LEADING foreign currency supplier Rennies Foreign Exchange yesterday received the first consignment of euro notes and coins at its Gateway branch at Umhlanga.
By Harry Scherzer, CEO, Future Forex
FOLLOWING a bout of shocks to the country’s economy over the past few years, South Africa was suddenly struck with another bombshell earlier this year as the Financial Action Task Force (FATF) announced that the country had been globally greylisted considering government’s efforts to improve its compliance to international standards in preventing illegal financial activities had fallen short.
The decision, which left an indelible mark on South Africa’s reputation while increasing the cost of doing business in the country, was due to significant doubts that South Africa’s legal frameworks were strong enough to prevent terrorist funding, money laundering, and proliferation funding.
South Africa’s ineffectiveness - by global standards - in combating financial crime meant an increase in risk for potential investors and the introduction of new layers of due diligence for any company looking to invest in the country, which could possibly result in lower levels of foreign direct investment and portfolio inflows. It would also spell much greater difficulty for South Africans wanting to take money offshore or transact with international banks.
Today, South Africa has made significant improvements to address the numerous concerns of the FATF. However, South Africa still finds itself balancing on a knife’s edge between being able to remove itself from the FATF’s greylist completely within the next three years or teetering further off into much more dire consequences if the country is not careful.
While the country has taken some key steps to escape its greylist status, it’s important to remember that other actions could result in the country being thrust backward in its progress. And, possibly even find itself sliding into an even worse fate - being blacklisted.
Worst-case scenario
Although unlikely, it’s not impossible that actions (and in some instances - inaction) that facilitate an environment that is fertile for criminal activity to grow, signaling a much riskier landscape to international investors and organisations, could lead to South Africa’s blacklisting. That is, such an environment would introduce serious deficiencies to counter money laundering, terrorist financing, and financing of proliferation.
But, what would that look like?
Blacklisting would, for instance, severely limit access to international financial services as FATF member states and other international bodies are likely to impose economic penalties and other restrictive measures on any blacklisted countries. Some financial institutions could even completely stop providing services to South African businesses.
That, in turn, would make it more difficult for South African businesses to engage in cross-border transactions, access loans, or establish international banking relationships. This would leave South African businesses reliant on alternative, potentially more expensive, channels to facilitate transactions.
Subsequently, the country’s biggest trade partners could also reduce, or even reverse, their trade deals with South Africa as increased regulatory risks and concerns would leave businesses in the country’s trading partners - and their own relationships with other trading partners - vulnerable and insecure.
Conversely, those trading relationships that South Africa is able to maintain will become substantially more expensive while international trade with South Africa would face stricter regulatory measures. As a result, trade would again become more expensive and less enticing.
Preparation breeds resilience
Although South Africa is unlikely to be blacklisted by the FATF anytime soon (for all the country’s faults, it has shown a commitment to resolving the strategic deficiencies highlighted by the FATF), it’s clear that it’s not completely out of the woods just yet. That’s why, within such a fraught environment, it’s imperative that businesses do everything they can to keep costs down, especially for those that regularly need to make international payments.
Ensuring they are able to get the best deal on international transactions is vital to the efficiency and sustainability of any business. One of the best ways of doing so is to move their payments away from traditional banks and forex services, which often include hidden fees in their transactions.
Another way to maximise the value that they’re getting out of every transaction is by using a forex provider that is committed to providing transactions at the lowest possible cost and with maximum transparency. That provider should additionally be able to provide assistance with regulations and compliance and by assisting with supporting documents to ensure deals go through timeously. Additionally, it should offer personalised service, hassle-free onboarding, and instant conversions. With these simple measures, any business will ensure it is better equipped to navigate an international trade environment that is uncertain and can suddenly change on a dime.
PERSONAL FINANCE
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