On Friday, 24 October, South Africa was removed from the Financial Action Task Force’s (FATF’s) grey list. Markets welcomed the announcement as it marks a turning point for confidence and growth within the South African economy.
Why it matters
The FATF is an inter-governmental organisation that develops and promotes policies to protect the global financial system from money laundering, terrorist financing, and proliferation financing (the funding of nuclear, chemical or biological weapons). The organisation sets international standards through the FATF recommendations and then assesses countries to ensure they are implementing those standards to effectively protect the global financial system.
In February 2023, South Africa was placed on the FATF’s grey list. This meant that South Africa was not meeting the standards laid out in the FATF recommendations. The grey list is for countries that have strategic deficiencies in their economic regimes but who are willing to work with the FATF to address them.
Being on the FATF’s grey list can have a number of negative economic impacts on a country. It may result in decreased investor confidence, a decrease in foreign direct investment, higher borrowing costs for government and businesses internationally, and increased costs when South African businesses and individuals either set up financial structures abroad or conduct cross-border transactions due to increased scrutiny on all South African foreign transactions.
SARS (keeps) driving changes
The South African Revenue Services (SARS), which has been instrumental in working with state institutions to strengthen governance and compliance systems, welcomed South Africa’s removal from the grey list and said it was a major milestone in restoring confidence in the country’s financial system, as well as South Africa’s standing in the global economic arena. However, SARS Commissioner, Edward Kieswetter, said, “This marks a milestone, not the finish line.” He stressed that continued effort is required to build a resilient and transparent financial ecosystem.
Some of the key reforms that have been implemented since February 2023 include:
- Enhanced investigations and asset recovery in partnership with law enforcement.
- Improved access to beneficial ownership data for companies and trusts.
- Amendments to the Tax Administration Act to facilitate better information sharing.
- Implementation of a Traveller Management System to improve cross-border cash reporting.
- Comprehensive training for officials on money laundering and financial crime detection.
Kieswetter emphasised that SARS will now focus on embedding these reforms, maintaining vigilance, and enforcing tax laws fairly, ahead of the next FATF review in 2026. “The aim,” he said, “is to safeguard financial integrity and reinforce public trust.”
Regional gains and market reaction
Africa’s two largest economies, South Africa and Nigeria, were both delisted from the FATF’s grey list, signalling significant progress in strengthening anti-money laundering and counter-terrorist financing frameworks across Africa. Mozambique and Burkina Faso were also removed, reflecting a broader improvement in governance and financial integrity across the continent.
The market reaction has been swift and positive. In South Africa, the rand strengthened and bond yields eased – clear signs of renewed investor confidence. The decision is expected to lower transaction costs, support remittance flows, and improve the overall ease of doing business. All positives for the economy.
Citadel’s view
At the start of 2025, few would have predicted such a turnaround. South Africa’s economic outlook appeared clouded by weak growth, fiscal strain, and a challenging global backdrop. Yet, several positive developments have emerged this year:
- A supportive commodity cycle, driven by renewed global demand for gold and platinum.
- The rand has strengthened, underpinned by improved terms of trade and a softer United States (US) dollar.
- A rally in South African equity markets, with the JSE among the better-performing emerging equity markets this year.
The FATF delisting adds to this momentum, reinforcing South Africa’s credibility as an investment destination and supporting efforts to lift fixed capital formation – long a structural weakness. While gross fixed capital formation fell from 22% of GDP in 2008 to below 13% in recent years, it has now recovered to slightly above 14%. Sustaining and accelerating this recovery is vital for long-term growth.
The benefit to investors
The FATF delisting also has a positive impact on South African investors. From the perspective of offshore structures like trusts and companies, the most direct consequence of South Africa’s grey listing was that offshore service providers, including corporate trustees, corporate directors and banks were required to regard residents of a grey listed country as being high risk for compliance purposes, which meant they had to adhere to stringent customer due diligence processes. This resulted in a significant increase in the documentary evidence and information that had to be supplied, when these structures were created, to meet the enhanced due diligence requirements.
These enhanced measures resulted in an increase in the cost of the structures, especially, on the banking side. Significant fees were introduced by the banks to open and maintain bank accounts for South African account holders.
With South Africa’s removal from the grey list, we are cautiously optimistic that the setting-up and maintaining of offshore structures will once again become more cost effective, albeit still not cheap. We also foresee that some of the elaborate compliance requirements will be relaxed.
The work ahead
Being removed from the grey list does not mean South Africa’s job is done. In many respects, it marks the beginning of a new phase – one focused on consolidating reforms, maintaining transparency, and deepening collaboration between the public and private sectors.
As Commissioner Kieswetter noted, “We must continue to demonstrate our commitment to integrity, compliance, and fair enforcement. That’s how we build lasting confidence – both at home and abroad.”
With this milestone achieved, South Africa finds itself with renewed momentum and a stronger foundation to tackle the challenges ahead. South Africa’s outlook is, finally, looking a little sunnier.
