Greylist: What comes next in SA?

Few of us were surprised when South Africa was greylisted in February. It confirmed the dire state of our financial crimes vigilance practices.

The comprehensive mutual evaluation report issued by the global Financial Action Task Force in 2021 highlighted gaps and weaknesses in SA’s ability to understand the more dubious transactions happening within the ambit of its borders and financial systems.

It also provided the country with an opportunity to respond to the key issues and avert being greylisted alongside countries like Syria and the UAE, Panama and the Cayman Islands.

To some, grey is okay Countries such as the Cayman Islands may regard this classification as a small price to pay for their status as lucrative destinations for opaque financial structures and shell companies that serve those who have found comfort operating across grey areas.

Validation?

But SA does not classify itself as such, and its greylisting was not a validation of a strategic economic position – it was an indictment on its flawed and fraying law enforcement and regulatory architecture.

The expected impact on the economy – ranging from increased transactional and compliance costs with international counterparties to declining capital flows – was predicted to hit the financial sector the hardest.

But as capitalism has shownrepeatedly, the domino effect of that turn of events would be the passing of the increased costs to the clients of the affected institutions and, by extension, ordinary citizens.

In response, President Cyril Ramaphosa bizarrely announced the greylisting was “concerning, but less dire than some suggest”.

These sentiments – from the leader of a government that is presumably trying to reverse the greylisting – were surprising.

The initial report listed over 60 recommended actions SA needed to implement between the issue of the report and the final decision in February 2023.

Over that period, National Treasury led a process that included well-meaning but procedurally truncated Bills designed to address gaps in the financial system oversight and some commitments to do better from other parts of the state.

Deadlines

However, by the time the deadlines loomed, eight strategic deficiencies remained and made SA’s descent onto the greylist nevitable.

How SA could lift itself off the greylist is a question of time and commitment. The earliest possible time for the reversal of the greylisting is October 2025 … if SA is able to get itself added to the evaluation list in 2024. If that is to materialise, then the sense of urgency in addressing the remaining issues needs to be elevated to national priority status.

Unfortunately, the president’s sentiment runs the risk of downplaying the severity of the issue. When senior leaders leave the impression that it is all a storm in a teacup, it is difficult to imagine that the bureaucrats responsible for weaving together the granular details of fixing the problem are going to approach it all with any sense of haste. Is a grey rainbow still a rainbow?

In recent days, many business leaders have expressed the idea that SA is showing features of a failed state.

The notion of a failed state less than three decades after SA was celebrated as a symbol of hope for the world naturally creates anxieties for political leaders.

NOW READ: Plan to deal with greylisting underway

Not a failed state

In April 2022, Ramaphosa categorically stated that SA “is not a failed state yet and we will not get there”. This was in the aftermath of a bruising period where the country had experienced the economic fallout of the Covid pandemic, the July 2021 unrest and multiple daily service delivery protests.

A stagnant economy and escalating unemployment means that the fundamental antidotes to the social unrest – better socioeconomic prospects for citizens – remain elusive and failure to address them are still regarded as the most persistent risks for the nation at large.

Since those sentiments of April 2022, the escalation in load shedding and the resultant impact on the economy have only been matched in scale by the increase in crime rates, the cost of living, the Transnet logistics curse and the instability of whatever masquerades as governance in the major metros.

The response to these multiple issues by the state has been less than lethargic. Where citizens have expected exemplary leadership from the president, in particular, his infamous approach to crisis management – which is premised on the eternal pursuit of consensus and concurrence rather than crisis-appropriate leadership – has left many wondering if he even cares at all.

While one cannot scientifically diagnose a lack of interest, it is undeniable that the occasional responses have not left the impression of a president in a hurry to arrest the decline.

Lady R

The latest crisis involving Lady R, the Russian ship that docked at Simon’s Town, non-alignment and the International Criminal Court arrest warrants – has yet again been bedevilled by the commitment to methodical lethargy rather than rapid responses.

This week, the SA Reserve Bank added its voice in a bulletin that highlighted the possible consequences of SA being sanctioned by the West due to the ongoing concerns about its response to geopolitical developments.

The evidence in front of us indicates that, ironically enough for a country under siege, our leaders have a remarkably uncanny habit of treating any form of tough, yet valid, criticism with the type of siege mentality that forces them to retreat rather than lead.

And leading on that front is no less an authority than the president himself. The instinctive response to those who have invoked the |failed state” conversation is to brand them as alarmists whose utterances cause more harm to an already fragile state.

That reasoning seems to neglect the fact that many citizens and business formations have quietly and diplomatically highlighted the series of issues that undermine the state’s prospects of success.

The fact that such issues have not only persisted but escalated lends credence to the theory that clearly the solutions have not been forthcoming.

ALSO READ: South Africa greylisted by global watchdog FATF

-Khaya Sithole is a chartered accountant, activist and academic. He writes and tweets on matters of politics, economics, finance and social justice.