Brexit: What Does It Mean To You?
Recently, Great Britain voted in a referendum to leave the European Union (EU). This sent shock waves throughout the world. Where does Brexit leave South Africa which has strong ties to both Britain and the EU? The EU is by far our largest trading partner whilst Britain alone accounts for 4% of our exports and we currently run a R4 billion annual surplus with the United Kingdom.
A global phenomenon at play
To a large degree the vote was a rejection of the status quo and the affluent (London voted overwhelmingly to stay in the EU). This reflects a global backlash against globalisation and income disparities – even the United States is not immune as evidenced by the rise of Donald Trump.
Whilst we often think we are unique in the number of protests in South Africa, we are in line with global trends. China, for example, has over 50,000 protests a year.
No nation has ever before exited the EU (it has 28 members), so what is going to happen is uncharted territory.
One option being mooted is that Britain will not actually leave the EU – the Westminster Parliament, for example, could vote to remain in Europe. However, new Prime Minister May has clearly ruled this out.
Brexit will be a negotiation between the EU and Britain which is clearly subject to how each party approaches and negotiates the breakup.
There are many scenarios out there, ranging from an amicable settlement whereby Britain remains part of the EU customs union to a complete separation. In between these poles are options where Britain has free access to certain sectors in the EU or has access to the EU market but will need to impose EU tariffs on other trade partners.
The fact that South African markets have largely recovered from the June 23rd vote indicates that financial markets, which tend to look 6 to 12 months ahead, are now more comfortable that South Africa will be able to navigate a favourable solution when the outcome of the Brexit negotiations is known.
But - no one likes uncertainty
There is always the risk that Brexit will not be a smooth process which will make it difficult for South Africa to negotiate a favourable outcome with two extremely important but potentially antagonistic trading partners.
South Africa has one of the most liquid foreign exchange markets of developing nations and has already shown how volatile it is to events such as Brexit. This uncertainty is perhaps the biggest downside of Brexit.