The former Speaker of the British Parliament John Bercow, who resigned at the end of October, called Brexit Britain’s biggest mistake since World War II. That may ultimately prove true in terms of the repercussions for the British economy, but how it affects us in South Africa is not necessarily negative.
There was a sigh of relief after Minister for Trade and Industry Ebrahim Patel confirmed the new agreement between South Africa and the UK, which will roll over and replicate the terms of trade present in the existing European Partnership Agreement. That means that South Africa’s trade with the UK should not necessarily be affected by Brexit, as our terms of trade have already been agreed on.
The UK is currently the biggest foreign investor in South Africa, with one third of foreign investment into our country coming from the UK. This has created 175,000 jobs, and brought 400,000 British tourists to our shores. British High Commissioner to South Africa Nigel Casey is confident that Brexit will not affect the strong demand in the UK for South African products. He contends that there is enormous demand in UK supermarkets for South African fruit, vegetables, avocados, nuts, and juices. Casey also highlights the fact that one in five Ford Rangers being sold in the UK are made in South Africa.
There could also be significant advantages for South Africa in a new Economic Partnership Agreement between the EU and the Southern African Customs Union (SACU). An example is that when Eswatini currently cans peaches for export to the EU, it sources the peaches from Greece because South African peaches do not enjoy the same full duty-free, quota-free access to the EU markets as do fruits from other Southern African countries. Under the new trade deal with the UK, Eswatini should be allowed to source those peaches from South Africa.
Britain is intent on using its trade policy to drive development in Africa, and aims to become the biggest investor of the G7 on the continent in 2020, overtaking the US. It will present its roadmap in this regard at the Africa Investment Summit in London early next year, to which President Cyril Ramaphosa has been invited. Casey does not view China as competition on the continent, preferring to say that there is room enough for many players on the continent, and that the UK will be working with China to promote infrastructure development in Africa.
What is particularly interesting is the UK’s commitment to increasing its diplomatic presence in Africa. The UK Africa Department of the Foreign Commonwealth Office created an additional 400 new jobs this year, and five new embassies have been opened on the continent, including in Mali and Chad due to the strategic importance of the Sahel. The UK has also opened embassies in Lesotho in May and in Eswatini in September, marking the first time since 2005 that the UK has had a permanent presence in these neighbouring countries.
The UK has a number of areas in which it would like to work with South Africa on progressive policy initiatives, one such area is renewable energy such as solar and wind power. The UK shares South Africa’s concern that climate change is affecting us which is wreaking havoc in the Southern African region, causing droughts, flooding, and cyclones. Casey argues that the cost of solar and wind power will be lower than other forms of energy. The UK has plans to build a new factory focusing on solar generation, as financing for wind and solar power increases.
The UK has emphasized Rio Tinto’s US$400 million expansion of the mineral sands operation in Richard’s Bay as a good example of its ongoing commitment to expand investment in South Africa. Casey has, however, also identified various investment challenges that UK investors find problematic in South Africa, such as low levels of economic growth, policy uncertainty, the difficulty of skilled business people getting visas, the amount of time it takes to register a business, inadequate number of local flights within South Africa, as well as to and from the country, mobile broadband spectrum allocation, and the lack of physical security. Other Ambassadors have also highlighted these as particular areas of concern.
But there is cause for optimism as President Ramaphosa is determined to get South Africa back into the top 50 of the World Bank’s Ease of Doing Business Index. Ramaphosa would like to see the amount of time for registering a business reduced to 24 hours. At the Investment Conference in October, the President announced that the government will move ahead with the allocation of licences for broadband, and this will hopefully expand the amount of spectrum available, and bring down the price. The fact that ICASA is looking at 5G is also an encouraging sign to investors, signalling forward progress.
From a holistic perspective, the opportunities for growth in trade and investment from the UK into South Africa look promising, given demand in the UK and the agreed trade policy parameters. The fly in the ointment, however, could be the future strength of the British economy post Brexit, which could affect purchasing power, and thus demand for our products.
Moody’s rating agency has issued warnings that Brexit has triggered an “erosion of institutional strength” that threatens the UK’s financial credibility. As a result, Moody’s could be about to downgrade the UK’s credit rating on government debt. Britain currently has 1.8 trillion pounds in public debt, more than 80% of its annual economic output, and its debt is likely to rise. Both the Conservative and Labour parties promise big spending, and have no debt reducing fiscal policies. Moody’s assessment is that whatever the outcome of the upcoming December election, it sees widespread political pressures for higher expenditures with no clear plan to increase revenues to finance spending. It is also evident that the fissures in British society, and the political tensions surrounding Brexit will be long lasting, leaving Britain a significantly divided nation.
The leadership of the Conservative party are putting a lot of stock in a strong future trade deal with the Americans, but they may also be overestimating the economic advantages for the UK. US trade officials will drive a hard deal, largely in the interests of the US, and will attempt to pry open British markets to US goods. It should also be considered that any trade deal will have to be ratified by the House of Representatives, which is controlled by the Democrats. The UK may also face a number of challenges in reaching a trade deal with the EU bloc, now that the institutions of the UK have been weakened.
It would seem that a post-Brexit government will have its work cut out for it, and may ultimately have a tough time convincing Britons that there are real economic upsides of Brexit. Nonetheless, South Africa has every reason to look forward to a robust trading relationship with the UK, as the political will exists on both sides to make that a reality.
Shannon Ebrahim is the Foreign Editor for the Independent Media Group.