What does Brexit mean for Africa?

The biggest news item of the past week was Britain voting to cancel its membership to the European Union. (The EU has many hoops that you need to jump through to join. Contrast this with African Union membership, for example). The results of #Brexit (how the referendum is known popularly) vote came as a big surprise, particularly to the self-appointed thinking classes, the kind of people whose opinions about globalization, neoliberalism, financialization and so forth don’t, in any way, threaten their daily existence. “Take that, experts!”

The short-term fallout from the referendum has been somewhat monumental. British Prime Minister David Cameron, he of “fantastically corrupt” fame, immediately announced he’d step down as prime minister by October this year. The British pound dropped to a level not seen in almost 30 years. Stocks on the London Stock Exchange, and on exchanges across the globe, weren’t spared too. But most of this appears to be a knee-jerk reaction to an outcome that was not at all expected – especially by the experts that folks in the financial industry clamor to listen to. Some degree of normalcy should return in the coming days or weeks as some of the uncertainty is resolved.

Since we can’t resist the urge to pontificate on this or that “African” issue, we thought we should share our 2 cents (or is it 1 pence at today’s exchange rate) on the likely economic impact of Brexit on Africa.

The one obvious channel through which Brexit could affect economies in Africa is if it triggers a recession in the UK. A recession might affect trade and investment between the two regions. The Bank of England thinks a recession might very well be on the cards. A study reviewing all studies that have estimated the likely economic impact of Brexit found: “GDP losses for the UK in the range of 10% or more [could not] be ruled out in the long run.”

How much trade takes place between the UK and Africa? Not much, it turns out. Combining data from the UK’s Office for National Statistics (ONS) and the United Nations Conference on Trade and Development (UNCTAD) for 2014, the latest year for which we have comparable data, we calculated that exports from Africa to the UK represent about 5% of Africa’s total exports. Africa is more worried about a slowdown in China, its biggest trading partner by far.

To be sure, some individual companies that export to the UK might suffer. For instance, the Kenya Flowers Association is rightly worried. Although here it appears that most of the worrying has got to do with uncertainty around whether Kenya and the UK will have to negotiate new trade deals that might be different from the ones already negotiated with the EU. More about this later.

What about foreign direct investment (FDI)? How important are UK investments to the continent? Again, not as important as one might think. For 2014, total FDI flows from the UK to African economies were only about 16% of total flows to the continent. In terms of the stock of FDI, a measure of the total value of investments in Africa, the UK’s portion was only 8% in 2014 (both estimates obtained from combining ONS and UNCTAD data). And the UK mostly invests in mining, quarrying and financial services, and mostly in South Africa. These sectors are hardly the type to drive self-sustaining and job-creating growth on the continent. If anything, they tend to be exploitative.

What about the pound’s “collapse”? Will it affect Africa’s trade competitiveness? Again the answer is highly unlikely. Fortunately, this is not 1901. International trade is hardly conducted in pound sterling these days. (Yes, we think it’s time they dropped the bit about it being “sterling”). So a weakening pound (which implies strengthening African currencies vis-à-vis the pound) is almost irrelevant for Africa’s trade competitiveness.

One of the ways the UK’s decision to leave might really affect Africa is if it jeopardizes the continent’s trade agreements with the EU. For instance, the East African Community (EAC) is due to sign an Economic Partnership Agreement (EPA) with the EU in October. The Kenya Flowers Association is worried that the EPA might not extend easier access to the UK, an important market for Kenyan flowers. Many other regional bodies that have already signed EPAs, such as SADC and ECOWAS, will be wondering the same. It will be months, and perhaps even years, before we know what the actual implications for the UK are in terms of trade agreements with Africa. Although given the relative unimportance of UK-Africa trade, it’s highly unlikely that a post-Brexit architecture will look drastically different to what it is today. (By the way, EPAs are a terrible deal for Africa).

The UK doesn’t have the same influence on the continent that it did decades ago. And Brexit will be further proof of that. If the UK sneezes Africa will … well Africa will say “bless you” and move on.

