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Why South Africa and Nigeria have been gray listed Story-level




he gray listing of Africa’s major economies—South Africa and Nigeria—by the global anti-money laundering and terrorist financing watchdog, the Financial Action Task Force (FATF), is expected to post reversals of great scope for the economic growth of the two countries.

The warning from the Paris-based FATF comes amid difficult financial times for both countries. They continue to witness their own unique Challenges, but economic downturns caused by stagnant growth are a common denominator

What does the gray listing mean?

The gray list, which precedes the black list, means that a country is under greater control of the FATF, since cooperate with the working group to address relevant concerns, including money laundering and terrorist financing.

The pressure is also mounting as these countries must do more to address the underlying problems of organized crime, illicit finance, counterfeit trade, tax evasion and improve their ability to combat financial crime.

The gray list, for example, exposes the two countries to increased scrutiny by investors and financial institutions from around the world. Therefore, their portfolio and overall investment inflows are expected to be significantly reduced, making it difficult for them to acquire loans or investments.

“Similarly presents an increase in risk category for all South African customers. [and by extension Nigerian clients] in many international financial institutions, especially those in the EU and the UK”, South African Story-level, news24 reports.

The cost implications of the FATF move will be dire, as both nations are unprepared for further economic shocks in the future.

South Africa’s gray list delays economic stability

South Africa’s economic future is in jeopardy, say analysts recession forecast this year, largely due to endless blackouts. That could cost the economy $13 billion this year alone.

The gray list is basically expected to cause a walk in the cost of doing business in the country, the difficulties in sending money abroad, as well as in carrying out transactions with banks and international financial institutions. It comes with a decline in foreign direct investment, higher interest rates, and the cost of access to capital.

he so bring damage to the country’s reputation, increased bureaucratic hurdles for investors seeking to invest in the countries, and an average net loss of 7.68% of capital flows relative to GDP.

These ramifications, in turn, put pressure on ordinary citizens who are already burdened by the rising cost of living caused by slowing economic growth in both countries.

In South Africa, for example, the covid-19 pandemic that struck in 2020 began as a health crisis and quickly degenerated into a economic crisis.

And although the government has worked to ease the situationthe pernicious side effects of the pandemic are still lingering on the South African economy, which is has not yet fully recovered of the 2008/2009 recession.

It’s the wrong time for Nigeria

On the other hand, Nigeria, which is currently going through its presidential elections, faces economic crisis caused by cash shortageand fears abound that the transition could intensify the crisis.

he naira collapse precipitated in economic crisis which continues to impede the West African country’s economic growth, with rising inflation and cost of living triggering a mass exodus of its citizens. The Naira has been in a downward spiral for decades.

Last January, the governor of Nigeria’s central bank, Godfrey Emefiele, reportedly went into self-exile outside of Africa, allegedly to Evading arrest by the country’s secret police over claims that he has been involved in financing of terrorism and chronic corruption.

In 2019, Emefiele couldn’t explain how he lost Nigeria’s treasure more than $2.5 billion earmarked for weapons procurement under his watch, but was still reappointed Governor by President Buhari.

In 2014, the former governor of the central bank, Alhaji Sanusi Lamido, was also charged with financing of terrorism. Attacks by armed bandits in Nigeria led to the loss of 2,600 lives in 2021, an increase of more than 250% from 2020.

Nigeria is about to be blacklisted

Now, with this latest FATF action, Nigeria risks be on the blacklist by global financial organizations, according to the Center for Financial Surveillance and the Illicit Transaction Monitoring Group (CSITT).

Countries on the gray list take two to five years to address the issues and deficiencies that put them on the list and to be delisted after the mandatory requirements are affirmed by the FATF.

Anti-money laundering watchdog move means South Africa and Nigeria have now come together other african countries such as South Sudan, the Democratic Republic of the Congo, Mozambique, Uganda, Tanzania, Mali, Senegal and Burkina Faso.

Over the past five decades, the UN estimates that Africa has lost more than $1 billion (pdf) in illicit financial flows.

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