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Africa-UK: Moving beyond Brexit

By Mark Anderson and Patrick Smith
Posted on Tuesday, 7 March 2017 10:36

Early this year, the fallout from Britain’s decision to quit the European Union (EU), after a hard-fought and highly divisive referendum campaign in 2016, will start to sluice through the global economy and shake up regional politics. By the end of March, Prime Minister Theresa May is due to trigger Article 50, the formal announcement that Britain is leaving the 28-member union. Then the clock will start ticking, and Britain will have just two years to negotiate its divorce. Only in mid-2019 would Britain then have the legal right to negotiate fresh trade agreements outside the EU.

Britain’s exit from the EU and the new nationalism in Europe worry policymakers in developing economies. In February, many African states will have to decide whether they want to sign up to the EU’s Economic Partnership Agreements or lose duty-free access to the European market. After years of tough negotiations, these agreements would allow African exporters to sell to the EU without facing tariffs. The trade-off is having to meet a raft of conditions on copyright, intellectual property, phytosanitary standards and trade liberalisation.

Within days of the Brexit vote, Kenya, Tanzania and Uganda suspended trade talks with the EU. All three countries have substantial trade with Britain, and their negotiators hoped that the Brexit vote would give them more leverage when talks resume.

Britain has been encouraging the view that African states could get better trade terms. Tobias Ellwood, the UK’s minister for the Middle East and Africa, tells The Africa Report: “We should be able to build in mutually favourable terms that allow us to see some very favourable bilateral deals come into place. But it’s early stages, it really is.”

Ellwood, who initially opposed Brexit, now says that both Britain and its African trading partners could benefit: “The way these countries see it is they don’t have to [negotiate] through a prism of 27 countries looking for consensus through Brussels and all the bureaucracy that entails, but [instead] it can be expedited more by a bilateral basis.”

Bilateral Opportunities

For now, British policymakers are looking at both bilateral deals and negotiations between the UK and regional organisations such as the East African Community: “There will be occasions where there will be a great bilateral opportunity – to help with offshore gas in Morocco, for example,” says Ellwood.

This new trading imperative in London is percolating through the country’s bureaucracy. Traditionally, many diplomats from the Foreign and Commonwealth Office had kept their distance from commerce; they left such details to the department of trade and industry.

A former senior ambassador who mentors young British diplomats explains: “Brexit has meant a sweeping change of mindset and culture in the Foreign Office […]. Now the race is on to cut bilateral trade deals, and everyone from the ambassador onwards is working on negotiations.”

To boost that process, Britain has appointed several envoys charged with speeding up trade talks. Adam Afriyie, a Conservative member of parliament who backed Brexit, flew into Ghana for the inauguration of President Nana Akufo-­Addo and a five-day visit in January. “As trade envoy to Ghana, I am committed to regularly visiting Ghana in 2017, leading trade delegations, supporting UK businesses to win contracts through competitive tender processes and promoting reforms so that businesses can invest,” Afriyie told local journalists.

Many African states remain deeply dissatisfied by the terms of the trade agreements currently on offer from Europe. Frank Matsaert, chief executive officer of TradeMark East Africa and an opponent of Brexit, says Britain has some important opportunities and responsibilities: “The UK could do a lot by […] relaxing the rules of origin, whereby that could mean a real boost to have more assembly, more light manufacturing within Africa. That would be a big stimulus for investment, particularly for market access.”

Kenya’s central bank governor, Patrick Njoroge, remains determinedly bullish about Africa’s prospects: “Right at the beginning of Kenya’s central bank, the biggest challenge that it faced came because of the devaluation of the British pound in 1967, which was unprecedented,” says Njoroge. “We navigated that, so we’ll also navigate Brexit.”

Slow trade, Less in aid

However, economists from the World Bank and International Monetary Fund reckon that Brexit will shave off at least 0.2% from global trade. For individual countries trading with Britain and Europe, the losses could be much higher in the short term.

Uncertainties are slowing down business according to Ibukun Adebayo, co-head of emerging markets strategy at the London Stock Exchange Group: “There’s no doubt that IPO [initial public offering] volume has been hit post-Brexit […]. Our numbers at the end of September were showing approximately $2.2bn raised on the IPO market versus about $8bn [in the] same period [last year].”

There has also been a dramatic shift in the terms of trade with the depreciation of the British pound by about 20% against major trading currencies. That means that British exports are cheaper than they were a year ago, but it also means that its aid programmes are worth less than they were before the Brexit vote. And for African nationals currently living in Britain and sending money home, remittances are worth 20% less.

For those African officials hoping for tougher action on corporate tax dodgers and the illicit financial flows heading for poorly regulated places such as the British Virgin Islands and the Cayman Islands, independent researcher Mark Curtis argues that Brexit will weaken European attempts at reform. Britain “will have those jurisdictions even more completely under its control. After Brexit, it may not need to bother what the EU laws are. In the past, it was required to go along with a few initiatives in the EU; after Brexit, it won’t be.” Britain’s support for a liberalised global economy means that tax evasion could get much worse, according to Curtis, despite efforts by the EU authorities to clamp down.

From the February 2017 print edition

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