How Will Brexit Affect Africa’s Economies?

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After Britain’s shock vote to leave the EU, economies around the world are now asking what this means for their own interests. The short answer is nobody knows at this stage – but it’s precisely that kind of uncertainty that hits economies where it hurts most.

The effects are already being felt around the world, despite nobody really knowing how the so-called ‘Brexit’ will affect global trade. And a number of African nations already being lined up as early victims of an EU without Britain.

 

The price of uncertainty

While EU member states are pushing for Britain to start the exit process immediately, it could take more than two years for an agreement to be negotiated. Until then, the terms of Britain leaving the bloc and their lasting effects on global economies are pure speculation.

Unfortunately, that kind of speculation can be more damaging than the process itself. This is precisely why European leaders are asking Britain to execute Article 50 and begin the leaving process immediately.

The damage began almost instantly: $2 trillion dollars were wiped off global markets in less than 24 hours after the result was announced. Britain is still a part of the EU and negotiations haven’t even begun yet – but the headlines alone were enough to cause global panic

Such is the nature of economics and the power of the unknown.

 

The outlook for African nations

Speculation over what Brexit will mean for Africa has already begun. South Africa’s crumbling economy and its dependence on the British pound paint a gloomy outlook for the country, where President Zuma is being called upon to resign.

Meanwhile, Africa’s largest economy, Nigeria, won’t be celebrating the news as its £6 billion trade ties with the UK look set to devalue. Nigeria is already teetering on the brink of recession and the immediate impact of Brexit couldn’t have come at a worse time.

As for East Africa’s largest economy, Kenya, the prospect of an EU without Britain has been a concern for some time now.

“It’s going to affect all of us and there’s no insurance, no position we can take to maneuver ourselves to be in a better position,” central bank chief Patrick Njoroge said last month.

 

The impact on trade, financial aid

As the UK economy recovers from its EU exit, imports from African nations are expected to drop. While another impact on African nations could be in the form of financial aid.

Aside from pledging direct funds to African nations, Britain has been one of the biggest supporters of EU aid programmes in Africa – both politically and financially. Weaker arguments in favour of such programmes could see a gradual decline in vital funds coming from the EU.

Naturally, it will be the emerging and already suffering African economies that get hit heaviest.

“Many emerging market and frontier asset markets will come under pressure,” Razia Khan, chief economist for Africa for Standard Chartered Bank, told Quartz. “Much will depend on how quickly some sort of financial market stability can be restored.”

 

The knock-on effects from China

Much has been said about China’s growing investment in African nations – particularly since Bejing’s economy has slowed over recent years. These fears are now being amplified as the effects of Brexit on China are speculated.

China claims Britain leaving the EU will cast a shadow over the global economy for as long as a decade. It’s a rare move for the Asian powerhouse to comment about the domestic issues of a foreign nation; which only goes to show how concerned China about the result.

The EU has played a vital role in China’s development with imports into the union more than doubling between 2005 and 2015.atlas_HJEd-Y9B@2x

 

Screen Shot 2016-06-26 at 18.09.29

Graph from ATLAS, data: Eurostat Comext

 

However, this growth has come with large support from Britain in the face of calls from other EU nations to place restrictions on trade with China. The fear for China now is that losing Britain as an ally from within the EU could see increased tariffs placed on Chinese imports.

Unfortunately for many African nations, a growing reliance on Chinese investment puts them in line to suffer on these grounds, too.

 

A gloomy mood across global economies

News that Britain has voted to leave the EU has certainly left a gloomy mood over global markets. The UK’s economic outlook is certainly under question and the subsequent implications on the EU and China mean three of Africa’s key trade and funding partnerships are under threat.

There’s also the question of how this will impact the US, Japan and just about every other economy around the world. It’s a nervous time everyone, that much is certain. However, the actual implications – once everything is signed and sealed -remain to be seen.

Britain’s ties with the EU won’t disappear entirely and its new-found freedom to trade with markets outside the European bloc could actually benefit African economies in the long-run. It’s the damaged caused in the meantime that has global economies holding their breath.

 

Featured image: Public domain

 

About Aaron Brooks

Aaron Brooks is a UK journalist who wants to cut out the international agendas in news. Spending his early years in both England and Northern Ireland he saw the difference between reality and media coverage at an early age. After graduating from the University of Chester with a BA in journalism, his travels revealed just how large the gap between news and the real world can be. As Editor-in-Chief at East Africa Monitor, it’s his job to provide a balanced view of what’s going on in the region for English-speaking audiences.