Will SA be grey-listed?

The latest buzzword going around is “grey-listed”. You will remember that not so long ago everybody was talking about South Africa being downgraded to “junk status”. Now you might have picked up that the latest gossip is that we will be placed on the international [Financial] Action Task Force’s or FATF’s grey list. So what does that mean?

If South Africa is put on the FATF’s grey list, it will mean that all transactions of companies and individuals from South Africa will be seen as high-risk transactions, triggering onerous administrative and compliance obligations; all of which may reduce international trade with South Africa. The reason why we might end up on this list, is the fact that we simply do not do enough to combat money-laundering and similar activities.

Currently there are 23 countries on this list (see below), and you will notice that most of them are hardly “head boy/head girl material”. The impact on the rand of SA’s inclusion on the grey list will most likely not be beneficial and as investors and participants in a multi-national trading environment, a further weakness in our currency is going to be painful (see below).

It is because of these potentially negative outcomes created by our government that we need to be invested in hard currency abroad. Just to illustrate this point: the rand return on an investment in the Sygnia ITRIX S&P500 ETF would have generated a return of 2% over the last six months (S&P500 index in $ -20%), and the year-to-date return would have been -14% (S&P500 in $ -25%). It is clear to see that as the rand’s weakness accelerated over the last six months, international investment converted back to rands held its head up.

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