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SIMON BROWN: I’m chatting with Bianca Botes, director and Treasury expert at Citadel Global. Bianca, I appreciate the time. Greylisting happened back in February 24. We are almost five months into it. There was stuff we needed to do to get off the list. Are we as a country ticking those boxes and doing what’s needed?
BIANCA BOTES: I think from a regulatory perspective we’re definitely trying to tick all those boxes. We’ve seen a couple of reforms coming through from Sars in the way that you need to apply for your tax clearances to get access to your annual allowance. We’ve seen some regulatory changes in trusts, and we’ve actually also started seeing the regulatory burden on not only financial institutions but the private sector to disclose beneficial ownership and implement regulatory requirements in terms of vetting suppliers and clients, for that matter.
Read: From Rainbow Nation to greylisting and a red alert – what comes next?
SIMON BROWN: That is the key point. I mean, greylisting’s not fun but it does create, as you say, that burden. It’s going to hurt tons of businesses. I imagine almost top of that pecking order will probably be banks – and ultimately this is not good for trade for us, nor for an economy which is struggling already.
BIANCA BOTES: Absolutely. I think the main concern here is what it actually means for confidence in South Africa as an investment destination. Just think in your own capacity how comfortable you would be putting your money with someone that could potentially be involved in financing terror activity, or who’s not controlling and vetting the entities and the people that they are conducting business with. At the end of the day you want to know that your investment is safe, but you also want to know that your money isn’t going towards illicit industry and trade.
SIMON BROWN: Particularly in a global world [for] someone with assets to invest sitting, I don’t know, wherever they might be outside of our borders. We are part of a long list of potential places and a lot of them are just going to say: ‘We are not even going to bother doing a due diligence, we’re just going to move on.’
BIANCA BOTES: Absolutely. I think you’ve actually seen a lot of the repercussions of greylisting filter in through the market. Just from a foreign exchange perspective you are actually seeing vigorous enhanced due diligence from a lot of the international banks when you are facilitating trade, and that is actually causing a knock-on effect on South African entities, in particular [in] making payments to foreign entities where those payments are being delayed due to those cumbersome enhanced due-diligence processes – not only on the South African entity making that payment, but even the receiving entity abroad.
SIMON BROWN: It keeps me thinking that obviously as a country we do bond issuances on a weekly basis as bonds are expiring, as we need the money. Is there an impact happening there? It would be I imagine from a foreign investor perspective the same story.
BIANCA BOTES: Absolutely. I think the latest FSR [Financial Stability Report] from the Sarb actually highlighted exactly that issue, and that indicated that foreign holders of our local bonds actually decreased from 2018 to 2023. We’ve seen those foreign bond investors dropping from 42% to 25% currently. That speaks to the amount of capital outflows we are seeing in South Africa, and that lack of demand from foreign investors going: ‘Maybe my money’s safer somewhere else. Regardless of the yield that South Africa can offer, it’s just too risky.’
SIMON BROWN: And of course these days even the US offers a good yield – not comparatively, but relatively. What is the review process? Is this an ongoing review with FATF [the Financial Action Task Force] or is there a particular date into the future at which we sort of go before them again and try to get our greylisting rescinded?
BIANCA BOTES: There is a specific date that they expect us to have certain controls and reforms in place. However it is an ongoing process. It’s not going to be on that particular date – yes, you’ve met all the requirements or no, you haven’t met the requirements. It’s actually going to be a little bit of: ‘How far have you gone to actually implement the reforms? How is the risk factor looking at this stage? Do we see a significant improvement in the coming months following these reforms?’ So it’s not going to be like you have to have all your risk out of the market by the time the review takes place. They are constantly engaging with Treasury and regulators to make sure that South Africa actually becomes a safe destination yet again for financial and capital flows.
SIMON BROWN: And in that review, I saw a date [something like] January 2025. Is that the right date?
BIANCA BOTES: I believe that is the right date.
SIMON BROWN: A last question. What we haven’t yet seen is lowering credit ratings from the rating agencies, but that must be something that is weighing on the mind of those rating agencies.
BIANCA BOTES: Absolutely. I think as a country that’s already sitting with junk bond status, the ratings agencies are definitely keeping a very keen eye on South Africa and what we are doing to actually undo some of the negativity and the risks in our markets. I think the ratings agencies have really done a good job in giving us the benefit of the doubt and saying, you know what, Treasury, alongside the FATF is doing whatever it can to mitigate some of these risks, to implement the reforms, to make sure that we bring our regulatory requirements up to global standards.
But we also are going to eventually run out of that leeway. So it’s very important that we take stringent action as soon as possible, and make sure that we retain the trust of those rating agencies so that they continue thinking, okay, [South Africa] is doing what needs to be done to actually avoid a further downgrade.
SIMON BROWN: Again, that conversation’s happening. I keep on forgetting we are junk status. It’s been a while but it slips my mind.
We’ll leave it there. Bianca Botes, director and treasury expert at Citadel Global, I always appreciate the time.
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