Grieve Chelwa

Grieve Chelwa is a Contributing Editor at Africa is a Country and currently a postdoctoral fellow at Harvard University and visiting fellow at the Wits Institute for Social and Economic Research (WISER) in Johannesburg.

  1. As one of the UK’s ‘thinking classes’ and no more ‘self appointed’ than the members of the marginal majority who have won the referendum I’d like to say that very many of us are academics like yourself and have taken this campaign hugely seriously. Not out of high-mindedness , not , as you put it , because we are’ the kind of people whose opinions about globalization, neoliberalism, financialization and so forth don’t, in any way, threaten their daily existence’ but because we feared, dreaded, the racism, the small minded, anti-foreigner wave of thought that underpinned much of the Leave appeal. Far from espousing these views from the safety of daily lives untouched by these issues we feared for the daily existence of the immigrants the 48% of us welcome and value. We also feared for our universities. Who, once England is no longer part of the EU, will be able to afford tertiary education fees which European membership did something to mitigate.

    We have already seen a rise in racist incident, which reports say, are specifically linked to bexit. Furthermore I would far rather be one of the ‘thinking classes’ than the unthinking who have begun to reveal themselves as deeply regretting a poorly informed vote.

    It is vital to add that in the UK and in this scenario in particular, there is nothing heroic about much the popularist bid to dispense with expert opinion . It is a brand of the dangerous anti-intellectualism we have seen elsewhere and at other times in the world…1930s Germany for example. It is also the stuff of the same meanness of spirit that claims england is still great, and, very significantly sees nothing wrong with the English colonial project nor its fallout.

    None of us, even those of us, like myself who were born in, grew up in East Africa and who now work in Africa (South Africa in my case) are claiming that Africa will much notice or care about Brexit (though my astute and sensitive friends across Africa have been insightful enough to understand my grief).

    What we mourn is the lack of Ubuntu that this result demonstrates. This result has given a mandate to the worst of the European far right. Worse still Donald Trump. again as you must know, is wholly gleeful at the outcome.

    Will you be posting similar opinions about the US left, if, heaven forfend ,Trump were elected?

    Dr Harriet McKay
    Royal College of Art

    1. The case against experts in this matter can hardly be dismissed as anti-intellectualism. Whilst raising many valid points, which should have underpinned the Remain campaign, the lining up of experts talking up the economic consequencies of leaving the EU was overemphasised to the point of being dubbed ‘project fear’. The British are a proud lot and telling them how miserable they would be outside Europe was never going to endear them to the Remain campaign. Admittedly, the Leave campaign were guilty of even more inaccuracies as well as outright lies, some of which gave birth to effective soundbites (such as £350m per week saved from EU membership obligations and channelled to the beloved NHS). Having already lost credibility amongst a great deal of disaffected voters, it was always going to be a tall order to get them to believe the experts when they rightly called out the Leave campaign for telling porky pies.

      Even more tellingly, experts and pollsters underestimated the success of the Leave campaign. This gave way to a level of complacency.

      Of course there are other factors such as the lack of a strong figure for the Remain campaign, Jeremy Corbyn’s lack of commitment to the cause as well as the fact that many people have felt left out by the establishment in successive governments dating back as far as the days of Margaret Thatcher. The last factor provides fertile grounds for misplaced far right arguments such as the anti-immigration sentiment. ‘Take back our country’ and ‘they are stealing our jobs’ are an easy sell to the underclass who were poorer for Thatcher’s reforms, got left behind by New Labour and were branded ‘work-shy’ by Cameron.

      In regard to African sentiment, we actually do care. Most developing countries in the Commonwealth (i.e the Indian sub-continent, Africa and the Caribbean) benefit from substantial cash inflows from citizens based abroad, including the UK. Though not captured in trade figures, these amounts are not insignificant. To illustrate, Kenya, one of Africa’s tourist magnets, receives more money from remittances by citizens abroad than is generated by its tourism industry. Far right and anti-immigrant sentiment is certainly bad news for us too.

