Brexit seen as ‘calamitous’ for African trade with Europe
by Dipolelo Moime
2016-06-28 05:00:00.0
BRITAIN joined the EU in 1973 and it brought along its former colonies to position them for aid under an agreement that was already benefiting former French colonies. This arrangement came to be known as African, Caribbean and Pacific States (ACP), which allowed African aid and trade to be negotiated. Before Africa joined the ACP in 1975, its exports to the EU were 6% of all EU imports. But fast-forward to the end of 2000, by which time Africa’s exports to the EU had shrunk to 1%, and one may conclude that the EU subdued Africa’s capacity to export under ACP. Whereas the EU was awarding large sums of aid to Africa, it was at the same time enforcing punishing and prohibitive trade practices, which put the brakes on Africa’s growth and innovation potential.
What could potentially be the implications of Brexit on African countries? Several factors might be at play here.
Brexit will have an impact on the global economy; trade and investment are likely to bear the brunt of this. The only trade arrangements the UK has with African countries are negotiated through the EU, which in effect means that when the UK leaves the EU the trade relationships and agreements will be null and void.
It will be calamitous for Africa as the UK will no longer shape and lead some of the most important initiatives on the African continent that form the basis of co-operation between Europe and the continent.
Brexit will also negatively affect the key regional blocs in Africa, as it has served as one of the strongest supports for the development of economic growth and democracy.
The emerging markets and frontier asset markets will by default come under colossal pressure, with financial instability the order of the day.
African countries expected to be the worst affected by Britain’s exit from the EU include SA, Nigeria; Kenya and Egypt.
South Africa
SA’s already bad economy may be the worst affected by Brexit. It is the UK’s largest African trading partner, and the UK is SA’s eighth largest import and export market in global terms, according to 2015 data.
Trade, investment and indirectly development aid will be badly affected if Brexit voids all trade agreements deals including the EU-SADC (SA Development Community) Economic Partnership Agreement. Brexit could also mean possible higher inflation, extended weaker growth, higher interest rates and capital outflows, and a 0.5% decline in GDP.
By mid-morning of the news of Britain’s decision to exit the EU, the rand had fallen more than 7%, its steepest single day decline since the 2008 financial crisis.
SA’s close financial ties to the UK could be a concern. British banks claims on South African entities account for 178% of SA’s foreign currency reserves according to analysts from UniCredit.
Nigeria
Bilateral trade between Nigeria and UK, currently at £6bn ($8.3bn) and projected to reach £20bn by 2020, will be disrupted as trade agreements made under the EU have to be renegotiated.
Brexit could not come at a worst time for Nigeria, Africa’s largest economy, which is on the a brink of recession.
Data from the National Bureau of Statistics indicates that the UK was Nigeria’s largest source of foreign investment in 2015.
Brexit could also affect investment, trade and also remittances from the Nigeria diaspora which sent home $21bn in 2015.
Kenya
Brexit could result in capital flight from Britain’s third largest market and ally as investors seek safe havens like US treasury bonds. It could also lead to falling exports and pressure on the Kenyan shilling.
A weaker currency will make imports more expensive for Kenya, whose import bill has increased more than 10% a year in the past five years.
Kenya will lose 4-billion Kenyan Shillings a month if a trade deal between the East African Community and the EU is stalled by Brexit, and this will create more uncertainty for Kenyan exports.
Egypt
The country’s main stock index fell by 1.3%, with investors worried about a loss of British investment and demand for Egyptian exports.
Egypt’s GDP is set to take a huge knock and might drop from its position as Africa’s second largest economy, with 41.5% of the country’s GDP growth dependent on UK foreign direct investment. This is expected to declines when Brexit takes full effect.
Brexit is going to have far-reaching financial consequences for Africa and will have a negative impact on the continent’s economies.
The UK is the biggest single investor in SA’s economy and Brexit has brought about massive political and economic uncertainty. We can expect severe volatility in the markets and a further slowdown in the economy.
Britain’s exit from the EU may also be the beginning of the end for the EU itself.
Brexit will weaken ties between the UK and African countries. The renegotiation of trade agreements will be a lengthy process which will in effect reduce trade volumes between the UK and Africa, with over 100 trade agreements set to be renegotiated by the UK once Brexit is set in motion.
