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FINANCIAL STABILITY REVIEW

Reserve Bank warns of a shock to the system over SA’s ‘neutral’ Russia-Ukraine stance

The South African Reserve Bank has warned that perceptions that South Africa’s ‘neutral’ stance on the Russia-Ukraine conflict is a Potemkin one could have devastating consequences for the country’s financial stability if secondary sanctions are imposed.
Reserve Bank warns of a shock to the system over SA’s ‘neutral’ Russia-Ukraine stance Russian President Vladimir Putin (L) shakes hands with South African President Cyril Ramaphosa during the BRICS Summit in Johannesburg, South Africa, 26 July 2018. (Photo: EPA-EFE / Sputnik / Kremlin Pool)
Ed Stoddard
By Ed Stoddard
29 May 2023
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The SA Reserve Bank made the stark warning in its bi-annual Financial Stability Review (FSR). 

“Since the release of the November 2022 FSR, two new risks have been added to the RVM [Risks and Vulnerability Matrix], namely (i) capital outflows and declining market depth and liquidity; and (ii) secondary sanctions amid heightened geopolitical polarisation,” the FSR said. 

“The risk of secondary or indirect sanctions being imposed on South Africa if its neutral stance on the Russia-Ukraine war is perceived as unconvincing has increased since the previous FSR... 

“Should this risk materialise, the South African financial system will not be able to function if it is not able to make international payments in USD and it could lead to a sudden stop to capital inflows and increased outflows,” the FSR warned. 

That, in a nutshell, is the risk the government is taking with a “neutral stance” that most commentators regard as pro-Russian. 

Over 90% of South Africa’s international payments are processed by the Society for Worldwide Interbank Financial Telecommunication system, or Swift. 

Exclusion from Swift would make such payments impossible, the FSR’s lead author, Herco Steyn, was quoted as saying by Bloomberg. That would make it almost impossible to import things like oil and portable electronics and wheat and lots of other things that South Africa’s economy and society need but don’t produce. 

So, it’s kind of a big deal. 

South Africa says it is neutral on the Russia-Ukraine war – a war Russia started with an unprovoked invasion of its neighbour – abstaining from UN votes condemning Moscow. 

And then, of course, US Ambassador Reuben Brigety accused South Africa this month of supplying weapons to Russia when the mysterious Lady R was docked in Simon’s Town in December. President Cyril Ramaphosa has appointed a three-member panel to probe the fiasco. 

Read more in Daily Maverick: Ramaphosa appoints Judge Mojapelo to chair inquiry into Russian ship Lady R

There are many in the ANC who seem enchanted by Vladimir Putin and Russia despite the overwhelming evidence that the Kremlin is both authoritarian and predatory. One perception about this state of affairs is that it is less about Soviet nostalgia and more about cadres wanting to chow at some trough the Russians produce, regardless of the consequences for the wider economy. 

And the consequences could be dire. 

“The events reported in the media, and recent remarks by the US Ambassador to South Africa, could change perceptions about South Africa’s neutrality, which could build up to a point where it triggers secondary sanctions being imposed on South Africa,” the FSR said. 

“Considered along with the recent FATF greylisting, the potential implications for the South African economy are severe, and the considerations from a financial stability perspective, pertinent.” 

This is unfolding against the background of South Africa being placed on the Financial Action Task Force’s “greylist”, which means it has shortcomings in tackling illicit financial flows. Like the kind associated with mafia states such as Russia.  

Read more in Daily Maverick: It’s official — South Africa fails to avoid greylisting...

“Even in the absence of formal secondary sanctions, counterparts to South African financial institutions could put institutions under intensified scrutiny and decide to reduce their exposure to South Africa as part of their own risk management processes... 

“Should secondary sanctions be imposed on South Africa, the most immediate impact would be the tightening or termination of correspondent banking relationships and increasing costs of cross-border payments.”

And then there is Agoa.

“There is a risk that South Africa’s favourable access to the US market in terms of the African Growth and Opportunity Act (Agoa) may not be renewed when it expires in 2025, which will have severe consequences for corporates and industries who have benefitted from this agreement since its inception in 2000,” the FSR warned. 

In short, a calamity that altogether will make Stage 8 power cuts look like a picnic. 

