The Brexit Effect

Editorial Team
Editorial Team

It’s almost a year to the day since the UK narrowly erred in the favour of independence from the European Union in a decision that sent shockwaves around the world. For the European community, it might be perceived that there was a sense of loss and abandonment on agreements that had been in place for decades. For the rest of the world though, it has often been spun on UK shores to represent an era of opportunity to solidify and even improve trade channels on an unlimited scale.

But what does it mean for Africa specifically? To find out what the potential consensus is in a region that has ties to the UK on a historic Commonwealth level, as well as on an established trade scale, Africa Outlook garnered opinion from Rosalind Kainyah, MBE, the Founder and Managing Director of Kina Advisory Limited, a socio-economic advisory unit which specialises in African operations and investment opportunities; and Dr Amy Jadesimi, Managing Director and Chief Executive Officer of LADOL, a multi-million dollar oil & gas Free Zone in Lagos.

Kainyah set the scene from Kina Advisory’s London office:

Although there is much speculation about the UK’s ability to negotiate better bi-lateral trade agreements with countries outside the EU, it does not guarantee that African countries will be priority beneficiaries. It will all depend on how proactive African countries are in positioning themselves to make Brexit work in their favour; and to start doing so now rather than waiting for “it to be done to them”.

The one thing I know for certain at the moment is that no-one knows what the practical outworkings of the 2016 Brexit vote will be.  This means – in spite of many views aired – it is difficult to say definitively what the impact of Brexit will be for countries in Africa. However, the magnitude of the impact will vary across the continent, with countries such as Mauritius, Nigeria, South Africa and Kenya most likely to be affected, given the level of their commercial links to the UK.

The main effects of Brexit for Africa will be in the form of trade and aid. 

How trade regimes with the UK will look is unknown territory. The UK could cut and paste the provisions of current Economic Partnership Agreements (EPAs) between the EU and certain African countries into future trade agreements; and, as a leader in the EPA negotiations, may well go this route. Alternatively, Brexit could open up opportunities for new trading regimes that could give African countries better market access to the UK and, to compete, the EU or individual member states may also seek to offer better trade terms. However, if the UK were to impose a new set of import standards in addition to and/or different from those imposed by the EU, this could overwhelm Africa’s infant exporters already struggling to meet EU standards.

A weaker pound sterling, as a result of Brexit, means cheaper imports from Britain into African countries, which can benefit consumers as well as businesses importing equipment for production. The flipside though is that it makes African exports more expensive for British consumers; from Kenyan cut flowers through to tourists taking holidays in popular African destinations like Zanzibar and South Africa. Bearing in mind that other than commodities, the balance of trade would still be in favour of the UK and the EU exporting to African countries rather than African countries exporting to them, the total sum of this impact is a disadvantage to African countries.

On the other hand, with their own market access to Europe reduced, post-Brexit British investors will be looking for places to invest and markets to serve. Africa can capture some of that potential investment. 

British money is welcome in Africa. With its historic ties and long-running relationships with many African countries, British companies are well-positioned to do business in Africa while contributing to the continent’s economic and social development. I advise UK companies that are working hard to invest on the continent in a way that also leaves a positive footprint on the continent.

While new money from British investors could flow into Africa, money from development aid to Africa could decrease. The withdrawal of the UK’s $585 million contribution to the European Development Fund (14.8 percent of the fund) may not necessarily be fully compensated for by any increase in bilateral aid to African countries as fiscal and political pressures could make Britain turn inward.

However, in spite of its Brexit challenges, the UK has always been a very influential voice in international development, and African countries hope that it will maintain the level of its existing commitments and its influence in multilateral institutions. The UK’s focus on Africa through its own institutions such as CDC & DFiD, as well as through the multilateral institutions such as the World Bank Group and the African Development Bank, has been a strong factor in moving the development agenda forward.

