Economist Rafiq Raji says he chooses to be optimistic for Africa and the United Kingdom on the impact of Brexit. He says that once market participants get over the shock, things should get back to normal.<\/p>\n
I do not share the pessimism expressed by some on the potential negative impact of Brexit \u2013 term used to refer to the now almost certain exit of the United Kingdom from the European Union \u2013 on African countries.<\/p>\n
It is important to distinguish between short-term and long-term impacts. Credible risks \u2013 if they materialize \u2013 are likely short-term. Once market participants get over the shock, things should get back to normal.<\/p>\n
Market participants were surprised by Brexit. UK pollsters got it wrong. Again. Considering the margin by which the \u2018leave\u2019 side won, it is hard to believe that robust polling would have showed a \u2018too close to call\u2019 reading. Brexit-induced market volatility may pass sooner than people think, in my view.<\/p>\n
That is, after market participants get over the angst of being blind-sided. The South African Rand \u2013 the worst-hit African currency in the aftermath of the Brexit vote \u2013 is typically vulnerable when there are market jitters. And when negative domestic events \u2013 bizarrely intermittent \u2013 don\u2019t cause some trouble, happenings in distant lands \u2013 a la Brexit \u2013 almost always come about to disrupt things.<\/p>\n
But if a long-term view is taken, it is not likely that increased sovereignty for the United Kingdom would be disadvantageous for African countries, the longstanding primary focus of UK foreign policy \u2013 or influence.<\/p>\n
There is ample time for both sides to calmly negotiate, once emotions become subdued and rationality takes over.<\/p>\n
Brexit is an opportunity to rebalance the UK economy<\/strong><\/p>\n Former Rolls Royce \u2013 a British carmaker \u2013 chief executive, John Rose, wrote once of the unbalanced \u2018post-industrial\u2019 UK economy for The Economist. In the article (\u201cMade in Britain\u201d), he recalls how an eminent British industrialist at a conference he was attending was introduced to a German audience as follows: \u201cOur speaker is now going to explain how you run an economy based on real estate.\u201d Sir John Rose made a case then for more British high value-added manufacturing.<\/p>\n Brexit is an opportunity for such issues to get the type of attention they deserve. Also, even as Brexit negotiations could potentially get nasty, London\u2019s place as a global financial centre in continental Europe would be hard to replace in a hurry. Still, some global banks have started to make contingency plans, reportedly transferring some jobs to Dublin, Paris, and Frankfurt.<\/p>\n They are probably being hasty. It is still possible that the UK would be allowed some form of nuanced access to the single EU market for some services, probably just enough for financial institutions to be able to continue doing their EU-related business from London.<\/p>\n So, upcoming Brexit negotiations may still tilt in banks\u2019 favour. The view that a hard EU stance would be a crucial signaling tactic to dissuade other potential \u2018Brexiters\u2019 in the EU is short-sighted. I think the EU would be pragmatic.<\/p>\n Domestic factors matter more for African giants<\/strong><\/p>\n It is the actions of authorities in Nigeria and South Africa \u2013 Africa\u2019s largest economies \u2013 that matter more for investors. Structural imbalances in both economies have nothing to do with Brexit.<\/p>\n And even portfolio inflows into these countries \u2013 expected by some to slow due to volatility and uncertainty in global markets owing to Brexit \u2013 would depend on the actions of their monetary authorities. Both countries clearly need to remain on a policy tightening path.<\/p>\n And in the Nigerian case, if authorities follow through on ongoing structural reforms, the investment case for that country is hard to refute. Morever, capital seeking African assets are now more diversified.<\/p>\n Long-term investment plays for asset classes like infrastructure are likely to continue unabated, in my view. The African Development Bank, Africa Finance Corporation and other African infrastucture or development-focused financial institutions are not going to cut back plans just because the UK decided it wanted more sovereignty over its own affairs.<\/p>\n Furthermore, fears about a potential reduction in African diaspora remittances may be misplaced. Actually, I think Africans \u2013 who now see an increasingly insular West \u2013 may begin to build closer ties with their home countries.<\/p>\n Recessions don\u2019t last forever<\/strong><\/p>\n UK recession fears are the main argument behind negative African Brexit impact fears. Pray tell, do recessions last forever? The key question is whether Brexit would have a long-term negative impact on African economies.<\/p>\n It is hardly robust to base an assessment of this on a potential UK recession; which would likely pass \u2013 if it happens \u2013 within the two years or so that Brexit negotiations and modalities are expected to be completed.<\/p>\n Fears that Britons would buy less Kenyan flowers \u2013 expressed no less by the Kenya Flower Council \u2013 seem defeatist to me. Say that happens during a UK recession that everyone seems to think would occur this year, what about afterwards? I think things would either go back to normal or improve. Morever, there are other markets that could be explored.<\/p>\n British outwardness was never about the EU<\/strong><\/p>\n There is a need to distinguish between the increasing insularity of some Britons \u2013 mostly the white, less educated and older ones, borne out of fears about immigration, and the likely rational decision-making of UK authorities. Whoever succeeds David Cameron as prime minister is not likely to jeopardize the advantages that the UK currently enjoys in global trade and finance.<\/p>\n Now free from its EU obligations, it would likely ramp up its foreign policy reach through The Commonwealth \u2013 a multinational association of fifty-three member states formally under British colonization, which it controls. A likely renewed British Commonwealth focus would be an additional positive for African countries\u2019 trade.<\/p>\n Thus, I am skeptical of the view that the UK would need to renegotiate each and every trade deal it agreed to under the aegis of the EU, especially those with African countries. Brexiters are not dumb. A simple conversion would do.<\/p>\n By Rafiq Raji managing director & chief economist at Macroafricaintel Investment -an independent Africa-focused research and advisory service.<\/em><\/p>\n Find the full article here<\/a><\/strong><\/p>\n Here\u2019s what the Brexit did to South Africa\u2019s richest people<\/strong><\/a><\/p>\nMore on Brexit<\/h3>\n