Nigeria and South Africa could be taken off the Financial Action Task Force (FATF) grey list as early as next month, in what would mark a major boost for investor confidence in Africa’s two biggest economies.
The Paris-based FATF, which monitors global efforts against money laundering and terrorist financing, placed both countries on the grey list in February 2023 after identifying gaps in their frameworks for tackling illicit financial flows.
According to a report by Bloomberg, on-site inspections were recently carried out in Nigeria, South Africa, Burkina Faso, and Mozambique.
The assessors reported significant progress, setting the stage for all four countries to be delisted on October 24, when FATF holds its plenary session in Paris.
Strong signal for investors
While a final decision will depend on consensus among FATF’s 39 members, which include the U.S., UK, European Commission, China, Japan, and India, analysts say Nigeria and South Africa’s removal would send a strong signal.
“It would be confirmation that the reforms and measures put in place in the wake of the grey listing are both significant and sticky,” said Senior Portfolio Manager at Allspring Global Investments UK Ltd, Lauren van Biljon.
She added that while direct market impact may be modest, “a short-term lift in asset prices is possible.”
- The Grey List designation has long-term implications for affected countries. A 2021 IMF study found that grey-listed nations typically suffer a sharp drop in capital inflows, as investors tend to avoid jurisdictions flagged for weak anti-money laundering standards.
- For Nigeria and South Africa, both battling economic headwinds, a removal would help ease global concerns about financial system integrity and open the door for more inflows.
Nigeria anticipates exit
Earlier in February this year, the Chief Executive Officer (CEO) of the Nigerian Financial Intelligence Unit (NFIU), Ms. Hafsat Bakari, had announced that Nigeria was expected to exit the FATF grey list by late 2025.
Bakari highlighted that exiting the grey list of jurisdictions under increased monitoring would mark significant progress for Nigeria and reinforce the country’s commitment to a more transparent financial environment.
She noted the approval of Nigeria’s fifth progress report by the FATF as a substantial achievement.
The approval represents a milestone in Nigeria’s efforts to strengthen its Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) framework, demonstrating the country’s adherence to international standards in combating financial crime.
What you should know
Nigeria, being on the FATF grey list, has several implications for the economy, one of which is investor confidence, as it suggests the country is not a safe place to invest.
Co-founder and Chief Operating Officer of Busha, Moyo Sodipo, in a recent interview with Nairametrics, highlighted another impact, noting that Nigeria’s inclusion in the list has been a persistent stumbling block affecting cross-border transactions.
- Nigeria was placed on the FATF grey list in February 2023 due to rising capital inflows and shortcomings in combating money laundering, terrorism and arms financing.
- The grey list, also known as the “Jurisdictions under Increased Monitoring” list, is a list of countries that the FATF says have a higher risk of money laundering and terrorism financing.
- The grey listing signifies increased monitoring and can lead to higher compliance costs and more scrutiny for businesses operating in or with Nigeria.
