South Africa must act with the same urgency to tackle income inequality as it did to get off the Financial Action Task Force (FATF) grey list — or it will continue down the same widening sinkhole, as it has been doing since 1994.
The FATF, a Paris-headquartered global financial crime watchdog, is necessary and worth taking seriously. However, South Africa should not give it more attention than the age-old racially skewed income inequality.
The consequences of remaining on the FATF grey list are dire, especially in the globalised capital markets — but the outcome of income inequality is ravaging South Africa much more gruesomely. Yet there is no palpable action to deal with the crisis that makes South Africa the most unequal society in the world — a ticking time bomb.
Why is this topic important at this stage? South Africa is losing the war on the inclusive economic growth front. Minister of finance Enoch Godongwana concluded his Medium-Term Budget Policy Statement with a curious update on October 30 2024. He told the nation of a “positive review from the FATF”, which had found that South Africa had “largely or fully addressed 16 of the 22 action items in its action plan”.
The minister celebrated “a remarkable achievement, brought about by the unprecedented co-operation between state departments, as well as with civil society”. Since the FATF greylisted South Africa in February 2023, the country responded in 18 months to earn this impressive report card.
However, the same administration — after 30 years — is still having to contend with the national unemployment rate of 32.1%. Going by Stats SA numbers from the third quarter of the 2024, unemployment among black Africans is way above the national average at 36.1% (up from 28.5% in 2014). It is lower at 21.1% for coloureds, 15.6% among Indians and 8.2% among whites. Black African females remain the most vulnerable to unemployment, at 38.6% vs 33.9% for their male counterparts.
Unemployment in post-apartheid South Africa is neither colourblind nor gender-neutral. What is even more concerning is that there are no time-bound action plans to address unemployment, with consequences for underperformance.
Many other vital indicators point to one conclusion: the face of poverty, illiteracy, disease susceptibility and (violent) crime is black in South Africa. For a country with such a racialised socioeconomic and political history, this should have stirred a much more heightened sense of urgency for the administration.
The progress made in addressing the FATF actions proves that the South African government can — when it wants to — act decisively. So why is it dragging its feet on more pressing issues?
Since 1994, South Africa has been elitist — even though the administration has been hectically busy with ostensibly pro-black, pro-poor, pro-rural, pro-youth, pro-disabled, pro-women policies. Not much came out of the Reconstruction and Development Programme (RDP), the Growth, Employment and Redistribution (GEAR) strategy, broad-based black economic empowerment (BBBEE), or the National Development Plan (NDP) — at least nothing to generate proportionately meaningful black economic participation.
This is not a claim that nothing has changed in post-1994 South Africa for the black majority. It is rather a call for a more outcomes-based approach to the crises that face the country, especially those that demand solutions which would make the economy more inclusive.
It is shameful that South Africa can be more committed to the demands of a relatively elitist structure like the FATF while sauntering for over 30 years to level off its racialised income inequality
How dire is South Africa’s income inequality and what are its implications?
According to the 2024 World Population Review of the World Bank, South Africa’s Gini coefficient is 63.0. This measure of income inequality ranks the country as the most unequal in the world. It is followed by the likes of Namibia (59.1), Eswatini (54.6), Brazil (52.9), Colombia (51.5) and Angola (51.3). Contrast that with more equal societies such as Norway (22.7), the Netherlands (26.0), Belgium (26.0), and Iceland (26.1).
Is it not curious that a country like Belgium — without a single diamond mine — could become a more equal society than diamond-rich countries such as Botswana (53.3), Namibia, South Africa and Angola? Is it not ironic that a country like Norway, endowed with oil (like Nigeria and Angola), could build the world’s largest single sovereign wealth fund — with $1.74-trillion (R32.05-trillion) in assets and owning on average 1.5% of all of the world's listed companies, according to The Economist — while other oil-rich countries are languishing in deadly conflicts fuelled by the same crude oil? The difference is the determination of these countries’ leadership to do what counts.
It is shameful that South Africa can be more committed to the demands of a relatively elitist structure like the FATF while sauntering for more than 30 years to level off its racialised income inequality.
But is it fair to label the FATF elitist?
The FATF (on money laundering) was founded in 1989, as the Berlin Wall was crumbling, by the G7 countries. Canada, France, Germany, Italy, Japan, the UK and US immediately formulated 40 recommendations to combat financial crimes back then.
Money laundering was not new in 1989. It had been rampant for decades, but had never troubled these rich Western superpowers. The victims of money laundering had mainly been poor (resource-rich) countries. These resource-rich countries were being run by dictators, as seen in the Democratic Republic of the Congo (then known as Zaire) and Nigeria, who were looting national resources and stashing them in the Western banks, that is those from the very G7 countries. Not even the UN had been able to resolve the problem of money laundering, failing dismally to get Swiss banks to ascertain that they were not banking clients looking to hide proceeds of conflict or corruption.
