On Thursday 23 June, the UK’s voting-age citizens took to the polls to decide whether UK should leave the European Union (EU). And by the following morning there was pandemonium as the world’s markets tried to adjust to the new reality of the UK’s 52%-winning vote to exit.
It will actually take at least two years for the UK to officially leave the EU after Article 50 has been triggered – the formal legal process for countries wishing to leave the EU. But the uncertainty around what the future holds has caused market turbulence. Agreements concerning trade and freedom of movement will have to be re-negotiated, leaving businesses unable to make informed calls on investment. After the results of the vote, the pound took a huge knock and rating agencies Fitch and Standard & Poor’s (S&P) slashed their credit ratings for the country.
Africa will not be immune to the effects as its countries face uncertainty around exporting to UK. For example, over a third of flowers sold in the EU come from Kenya – with the UK being the second-largest buyer. Kenya, as well as all other African markets, will now have to renegotiate new deals with the UK.
The continent’s markets are also likely to feel the pinch of a weaker pound in the long term.
“The UK is the fourth biggest investor in Africa so there will be less investment coming into the continent because there will be less growth and less money to spend,” says Leon Ayo, CEO for sub-Saharan Africa at international executive recruitment agency Odgers Berndtson.
There are also a number of African companies with dual listings on both the Johannesburg and London stock exchanges which will be impacted by a weaker pound and unstable UK market.
“But, perhaps more importantly at the lower end of the socio-economic spectrum, the UK has been the biggest contributor both in terms of influence and capital to the EU aid agreements. So the EU is going to lose a massive contributor of aid and that aid’s destination is largely Africa,” notes Ayo.
“So Africa will suffer as a consequence.”
However, a small, short-term positive is the slight strengthening of African currencies against the pound – including the South African rand, Kenyan shilling, Angolan kwanza and the Central African CFA franc. This comes after many of these currencies have strained through a period of devaluation on the back of low commodity prices.
One perk of a weaker pound is British expats become more affordable in Africa. The continent’s significant skills shortage for C-suite positions is a well-known struggle for multinational firms wanting to expand in the market, and the devaluation of African currencies made paying expats in their home-market currencies far more expensive.
“The fall of the pound in the short term against the rand and other African currencies is a benefit,” continues Ayo.
“The depreciation of developing market currencies in the last 15 months has meant that expats have been far less attractive for multinational companies. But with the rand gaining on the pound it is suddenly more affordable to bring in expats and actually buy UK products.”
However, in the long run this benefit is useless if British multinational companies are forced to reduce investment in the continent due to slower growth in their home market and less capital to spend on foreign offices.
Africans studying in the UK
While travel to the UK may become cheaper for Africans as a result of a weaker pound, visa regulations will not change as Britain was never part of the Schengen Agreement. However, there could be a massive implication for study permits for EU citizens in the UK, as those agreements will have to be renegotiated. And this could end up being a benefit for African students.
“One of the UK’s largest invisible exports is actually education. Once the UK leaves the EU there will be visa complications for European students wanting to study there,” noted Ayo.
“One possible silver lining for Africa could be that, with fewer European students studying in the UK, they might target and attract African students, particularly from the Commonwealth, to replace the revenue from those EU students,” he highlights.
“But in terms of movement of people, there is very little implication on Africa.”