be known as …, and if you want to clean money, if you want to do money laundering, they don’t have controls – go to South Africa. That was the biggest gripe by FATF.

But Shamila Batohi has actually risen to the challenge. I think she did appeal to us when she came into the job three years ago to ‘Give me time. This is not going to be easy.’ I’m hoping that, when they do the review in December and when they have the conversations with South Africa in January, they will be convinced that the work that has been done might be enough to maybe put us on a watching brief still, to say, ‘Maybe let’s not take any action yet; let’s see if the interventions are going to result in anything’. Or if we are unfortunately greylisted, let’s hope that we keep the momentum of the efforts that we have put in, and hopefully get off the grey list as soon as in 12 months.

FIFI PETERS: To explain to someone at home who is not in finance and is wondering what this greylisting is and, I think more importantly, how this greylisting is going to impact me, how it is going to change the price of bread for instance, can you just unpack the potential economic consequences for ordinary South Africans, and even the economy should this happen?

BUSISIWE MAVUSO: The big economic consequence is that the country’s risk has [been] allocated, which means that countries who are our biggest traders, the EU and the UK in particular, have got a strict rule that, if you are greylisted as a country, they immediately impose a higher risk category on you as a country – which may impact investment flows.

Investment flows are important, Fifi, because it is through investment coming into South Africa that we’ll be able to grow the economy. Growing the economy is important for South Africans because … that is our only chance that we can arrest the high levels of unemployment and poverty that we are sitting with.

South Africans will know that President Cyril Ramaphosa has been on an investment drive since he came into office in 2018, trying to get R1.2 trillion into the country. That target of trying to get investment into the country may be impacted, because companies and countries and international investors might not be keen to come into a country where, as soon as you land here and you try to build a business, there’s going to be enhanced due diligence for you as a company; there’s going to be increased compliance, there’s going to be increased red tape. It’s going to be difficult for you to deal with the international financial institutions because you are operating from a greylisted country.

It means that the job crisis that we’re trying to address as a country could actually be dealt a severe blow because we will be greylisted as a country. It means you are less attractive. It means that the funding, even from domestic companies – if you’re looking at the fact that the JSE is about 60% foreign-owned, your BMWs, whatever companies are operating here in South Africa that are actually headquartered somewhere else – have to actually get permission from their headquarters in Germany or Switzerland, or whatever the case is, to continue investing in South Africa.

And if Germany and Switzerland and whatever [country] say: ‘It’s going to be too difficult, you guys are greylisted now and it increases our compliance. Increased compliance means that we need to part with more money as business. We don’t want the red tape. We don’t want to be seen to be operating in a country that is a high risk.’ You don’t know what decisions existing companies are going to have to make ,due to the pressures that they might be getting from their principals.

I think that is what is at stake here. It’s unfortunate because this is an own goal, this is something that could have been averted. But for whatever reason we are where we are, and we’re trying our best as social partners to look at how we get ourselves out of this mess.

FIFI PETERS: So for the members of Business Leadership South Africa what’s the message? What are they saying about preparing themselves for a situation in which we don’t do everything that we can do to be placed on the watch list, and we actually get placed on the actual grey list? Are they putting in place any contingency measures right now?

BUSISIWE MAVUSO: You know, interestingly enough, when you speak to the banking community they will tell you that they’ve already started having discussions for quite some time with their international counterparts, and a lot of international counterparts have actually priced in the risk. So the impact from a GDP perspective might be minimal.

I think ours is a very interesting case, Fifi, because out of the 89 countries that have ever been greylisted by FATF, South Africa is the one with the most sophisticated financial market and capital market, and then financial systems broadly, a very sophisticated banking system, and all of those good things that we have from a financial sector perspective. So we are therefore an anomaly from that perspective. That’s why we are hoping that the work that we’ve put in place and the fact that, government aside, our banking system and our financial services sector broadly have the sophistication to maybe deal with some of these issues that FATF is raising [will be enough].

I think when you add on to that the current interventions and efforts that have been put in by Sars, by the NPA, by the FIC (Financial Intelligence Centre), by all those institutions that are responsible, by the South African Reserve Bank, because they have put in place interventions to say from now on this is how we’re actually going to deal with money-laundering cases, or these are the interventions and controls that we are actually putting in place to deal with money-laundering cases, you are hoping that that might just enable us to avert being greylisted.

So it’s really an 85% chance, or hopefully even less. We don’t know. But we also know that cases like Mauritius, which had been greylisted, did everything that they could and got out in 12 months. We could actually be sitting in the same situation where the impact might not be dire from that perspective, because maybe the international community … The trick will be for us to ensure that we communicate incessantly as a country, and make known [as much as possible] the interventions that we’re putting in place to address this issue.

So hopefully, when we do that, the international community might actually have mercy on us and they might actually look at us in a different light, and they might not impose the harsh restrictions that they might have imposed if we were not taking the necessary action.

FIFI PETERS: Fingers crossed then, I suppose. Busi, thanks much for your time as always, Ma’am. Busisiwe Mavuso is the CEO of Business Leadership South Africa.