Brexit: Lessons for Africa, By Chukwuma Okonkwo
In the face of post-Brexit shocks and uncertainties, African countries may consider exploring (for those that don’t have) or consolidating (for those that already have) bilateral trade relations with European countries like Germany and France. This will mean that the Frankfurt Stock Exchange, which currently ranks among the top ten stock exchanges in the world, may become the new hub of European stock exchange; hence desirable to African companies.
June 23, 2016 marks a watershed in the history of the United Kingdom (UK). On that day, the referendum on the UK’s European Union (EU) membership was held. The result shows that 52 percent of the British voted to leave the EU, while 48 percent voted to remain in the EU. The breakdown of the result across the UK shows that England and Wales voted strongly for Brexit – the word that represents leaving the EU – while Scotland and Northern Ireland voted for Bremain – the word that represents staying in the EU. The dust raised by the outcome of the referendum has not yet settled – the fallout panic from Brexit is still evident, with volatility in the global financial markets staring us in the face. The Economist Intelligence Unit has hinted that panic would continue as uncertainty that Brexit brings persists. Across the world, the implications of Brexit have become topical and their ramifications cut across fields of study. Pundits around the world have expressed opinions, with trumpeting calls to explore possible interventions in order to address the fallout panic from Brexit. This article examines what Brexit means for Africa, and argues that Africa stands to gain if African countries focus on the economic dimension of Africa’s regional integration. This will enable Africa negotiate better trade relations with the UK and the EU.
Following the UK’s EU referendum, opinions are divided among pundits on what Brexit means for Africa. Clearly, Brexit brings uncertainties to global markets, as evidence has shown from post-Brexit financial losses. Africa is integrated into the global markets through the commodity markets of its various countries. Also, to a large extent, Africa is integrated into the global financial markets through the listing of many African companies on global stock markets. Prima facie, the uncertainties rising from Brexit appears to have zero immediate effect on African markets. This is because the referendum was not premised on issues facing African economies. The referendum was rather underpinned largely by political sentiments within the EU, though there are also economic sentiments involved.
However, the impact of Brexit on Africa will depend on when its toll on European markets begin to kick European countries – which the majority of African countries have trade relations with – in the teeth. It is until then that Africa will begin to feel the pangs of Brexit, as a major trading partner of Europe. The expectation is that Brexit will continue to contribute to increased uncertainty in the global (financial) markets and the risks associated with them, thereby contributing to the risks that Africa will face in the coming years.
For decades now, the EU has had significant impact on the UK’s foreign policy in Africa. In terms of trade, aid and diplomacy, the UK has remained the most attracted to and committed EU member state in Africa. The UK has shared with the EU its policy-making processes and strategies in Africa and also sought the EU’s support in implementing its foreign policies in Africa. This reveals the influence that both parties have on policies in Africa, which experts have argued should not be divided, but rather jointly sustained for Africa’s economic progress.
What then does Brexit mean for Africa? Brexit will open opportunities for Africa to negotiate better trade policies and business relations with the UK – all which have been obstructed over the years by EU’s trade policies; for example, the EU’s Common Agricultural Policy (CAP). To put it into context, the EU’s CAP as it currently operates subsidises European agricultural products, meaning that African farmers are at disadvantage and cannot compete in European markets. With Brexit, trade negotiations will be on the table – which apparently will by-pass the EU’s trade policies that have not only been detrimental to African farmers but have historically distorted access for African farmers into the European market.
Moreover, Brexit means that the UK will now be in direct competition with the EU on many trade policies, including CAP. History has shown that the UK has been pressuring the EU to reform some of its (EU) trade policies towards Africa, particularly the subsidies to European farmers. Thus, Brexit will offer the UK the opportunity to consolidate its trade relations with African countries, particularly the Commonwealth countries, as opposed to the EU having the exclusive authority to negotiate and decide international trade agreements. This will apparently put the UK in the position to trade freely with Africa – and African countries will be placed on a pedestal to bargain for better deals with both the UK and the EU.
Furthermore, Brexit means that the UK will lose significant trade influences in the EU. Given the uncertainties that Brexit brings to global financial markets, there is likelihood that the UK may lose some existing trade negotiations with African countries. Before Brexit, there were discussions about merging the Bourse Regionale des Valeurs Mobilieres (BRVM) – which is the bourse for eight African countries that form the West African CFA franc monetary zone – with the London Stock Exchange (LSE). Today, there are many African companies listed on the LSE, as London is seen as the hub of the European stock exchange. In the face of post-Brexit shocks and uncertainties, African countries may consider exploring (for those that don’t have) or consolidating (for those that already have) bilateral trade relations with European countries like Germany and France. This will mean that the Frankfurt Stock Exchange, which currently ranks among the top ten stock exchanges in the world, may become the new hub of European stock exchange; hence desirable to African companies.
From the foregoing, it is clear that African countries need to focus on the opportunities that Brexit presents, rather than jumping on the bandwagon of the panic wave. Clearly, regional integration in Africa is still at an infant stage, and Brexit has presented African countries with the opportunity to integrate the continent economically and politically. But focus should be on the economic dimension of Africa’s regional integration. Though, Africa is integrated into the global market through the commodity market, however, Africa is still at the bottom end, where it is not optimally utilising its commodities potentials. Therefore, Africa needs to scale up manufacturing productivity in order to tackle the challenges of job and wealth creation, and the promotion of industrialisation through value addition, value process management, technology advancement and scaling up of investments in infrastructure. These will help Africa become more competitive in the global market.
Chukwuma Okonkwo is a graduate student of Public Policy and Management at the University of Melbourne, Australia. He tweets @CHUMA_47