On 23 June, the United Kingdom (UK) held a non-binding referendum to decide whether it should remain in or leave the European Union (EU). The world was thrown into utter chaos upon hearing the UK’s decision to leave. The pound dropped by 3.2% to the dollar and the UK’s financial markets fell into crisis. So far the decision to leave has proven to be detrimental. In light of the large impact of the decision on western markets, one question comes to mind: what does Brexit mean for Africa?
The UK has strong ties with several countries on the continent. The UK’s decision to leave will heavily affect the countries it shares its closest ties with, namely South Africa, Nigeria and Kenya. South Africa has the most globally exposed economy in Africa. As a result of this the country’s struggling economy will suffer the biggest blow. Following the decision to leave, the rand fell more than 7% making it the worst performing currency after the pound. The last time the rand fell by such a large percentage was during the 2008 financial crisis. South African companies which are dually-listed in London and Johannesburg will also take a hit. In a worst case scenario where the UK economy shrinks by 5% and exports drop by 10%, the South African Growth Domestic Product (GDP) would drop by 0.1%. While this seems to be a small number, the country’s weak economy cannot afford it and this could possibly send South Africa into a recession. Despite reassurance from the Minister of Finance and the possibility of South Africa withstanding the ramifications of Brexit, it is clear that the country will be affected.
For Nigeria, Brexit is a case of bad timing. Africa’s largest economy has been juggling a possible recession, removing strict currency control and employing liberal oil prices. The UK and Nigeria have bilateral trade valued at $ 6 billion dollars. This trade is most likely to be interrupted by the UK’s renegotiations with the EU. Moreover, Nigeria will also lose its competitive advantage in the EU as China and the Middle East offer cheaper labour and resources.
Kenyan exports to the UK could suffer. Kenya exports cut flowers to UK and the EU. In the event of renegotiations of trade deals, Kenya could stand to lose $395 million a month. However, Kenyan and British trade relations are traditionally bilateral and as a result of Brexit both countries could enjoy more opportunities and benefits.
Since the referendum vote is not binding, the UK could opt to stay in the EU. However, should it decide to leave the union its decision will have a short-term and insignificant impact on many African economies. The UK will also have a 2 year space to renegotiate trade deals with African nations outside of the EU.
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