Post-Brexit Africa

Whatever its final impact, in the short-term the UK’s EU referendum will increase global economic uncertainty, market volatility and economic risk. In Africa, most scenarios will prove costly, particularly among those economies highly exposed to UK trade, investment, banking and remittances.

In the past weeks, I have been on a multi-country tour in Europe, including London right before the referendum. Despite media headlines about “shock,” the Brexit outcome was not a surprise. It reflects years of UK’s economic malaise following the global crisis, the European debt crisis, and the Britons’ ambivalence about the EU, the euro and integration.

After the referendum, President Buhari expressed his hope that Nigeria could enjoy “greater cooperation and consolidation of shared interests” with the UK, “despite the outcome of the referendum.” Naturally, that’s the hope of most African leaders. However, as the referendum outcome will add to uncertainty global uncertainty, investment and confidence will be the first to suffer.

In the UK, Brexit economic implications will be mainly negative. In April, the UK Treasury estimated that, in the next 15 years, an exit could cause an almost 10% loss of GDP, substantial plunge of household wealth, falling exports, rising prices and possible recession. While other reports have followed in the footprints, final estimates depend on London’s choices in the coming months.

The Brexit process is not a spurt, but a marathon.

Global Brexit impact

In light of the likely spillover channels (trade, investment and financial linkages), Ireland, Luxembourg, the Netherlands – the region’s open, free-trade economies – could be most exposed to the UK spillovers in Europe. In contrast, Russia and Eastern Europe, along with France would be less affected by adverse spillovers.

Economically, the U.S. will be significantly more vulnerable to financial-market volatility than a trade breakdown. From the U.S. perspective, an adverse scenario could mean credit tightening, impaired trade finance, and reduced lending by European banks.

Unlike the US, China is significantly less exposed to the Brexit. China’s new trading Silk Road initiatives enter Europe through Southern and Eastern Europe, not the UK. And as Beijing has only begun critical financial reforms, it is not vulnerable to British portfolio flows or bank claims in the way that the US is.

Nevertheless, China is indirectly exposed. In relative terms, Hong Kong – as China’s Special Administrative Region – may be most exposed to the Brexit worldwide, along with Singapore. The Brexit exposure accounts for rising odds of a contraction in both city-states. As financial hubs, the two are highly exposed to UK’s financial flows and banks.

Hong Kong may have greater risks than Singapore, thanks to stronger Hong Kong dollar, which is rising with the US dollar as investors are scrambling for safe havens amid a challenging global environment.

Anti-integration impact

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Bill Griss 4 years ago Member's comment

I disagree Dan.