BREXIT: What the consequential vote means
With few hours before Britons know if they will leave or remain members of the European Union (EU), the world is watching, investors are jittery and global markets are in a volatile mood that may metamorphosis into full blown turmoil if the Brexit (British exit from the EU) Vote Leave campaigners emerge victorious. This is understandable.
The United Kingdom is the world’s 5th largest economy with 3 trillion US Dollars in GDP as of February 2016, following the US, China, Japan and Germany. A 2016 House of Commons Library report states that in 2015, the EU was the UK’s major trading partner, accounting for £223 billion worth of exports (44%) and £291 billion worth of imports (53%) of goods and services in 2015.
International credit rating agencies have already weighed in on the Brexit debate. S&P Global has says it would probably lower the UK’s long-term credit rating from the sterling triple A rating. Fitch does not anticipate taking any immediate negative rating actions on other EU sovereigns if the UK left, but says that a Brexit ‘would increase the downside risks to EU sovereigns’. A Moody’s report released in May does not constitute a rating action, but warns that self-employed people in Britain would be more at risk than employees from fluctuating income in the event of Brexit which may affect their ability to make mortgage repayments.
Remain and Leave Camps
The Brexit debate is centred on three issues: laws, trade and immigration.
Britain Stronger in Europe has emphasized on the economic benefits of remaining on the EU. Remain supporters worry that a Brexit will wreak havoc on Britain’s economy which may plunge into a recession and lose its status as the global financial hub. This means that businesses in the UK may reconsider their investments in the island country and relocate to other European countries such as Germany and France. Britain’s net migration in 2015 was 333,000, which remain supporters say is not a bad thing since they are young and likely to be employed consequently boosting economic growth.
The leave campaign is for a Brexit and is being fronted by former Mayor Boris Johnson. Brexit supporters say that a leave outcome will make the UK a richer nation since the £350 million it pumps into the EU weekly will be used to better the lives of Brits. They also argue that a Brexit will ensure better border control and more independent decision making. To them, fears allayed by the Remain camp that the economy may sink into a recession are just a bad attack of economic pessimism. But are they?
Impact of Brexit on Kenya
Though Kenya may not have direct exposure to the UK, Kenyans would be naive to imagine that the Brexit debate is an EU affair only. UK was Kenya’s second largest trade partner compared to other countries in the European Union in 2015. According to the Economic Survey 2016, Kenya’s exports to the UK were valued at 40.67 billion shillings with the value of imports calculated at 42.97 billion shillings.
The IMF in its annual report on the British economy said Brexit would plunge the UK into recession within one year and sees no economic advantage in the UK-EU divorce. A recession in Britain means that there will be a slowdown in economic activity. This means they will cut non-essential spending and Kenya’s flower sector will suffer greatly since the UK is a key export market.
Kenya’s tourism sector, which has taken a beating over the last three years as a result of frequent terror attacks, may also get hit. A devaluation of the Pound means the cost of living will be higher for Brits. UK tourist arrivals in Kenya may slump as it will cost them more to go on holiday.
The UK is the world’s third largest donor from countries of the Organisation for Economic Co-operation and Development (OECD), following Germany and the US. Billions of aid are also spent through groups such as the World Bank, the EU, and UN agencies. Kenya, Nigeria, Uganda and South Africa are among top recipients of aid in Africa. According to the UK Treasury, the economic shock of a Brexit will blow a hole in the budget, meaning that they will have to raise taxes and cut spending to fill the gap. Aid granted to Kenya may be significantly slashed.
The Jubilee administration is currently in the process of implementing mega infrastructure projects that require financing through public private partnerships. The London market is a key source of these funds, and it may become more expensive to borrow.
A vote to leave could see the weekend with a Black Friday, and result in serious consequences for UK citizens and unsettle the global economy.
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