The recent furore surrounding the sudden closure and subsequent reopening of UK political figure Nigel Farage’s bank accounts sheds light on an increasingly troubling global trend - the arbitrary closure of bank accounts.
It’s an issue that not only undermines principles of due process and fair treatment but also inflicts substantial economic damage, particularly in developing economies.
In response to Farage’s incident, UK Chancellor Rishi Sunak initiated a review to ensure fair and transparent treatment for customers.
However, in South Africa, where similar instances of arbitrary account closures have been reported, this issue is exacerbating an already challenging economic situation, contributing to capital flight and economic instability.
As pointed out by the Daily Investor, South Africa’s economic landscape is facing an alarming erosion.
Foreign investors sold local assets worth a staggering R60.6 billion net over the past three years, a trend that only accelerated in 2023 due to increased load-shedding, South Africa’s greylisting, and political uncertainty.
The Johannesburg Stock Exchange (JSE) warns of South Africa’s deteriorating macro environment and its impact on global indices, with the cumulative money outflow from the JSE since January 2018 exceeding a staggering R1 trillion.
In this grim scenario, the arbitrary closure of bank accounts presents an imminent risk, further undermining investor confidence.
The banking sector, often the lifeblood of any economy, survives on the cornerstone of trust.
When accounts are arbitrarily closed, this trust is eroded, raising questions about the sector’s impartiality and integrity.
If banks are perceived as tools for political manipulation or battles, their legitimacy is brought to question.
Both domestic and foreign potential investors would understandably hesitate to engage with a financial system where their assets could be frozen on a whim.
Investors observing the current landscape may rightly question the wisdom of investing in a system that appears unpredictable and prone to political influences.
Allegations by political figures like Julius Malema, accusing banks of weaponizing account closures to target certain individuals, adds another layer of concern.
If banks can be perceived as platforms for selective political persecution, it’s not just individual investors who stand to be affected, but the overall investment climate of the country.
In an economy like South Africa’s, already reeling from significant capital outflows, this situation could be catastrophic.
Reduced investment destabilises the economy, creating a vicious cycle of continued investment withdrawal leading to the dreaded ‘capital flight’.
Many black-owned businesses and individuals have fallen prey to these arbitrary account closures.
Banks, acting as judge, jury, and executioner, have closed accounts seemingly without considering the economic consequences.
The most publicised case involves the coordinated closure of bank accounts of businesses owned by entrepreneur and black industrialist, Dr Iqbal Survé.
This incident, bearing uncomfortable similarity to Farage’s case, hints at a disconcerting pattern where banks appear to be selectively targeting those deemed as ‘enemies of the establishment’, leaving the livelihoods of thousands of employees of the companies in jeopardy.
In an era of globalised investment, any hint of instability, whether economic or political, can deter potential investors. Arbitrary account closures scare investors, sending a message of unpredictability and bias - a message South Africa can ill afford to broadcast given its current economic challenges.
A crucial step towards rectifying this trend is restoring confidence in the banking sector.
In light of Farage’s incident, the UK has set a precedent, with Sunak’s commissioned review aiming to ensure fair treatment for customers. South Africa must follow suit.
Chief Justice Raymond Zondo’s recommendation for legislative changes, allowing clients the right to defend themselves before account closure, is a notable first step in this direction.
However, legislation alone isn’t the solution. A significant shift in the banking sector’s conduct, emphasising neutrality, fairness, and due process, is vital.
The issue extends beyond individual bank accounts or investors; it’s about the health and future of the South African economy.
Capital flight is not just about figures or indices; it represents a loss of prosperity, a limitation of opportunities, and a threat to economic stability. South Africa urgently needs to address arbitrary bank account closures, not just for the sake of its banking sector, but for the overall prosperity and stability of the nation.
South Africa cannot afford to overlook the lessons from Farage’s incident - the cost is simply too high.
Adri Senekal de Wet is the executive editor of Business Report.