• Moime is CEO of Legato Consultancy
South Africa's largest exports to the United Kingdom are gems and precious metals. Picture: PETRA DIAMONDS
BRITAIN joined the EU in 1973 and it brought along its former colonies to position them for aid under an agreement that was already benefiting former French colonies. This arrangement came to be known as African, Caribbean and Pacific States (ACP), which allowed African aid and trade to be negotiated. Before Africa joined the ACP in 1975, its exports to the EU were 6% of all EU imports. But fast-forward to the end of 2000, by which time Africa’s exports to the EU had shrunk to 1%, and one may conclude that the EU subdued Africa’s capacity to export under ACP. Whereas the EU was awarding large sums of aid to Africa, it was at the same time enforcing punishing and prohibitive trade practices, which put the brakes on Africa’s growth and innovation potential.
What could potentially be the implications of Brexit on African countries? Several factors might be at play here.
Brexit will have an impact on the global economy; trade and investment are likely to bear the brunt of this. The only trade arrangements the UK has with African countries are negotiated through the EU, which in effect means that when the UK leaves the EU the trade relationships and agreements will be null and void.
It will be calamitous for Africa as the UK will no longer shape and lead some of the most important initiatives on the African continent that form the basis of co-operation between Europe and the continent.
Brexit will also negatively affect the key regional blocs in Africa, as it has served as one of the strongest supports for the development of economic growth and democracy.
The emerging markets and frontier asset markets will by default come under colossal pressure, with financial instability the order of the day.
African countries expected to be the worst affected by Britain’s exit from the EU include SA, Nigeria; Kenya and Egypt.
South Africa
SA’s already bad economy may be the worst affected by Brexit. It is the UK’s largest African trading partner, and the UK is SA’s eighth largest import and export market in global terms, according to 2015 data.
Trade, investment and indirectly development aid will be badly affected if Brexit voids all trade agreements deals including the EU-SADC (SA Development Community) Economic Partnership Agreement. Brexit could also mean possible higher inflation, extended weaker growth, higher interest rates and capital outflows, and a 0.5% decline in GDP.
By mid-morning of the news of Britain’s decision to exit the EU, the rand had fallen more than 7%, its steepest single day decline since the 2008 financial crisis.
SA’s close financial ties to the UK could be a concern. British banks claims on South African entities account for 178% of SA’s foreign currency reserves according to analysts from UniCredit.
Nigeria
Bilateral trade between Nigeria and UK, currently at £6bn ($8.3bn) and projected to reach £20bn by 2020, will be disrupted as trade agreements made under the EU have to be renegotiated.
Brexit could not come at a worst time for Nigeria, Africa’s largest economy, which is on the a brink of recession.
Data from the National Bureau of Statistics indicates that the UK was Nigeria’s largest source of foreign investment in 2015.
Brexit could also affect investment, trade and also remittances from the Nigeria diaspora which sent home $21bn in 2015.
Kenya
Brexit could result in capital flight from Britain’s third largest market and ally as investors seek safe havens like US treasury bonds. It could also lead to falling exports and pressure on the Kenyan shilling.
A weaker currency will make imports more expensive for Kenya, whose import bill has increased more than 10% a year in the past five years.
Kenya will lose 4-billion Kenyan Shillings a month if a trade deal between the East African Community and the EU is stalled by Brexit, and this will create more uncertainty for Kenyan exports.
Egypt
The country’s main stock index fell by 1.3%, with investors worried about a loss of British investment and demand for Egyptian exports.
Egypt’s GDP is set to take a huge knock and might drop from its position as Africa’s second largest economy, with 41.5% of the country’s GDP growth dependent on UK foreign direct investment. This is expected to declines when Brexit takes full effect.
Brexit is going to have far-reaching financial consequences for Africa and will have a negative impact on the continent’s economies.
The UK is the biggest single investor in SA’s economy and Brexit has brought about massive political and economic uncertainty. We can expect severe volatility in the markets and a further slowdown in the economy.
Britain’s exit from the EU may also be the beginning of the end for the EU itself.
Brexit will weaken ties between the UK and African countries. The renegotiation of trade agreements will be a lengthy process which will in effect reduce trade volumes between the UK and Africa, with over 100 trade agreements set to be renegotiated by the UK once Brexit is set in motion.
• Moime is CEO of Legato Consultancy
