Windhoek – It may be too early to calculate the potential damage to SADC, and Africa, from the unprecedented earthquake that ripped through the European Union – following the exit of the United Kingdom – and the seismic waves of political and economic uncertainty that are unfolding.

Until now the EU has been widely held as the world’s best functioning political economic union model, to which even SADC and other African regional blocs had looked up, as they embark on regional integration.

What is becoming clear though is the fact that just like with many US companies who found themselves with no contingency plans for an EU without the UK, the 15 Southern African Development Community (SADC) member states, as well as the rest of Africa, are now scrambling to assess the post-shocks and establish contingency plans.

And there are serious implications for SADC and the rest of the continent. To start with, this past week Professor Ian Scoones penned an opinion paper that the European Union (EU) Economic Partnership Agreement (EPA) with SADC that was inked on 10 June in Kasane, Botswana, has to be renegotiated, especially for SADC countries to eventually have free trade access to the United Kingdom, or Great Britain, that is no longer a member of the                      EU.

“Now, all these arrangements have to be renegotiated bilaterally with each of the other 162 World Trade Organisation members. It will be a slow and costly readjustment, creating much uncertainty,” commented Scoones, who is a professorial fellow at the Institute of Development Studies at the University of Sussex.

But that would not be an easy task, seeing that the EU is a union that has preferential trade agreements nearly with each African country.

Namibia Equity Brokers research analyst Ngoni Bopoto points out that the political intricacies of the EU, and the UK, would play a role in renegotiating those trade agreements.

“The nature and severity of the impact it could have on different countries and industries depend on the political will of the UK and Europe to negotiate new terms on trade arrangements among other things,” writes Bopoto in a special research report on Brexit this week.

Yet even for that option, “hammering out new trade deals with 52 African countries will take time and will be far down the list of priorities for a desperately overstretched British government in the years ahead,” commented one of the most respected writers on African foreign policy and an expert on African trade policy Alex de Waal in a piece for Foreign Policy.

The financial shock from the Brexit were felt immediately after the announcement of the votes for Britain to leave the EU, and Africa countries such as South Africa whose bourse houses multinational companies co-listed on the London Stock Exchange could not escape the financial ripple effects.

Multinational companies are already mooting moving their headquarters out of the UK, because they are not sure London would continue to be the best place to tap into the juicy attributes of the EU – unrestricted movement of people, easy access capital and free movement of goods within the union.

From a financial standpoint, De Waal points out that “Britain is one of Africa’s major trading partners, meaning that a British recession could have a lasting impact on the continent.”

Ominously, Bopoto says that the other concern is that Britain’s exit might trigger other EU nations, such as Slovakia and the Netherlands to follow in the UK’s footsteps, while Scotland may opt to leave the UK and retain its EU membership.

While trade effects on individual countries, such as Namibia, are not likely to be catastrophic in the short-term, given the declining role of the UK as a trading partner over the past five years, there are individual SADC companies whose trade with the EU and the UK is under threat, more so because of the uncertainty.

Namibian meat exporter to the EU, Meatco, which is Southern Africa Customs Union’s largest exporter of beef to the EU, is closely watching the developments. “There seems to be ambiguity on the Europeans themselves with regards (to) the implementation of the exit clause,” said Rosa Thobias, Meatco Corporate Affairs Manager.

Of all SACU member states of Botswana, Namibia, Lesotho, Swaziland and South Africa, Namibia has consistently had the highest beef exports to the EU – in excess of 10 000 tonnes per annum. The exports have been through Meat Corporation of Namibia (Meatco), whose sales office for the EU is housed in Essex in the United Kingdom.

When it comes to South Africa, Econometrix chief Economist Azar Jammine pointed out that “South Africa’s economic prospects are slightly more vulnerable should the negative impact on British economic growth be substantial, given the country’s high historical and current dependence on UK trade, investment and financial ties.”

Jammine said the negative impact on the South African economy was more likely to be transmitted into the domestic economy given the strong linkages between the two countries.

And the Brexit ripple effects would be felt in Nigeria and Kenya as well. A specialist intelligence company that delivers commercially relevant forecasts on African political and economic risk, EXX Africa, warned that the foreseeable “months of political uncertainty throughout Europe would rattle global and African markets”.

According to EXX Africa, the South African economy is the most exposed to the global economy and in particular its currency is the most volatile among its emerging market peers and relies on foreign capital to finance its wide current account deficit.

Additional fears of euro-scepticism in other EU countries have also stoked fears that South Africa’s trade with the EU is under threat, the organisation further pointed out, saying that effective implementation of a new foreign exchange mechanism and liberalisation of the fuel sector will face fresh hurdles as the UK withdraws from the EU.

“Nigeria will also struggle to attract interest in new debt sales aimed at financing its expansive budget,” argued EXX Africa.

Nigeria is the UK’s second-largest export market in Africa and bilateral trade between the two countries is currently worth US$8.3 billion and projected to reach US$25 billion by 2020, according to EXX Africa.

Kenyan markets were relatively stable following the ‘Brexit’ vote, although any disruption in EU trade negotiations would negatively impact the cut flowers export market. It is likely that the UK would prioritise trade negotiations with Kenya, which could even benefit Kenya and other EAC members,” said EXX Africa.

The Kenyan government has assured investors that it has adequate foreign exchange reserves to absorb any shocks from the crisis and the central bank said it would be ready to intervene in money and foreign exchange markets if required.

“However, there is a risk of capital flight from Kenya as risk-averse investors seek safe havens. This would weaken the shilling and increase import costs. Kenya’s import bill has steadily increased by more than ten percent over the past five years. Another key concern would be that ongoing negotiations of a trade agreement between the EU and the East African Community (EAC) would be delayed as the EU copes with the UK’s departure,” the EXX Africa reported.

The UK will serve notice under Article 50 of the Treaty of European Union to start the formal and legal process of leaving the EU under a new Prime Minister, said the British High Commission in Namibia.

“That process will take two years and in the meantime the UK will continue to be a full member of the European Union.

“It is too early to say what the results of those negotiations will be, but the UK government is committed to seeking the security and prosperity of the whole of Europe and to remaining one of the top six performing economies in the world,” read the statement.

According to the British High Commission, the UK will continue to have a close relationship with its European friends and allies as well as remaining a member of the UN Security Council, the G7, the G20, NATO and the Commonwealth.

“The UK is a long-standing supporter of free and fair trade and plans to remain so. It is too early to say how the negotiations will affect trade agreements, including the recently signed Economic Partnership Agreement (EPA) between the EU and SADC members,” the Commission added.

Source: The Southern Times

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of TradeMark Africa.