Costs and Consequences of Brexit
This post will analyse the consequences and implications of the United Kingdom voting to leave the European Union, otherwise known as "Brexit". The leaving of the European Union will be discussed in terms of: Its impact upon the United Kingdom's economy, impact on African economies and the lessons that can be learned from Brexit for economic integration in Africa.
Impact On U.K's Economy
The European Union is the United Kingdom's largest trading partner, allowing for free trade and no tariffs. This makes goods cheaper for consumers both in the United Kingdom and the European Union
According to Dhingra, Ottaviano, Sampson and Van Reenen (2016), there are two views to take on the impact on the United Kingdom; the optimistic view and the pessimistic view. The optimistic view is that the U.K's trade relationship with the EU is close to what Norway have adopted. They are a member of the European Economic Area and they have a free-trade arrangement, which means that there is free trade and no tariffs between the two.
The pessimistic view assumes that the United Kingdom will not have a similar relationship that Norway enjoys with the EU. Instead, there will be increases in trade costs and tariffs imposed on trade between the United Kingdom and the EU. The United Kingdom will also be losing out on future market integration in the EU. One benefit of leaving the union is that the U.K will no longer have to contribute to the EU budget, which was estimated at 0.53% of the national income (gov.uk, 2013), Although any savings would be expunged if Brexit resulted in a loss of 1% in GDP.
As stated by Begg and Mushövel (2016), the United Kingdom will deal with a long term loss in GDP, how big the loss is still to be determined but most sources have come to a consensus on this particular point. Demand from the EU makes around 3.3 million jobs in the United Kingdom, however, it is still not determined whether jobs will be lost or increased. Jobs could be lost if costs to trade are too high with the EU, resulting in a retrenchment in certain sectors, on the other hand, because some imports become more expensive, other industries may become more competitive and increase job creation.
There is no determining who is winning or losing within the United Kingdom until all is said and done. The results rest upon the reactions of different sectors as well as government's controls and regulations to the impending exit. What is clear though is that there will be losers and the United Kingdom's economy will be worse off.
The Effect On African Economies
There are several factors that could affect African economies in terms of the Brexit referendum, the first being that most trade agreements that the United Kingdom has with Africa are done through the European Union. This means that pre-existing deals with the EU will no longer be valid. (Moime, 2016) This could be a bad thing as the UK often formed the basis for trade agreements to take place and it could potentially take years to renegotiate the agreements.
According to Moime, D. (2016); emerging and frontier asset markets will come under immense pressure with financial instability the driving force. South Africa, Nigeria, Kenya and Egypt are those that will be the most affected by Brexit. Another large problem is the fact that the British economy will not be as strong, therefore reducing demand for imports and reducing Africa's revenue from trade. As stated by Sow, M. and Sy, A. (2016) Brexit may also lead to a reduction in development aid from the United Kingdom as they are one the top donors to the European Development Fund.
South Africa is the United Kingdom's biggest African trading partner. Brexit causes a lot of volatility and uncertainty which will lead to risk aversion by investors. This, therefore, increases interest rates, inflation and causes a decline in GDP. South Africa also has a number of stocks cross-listed on both the London Stock exchange and the Johannesburg Stock exchange, therefore any major ramifications that affect the United Kingdom affect South Africa to an extent as well. When news of the United Kingdom's decision to leave the European Union happened, South Africa's rand had fallen 7 % (Dagnis Jensen & Snaith, 2016).
Kenya, a major exporter of flowers to the United Kingdom and EU stands to lose a lot from Brexit. This due to the fact that exports will fall because of trade agreements being stalled (Kenya stands to lose four billion shillings) and this will create more uncertainty. Brexit may also put unnecessary pressure on the Kenyan Shilling due to investors pursuing less risky investments such as U.S bonds, therefore increasing costs of Kenyan imports (Brookings, 2016).
Similar sentiments can be said for both Egypt and Nigeria in which much of their trade is conducted with the United Kingdom through the European Union as many trade agreements will need to be renegotiated. Foreign Direct Investments will also decrease across nation's that are dependent on United Kingdom's investment. It can also be argued that some nations may benefit due to the fact that they are no longer bound by previous trade negotiations, and can import/export from cheaper alternatives.
Lessons For Regional Integration In Africa
The European Union was first established in order to combat extreme nationalism and improve integration within in Europe. Allowing for free trade and free movement across Europe meant that everyone would be better off as capital could move between nations as well as cheaper goods for consumers.
One of the first lessons Africa can learn from Brexit is that migration needs to be handled better, many citizens voted to leave due to the fact that they believed immigrants were using scarce resources. Governments and governing bodies such as the African Union need to effectively communicate the benefits of regional integration to citizens of their nations (Halubala, 2016). The citizens of the United Kingdom did not understand the benefits and processes of the EU, leaving their country worse off than when it was in the EU. Shifting the sentiment towards regional integration will go a long way in ensuring a successful union. With recent xenophobic sentiments in Africa, this will not be an easy task.
Another lesson to be learnt from Brexit is that there needs to be a balance between national interests and integration, nations enter into a community to realise a benefit and if the community does not help a nation meet its national interests it would dissuade the nation to enter. For the people of the United Kingdom, they believed the EU was hampering rather than enhancing their national interests and therefore decided to leave the EU (Organisation of Eastern Caribbean states, 2016).
