April 2, 2017    3 minute read

How Will Brexit Impact Africa

Close Connections    April 2, 2017    3 minute read

How Will Brexit Impact Africa

Brexit encompasses not only a dramatic shift in economic and political ties in Europe but also in Africa where the UK, through its membership of the European Union was able to strengthen rrelationships with several nations on the continent. Following the UK’s Leave vote on June 23rd, African currencies dipped.

The Domino Effect

Stocks and bonds also plunged. Due to their positions as the UK’s largest African markets, Kenya, Nigeria, and South Africa are among the prominent African States to be impacted by the UK’s move out of Europe.

A lot of negotiations may have to take place as most of the trade agreements the UK has with African countries were negotiated through the EU. Inevitably, an end will come to some agreements.

As the UK’s largest African market, South Africa may incur the biggest losses following Brexit. 0.1 percentage point could be shaved off South Africa’s economic growth. Fixed income securities may be influenced largely by sentiment.

Yields on benchmark rand bonds due December 2026 climbed 21 basis points, to 9.09%. Data suggests that the UK is the fourth-biggest destination of South African exports. For example, 10% of its wine exports go to the UK.

The Main “Victims”

Kenya is at risk of a surge in capital outflows. Trade deals on its exports including cut flowers are likely to become more complicated. Kenya will have to negotiate new deals with the UK. Significant losses may have to be absorbed while the UK economy suffers a recession.

Nigeria’s primary source of FDI in 2015 was the UK. A projected figure of £20bn in bilateral trade by 2020 will have to be revised downwards. Yields on Nigeria’s dollar bond due in 2023 rose 24 basis points.

Aid recipients in the continent may be concerned with a shift in the outwardness of the UK which may have been propagated by its membership of the EU. But fears may be unfounded. The post-Brexit UK may find itself with more freedom to take ownership of decisions in Africa. Security assistance to African nations may be increased as a result.

Not All Doom and Gloom

Despite the ordered chaos that may ensue in the short-term, the winds of change bring new opportunities. Approximately 60% of Africa’s population who works in the agricultural sector may benefit from the UK’s withdrawal from the EU’s Common Agricultural Policy (CAP) which has subsidised uncompetitive UK farmers.

In order to transcend the challenges that arise from Brexit, Africa may need to embrace the uncertainty with a long-term view to enhancing its resource capabilities. Of course, each African state is different in its approach, experience, and vision but using this opportunity, African states may be able to become more interdependent.

Conclusion

The African states harbour the potential to transform trade between themselves in truly remarkable ways. Africa may take some time to realise its potential as an interdependent unit of economies, but it is essential for growth that maximises the benefits each state gains for the continent’s economic prosperity.

Its ties with Europe and UK have come under scrutiny by several critics who are of the notion that it is at a disadvantage in its present position. True or not, Africa must look within.

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