https://www.engineeringnews.co.za

Brexit deals 'resilient' South Africa a new complication

LISTEN: Finance Minister Pravin Gordhan assures South Africans of the country's resilience and that it has strong ties with the UK and the EU.

24th June 2016

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

  

Font size: - +

As the UK’s decision to withdraw from the European Union (EU) this week sent ripples of uncertainty and volatility across an already unsteady global economy, South Africa’s Finance Minister Pravin Gordhan has moved to assure the public of the country’s strong trade ties and resilience.

However, proponents have warned that the unprecedented move by the UK to exit the economic bloc after more than 40 years has just become a further “complicating factor” in South Africa’s already bleak economic outlook.

South Africa would need to urgently re-evaluate key trade relationships with the UK and the EU over the next year to “redefine the future in changed circumstances”. 'Brexit', as the exit was publicly dubbed, had in effect resulted in great uncertainty and turmoil for many economies across the world.

“The momentous decision in the UK referendum yesterday to withdraw from EU membership not only creates substantial uncertainty for business and policy makers in the world economy, but could also have serious unintended consequences which will need to be managed,” North-West University School of Business and Governance professor and economist Raymond Parsons said on Friday.

The move, which 52% had been in favour of, had sent the rand plunging to unexpectedly low levels, along with the pound, which hit a 30-year low, and several other currencies worldwide, and had led to the resignation of UK Prime Minister David Cameron, who would be replaced by October.

Government, labour and business in South Africa would need to add the possible implications of Brexit to the national policy agenda as it “recalibrated” the country’s trading relations and explored new options in the light of Brexit, said Parsons.

“South Africa will need to devise contingency plans to offset or replace any negative effects that may emerge regarding its competitive position in the UK and EU markets,” he added.

However, in a soundbite released by the National Treasury on Friday, Gordhan assured of South Africa’s resilience and strong trade ties, pointing out that the trade links between South Africa, the EU and the UK were fairly strong and were based on “solid” agreements.

“[Further] we have a two-year period during which whatever changes need to be made to agreements and treaties can in fact be made,” he said of the current agreements in place with these significant trading partners.

The National Treasury and the South Africa Reserve Bank met early on Friday and were monitoring the developments and the implications for South Africa.

“The South African public can be reassured that our banking and financial institutions are well positioned to withstand financial shocks,” Gordhan noted.

“South Africa will, nonetheless, need to plan for whatever adjustments in trade relationships may inevitably flow from Brexit,” Parsons commented.

Nedbank’s Economic Unit noted that the global impacts would differ across economies and would depend on the “maturity and willingness” of politicians in the UK and Europe to negotiate new terms on trade arrangements.

“Over the next two years, new trade and other deals will have to be negotiated with the EU, as well as other partner countries, and the UK will have to consider and potentially change a host of EU‐inspired domestic legislation.”

“If these negotiations are successful in keeping trade barriers down and carried out in a cooperative spirit the economic damage to all may be minimised. However, there is a chance that EU negotiators will want to use the UK as an example to dissuade other countries from leaving the bloc, which could hurt both areas and the global economy badly over time, leading to more protectionism and increased uncertainty,” Nedbank warned.

Further complications would be likely calls for a new referendum in Scotland to leave the UK, as well as calls in several other EU countries to follow the UK’s example, Nedbank noted.

“While immediate risks stem from global financial market fallout – currency and equities in particular – the longer-term implications of broader EU dissolution are the primary concern. Separatists, nationalists and right leaning politicians will have been emboldened by the Brexit vote and there is already speculation that more countries may hold similar referendums,” First National Bank noted in its Economic Weekly brief.

AfriBusiness commented that countries like France and others were watching the UK’s exit closely to determine whether or not they should follow suit and also leave the EU.

RATINGS IMPACT
Meanwhile, S&P Global Ratings said it would be reviewing the ratings potentially affected by the referendum result; however, the Brexit outcome was not expected to immediately impact UK insurers, domestic commercial banks or structured finance products.

The credit implications for UK corporates were expected to vary “considerably by company and industry”, with many of the decisive parameters unlikely to be determined until withdrawal terms were settled, a process that could take several years.

Despite the lengthy, drawn-out process post the leave vote, certain ratings could be affected sooner, including the sovereign rating on the UK and the ratings on entities directly linked to the UK sovereign rating.

The ratings agency warned that it could lower the sovereign rating by more than one notch if it believed that the UK's institutional strength and ability to formulate policy conducive to sustainable growth were negatively affected by the decision to leave the EU.

“A vote to leave would . . . deter investment in the economy, decrease official demand for sterling reserves and put the UK's financial services sector at a competitive disadvantage compared with other global financial centres . . . It could affect growth performance, external funding and the public balance sheet,” S&P explained.

ORGANISATIONS WEIGH IN
AfriBusiness said the decision of the UK to leave the EU was a “volatile situation” that needed a careful approach.

“There is no doubt that we will see a lot of ups and downs in the financial markets as events unfold. The current situation is very volatile and must be approached with caution and without causing unnecessary panic in business and financial markets, as is already the case,” commented AfriBusiness law and policy analyst Armand Greyling.

Business Unity South Africa (Busa), which had supported a ‘remain’ position in the vote, expressed concern over the immediate impact on the rand and local markets and said it would monitor future developments, “standing ready” to engage with government with a view to “positioning South Africa appropriately”.

The long-term implications of Brexit on the local economy were yet to be fully understood, Busa said, pointing to the importance of trade with the EU.

Edited by Creamer Media Reporter

Comments

Latest News

An image of Maltento CEO Dean Smorenburg, Cape Town mayor Geordin Hill-Lewis and Cape Town premier Alan Winde
Maltento aiming to bolster sustainability efforts
18th March 2024 By: Tasneem Bulbulia
Rand South African flag
Rand slips ahead of CPI, central bank meetings
18th March 2024 By: Reuters

Showroom

Showroom image
Alcohol Breathalysers

Supplier & Distributor of the Widest Range of Accurate & Easy-to-Use Alcohol Breathalysers

VISIT SHOWROOM 
Environmental Assurance (Pty) Ltd.
Environmental Assurance (Pty) Ltd.

ENVASS is a customer and solutions-driven environmental consultancy with established divisions, serviced by highly qualified and experienced...

VISIT SHOWROOM 

Latest Multimedia

sponsored by

Photo of Martin Creamer
On-The-Air (15/03/2024)
15th March 2024 By: Martin Creamer
Magazine round up | 15 March 2024
Magazine round up | 15 March 2024
15th March 2024

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION







sq:0.244 0.298s - 156pq - 5rq
Subscribe Now