The last lesson from Brexit is that the youth needs to be empowered. According to Jules, D. (2016) college educated and young citizens voted to remain and uneducated and older citizens voted to leave. This leaves the young people to deal with the decisions of the older generation. He argues that better education will help solve the misunderstanding of what regional integration is.
Conclusion
In conclusion, this post has discussed the impact of Brexit on the United Kingdom's economy, African economies as well as the lessons that can be learned about regional integration. The analysis concludes that overall the United Kingdom's exit from the EU will have negative ramifications for many participates, there will definitely be some who realise. Although it is too early to determine the extent of the ramifications, we can be sure that both African economies and the United Kingdom will be worse off
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References
Begg, I. & Mushövel, F. (2016). The economic impact of Brexit: jobs, growth and the public finances. London School of Economics and Political Science.
Brexit: No Happy Endings; The EJIL Annual Foreword. (2015). European Journal Of International Law, 26(1), 1-7. http://dx.doi.org/10.1093/ejil/chv017
Brookings,. (2016). The Brexit: What implications for Africa?. Washington, DC: Brookings. Retrieved from https://www.brookings.edu/blog/africa-in-focus/2016/06/21/the-brexit-what-implications-for-africa/
Dagnis Jensen, M. & Snaith, H. (2016). When politics prevails: the political economy of a Brexit.Journal Of European Public Policy, 1-9. http://dx.doi.org/10.1080/13501763.2016.1174531
Dhingra, S., Ottaviano, G., Sampson, T., & Van Reenen, J. (2016). The consequences of Brexit for UK trade and living standards. London School Of Economics And Political Science, 2(2).
gov.uk. (2013). London. Retrieved from https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/330634/HMT_annual_report_2014_online.pdf
Halubala, M. (2016). Brexit: Lessons learnt for regional integration in Africa. Institute for Peace and Security Studies. Retrieved 28 August 2016, from http://www.ipss-addis.org/new-ipss/news-events/brexit-_lessons_learnt_for_regional_integration_in_africa/
Moime, D. (2016). Brexit seen as ‘calamitous’ for African trade with Europe. Contemporary Economic Policy, 25(4).
Organisation of Eastern Caribbean states,. (2016). A REFLECTION ON THE LESSONS OF BREXIT FOR OECS INTEGRATION. Retrieved from http://www.oecs.org/media-center/press-releases/secretariat/1210-a-reflection-on-the-lessons-of-brexit-for-oecs-integration
Unfortunately I forgot to add pictures.
you can still add them by editing your post
I didn't even bother to look. Thought once it was posted it was posted. Thanks a lot!
Excellent article, interesting to read a view from outside Europe. One interesting point that you could add to the analysis regarding the suspicion of the EU within the less well-educated sections of British society is that of press balance and freedoms. The campaign to leave the EU has, for many years prior to the actual referendum, fuelled many misconceptions regarding the EU, which play into both left and right wing voters becoming sceptical about the EU. These misconceptions were largely published in the newspapers and news outlets of certain organisations with vested interests in the UK leaving the EU. News International, owned by Rupert Murdoch, is one very large example - Fox News being its US arm. Other publishers took similar stances. The BBC has had its independence eroded over a long period by successive governments reducing the length of its Charter - effectively, the BBCs right to exist. As a result, the BBC did not pursue lines of questioning that could and should have exposed the lies told by those promoting Brexit - whether lies about finances or about EU regulation. Unbelievably, some of those lies were repeated in the press following the Grenfell Tower tragedy. I'll explain briefly. The fire at Grenfell Tower was such a disaster because of several factors, but mainly due to the use of flammable cladding on the outside of the building. A British newspaper of large circulation, the Mail, claimed that the cladding was only fitted due to EU environmental regulations. This a subtle misrepresentation of the facts. In Germany, the particular variety of panel used has been banned for many years. The manufacturer, US-owned, specifically states that the panels should not be used on tower blocks. But the panels were the cheapest available, so in order to meet our obligations to insulate buildings in order to reduce climate change and also reduce customers bills for energy, our councils across England (not Scotland, interestingly, where such panels were also banned) fitted the cheapest panels available, not because of the EU, but because of the fact council's funding from central government has been cut to the point they can no longer effectively deliver the services they're supposed to deliver. But the right wing press, whether owned by Murdoch, the Barclay Brothers (see their behaviour in Sark for examples of their fitness to own a newspaper) or some other self-interested oligarch, don't like that kind of talk, as it undermines their chosen leaders of the UK and the neoliberal concensus they've sold to the British public. Unaccountable business interests have more to do with Brexit than any vote I've ever witnessed in the UK. Final example. The owner of Butlins, a UK-only chain of holiday resorts, funded the Brexit campaign and did not declare the donations - of over £500k. I wonder what he gains from the UK leaving the EU..?
I stay away from most newspapers nowadays, they are filled with absolute drivel. I agree with you so much about alterior motives from both the left and right wing as well as the press. The brexit vote was also around a very fragile time with all the immigrants flooding into Europe and all the fear mongering by the press. Ultimately as I said we will find out how the markets react when all is said and done. Thanks so much for the response it was good to get your insights :)
Absolutely, it enabled a perfect storm of fear to be whipped up and directed at the principle of international co-operation. Interestingly, a couple of the media consultancies involved in the Brexit campaign were also deeply involved in the Trump election machine...