The indifference of G7 countries towards money laundering changed in 2001, however, when one of them (the US) got hit by the 9/11 terror attacks. Realising the high cost of the gaps in the global financial systems, G7 countries deployed the FATF and similar structures to reimagine the global financial infrastructure. The money laundering standards were revised by the FATF in 2003.
Money laundering was therefore never a priority for the G7 countries when it was affecting poor countries, while Western banks were enabling it by allowing corrupt politicians and their business partners to stash their loot. Why then should South Africa ignore its poor majority to pander to the priorities of the rich nations? US President Donald Trump has already announced his intention to disband the Kleptocracy Asset Recovery Initiative, created to repatriate the money stolen from African countries, among others.
Former president Thabo Mbeki chaired an African Union High-Level Panel on Illicit Financial Flows from Africa. In 2015 he reported that the largest contributor to these outflows was the shifting of profits by multinationals from African countries to subsidiaries in low-tax or secrecy jurisdictions, where they did not have operations. These tax-evasive activities were being carried out — and continue to be — by corporations and banks from G7 countries. The FATF is not placing these G7 countries on its grey list.
Out of the 24 countries on the grey list as of October 24 2024, 13 are African countries. There are no G7 countries, or countries like Belgium, the UK, France or the US, where many people suspected of corruption in African countries own properties or are trading in minerals from Africa or operating bank accounts. Countries that are as guilty as sin because of money laundering are telling their victims — like South Africa — to get in line!
US and UK companies, such as McKinsey and Bain, have had to repay billions to state utilities like Eskom for work done during the state capture era. The FATF has not greylisted the UK and the US. They should not greylist them because an infraction by one company does not render the whole country worthy of a greylisting. The FATF, as important and necessary as it is, has therefore proven that it is elitist. Its concerns therefore should not be ranked ahead of the needs of the poor majority in countries like South Africa.
Countries that do not prioritise income inequality, as measured by the Gini coefficient, pay a heavier price than just money laundering. They get buffeted by political instability and violent crimes, among others. South Africa, for example, with its high Gini coefficient, has one of the world’s highest crime rates. Its crime index at the last count by the World Bank was 75.5 (in the company of Venezuela at 82.1 and Afghanistan at 78.4).
The FATF greylisting will disappear in February 2025 — but the caustic effects of poverty, ignorance and disease will persist until decisive action is taken.
The number of intentional homicides (per 100,000 people) in SA was 41.9 in 2021, up from 33.4 in 2015. Compare that to Norway’s 0.5, Iceland’s 0.9 or Belgium’s 1.1 in the same period.
Countries with income equality are more stable. It is not hard to figure out. When everyone has enough to get by, they do not need to rob others to survive. Besides, they are likely to be more orderly and peaceful if they have jobs and property to worry about. People with nothing to lose have no incentive to think about tomorrow.
One provincial police commissioner recently described the violent crime problem in South Africa as a “black man problem”. He implied that violent crime, like intentional homicide, in South Africa had a black male face.
While tackling money laundering, SA should inject the same urgency into the fight against unemployment, poor access to healthcare and inept education, and so on.
SA has had policy discussions and debates about how to deliver quality education, healthcare and the overall improvement of the quality of life since democracy in 1994. Access to schools might have gone up, as has the number of household connections to electricity and water. However, an electrical connection or a tap in one’s home is not the same as having electricity or running water.
The recent tussle over the Basic Education Laws Amendment (Bela) Act and the National Health Insurance (NHI) accentuated the lack of cohesiveness among South Africans. The leisurely pace of the national discourse to resolve these critical issues is worrying. This is because most political leaders can afford private healthcare and private schooling for their children. The same political leaders are not exposed to the vagaries of violent crime because they enjoy the luxury of VIP protection or private security.
Often poor (and unemployed) South Africans protest about the lack of basic amenities, poor schooling, insufficient security, corruption and so on. These protests have been ongoing for decades. Political and business leaders often accuse the leaders of these protests of being political puppets, instead of addressing their concerns.
The government has not displayed the same urgency to address income inequality as it just did to get back into the good books of the FATF. If that is not elitism, nothing is. The FATF greylisting will disappear in February 2025 — but the caustic effects of poverty, ignorance and disease will persist until decisive action is taken.
• Victor Kgomoeswana is a writer, speaker and broadcaster — an expert on business in Africa and author of Africa Bounces Back.
For opinion and analysis consideration, email Opinions@timeslive.co.za
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