SAM MKOKELI: Focus should be on climbing out of inevitable greylisting hole

Watching business and government head honchos talk up the effort to avert SA’s “greylisting” reminds me of a movie I have seen before. And I know how it ends. The strategy is a carbon copy of the failed struggle to avert “junk status”. It is clear it is a matter of too little, too late to avoid the greylisting, and that government officials know it.

SA has a mountain to climb to persuade global money-laundering and terrorist financing watchdog the Financial Action Task Force (FATF) not to put us on its grey list. The process runs on two tracks: the legal framework and substantive change. The SA government has belatedly introduced draft legislative amendments, but the question will be whether those laws can be implemented and enforced in time.

At the helm of the National Treasury we also get a worrying picture. Acting director-general Ismail Momoniat told parliament: “Generally, no country wants to be out of the financial system, and they want to comply with FATF standards whether they are members or not, because they will find it very hard if not impossible to trade with the rest of the world.”

He said SA could demonstrate significant progress in taking remedial steps for law-related changes by February, “but it’s going to be tough” to meet some of the requirements related to crime and corruption fighting. SA falls short in 20 of the 40 FATF measures related to the legal framework, and failed all 11 tests regarding the implementation of its own laws.

“The tabling of the two bills is a huge step forward to demonstrate SA’s commitment to deal with [financial] crimes and corruption. However, we need to do more to prevent greylisting by demonstrating that we are actually implementing both the letter and the spirit of our laws,” Momoniat said.

We should rather be working on how long it will take us to bounce back from the greylisting when it happens some time in 2023. That we have managed to drag a modern financial economy down to the lower league — what some consider pariah status — is embarrassing to say the least. Greylisting will add to SA’s existing economic woes, the country having already fallen off major investment indices since it earned junk status, making RSA bonds riskier for institutional investors.

Capital flows

Johannesburg-based analyst Simi Siwisa, a member of The World Economic Forum’s network of Global Future Councils, has been warning for some time that the consequences will be dire: “It would impact both the current and capital accounts, with some impact on overall economic productivity. Internally, compliance costs would have to increase to convince international partners about the robustness of those internal systems and to maintain access to the Swift [international secure payment] system,” she says.

“Countries on the grey list tend to experience a disruption in capital flows. This is because some investors use greylisting to evaluate the risk of doing business with a country, thus informing their capital allocation decisions.”

The banking sector is likely to be hardest hit. A study supported by Swift (the Society for Worldwide Interbank Financial Telecommunication) noted that banks in grey-listed countries would have to invest in significant compliance resources to maintain access to the system. 

The SA opposition has climbed onto the bandwagon, even if a tad late. DA MP Dion George released a statement recently warning about the impending catastrophe, saying SA would slide into economic catastrophe due to greylisting. “The impact on the economy and the financial system is expected to become progressively worse. Together with a deteriorating balance-of-payments situation, the reputational damage of being greylisted would be so immense that the country could even face additional downgrades in investment and credit ratings, further restricting access to international markets.”

SA may be placed on the EU’s blacklist and the UK’s list of high-risk countries. That would mean access to commercial loans, borrowing from the IMF and various other sources of financial aid would be restricted. The price of debt will increase, and thus accelerate the crowding out of service delivery by higher interest repayments. The list goes on.

Anyone who has paid attention to the travails of our economy and fiscal politics in recent years will know that the FATF greylisting threat has not just emerged. To his credit, it has been on Momoniat’s radar for years, from even before SA became junked in 2016. “This is already happening, as markets appear to be pricing in an inevitable greylisting,” Momoniat said.

Effectiveness test

But we must be aware of the nature of the government we have. It is easily distracted. At the political level, the finance ministry has not emphasised the threat enough in public statements over the years. We can only wonder how aware the cabinet is, and it is no secret that President Cyril Ramaphosa’s in-tray is no longer visible, overwhelmed as it is by new and ever more urgent crises.

Another person who is under no illusions about what greylisting could mean to SA’s prospects is Intellidex chair Stuart Theobald, who believes there is now a 90% chance we will end up on the grey list. He says we have a 50%  chance of persuading the FATF that SA can make the required legal improvements in time, but that this will not be enough. “The huge challenge is meeting the effectiveness test, which I do not believe we will be able to demonstrate in time,” he says.

The real question is therefore how long SA would take to bounce back from a greylisting. “If it is going to be only a year, we need to see a lot of action now to address FATF concerns,” Theobald says. He’s right. Greylisting is a metaphorical manifestation of all that has decayed while Ramaphosa has been at the country’s helm. His predecessor, the Prince of Nkandla, was pilloried for saying SA’s roads cannot be compared with those of Malawi. Well, Swift is the highway on which global money moves, and greylisting will put us on a potholed track alongside the likes of Malawi.

• Mkokeli is lead partner at public affairs consultancy Mkokeli Advisory.