How a potential greylisting could impact investment in SA

South Africa faces numerous challenges, with the potential greylisting adding to the existing headwinds such as downgrades, market volatility, the war in Ukraine, and lack of economic growth. While this greylisting is viewed as negative for the country, investors and fund managers are left questioning to what extent this has already been factored into the market. Nico Janssen, the head of positioning for Amplify Investment Partners, shared insights on the implications of greylisting and what steps can be taken to mitigate risks and identify opportunities. The future remains uncertain as the country navigates through these challenging times. As the Financial Action Task Force (FATF) announced the possibility of greylisting South Africa, the countdown of 18 months began. Janssen highlighted the difficulty in determining what has already been priced into the market, but suggested that a significant portion of it may have already been factored in. In the lead up to the regulatory decision in February 2023, a clearer picture may emerge. The looming greylisting could have ripple effects on investments, borrowing costs, and access to funds for both the public and private sectors. Companies heavily reliant on foreign investments may face higher costs and increased due diligence procedures. This could potentially lead to inflation and a hike in interest rates, negatively impacting the economy. However, Janssen pointed out that there is a possibility for South Africa to follow the example of Mauritius, which managed to swiftly get off the grey list in a relatively short period. The key lies in effective government reactions, implementation of regulations, and enforcement of the necessary measures. While South Africa has a history of robust policy frameworks, the critical challenge lies in the effective implementation of these regulations. Global investment allocators have already been reducing their exposure to South Africa over the past few years. The looming greylisting could prompt further cutbacks in investments, leading to increased outflows. Janssen noted that in a risk-off environment, emerging markets have been experiencing capital flight, including South Africa. The potential for increased outflows remains a reality if greylisting occurs. Amidst these uncertainties, the question arises: Could this be the tipping point for South Africa? Janssen acknowledged the country's resilience in the face of numerous challenges but emphasized the need to address internal issues and avoid self-inflicted setbacks. While remaining cautiously optimistic, he highlighted the importance of navigating through 2023 to assess the full impact. The future remains uncertain, and stakeholders must adopt a wait-and-see approach while remaining hopeful for a positive outcome.