Nigeria and South Africa Poised to Exit FATF Gray List in October

Nigeria and South Africa are on track to be removed from the Financial Action Task Force’s (FATF) “gray list” as early as October 24, 2023. This potential removal signifies a notable turnaround for two of Africa’s largest economies, reflecting substantial progress in their efforts to combat illicit financial flows.

According to sources familiar with the matter, FATF assessors recently conducted on-site visits to South Africa, Nigeria, Burkina Faso, and Mozambique. Their feedback highlighted significant advancements in the action plans established by these nations. The FATF has been monitoring these countries since they were placed under heightened scrutiny in February 2023 due to shortcomings in their anti-money laundering frameworks.

Potential Impact on Investment and Economic Sentiment

The anticipated exit from the gray list could enhance the attractiveness of both Nigeria and South Africa to foreign investors. Government spokespeople from Nigeria and officials from other nations expressed optimism regarding this development. They described the removal as “a culmination of the remarkable work the government is doing” to meet international standards.

Lauren van Biljon, a senior portfolio manager at Allspring Global Investments UK Ltd., noted that the exit would likely improve market sentiment. She stated, “It would confirm that the reforms and measures put in place in the wake of the gray listing are both significant and sticky.” While the immediate market impact may be modest, a short-term increase in asset prices could result from this positive news.

The FATF’s recommendations are closely monitored by global investors. Jurisdictions under scrutiny often face a decline in capital inflows. A report released by the International Monetary Fund (IMF) in 2021 indicated that countries on the gray list experienced a significant reduction in foreign investment.

Progress by Mozambique and Burkina Faso

In addition to Nigeria and South Africa, Mozambique and Burkina Faso are also expected to exit the gray list. Mozambique has completed all 26 action items required for removal, as confirmed by Luís Abel Cezerilo, the national coordinator for the country’s delisting. He emphasized the timing is crucial as TotalEnergies SE is anticipated to resume its $20 billion natural gas export project.

Madi Tapsoba, an official with the Inter-Governmental Action Group against Money Laundering in West Africa, reported that Burkina Faso has implemented all 37 measures necessary to exit the list. Both countries are poised for significant economic benefits should they be delisted in October.

The FATF’s decision-making process involves a consensus among its members, which include the United States, United Kingdom, European Commission, China, Japan, and India. No final decisions have been announced yet, but all four countries are awaiting the plenary session in Paris where the FATF is expected to make its announcements.

South Africa’s National Treasury has indicated that it will provide comments following the FATF’s decision. A previous statement from July outlined that South Africa had substantially completed all 22 action items required for removal from the gray list.

The FATF has recently updated its gray-listing criteria under the presidency of Mexican official Elisa de Anda Madrazo. The new guidelines place a greater emphasis on assessing wealthier jurisdictions, while less focus is directed toward those classified as least-developed countries, which typically pose a lower systemic risk.

In conclusion, the potential exit of Nigeria and South Africa from the FATF’s gray list represents a significant milestone in their efforts to enhance their financial systems. As these nations work to fulfill their global obligations, the anticipated outcome could lead to increased investor confidence and economic growth in the region.