Global Watch

BREXIT referendum will impact on South Africa


If British voters decide in an upcoming referendum to exit the European Union it could have enormous implications for South African businesses. And we need to start thinking about this now.

This is the opinion of Omega Investment Research (OIR), run by Dr Denis Worrall, one-time South African ambassador to the UK. The company is organising a workshop on the issue early in June.
In an article in the publication Cape Messenger OIR writes:

The South African economy is well integrated through trade and investment into the UK and EU and we cannot therefore ignore the consequences, whatever the outcome, of the debate in the UK as to whether that country continues as a member of EU or ends its membership.

The referendum on 23 June 2016, particularly if British voters decide to exit, could have enormous implications for South African business. And we need to start thinking about this now.

While the outcome of the referendum at this stage is uncertain, we note that the well-known Financial Times columnist Gideon Rachman recently wrote that everything points to Britain leaving the EU. “The LEAVE campaign has all the advantages of simple slogans: control our borders, make our own laws, and get our money back from Brussels.

By contrast, while the REMAIN campaign has intelligently sound and solid arguments, they are convoluted. And in politics, as the saying goes, if you are explaining, you are losing.”

Rachman’s views notwithstanding, the fact is the issue is being contested with an intensity that can only increase over the next two months. What are the implications for South African business? To what extent will the outcome give us an opportunity to revise to our advantage business relations with the UK? After all, South Africa is still the UK’s biggest trading partner in Africa.

Incidentally, over this past weekend several financial commentators, including the FT’s Lionel Barber, speculated on the question, much neglected in the Brexit referendum debate so far, of whether it would be in Europe’s interest if the UK were to leave.
And adding a different note Wolfgang Schäuble, Germany’s finance minister, warned that post-Brexit talks would be tough for the UK.

Impact factor of Brexit on SA

South Africa, given the nature of its relationship to the EU, has the benefits of a free trade area specifically through the Trade, Development and Co-operation Agreement with the European Union. Trade relations, development and co-operation with the European Union are therefore governed by this agreement.

The agreement was also signed by the UK and what is not sure is the legal impact if the UK withdraws from the EU.

In any event, the agreement is presently under review with the purpose of broadening the scope of products covered. This is taking place under the auspices of the Economic Partnership Agreement (EPA) which is being negotiated between the SADC and the EU.

After Brexit a new agreement would probably have to be negotiated and signed and this could be more advantageous to South Africa and SADC.

The UK would probably aim for a more liberal approach whereas South Africa would be more protectionist, which has been the case under Trade and Industry Minister Rob Davis — but who can tell after a Brexit.

South Africa would not be agreeable to negotiate a bilateral investment treaty but would insist that relations fall under the controversial Protection of Investment Bill, the constitutionality of which could be challenged.

So what is clear from this short overview is that there are a number of very important issues involved depending on what would need to be negotiated if, as seems increasingly likely, UK voters opt to ‘out,’ particularly the turmoil in Europe of the past few weeks.

Another more serious ramification for a Brexit, is that the EU itself may begin to unravel.

The Euro and the euro-zone (that does not include the UK, Denmark and Sweden), could unravel particularly given the past talk of a Grexit (Greece leaving the EU) as well.

If this were to happen, the currencies of northern Europe would strengthen and southern Europe would weaken. It would become more expensive to make goods in Germany for example and this would open new markets and possibilities for FDI as German manufacturers try to contain costs.

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