Brexit Watch

Brexit drama far from over – stay calm

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It will take at least two years to negotiate and implement a ‘divorce settlement’ between Britain and the European Union (EU) – that is if it indeed happens. This ‘soapy’ is far from over.

Late last week the possibility of a rerun of the referendum of 23 June, with its ‘leave’ result, became a strong possibility as a petition to the British parliament closed in on two million signatures. But then the legal basis of such a rerun, is, according to a BBC report, in doubt.

In the meantime, David Cameron, British prime minister who started it all, has announced his resignation and is due to leave in October when the settlement negotiations will be starting. Tellingly, the leading founding states of the EU and the Union’s commission chief, Jean-Claude Juncker, want the negotiations to happen immediately.

Judged from the reaction of the EU’s leading lights, Britain should not expect easy or soft terms in the settlement – the EU would want to send a discouraging message to others who might be tempted to leave the Union.

It is also important to note that in both Ireland and Scotland the vote in the referendum went the way of the ‘stay’ campaign, giving a strong hint that the unity of the United Kingdom itself might now come under renewed pressure.

In short, it is a very cloudy picture, fraught with uncertainties, both in terms of timetables and results.

South Africa’s position

For South Africa and southern Africa the situation also has profound implications. They have the EU as a major trading partner and all the countries – with Namibia probably the only exception – have long historical ties with Britain.

For the immediate future the uncertainties leave local currencies, dominated by the rand, vulnerable and open to international speculation.

It is also unsure at what stage existing trade agreements will be affected – during or only after the terms of the Brexit deal/s are negotiated? Will the countries of southern Africa, and others, be relegated to mere spectators while the ‘divorce’ battle rages, or will they be allowed to make inputs?

And while this drama drags on and its impact on the economies of South Africa and others with strong EU/UK ties remains unclear, there is the real danger that international investors will adopt a wait-and-see approach or even withdraw existing investments.

It already has had some negative consequences for South Africa – the rand plunged overnight by 7.8%.

Also expect more pressure on debt-ridden consumers, uncertainty over trade agreements and more.

Finance Minister Pravin Gordhan pointed out that South Africa’s banking and financial institutions are well-positioned to withstand Brexit impacts, as was demonstrated in the period leading up to the 2008/09 recession. This view, together with his confidence that our financial system is “extremely resilient and reliable”, could be severely tested in the immediate future.

Wise response

The wise response for both South African investors, and the country, would be first and foremost to remain calm and take the long view. Knee-jerk and/or speculative reactions could be extremely hazardous and bring tears.

Secondly, the individual investor should make sure that they canvas solid and balanced advice before any investment decisions are made – avoid mere product pedlers and be sure to diversify – not only in terms of products or categories but also international location placements.

In the face of global, and South African, uncertainties surrounding interest rates, the property market has also become a high-risk one and equity markets have become the wiser choice.

The man in the street

For those ordinary South Africans who depend on their monthly income to survive, there is hardly any good news to be seen in the present situation, as the cost of living keeps on rising. Fact is, we remain a primarily import country and much of our present inflation originates from that.

What is now happening around the UK and the EU is likely to, at least in the shorter to medium term, increase this cost pressure. Apart from maybe finding additional income sources, now is a time to keep an extremely keen eye on the household budget and avoid new debt with all one’s might.

Also read: Also for SA, Brexit could deliver a very different world



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