Towards a ‘Brexit’

The uncertainty that followed the outcome of Britain’s landmark decision last week to leave the European Union (EU) is just about the only certainty one can expect from that decision in the immediate future.
This was the view shared by local economists yesterday, as global stocks and currencies continued to slump to historic lows after initial reactions on Friday.
Although the move will inevitably affect the Southern African Customs Union’s (SACU) Economic Partnership Agreement (EPA) with the EU, opinions differ on the long-term implications for trading with Britain.
“The volatilities are expected to remain for some time as investors adjust their portfolios and move to safe havens such as the US dollar, yen and gold,” Klaus Schade, research associate at the Institute for Public Policy Research (IPPR), told Namibian Sun.
“Namibians and institutional investors such as pension funds who have invested in shares will be affected by volatilities on the stock markets if they have invested in shares that have dropped,” he said.
Capricorn Asset Management investment strategist Suta Kavari noted that London’s FTSE 100 (100 companies on the London Stock Exchange with the highest market capitalisation) lost £125 billion (N$2.6 trillion) on Friday alone.
Global markets, he said, mirrored this dramatic performance, with close to US$2.08 trillion (N$31 trillion) wiped off the equity market on the day.

A lone Britain
Schade said the process of leaving the EU would only start after the UK had invoked Article 50 of the EU Treaty, most likely only after outgoing Prime Minister David Cameron left office in October. That process is expected to last at least two years.
“The UK will no longer be part of the EU-SADC EPA… hence the SACU member states will need to negotiate a new trade arrangement with the UK at some point in the near future,” Schade said.
“Mozambique, which is part of the EPA but not of SACU, will most likely need to negotiate a separate agreement with the UK.”
He cited Namibia’s beef and grape industries as important beneficiaries of UK market support, saying local producers might need to find new marketing channels to the UK once the separation became legally binding.
“The UK might join the European Free Trade Association (EFTA) consisting of Iceland, Liechtenstein, Norway and Switzerland in order to trade with the EU. In that case, the EFTA-SACU Free Trade Area agreement would apply,” Schade said.
A major risk is that Britain could lose political weight by losing its links to the EU, something that could hold further implications for the 53-member Commonwealth.
“Since the leave campaign implies a more inward-looking policy in the UK, it remains to be seen how much attention the Commonwealth and African countries will receive. It can be expected that in the near future more resources in the UK will be allocated to the separation from the EU and hence fewer resources be available for other commitments.”

Markets over-reacting
More positive on the long-term effects of the ‘Brexit’, IJG Securities’ head of research Rowland Brown suggested that neither the ‘leave’ nor ‘stay’ camps could back their claims of superiority.
“The fact of the matter is that the decision to leave, and its claimed implications, are unlikely to be nearly as tragic as are being made out to be, and in honesty, Britain may actually stand to benefit from the decision,” Brown wrote in an opinion piece titled ‘Brexit: A Storm in a Teacup’.
“The idea that Britain will now become a global outcast that no one will want to trade with is blatantly absurd. This appears to have formed much of the foundation of the argument as to why the Brexit vote was a bad idea, however it finds itself unsupported in real evidence,” Brown said.
“As the fifth largest economy in the world, and one of the 20 richest countries in the world on a GDP per capita basis, there is simply no way that other countries will not want to trade with them.”
Britain, he suggested, would be able to negotiate multi-lateral or bilateral agreements with Commonwealth countries, securing preferential access to those markets without having to compete with other European countries.
“Moreover, since the vote took place, many nations have already expressed their interest in continuing to trade with Britain on a preferential basis, including a number of countries within the EU.”

DENVER ISAACS