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A Grey Future for the Rainbow Nation?

The opinions expressed in this article are the writer’s own and do not reflect the views of Her Campus.
This article is written by a student writer from the Her Campus at UCT chapter.

By now, many of us have heard the news that South Africa has been grey-listed, but what does this actually mean, and how will it affect South Africa and those who live here?

What is grey-listing?
Grey-listed countries are those that the Financial Action Task Force (FATF) finds are not complying with the international standards set up to combat financial crimes. The FATF is a global inter-governmental organisation that aims to ensure that countries set systems in place to avoid money-laundering, terrorist financing, and other financial crimes.
Grey-listed countries are regarded as “jurisdictions under increased monitoring” – meaning that these countries must submit more auditing reports and background information when doing business with international companies and investors.

Why were we grey-listed?
South Africa’s addition to the FATF grey-list comes off the back of evidence that there has been a nationwide failure to prevent money-laundering and corruption by those in power. Much of this evidence comes from the Zondo Commission Report, which details how South Africa’s democracy was, and continues to be undermined, as a result of the actions of Jacob Zuma’s government while it was in power.

What does it mean for us economically?
Grey-listing is expected to negatively impact South Africa’s economic growth – countries will be less inclined to do business with a grey-listed country, because of the increased administration requirements needed to prove that transactions involving these countries are legitimate.
It will also make it more expensive for the government and companies to borrow money on international markets, which in turn reduces government spending and increases the cost of doing business.
Slower economic growth increases unemployment as the production of goods and services reduces with reduced demand. This slows the increase in living standards, meaning that inequality becomes more noticeable. These economic events are likely to disproportionately affect those in South Africa’s lower income brackets, as these people are more likely to experience job losses.
The rand has already weakened as international markets anticipated and then responded to South Africa’s grey-listing. A weaker rand generally leads to a higher cost of imported goods and services. The knock-on effect on things like transport and food will negatively affect poorer South Africans who are already struggling to make ends meet.
But there is good news – global financial markets are looking less attractive as inflation remains high and recession seems a possibility in many developed countries. Cheaper South African markets may still be able to attract investors.

What else?
Grey-listing also means that South Africa will have more difficulty meeting goals to mitigate the effects of climate change. Funding from international collaborators such as the United Kingdom and the United States is required to meet these goals and will be difficult to obtain as a result of increased red tape surrounding these transactions.

What does it mean for us politically?
Socio-politically, South Africa runs the risk of a poor global reputation. International political partners may lose confidence in South Africa, resulting in a reluctance to invest and provide support to the government and corporations.
However, the country’s greylisting did not come as a shock to investors – South Africa has long been seen as a risky business partner, as a result of state capture. International investors have known the potential dangers involved with investing in South Africa, and so economists are not convinced that grey-listing will severely impact foreign direct investments.

Is there a bright side?
It is not all grey skies ahead – the National Treasury has announced that South Africa will comply with the FATF, and aims to be removed from the grey-list by the end of January 2025. The government has already amended laws to protect against further money-laundering and terrorist financing.
If grey-listing forces us to strengthen our financial laws, our nation could once again see the rainbow behind the grey clouds.

Hi! My name is Marnie, and I am studying a Bachelor of Medical Science Honours degree at UCT. I have many interests, but my main interests are science, current events, health and wellness, and learning new languages. I am passionate about improving public access to science and encouraging young people to pursue careers in science, especially young women.