South Africa is clearing regulatory hurdles, but foreign investors are still deciding what that is worth.
From 29 January, the country will be removed from the European Union’s list of “high-risk third-country jurisdictions”, a move that marks a decisive step out of the greylisting era and lifts one of the most intrusive constraints on cross-border financial activity. Yet delisting does not guarantee capital inflows, nor does it erase deeper structural concerns.
The EU decision, published on 9 January 2026, follows South Africa’s removal in October 2025 from both the Financial Action Task Force’s greylist and the United Kingdom’s list of high-risk jurisdictions for money laundering and terror financing. South Africa’s delisting coincides with the removal of Burkina Faso, Mali, Mozambique, Nigeria and Tanzania from the EU list, after all six countries exited the FATF greylist in 2025.
South Africa was added to the EU list in August 2023 as an automatic consequence of its FATF greylisting earlier that year. Under EU law, the designation required EU-based financial institutions to apply enhanced due diligence to South Africa-related transactions, introducing heavier documentation, continuous monitoring and senior management sign-off – friction that weighed on trade, payments and investment flows.
In announcing the removals, the European Commission acknowledged that South Africa and the other affected countries had strengthened their AML/CFT regimes and addressed the strategic deficiencies identified by the FATF.
National Treasury, however, stressed that the change is enabling rather than prescriptive: EU institutions are not compelled to adjust their risk assessments, but may do so at their discretion. Treasury also cautioned that delisting does not mean South Africa’s AML/CFT challenges are fully resolved, and that further work is required to strengthen enforcement, investigation and prosecution.
Moonstone asked Johann Els, group chief economist at PSG Financial Services, Mandisa Zavala, head of asset allocation at Alexforbes, and Sanisha Packirisamy, chief economist at Momentum Investments, to assess what the EU delisting could mean for the economy, international investment and South Africa’s broader financial landscape.
Short-term investor response
All three economists temper expectations of an immediate reaction from international investors.
Packirisamy is explicit that behaviour will lag regulation.
“Although the legal requirement for EU institutions to apply enhanced due diligence is being lifted, an immediate surge in capital inflows is unlikely,” she said.
Large European banks and asset managers rely on “sophisticated, largely automated risk-rating systems”, and recalibrating those frameworks “is not instantaneous”. During the greylisting period, many institutions went beyond minimum requirements, and are now likely to maintain “a cautious, wait-and-see posture until there is clear evidence that legislative reforms can translate into consistent enforcement and credible prosecutions”.
Zavala similarly cautioned that regulation changes faster than institutional behaviour.
“It is difficult to be exact on timelines, as behaviour tends to adjust more gradually than the regulation itself,” she said.
Drawing on the experience of countries such as the UAE and Nigeria, she noted that European institutions typically conducted internal risk reviews “over several quarters before adjusting exposure and onboarding thresholds”.
This could result in a split response: institutions already active in South Africa may ease controls sooner, while those with no prior exposure may retain enhanced screening “until more positive macro or governance signals emerge”.
Els reinforced this point, saying: “I don’t think there will be any immediate positive reaction.” Instead, the EU decision should be seen as part of a broader sequence that includes greylist removal and ratings upgrades, which together are slowly reshaping investor perceptions.
Trade and capital flows
On trade and capital flows, the emphasis shifts to marginal but meaningful gains.
Zavala described the delisting as a removal of friction rather than a trigger for a surge.
“Reduced regulatory friction can incrementally improve the ease of financial transactions and cross-border flows,” she said.
While it does not automatically unlock capital, it removes “a key procedural hurdle, particularly for correspondent banking relationships and investment mandates constrained by risk classifications”. Discretionary risk assessments will still matter, but “the direction is positive”.
Packirisamy pointed to tangible operational benefits.
“The most immediate economic gain from delisting lies in lower compliance costs and reduced uncertainty in cross-border financial transactions,” she said. With mandatory enhanced due diligence removed, routine trade finance and payments should face fewer information requests, improving speed and reliability.
Although some South African firms may still incur higher costs than peers in low-risk jurisdictions, she added that “the formal removal of South Africa’s high-risk designation strengthens the hand of domestic banks in correspondent banking negotiations”, supporting a gradual normalisation of flows, particularly in banking and insurance.