      1. But then again Africa needs to be very career that Britain ends up wanting colonialise the continent plus trying to land grab and giving minority to rule to Whites in Southern Africa.

  2. I love AiaC and the analysis here is generally quite astute. Europe and the US have acted for a long time as if their investment and trade with Africa was much more significant than it actually is, and they rightfully deserve some competition. However, I think there are some further issues to mention so that we don’t minimise the impact of Brexit. The first two both have to do with free movement of people (ideas) beyond capital and goods/services:

    (1) If the UK and EU (and potentially US) are tipped into recession because of Brexit contagion, then this will have major impacts on the income and opportunities of all people living and working in those countries, including the quite significant African diaspora. Since remittances still account for an outsize portion of investment as well as consumption income, that is not trivial. Remittances alone from the UK to Africa probably surpass FDI, and when the two inflows are combined will contribute over 10% of GDP in some countries (e.g. consider Sierra Leone or Somalia and the influence of their diasporas, which are disproportionately large and wealthy as compared to people at home and whose money transfers to family critically support consumption… most people in the diaspora have helped with school fees, supporting Eid celebrations, etc once their incomes support it). While some in the diaspora may choose to return to Africa and be much better off for it, it doesn’t seem to me that African economies are yet prepared to fully absorb the skilled workforce they have sent abroad and their economic contribution.

    (2) Since Brexit is largely being fuelled by xenophobia, it’s hard for me to see how this won’t affect future work, investment, and study opportunities for all migrants to the UK. There is a progressive version of the future where EU migrants are no longer given rights above others (and this is not impossible given Commonwealth citizen residents can already vote in UK elections), but I fear the conservative-populist future in which all future migration to the UK is severely capped and routinely exploited and scapegoated, regardless of skills, qualifications, and resources contributed.

    Separately, (3) tax injustice/corruption disproportionately burdens Africa, and it is hard to see how the UK would somehow enforce against tax avoidance – notorious in its tax haven territories per #PanamaPapers – more rigorously outside of the EU regulatory frameworks. Switzerland’s historical desire to remain a tax shelter was one of the reasons they never joined the club, and the leaders of Vote Leave (cf Farage and BoJo the posh court jesters) have not shown much civic duty and clean tax compliance in their personal matters, much less in policymaking.

    Finally, while AiaC’s correspondent is right in pointing out that the UK accounts for a relatively insignificant proportion of export consumption and FDI for the entire continent, it is simultaneouslytrue that the UK is nonetheless a critical trade partner for the largest economies (SA, Nigeria, to a lesser extent Kenya and Ghana) that historically have been dynamic movers on the continent as well as Commonwealth members with historical, cultural, and linguistic ties to the former colonial state. There really is not very much trade between, say, the DRC and the UK, but the situation is very different in English-speaking Uganda next door. See http://qz.com/715710/brexit-could-be-terrible-for-africas-largest-economies/

    Europe/the EU as a whole remains Africa’s largest trading and FDI partner, upon combining the different member states (especially France) and then comparing to China, the US, India, Brazil, etc. Thus a Europe-wide recession triggered by Brexit would have impacts beyond the UK’s bilateral deals alone. And a global recession will generally make people more risk-averse, which means a lot of promising projects in Africa may struggle to find funding precisely at the time where the youth demographic boom demands rapid and huge job creation.

    On the other hand, the replacement of Europe-Africa with more robust intra-Africa trade links would be very healthy, welcome, and more sustainable in the long run. The question then is where the funding for the critical infrastructure links would come and how the deal supports African sovereignty – Will Chinese/other Asian and Middle Eastern funding substitute WB and private western flows? And/or will enough African capital be mobilised for a much more independent, larger AfDB? Will such projects be better managed and more accountable than they were historically with western institutions? Will they include a future-fit economy based on human capital, e.g. more undersea cables to support internet access, as well as the traditional roads and mills to get commodities in and out?

    Beyond the headline macro statistics, I think there is plenty of cause for concern in terms of the micro level realities of jobs, livelihoods, and opportunities. If only it were as easy as saying “bless you” and moving on.