East Africa will feel Brexit blow back- Analyst

Sub-Saharan Africa will feel the economic reverberations of Britain’s exit from the European Union, analysts say, although the nature and extent of the impact is hard to predict.

East Africa, a region with a strong British colonial legacy, will feel “blow back” from Brexit, according to Aly-Khan Satchu, a financial analyst and proprietor of Nairobi-based Rich Management.

“It’s very difficult to model because we’re now in a very disruptive, fast-moving, fluid environment, no one knows exactly what’s going to happen,” said Satchu. “And I think that naturally is going to lead to a slowdown in business. And probably investments, so yes, I think East Africa is part of the collateral damage.”

Britain is one of the largest foreign investors in Kenya. The British government says that bilateral trade with Kenya totals more than $1.7 billion.

“For example, Safaricom, which is the biggest company here in Kenya, is 40 percent owned by Vodaphone. Our biggest brewery company, which is East African Breweries, has a majority shareholder, Diageo, which is U.K.-based,” said Satchu. “We export a lot of fresh vegetables, if you ever take a walk around a supermarket in the United Kingdom, you’ll find a lot of Kenyan wares up for sale. So, a strong relationship that’s been there, for eternity.”

Currency exchange

The more immediate shock for Africa may come in the form of currency exchange. Both the euro and the British pound are sinking hard.

And the South African rand, a notoriously volatile currency, had dropped eight percent against the U.S. dollar as the market opened Friday in Johannesburg, its worst decline since 2008.

The governments of both Kenya and South Africa sought to reassure citizens and investors Friday. Officials in both countries issued statements that they can withstand any shocks.

A British exit from the European Union means that Britain’s trade deals and aid agreements will have to be renegotiated. That could affect billions of dollars’ worth of commerce and development assistance for Africa. Analysts say it is too early, however, to say whether the new arrangements would be better, worse or about the same.

South Africa is the top EU and UK trade partner on the continent.

Trade issues

Because the European Union is such a huge trading partner and donor throughout the continent, the upset brought on by Britain’s exit could have wider-reaching consequences, says Daniel Silke, director of the Cape Town-based Political Features Consultancy.

“Having said that, the EU has always been an experiment,” said Silke. “It was an experiment for the UK to enter the EU, as it was for the EU’s entire existence. And we are not quite sure, and I think most analysts could not be 100 percent sure on the effects of a ‘leave’ vote.”

Nigeria is the U.K.’s second largest trade partner on the continent, after South Africa.

But it’s important to look at the volume. According to the Observatory of Economic Complexity, most British imports come from other European countries and China. Nigeria gets most of its imports from China and the U.S.  Britain comprises just 4.3 percent, or about $2 billion, of its imports.

In Lagos, economist Chuba Ezekwesili doesn’t think there will be a major impact on Nigeria’s economy, but said Brexit does introduce uncertainty over British trade and aid commitments.

“You’ve basically told people, you know what, we’re a much smaller market than when we were part of the EU,” said Ezekwesili.

Minor West Africa impact

Analysts expect the impact on West Africa to be relatively minor in the beginning, though there could be issues later.

Charles Fé Doukouré, an economist and statistician based in Ivory Coast, says commercial trade in the region is primarily conducted with France.

“In the medium term, there could be consequences because the European market will have difficulties, notably the French market, which in turn will impact West African economies,” said Doukouré. “West Africa, for the most part, is a privileged zone for the European Union. So exiting this zone might, perhaps, create some hurdles to the U.K. in terms of investment opportunities in the West African space.”

British Prime Minister David Cameron has announced he’s stepping down, which lends even more uncertainty to the future, notes Kenyan analyst Satchu.

“You’ve then got a situation where you’re getting new leadership, or a situation where you’ve got to re-negotiate with all your European partners,” said Satchu. “And one worries from Africa’s point of view, whether Africa will be at the table at a time when they really need to be there because so much will be negotiated and agreed. But, you know, is Africa the priority? And I think that’s going to be the challenge.”

The results of Thursday’s referendum do not mean Britain is instantly out of the European Union. It could take two years, or longer, to sort out the departure. And it could take even longer for the full impact to ripple out to Africa and the rest of the world.