The rand late on Monday was trading around 19.68/dollar, near its record lows. What happens when rands can no longer be traded for dollars? Well, the zeroes will likely add up. DM

Comments (10)

Trenton Carr May 29, 2023, 11:46 PM

Well well well, look at these chickens would you.

D'Esprit Dan May 30, 2023, 12:44 PM

You must be talking about the ones fleeing across the (potholed) road? Surely none would come home to roost on a sinking ship?

Jennifer D May 30, 2023, 07:28 AM

The ANC strategy is to drive SA into the ground, starve the people and then they can hold out the begging bowl. They subscribe to Mugabe's teachings and are well in the way to achieving their objectives. The West just doesn’t understand how clever they are - look at the wealth Mugabe accumulated - our leaders want that too.

John Counihan May 30, 2023, 05:12 PM

Great point, Jennifer! We lament the corrupt practices of the evil ANC cadres, assuming that the chickens will come home to roost - but history suggests that they won't. As you note, Mugabe lived the life of Larry all his miserable life, and payback time never happened. So the cunning ANC crooks subscribe to that model: to hell with the people, "let's eat"!

Carsten Rasch May 30, 2023, 08:07 AM

Since there is no ideological connection between Russia and SA (Putin certainly does not refer to his colleagues as ‘comrade), and very little in the form of trade, what could this snucking up to the Russians possibly be based on? From our side, sticking the stiffened middle finger to the West gives much pleasure, regardless of the consequences, but there has to be more to it than that. An alternative to the USD, certainly, but it doesn't have to take this form, as the Rouble will never be that. The ANC is drifting more and more into a terrain that can only be described as criminal, dragging the country along with it. Exactly what the Russian government is. Putin is the undisputed king of State Capture. And it is the only thing that the ANC has done successfully.

Mark H May 30, 2023, 04:43 PM

People are still on the hook about the nuclear deal... Soviet style. I reckon Putin has dirt on ANC top brass that will topple this government if it gets out. Imagine the wining and dining that took place (and was filmed, late into the night) when courting massive investments from SA.

ricgillmer May 30, 2023, 08:10 AM

The ANC is a 50/50/99 party. 50% chance of making the right decision or 50% chance of taking the wrong decision. 99% of the time, it's the wrong decision. Sad thing is, local asset managers will still maintain that investing locally will yield good returns.

Hilary Morris May 30, 2023, 08:55 AM

Even with full knowledge of how corrupt, crooked, and untrustworthy the ANC is, it is still difficult to believe the depth and shortsightedness of their depravity. Surely there is a limit to how much these comrades can "eat"? How is it possible that they seem not to be able to grasp the concept of the bigger picture. Russia is bad news. Period. Playing with them as if they are our best mates will backfire in a manner they are either too stupid or too vile to understand. Or, more likely, they just don't give a damn.

jcdville@gmail.co.za stormers May 30, 2023, 08:58 AM

Cash for the criminal ANC leaders, genocide for the citizens,since when has the a c cared about citizens

R ? May 30, 2023, 11:09 AM

And this is before Comrade Putin comes to visit his friends in the ANC... What a "friend" he is to force South Africa's people to suffer a catastrophic economic risk for the satisfaction of his ego.

D'Esprit Dan May 30, 2023, 12:42 PM

The optimist in me says that the ANC is going full-Putin-arse-kisser to get their election stash to bribe their way back into power in 2024, whereafter they'll dump him like a hot potato, kiss and make up with the West on who we actually rely for trade and investment, and start rebuilding what they've destroyed. The optimist in me is a deluded idiot: the ANC is completely out of control, craven, cowardly and run by scum the likes of which we haven't seen since PW Botha's jackboot generals were destroying Southern Africa.

Mark H May 30, 2023, 04:38 PM

Why is nobody pushing for a referendum? I think the sooner SA citizens make it clear whether we're in agreement with our government's stance or not the better. The rest of the world needs to know either way.

Rob Wilson May 30, 2023, 05:11 PM

Is this the ANC's Rubicon moment? Like PW's one in the mid 80's? The Nats realised back then that they had to end apartheid and go the majority rule route, or else. And look where that has left us 30 years later. If these kind of sanctions are applied, we really are screwed. At least the Nats told us what they had in mind, this lot just blunders on in darkness. Pun intended.