Government and the private sector must work together swiftly to provide a reputable and low-risk market for foreign investment if South Africa’s tourism and hospitality industry is to shield itself from the impacts of greylisting.
This is according to a report from representatives of leading law firm Webber Wentzel, who highlighted the impacts on these sectors as a result of the Financial Action Task Force (FATF) adding South Africa to its global grey list on February 24.
“If the hospitality and leisure industry is to continue its growth trajectory, with the ripple benefits for the economy as we have seen of late, South Africa must provide a reputable and low-risk market for foreign investment so that it can continue to play host to, and benefit from, large-scale, international events,” wrote Candice Meyer (Partner), Lize-Mari Doubell (Candidate Attorney) and Lauren Jimmy (Candidate Attorney).
Riding the boom in tourism
Webber Wentzel highlighted that South Africa’s tourism industry had been on an upward trajectory, with the country enjoying a bustling summer season that saw close to three million tourists arriving in the country.
The country has also recently hosted a number of highly successful international events, such as the inaugural Formula E in Cape Town in February, the Women’s T20 Cricket World Cup and performances from international superstars Imagine Dragons and Sting.
Webber Wentzel warned that lowered investor confidence in South Africa may discourage new or continued significant investment in such global events.
Potential impacts
Beyond reputational damage, the greylisting may negatively affect South Africa’s hospitality and leisure sector in the following ways:
- Reduced foreign direct investment (FDI) due to higher compliance and administrative costs associated with the perceived ‘higher risk’ of doing business in and with South Africa – often investment mandates preclude deals with, or in respect of, greylisted countries;
- South Africa may become less competitive in the global tourism market due to higher costs, slower transaction times, and increased transaction fees for cross-border transactions;
- South Africa’s economic, social and governance (ESG) goals in the sector may be harder to achieve, given that FDI often plays an important role in funding ESG-related programmes and initiatives.
Compliance and enforcement
The greylisting came as a result of FATF’s evaluation that South Africa’s anti-money laundering and terrorist financing regime did not meet international standards.
“The FATF noted, however, that South Africa has the requisite legislation in place. The focus is now on compliance and enforcement,” said Webber Wentzel.
Webber Wentzel pointed out that, ahead of the expected greylisting, South Africa’s government had in December 2022 drafted and signed into law two amendment Acts – the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act and the Protection of Constitutional Democracy Against Terrorist and Related Activities Amendment Act.
Webber Wentzel stated that businesses in the hospitality and leisure sectors needed to pay careful attention to amendments to the Financial Intelligence Centre (FIC) Act. The amendments expand the list of entities that are deemed to be accountable institutions by law and which must now register in terms of schedule 1 of FIC.
In addition to registered credit providers, these accountable institutions now include persons who carry on the business of providing credit in terms of any credit agreement, and persons who carry on the business of dealing in high-value goods with a transaction value of R100 000 (€5 130) or more.
“Many businesses in the hospitality and leisure sector undertake these activities and are therefore required to register with the FIC. Failure to register and comply with FIC may result in compliance inspections and, where warranted, imposition of remedial administrative sanctions, which could include monetary penalties,” Webber Wentzel warned.
