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NEGATIVE IMPACT: Kenya’s economy could suffer as a result of Brexit

SOME OF Africa’s leading economies, already struggling with slowing demand from China and flat commodity prices, are bracing themselves for a Brexit fallout that could have a damaging effect on their growth.

As it became clear that UK had voted to leave the European Union, the South African rand plunged during early morning trading, becoming the worst performing currency after the British pound.

Fears were expressed that if the UK fell into a recession, this could reduce its trade and investment with South Africa. The UK is South Africa’s fourth-largest trading partner.

These concerns led to the rand losing more than 8 per cent against the US dollar, bad news for a currency that has already lost 21 per cent against the dollar so far this year.

RESILIENCE

South Africa’s Finance Minister Pravin Gordhan moved quickly to reassure South Africans of the country’s resilience in the wake of Brexit.

In a statement released by the National Treasury he pointed to South Africa’s strong trade ties, highlighting the fact that the economic links between South Africa, the EU and the UK were robust and based on “solid” agreements.

He added: “[Further] we have a two-year period during which whatever changes need to be made to agreements and treaties can in fact be made.”

Other African economies could be adversely affected by Brexit.

As the UK leaves the EU many of the trade deals it struck with the continent will have to be renegotiated because they were created through its membership of the EU.

Brexit has come at a bad time for Nigeria, Africa’s largest economy.

Data from the country’s National Bureau of Statistics shows that the UK was Nigeria’s largest source of foreign investment in 2015.

Also bilateral trade between Nigeria and the UK is currently valued at £6 billion and is projected to reach £20 billion by 2020.

REASSURANCES: South Africa’s Finance Minister Pravin Gordhan

Economists in the country have expressed concerns that this growth is likely to be disrupted as new deals are renegotiated.

There are also worries that a slowing British economy could signal a drop in remittances from the Nigerian diaspora who sent home $21 billion in 2015.

Reduced trade and investment from Britain will not necessarily be plugged by the rest of the EU said Lagos-based economist Tunji Andrews. “The EU will be looking to strengthen it’s internal ties, plus there’s cheaper oil from Iran, cheaper labor from China and the eastern bloc. There’s really nothing we have as a competitive advantage to them right now.”

RECESSION

If the UK experiences a recession following Brexit other African exporters could be affected. One of Kenya’s top exports, cut flowers, could suffer, according to the Kenya Flowers Association.

Over a third of the EU’s cut flower imports come from the East African country. The UK and the Netherlands are among the top destinations for Kenyan flower exports.

According to the intergovernmental organisation, the East African Community, if a trade deal between Kenya and the UK is stalled because of Brexit, Kenya would be looking at a loss of 4 billion Kenyan shillings a month.

Razia Khan, chief economist for Africa for Standard Chartered Bank said that renegotiating trade deals is likely to “create more uncertainty for Kenyan exports”.

However according to Kenya’s Finance Minister Henry Rotich the country is braced for economic fallout from Brexit.

He said that it has “sufficient forex resources” and is monitoring the situation. “We will take appropriate action should there be any impact,” he told Reuters.

Brexit has also raised a question mark about development aid the UK’s engagement with global development issues.

The UK was one of the biggest supporters of EU aid programmes in Africa both politically and financially. As head of the G8 last year, it pledged to double aid to Africa.

Analysts from think tank the Brookings Institution worry about how Brexit will affect the UK’s overall engagement with Africa. According to the organisation, a changing attitude to aid could evolve within a UK-less European Union.

In a recent blog post it concluded: “Perhaps the biggest impact of the Brexit on Africa would be the end of British “outwardness”—the country’s concern with and responsiveness to global development issues.”