Since the British voted to leave the European Union (EU), much has happened. We’ll highlight some key events and look at what Brexit may have in store for the man on the street in South Africa. In this article, we have included a timeline detailing key events between the vote and now, as well as a graph showing the performance of the Rand against the Pound.
Where we are right now
Since the fateful referendum, it has been a month filled with speculation, uncertainty, record currency lows and political infighting in the UK. This, while the Prime Minister race was shrouded in controversy, ultimately resulted in a Remain campaigner being selected as the leader of the UK.
All things considered, it seems the UK could have been better prepared for their exit from the EU. Thus far there seems to be little to no “road map” and the task that now awaits them seems to grow week on week.
How the UK will go about leaving the EU
The next step is for the UK to attempt to sever ties with the EU in the most harmonious way possible. The process formally begins with the triggering of the much discussed Article 50 of the Lisbon treaty. Once triggered, the UK’s decision to withdraw from the EU will be seen to be confirmed by Brussels. This starts the clock on the two year time limit by which formal negotiations around the terms of separation must be concluded. An extension of this term can only be granted by a unanimous decision of the European Council.
As it stands, the EU Council and UK Government seem to have opposing views on the exact date the treaty will be actioned. French President François Hollande stated, at the recent EU summit, that this should take place as soon as the new British Government has been established. This may not be the case as the UK High Court was informed, on 19 July, that Theresa May does not intend to trigger Article 50 until early next year. Several other private actions have also been filed arguing that only parliament, and not the Prime Minister, may invoke Article 50. Whatever the case, it appears that the matter may be tied up, regardless of the outcome, until next year.
The EU council has, however, stated that the UK cannot have à la carte single market access, suggesting that terms of the exit may not be as favourable as the British would like. The EU members pressed hard on this point, stating that under no circumstances will any negotiations take place until Article 50 is invoked. As it stands, the full effect of Brexit may only come into reality in January 2019.
All eyes will now be on David Davis, UK Secretary of State for Exiting the European Union, who has been tasked with leading the “divorce” negotiations. The EU camp will most likely be led by one of their current senior commissioners. New terms will need to be agreed upon, ranging from updated trade arrangements to migration policies. However, as Angela Merkel cautioned, “there will have to be trade-offs elsewhere” if the UK seeks to retain its single market access.
How this will affect South Africa
The UK is a major trade partner for South Africa and currently consumes 4% of our total annual exports. This figure may seem small initially, but some industries will be hurt more than others, should the UK economy contract. Wine and grape exporters, for example, export on average between 10% – 21% of their total volume to the UK. A weaker Pound also reduces Britain’s purchasing power, thus lowering the demand for imports.
In addition to this, most of South Africa’s external financing comes from UK banks. These banks provide close to 70% of external bank lending to South Africa. They are also responsible for 45% of our Foreign Direct Investment.
That being said, there are also some potential upsides to the restructuring process. One of the core themes to the “leave” campaign was the ability for the UK to negotiate new trade agreements. Australia has already offered a “free trade” deal to the UK, which will come into effect once they leave the EU, and Liam Fox, the Secretary of State for International Trade, confirmed that multiple other deals were on the table.
If South Africa is able to negotiate new, beneficial trade agreements and boost local export numbers, this could assist the country in the long term. There could even be scope for an improvement in migration relations between the UK and South Africa, helping to boost UK tourism to South Africa. Currently, the UK accounts for 17% of visitors to the Republic.
For now, it’s all about negotiations
In the next five months, the UK foreign ministry will dedicate a lot of their time to set up thousands of regulations and trade agreements with the EU member states and the rest of the world.
The new UK government has also signalled the intention to strengthen ties between Scotland, Wales and Northern Ireland, promoting unity within the United Kingdom.
It appears that much of the post-Brexit future is still to be decided and negotiated. The British have always shown good governance and resilience in times of need, and that’s certainly what we will expect from them this time around.