But perhaps a more important consideration is to ensure that any loss in aid is more than made up for by gains in trade and investment, bringing with them jobs, infrastructure, and the transfer of skills and technology.

Knowing better than most the influence that the UK already has in Africa is Dr Jadseimi, whose stewardship of a major industrial Free Zone in Nigeria – one of the countries listed by Kainyah as being most affected – will be directly influenced by the implications of Brexit.

LADOL is the single largest, 100 percent indigenous, industrial and maritime facility in Nigeria, disrupting “the many bloated, capital intensive, inefficient, rent-seeking business practices in Nigeria by privately investing in capacity that will enable Nigerians to add value and lower operational costs for a range of industries” Jadesimi describes.

It has always been Jadesimi’s ambition to help contribute to the betterment of her country through the development of a “strong, sustainable and prosperous global economy”, making Brexit a fascinating – and potentially detrimental – event for Nigeria if not capitalised on effectively.

Africa Outlook (AfO): Regarding last year’s referendum, can you firstly provide an insight into what businesses and industrial zones in Africa, such as LADOL, were hoping for in terms of a result, and the reasons for this?

Dr Amy Jadesimi (AJ): As staunch supporters of a progressive and inclusive global community, we at LADOL were in favour of a ‘remain’ vote. Globalisation is an important mechanism towards global equality, and regressive political rhetoric threatens to undo many of the strides made over the past 70 years. I think the EU has largely been a success; of course it needs to evolve and make some significant changes to remain one, but hopefully Brexit will be a wakeup call that leads to a stronger union in the long-run. As a Nigerian and African I think we can learn a lot from the EU and I hope that the African Union (AU) grows into an equally strong and effective political and commercial union of countries. A strong AU, with wide spread intra-African trade could generate US$12 trillion for African countries through trade.

Many countries, particularly those of us in the Commonwealth, will now seize this opportunity to redefine their working relationship with Britain.

AfO: And since the breakaway from the EU was confirmed, what are LADOL’s thoughts as to how a move such as this could be capitalised upon in Africa?

(AJ): Business leaders and politicians in Africa must make it clear to Britain that the new relationship with Commonwealth – and in particular low-income, high growth – countries like Nigeria, must be based on a sustainable trade, investment and manufacturing collaboration. In other words, we must form alliances where both sides contribute and both sides benefit; e.g. sustainably manufacturing cars at LADOL using British knowhow and a Nigerian workforce and facility. [This will pull] more Nigerians out of poverty, strengthen the global economy and drive greater prosperity in the UK as well.

By 2050 Nigeria will be the third largest country in the world, and Africa will have a quarter of the world’s population and its youngest people. Harnessing this population boom in a sustainable way will unleash an unprecedented period of wealth creation. The key for Britain is to actively engage with legitimate private companies in Africa, such as LADOL, with whom they can collaborate and can get the support needed to thrive in Africa. Brexit will bring with it an opportunity for Britain to radically change its international relationships and exercise first mover advantage to capture this unique African opportunity.

AfO: What would you expect to see by way of agreements between the UK and Nigeria – and indeed Africa as a whole – over the coming months and years?

(AJ): The largest economies in Africa will see the most immediate benefits as the UK will no doubt begin negotiations where there is the biggest opportunity; Nigeria and South Africa for example. 

Any agreement between the UK and Nigeria will take time. We expect to see a breakup, by the UK, of the West Africa agreement, which is currently imposed by the EU. This will create the environment necessary for a fair agreement between the UK and Nigeria, as it will no longer be tied to requirements of other member states.

The terms of any agreement will depend on local growth but it would be best for Nigeria and Britain if we Nigerians trade finished goods.

AfO: Perhaps more significantly, what would you hope to see by way of agreements between the UK and Africa over the coming months, for both sides to fully capitalise on this potential opportunity?

(AJ): We hope to see sustainable trade, investment and manufacturing collaboration policies which will then turn into government treaties and private sector company contracts.

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