Els linked these developments to a broader reassessment of risk. Reduced regulatory drag, combined with improving growth prospects, is gradually feeding into foreign investors’ calculations, even if the benefits accrue over time rather than immediately.
Long-term credibility and investment climate
On long-term credibility, Packirisamy drew a clear distinction between removing a negative and creating a new positive. “While the delisting marks a meaningful improvement in South Africa’s investment standing, it should be viewed as a return to baseline rather than an upgrade akin to a sovereign rating action,” she said. It removes a major red flag but does not, on its own, transform long-term investment decisions.
That said, she stressed that the reform process itself mattered. Completing the FATF’s 22 action items within 33 months demonstrated “strong technical capacity and inter-agency coordination”, helping to rebuild reputational capital with multilateral institutions. This credibility dividend, she said, is less visible than headline inflows but economically significant—especially as investors look ahead to the next mutual evaluation in 2026/27 and assess whether reforms are permanent.
Zavala was more emphatic about the signal to global investors. “Yes, the delisting materially improves South Africa’s long-term investment credibility,” she said, particularly in how the integrity of the financial system is perceived. Being removed from the EU’s high-risk list signals compliance with international AML/CFT standards, which “carries significant weight in risk-based capital allocation frameworks”. Over time, this should unlock broader mandates, ranging from development finance to pension and insurance capital, improving South Africa’s competitiveness relative to peers.
Els echoed this longer-term framing, positioning South Africa favourably within the emerging market universe. Compared with competitors such as Argentina, Mexico, Brazil and Turkey, he said South Africa is “not seen as a failed state” but as “a far better, safer, more steady investment environment”, underpinned by strong institutions, a well-regulated financial sector and embedded checks and balances.
Remaining risks and investor caution
Despite the regulatory progress, all three stressed that caution will persist.
Zavala noted that while one reputational overhang has been removed, “other factors may continue to weigh on investor sentiment”. These include public sector efficiency, logistics constraints, policy uncertainty and crime.
Capital allocators, she said, are likely to differentiate between “headline regulatory improvements and deeper, system-wide reforms that shape long-term return potential and risk-adjusted outcomes”. Sustained momentum on energy, logistics and fiscal governance will therefore remain critical.
Packirisamy broadened the lens further.
“Despite progress on the regulatory front, investor caution is likely to persist due to structural challenges beyond the scope of the reforms undertaken to get off the greylist,” she said. While the financial system’s “plumbing” has improved, long-term investors remain focused on real-economy constraints, fiscal sustainability and policy predictability. High debt levels, uncertainty around the social wage and future election cycles all influence perceptions of sovereign risk and long-term returns.
Els acknowledged these limitations candidly.
“Of course, there’s constraints still,” he said, pointing to the need for labour market reform, improvements in education, and making it easier and cheaper to start and run businesses.
Beyond financial regulation
Packirisamy shifted attention to the global backdrop, warning that regulatory rehabilitation is unfolding in a more hostile external environment.
“Beyond financial regulation, South Africa now faces a shifting external landscape marked by rising trade protectionism and heightened geopolitical risk,” she said.
From 2026, the EU’s Carbon Border Adjustment Mechanism will impose additional costs on exporters in carbon-intensive sectors. While framed as a climate policy, CBAM “also functions as a trade barrier”, meaning some of the friction recently removed from finance could reappear through trade channels. Investment credibility, she argued, will increasingly depend not only on financial compliance, but also on climate credentials, strategic alignment and supply-chain security.
Zavala highlighted a quieter but potentially powerful effect at home.
“One of the most important, yet often underappreciated, effects of South Africa’s delisting is the boost it provides to domestic business confidence,” she said. These signals are closely watched by local businesses, banks and asset managers, and could encourage greater domestic investment, support capital reallocation toward local opportunities and ease compliance burdens for firms operating across jurisdictions.
Els tied these threads together with a cautiously optimistic outlook. Growth remains weak but is improving, supported by lower inflation, lower interest rates and easing structural constraints as the private sector plays a larger role in electricity, logistics and infrastructure.
“We’ve come a long way, and we don’t always acknowledge the positives that we’ve done,” he said. “We’re certainly moving in the right direction, and I think that action by the European Union will certainly aid in that.”
South Africa will enter its next round of evaluation by the Financial Action Task Force in the coming months, with the final assessment report due to be presented to the FATF plenary in October 2027.
