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, marking a significant shift for these two major economies. According to a report by Bloomberg, assessors from the FATF conducted on-site evaluations and noted considerable advancements in the countries’ compliance with anti-money laundering measures.

The potential delisting reflects the governments’ efforts to enhance their financial systems to counter illicit financial flows. Both nations were placed under increased scrutiny in February 2023 due to deficiencies in their anti-money laundering frameworks. The FATF’s on-site visits in recent weeks have confirmed the progress made by South Africa, Nigeria, as well as Burkina Faso and Mozambique.

Implications for Investment and Economic Growth

Removal from the gray list could significantly improve investor sentiment. Government spokespeople from Nigeria highlighted that this step would be “a culmination of the remarkable work the government is doing,” further enhancing the country’s attractiveness to foreign investors. Similarly, officials in South Africa expressed optimism about the impacts of delisting.

Lauren van Biljon, a senior portfolio manager at Allspring Global Investments UK Ltd, stated that such a decision “would certainly be good for sentiment.” While the direct market impact may be modest, a short-term increase in asset prices is anticipated. The FATF’s recommendations are closely monitored by global investors, as they assess the risks of engaging with countries that face scrutiny over their financial regulations.

Significant Milestones Achieved by Member Nations

A report by the International Monetary Fund (IMF) in 2021 indicated that countries on the gray list saw a substantial decline in capital inflows. Therefore, the removal of Nigeria and South Africa from this category could reverse some of the adverse effects previously noted.

As part of the FATF’s assessment process, South Africa’s National Treasury announced that it had substantially completed all 22 action items necessary for delisting. A spokesperson for the treasury stated they would comment further following the FATF’s decision next month.

In Nigeria, government spokesperson Temitope Ajayi expressed excitement about the potential removal, emphasizing that it would highlight the government’s commitment to fulfilling global obligations. Ajayi underscored that such developments would make Nigeria more appealing to investors.

Mozambique and Burkina Faso are also expected to exit the gray list. Mozambique has reportedly completed the necessary 26 actions, as indicated by national coordinator Luís Abel Cezerilo. He noted that the timing of their potential removal is critical, especially with TotalEnergies SE poised 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, confirmed that Burkina Faso has implemented all 37 measures required for delisting. Despite this progress, officials from Burkina Faso and Nigeria did not respond to requests for additional comments.

The FATF, under the leadership of Elisa de Anda Madrazo, has revised its criteria for gray-listing, focusing more on wealthier member nations while giving less attention to jurisdictions classified as least-developed countries. This shift is part of the FATF’s broader mandate, which includes establishing standards on countering money laundering and terrorist financing.

As the October 24 plenary in Paris approaches, all eyes will be on the FATF’s final decision regarding the status of these nations. The broader implications of this decision extend beyond financial markets, potentially impacting global perceptions of the integrity of their financial systems.