Money Mover Country Reports - South Africa

Posted on the 4th November 2014 by James Teale in Country Reports

Money Mover Country Reports - South Africa

The Republic of South Africa, also known as the “rainbow nation”, is a country with deep historical roots with the establishment of the country’s earliest settlers including the San and the Khioikoi people over several thousand years ago. Both the Dutch and the British settled in the region during the 17th and 19th centuries. During British settlement a series of wars broke out between the British and Zulu and Boer settlers who fought for their freedom from British imperialism. It was not until the Union of South Africa, followed by the statute of Westminster in 1931 and the Status of the Union Act in 1934 that South Africa became separate from British authority and significant progress towards full independence for the South African people ensued. However, it was not until 1961 when the country became the republic it is formally known as today. According to latest estimates, the population of South Africa is 52.98 million.

The South African Rand

The currency of the nation is the South African Rand (ZAR), although, as the country is a trading centre, it circulates multiple currencies. The first official currency was the Guilder and during the latter part of the 17th century, the Rix Dollar was in circulation and was the first South African currency to use paper notes. During British occupation the currency became Sterling although a number of other currencies continued to circulate. It was not until 1961 when the Rand became the country’s official currency.

Political Situation

South Africa’s political system is a presidential democracy and the current ruling party is the African National Congress party (ANC) and is led by Jacob Zuma who has held party leadership since 2009. The country adopts a proportion electoral system and all voting citizens can run as a candidate of a registered party. The latest Sustainable Governance Indicators project report for South Africa states that their Electoral System is fair for procedures for registering candidates and parties and access to forms of communication. In addition, all citizens have the opportunity to exercise their right of participation in national elections. However, the report states that monitoring and management of private and public party financing is insufficient.

As the dominant political party and successor of the National Party, the ANC has significantly improved the country’s adverse financial position, which has allowed it to reduce poverty and improve the country’s infrastructure. On the other hand, the government has been unsuccessful in creating a less exclusive and a less labour-intensive economy, resulting in increased inequality. There is also a high degree of nepotism, patronage and corruption, particularly in local government (see SGI project report for south Africa, 2013).

Trade & Industry

South Africa’s economic situation is weak. Growth of real GDP is forecast to drop to 1.7% in 2014 from 1.9% in 2013. It has underperformed relative to other emerging markets. A number of manufacturers have lost competitive gains compared to other producers in other parts of the world. For instance, the average factory employee earns six times as much as one in China and is less competent in industries where the country was once competitive relative to international players. Much of the poor state of the economy is attributed to a lack of managerial expertise, skilled workers, infrastructure, power shortages and strikes. Nonetheless, the pace of economic growth is forecast to increase in at least the medium term as new infrastructure projects are implemented and private investment strengthens. Agriculture employs 45.8% of the country’s workforce whilst manufacturing employs 12.3% of the workforce. Major industries include textiles and clothing, metallurgy, electronics, and automobiles. The country has one of the world’s largest gold deposits and approximately 80% of the world’s platinum reserves. The tourist industry doubled its contribution to the economy since the apartheid era.

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AML & CTF (Anti-Money Laundering and Countering Terrorist Financing)

South Africa is a member of the Financial Action Task Force (FATF) and the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG). South Africa’s Financial Intelligence Unit is known as the Financial Intelligence Centre. As stated by the latest Financial Action Task Force Mutual Evaluation report (2009), the Financial Intelligence Centre reported several attempts from terrorists to take advantage of the country’s financial sector.

Focusing on the FATF and associated operations, joint action in assessing the implementation of anti-money laundering and combating the financing of terrorism standards (AML/CFT) in South Africa with took place. The latest key findings are as follows:

  • “South Africa has made good progress in developing its system for combating money laundering (ML) and the financing of terrorism (FT) since its last FATF mutual evaluation in 2003.
  • The money laundering offence is generally in line with the Vienna and Palermo Conventions, although a lack of comprehensive statistics made it difficult to assess effectiveness.
  • Provisions criminalising the financing of terrorism are comprehensive, although they are not yet tested in practice.
  • The Financial Intelligence Centre (“the Centre”) is an effective financial intelligence unit.
  • The confiscation scheme is comprehensive and utilises effective civil forfeiture measures. Since 2003, South Africa has also adopted mechanisms to freeze terrorist-related assets.
  • The FIC Act imposes customer due diligence, record keeping, and suspicious transaction reporting and internal control requirements. It should be noted that, after the FIC Act came into force, South Africa implemented a program to re-identify all existing customers. The issue of beneficial ownership has not yet been addressed, however, and South Africa also needs to adopt measures dealing with politically exposed persons (PEPs) and correspondent banking.
  • The FIC Act covers some designated non-financial businesses and professions (DNFBPs); however, South Africa needs to broaden the legislation to cover dealers in precious metals and stones, company service providers, and more broadly cover accountants.
  • At the time of the on-site visit, there were not adequate powers to supervise and enforce compliance with AML/CFT provisions; however, amendments to FIC Act have been enacted, and when they enter into force this year they will significantly enhance the compliance regime.
  • South African authorities have established effective mechanisms to co-operate on operational matters to combat ML and FT. South Africa can also provide a wide range of mutual legal assistance, including the possibility to extradite its own nationals.”

Corruption

According to the latest Corruption Perceptions Index, South Africa Scores a mid point score of 42 out of 100 (0 being highly corrupt and 100 representing a very clean perception). This has changed only very slightly when compared to 2012. It also ranks 72 out 177 countries and territories.

Money Mover view

It seems that South Africa is making good progress in taking action against money laundering and the financing of terrorism although greater efforts will need to be instigated through the provision of comprehensive statistics to effectively abide by certain conventions and the need to actually test provisions criminalising the financing of terrorism. Some caution is therefore required. Based on their progress so far however, Money Mover is happy to process Rand payments to South Africa.

Our clients may wish to use our foreign exchange and international payments services for several different reasons such as:

  • Transferring business revenues between branches in South Africa and other countries
  • Transferring money into at least the minimal threshold of Great British Pounds equivalent of South African Rand’s (GBP 1000) to pay for a fun African Safari
  • Purchasing residential property in this beautiful part of the world

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