Brexit, Africa and Me….?

I am depressed!! It's Saturday the 26th June - Day 2 Post Brexit and I am sad and fearful for the future.

As I went to bed early in the morning of the 25th of June I was confident that when it came down to the wire, the majority of the UK would vote to stay and not respond to the scare mongering, nationalistic, jingoistic calls of the Brexit campaign. Sadly my confidence was misplaced.

My son woke me on the morning of the 25th to declare that the Brexiters had won. I still can’t believe it – hence my depression.

I make no apologies for the fact that I have unstintingly supported the stay campaign. This article looks at the consequences and potential consequences of Brexit and its impact on Africa. Consequences that were well known to all but were rebutted or ignored out of hand by the leaders of the Brexit campaign.

The financial impact

All the evidence to date is showing what the economists predicted – that the financial impact of Brexit would be a negative one. Brexit (as predicted) has not been good for the UK or the global economy with stock markets around the globe being hit - Japan’s Nikkei index experienced its biggest fall since the Fukushima disaster of 2011. In the UK, the FTSE fell with bank and housebuilder shares suffering the most. It has been estimated that Brexit wiped $2tn off markets on the Friday after Brexit.

 Sterling fell against the US Dollar (around 7%) and against the Euro (around 4%). Although not yet crisis levels it is not clear how much further financial markets will react as time moves on. The fall in sterling when taken with the fall in the FTSE 100 means that British stocks are down more than 10 percent in real terms. And of course a significant element of our pensions are invested in the FTSE so this fall is not just one that affects the wealthy but all UK workers with a pension.

 In addition, Moody's lowered the UK’s credit rating to “negative” in the wake of Brexit and warned that Britain’s economic growth will be weaker after Brexit and that it would result in a "period of prolonged uncertainty". It went on to say that:

 “The negative effect from lower economic growth will outweigh the fiscal savings from the UK no longer having to contribute to the EU budget."

 The UK government has estimated that exiting the EU could cause the British economy to be between 3.8 and 7.5 percent smaller by 2030 — depending on how well negotiations for access to the European market ultimately go.

Brexit in Africa

 Whilst no one knows the precise consequences of Brexit for anyone, the fallout in the two days after the Brexit decision shows quite clearly that there are very few (if any) positive impacts for anyone. The position of African countries is no different. 

Razia Khan, chief economist for Africa for Standard Chartered Bank, said that:

 “Many emerging market and frontier asset markets will come under pressure. Much will depend on how quickly some sort of financial market stability can be restored.”

 African countries that have been struggling from slowing demand from China and low commodity prices are now faced with this further external shock to their economies. Some highlights of Brexit”s impact in Africa are set out below.

Brexit and Nigeria

The links between the UK and Nigeria have always been strong with its roots in the historical colonial relationship. This morphed into a trading/commercial relationship with UK/Nigeria bilateral trade being in the region of ￡6 billion ($8 billion) and expected to grow to ￡20 billion by 2020. In 2015, the U.K. was the biggest source of foreign investment in Nigeria in 2015 with investments worth $3.6 billion.

Brexit comes at a bad time for Nigeria’s economy that has been struggling with low oil prices and years of mismanagement and corruption and the recent foreign exchange crisis. Its economy has contracted for the past two quarters with warnings of an impending recession. Nigerians must have hoped for a new economic dawn after the Nigerian central bank finally responded to months of pressure on the Naira with the commencement of a new exchange rate policy regime. Unfortunately this move could be negated by Brexit, which is likely to result in a drop in investment, trade, and also remittances from the Nigerian diaspora who sent home $21 billion in 2015.

Brexit was about two issues   

If you cut through the noise, the Brexit campaign was simply about two key issues. Immigration and the economy. In the case of the economy, there were numerous economic experts who foretold of the dire financial consequences for the UK and the global economy arising from Brexit.

 In contrast, “take back control of our borders” was the main rallying cry of the Brexit campaigners. Whilst its difficult to say this was the main reason that people voted for Brexit, it certainly came across as a key reason. With pressure on jobs and social services from migration to the UK which Brexiters say was caused by the EU rules on free movement of people.Yet no one could say for certain or with any degree of accuracy as to what would be the consequences for immigration to the UK in the event of Brexit.

 Contrast with the stay campaign that had the support of ten of the world’s leading economists who wrote to the Guardian to say:

“Brexit would create major uncertainty about Britain’s alternative future trading arrangements, both with the rest of Europe and with important markets like the USA, Canada and China. And these effects, though one-off, would persist for many years. Thus the economic arguments are clearly in favour of remaining in the EU.

 One of the letter’s signatories, Professor Christopher Pissarides from the London School of Economics, said that the uncertainty would reduce investment, hit job creation and trigger depreciation in the pound.

Hit the poor the hardest...

 The fall in sterling is likely to result in UK inflation rising, as imports will cost more. A think tank called IPPR has said that a 2.3 percent increase in the Consumer Prices Index will increase costs for the poorest households in the UK by 3.3 per cent, compared to a 1.6 per cent increase for the richest 10 percent of families. 

Did those who voted leave truly understand how Brexit will affect their personal incomes?

I am an immigrant..

I came to the UK to attend university and have lived in the UK since then. I have always been proud of my adopted country, its place on the world stage and its tolerance and open mindedness and all that it has done for my family and me. I have contributed and paid taxes and national insurance and voted to stay in Europe. I was dismayed by the right wing, nationalistic rhetoric of the Brexit campaign and cannot believe that 52% of British people have been sucked into making this monumentally stupid decision that will have a detrimental impact in the UK, on our children and the next generation and also across the globe and in Africa.

 The old decide for the young

64% of those aged between 18 to 24 voted to stay in whilst 58% of those aged over 65 voted to leave the EU. So those with an average life expectancy of a further 16 years consigned those aged 18 to 24 with an average life expectancy of a further 69 years to the financial and economic consequences of Brexit. The financially secure old have effectively imposed on the financially insecure young an uncertain financial future.

What next??

Who knows!! We are now in uncharted waters. The politicians are jostling, some 1.1 million voters are saying that they wished they had voted to stay and there is a petition to Parliament to hold another referendum. In the meantime the Brexit butterfly is still causing reverberations across the globe and I am still depressed.

 Finally, a word of remembrance for Jo Cox, a 41-year-old English MP and mother of two of exemplary internationalist (as well as pro-European) credentials, who was shot and stabbed in her constituency of Yorkshire. Killed it would seem for her beliefs. May she rest in Peace.  My thoughts are with her family.

 https://www.financialnigeria.com/brexit-africa-and-me-blog-144.html 

Raj Kulasingam

London

27 June 2016