Britain’s exit from EU brings a mixed bag of fortune for Africa

Flowers are one of Kenya’s top exports, with the UK a major destination. PHOTO | FILE 

By ANZETSE WERE

In Summary

• African countries may lose out in renegotiated trade deals and a drop in FDI and remittances, but gain from flexibility in bilateral ties.

On Friday morning the world woke up to the news that the UK had decided to leave the EU. The same day saw currencies, stocks and bonds plunge across Africa, and a slump in oil and other commodities.1

From an African point of view, the immediate aftermath of Brexit has exacerbated problematic trends in international markets which have already hit the continent’s growth prospects.

African currencies slipped against others like the US dollar and the Japanese yen but of course gained against the GBP. Further, in the aftermath of Brexit, some African Eurobonds plunged with yields rising for Nigerian, Ethiopian and Rwandan Eurobonds.

In the short and medium term, the departure of the UK from the EU complicates African access to EU markets. Countries and businesses that were using the UK as a point of entry for their goods into the EU will have to find new partners in mainland Europe.

Further, any trade deals that African countries had with the EU will have to be renegotiated with the UK as a standalone entity.

Although it is unlikely that the UK will effect drastic departures in terms of trade deals with African countries, the process of re-negotiation will take a period of time during which African exports to the UK will be negatively affected due to the uncertainty in the limbo period.

Closer home, Kenya’s horticultural sector, particularly cut flowers, will suffer. Flowers are one of Kenya’s top exports and the UK is a major destination.

Thus, again, any trade deals that Kenya had negotiated with the EU will stall with regard to the UK because of Brexit; and this may well translate into losses in the short to medium term for those firms.

Another example of how Brexit will negatively inform access to EU markets for African goods is the case of Kenyan tea.

If Brexit leads to the tightening of access to the EU markets for UK goods, Kenyan blended tea exports will suffer because the UK has been a major re-exporter of Kenyan tea into EU markets.

The UK’s appetite for Kenyan tea was informed by this re-export function thus with Brexit, the UK may possibly lose easy access to EU markets which may lead to a cut in the volumes of tea the country imports from Kenya.

If one looks at the effect of the weakening of the GBP, Africa will be affected. Firstly, African exports to the UK will be more expensive for UK consumers and this may dampen their appetite for African products.

Further, with a weaker GBP, Kenya will become a more expensive tourist destination which will negatively affect a sector that has already been under-performing as the UK is an important source of tourists for Kenya.

On the other hand, a weaker GBP will be good news for an import economy such as Kenya as imports from the UK will be cheaper.

If Brexit triggers a UK recession, Africa will have to contend with more medium to long-term problems.

Not only will there be dampened appetite for African exports thus muting trade, foreign direct investment (FDI) from the UK will also be negatively hit.

This will particularly be bad news for Nigeria for which the UK was the largest source of FDI in 2015. Further, remittances from Africans in the UK are likely to drop if the UK economy slides into a deeper recession.

In terms of development assistance, it is unlikely that a new, post-Brexit government would drastically alter UK’s commitment to spend 0.7 per cent of its gross national income (GNI) on development aid.

But a struggling UK economy would translate to a decline, in absolute terms, in the amount of aid Africa will receive.

Another key negative effect of the UK leaving the EU relates to the fact that the country has been a proponent of African interests on certain issues in the EU.

For example, the UK has been a voice in the EU calling for a reduction of farm subsidies that negatively affect African farmers by keeping the price of EU agricultural produce artificially low.

With the UK leaving the EU, the interest of African farmers will no longer have a voice in the bloc. Secondly, a decision was recently made to cut EU funding to the African Union Mission in Somalia (Amisom) by 20 per cent; the UK opposed this.

The departure of the UK from the EU means that African countries will have to look at the EU anew and identify which countries can be pulled in as allies on key issues.

However, Brexit can be seen as good news in this context because the UK will no longer have to live with EU decisions and regulations concerning Africa with which they don’t agree.

Indeed, the UK Minister to Africa said Brexit will allow the UK to “focus more on our bilateral relationships with Africa”, allowing the country much more flexibility when interacting with Africa than was possible while working under the EU.

It will be interesting to see what the post-Brexit UK government African strategy and policy will look like. In terms of Kenyan interests, given the deep and long-standing ties the country has with the UK, aid, trade and investment are likely to continue.

In fact, an analyst made the point that in all of Africa, perhaps Kenya may benefit the most from Brexit as the UK may be particularly eager to establish bilateral ties after leaving the EU, giving Kenya exceptional leverage.

Ms Were is a development economist. Email: anzestew@gmail.com