The National Treasury is busy discussing the possible impact on the South African economy of Britain’s decision to leave the European Union (EU), known as ‘Brexit’ for short. At the moment, it is not at all clear what the UK’s future economic relationship with the EU will look like.
“South Africa – we have pretty substantial links with the UK,” pointed out National Treasury chief director: macroeconomic policy Catherine Mcleod. She was speaking at a recent joint South African Chamber of Commerce and Industry and Tutwa Consulting Group seminar on the likely effects of Brexit on South Africa. The UK is South Africa’s sixth-largest trading partner and this country’s largest single source of foreign investment, accounting for 37% of all inward investment into the country. It is also the biggest destination for South African overseas investment.
“With so much uncertainty, you must have contingency planning,” she affirmed. “We need to manage the risks . . . monitor the financial market conditions. We’re engaging with the UK.” The National Treasury has been developing short-, medium- and longer-term scenarios regarding the probable impacts of the British decision on South Africa and the world. “The [widely expected] financial market shocks . . . haven’t really materialised,” she pointed out. “Although there was initial panic when Brexit happened, since then, the markets have been easy.” This was in part due to swift precautionary actions by the Bank of England, which reassured the markets.
She listed the implications for South Africa as including the risk of high volatility in the financial markets, with continued loose monetary policies around the world, and the opportunity to potentially reposition South Africa as a high-yield investment destination. “We have to do what is important for South Africa, anyway, such as pursue a growth agenda,” she affirmed.
In terms of South African exports, the UK accounted for 4% of these, although this increased to 8% for motor vehicles and 43% for platinum. Britons made up 17% of the tourists visiting South Africa. “Tourism – we’re not expecting [Brexit] to have too much of an impact there,” she said. “At the moment, we have a deficit in the trade balance for services with the UK.” The South African market for British services was quite small. “But we are their largest trading partner [in services] in Africa.” As for the impact of Brexit on the financial sector, “no one really knows”.
At the same event, consultancy DNA Economics director Dr Matthew Stern reported that the consultancy’s research suggested that 85% of South African exports to the UK would be unaffected by Brexit. However, 15% of exports, totalling $854-million (yes, dollars), could be at risk. He listed areas potentially most affected as agriculture, wine and vehicles, because tariffs on these could go up as preferential treatment provided by the EU would no longer apply to the UK. “For some of the high-risk exports, it would be good to start thinking about adjustments now,” he urged.
“Whatever South Africa decides to do [regarding Brexit], our Sacu (Southern African Customs Union) partners must concur,” warned Tutwa Consulting MD Peter Draper. “We have to bring our Sacu partners with us.” He was concerned that, confronted with Brexit, the South African government would do nothing, which he described as the country’s “default position”. This could result in Pretoria drifting into a protectionist stance vis-a-vis Britain. If this happened, the “UK could withdraw market access” from South Africa.
“The UK is and has been a very important trading partner for South Africa,” noted Stern. “South Africa, and Sacu, need to prepare to negotiate a new trade arrangement with the UK.”
In the end, Mcleod observed, the impact of Brexit on South Africa will depend on the shape and form of the post-Brexit relationship between the UK and the EU.