African countries face waiting game as UK votes for Brexit

The Tanzanian government was one of the first to react, withdrawing its support for an East African Community (EAC) trade pact, which was on the brink of agreement with the EU. It cited uncertainty as the reason for pulling back. In the past few days, Burundi, Kenya, Uganda and Rwanda said they would go ahead and sign the Economic Partnership Agreement to allow the export of agricultural products to Europe without attracting tax. But Azia Mlima, Tanzania’s permanent secretary in the Ministry of Foreign Affairs, said it would not sign because of expected turmoil in the EU and signing would expose young EAC countries to “harsh economic conditions given the prevailing conditions in Europe”.hideRisk managers elsewhere have been left watching and waiting to see whether the Brexit vote will further impact African government ties and potential investment. Speaking at a roundtable in London, organised by Commercial Risk Africa with the support of Axco, a group of risk managers agreed that companies were having to reconfigure their plans. However, the fear was that companies might miss opportunities while they waited to see the political fallout. Some companies said they have already lost contracts as African countries fear the UK will go into economic decline. Brexit is expected to change relationships with a number of African countries. As one Nigerian said: “Historically, Nigeria has closer ties to the UK than to continental Europe and that might play out in this situation.” There is a danger that other European countries might take the opportunity to forge ahead with projects, leaving the UK behind and the risk managers called on companies “to be brave enough not to shut up shop” while the politics play out. Julia Graham, technical director at the UK’s risk association Airmic and immediate past president of the European federation Ferma, admitted: “There will be a tendency for people not to make that investment, or policy, or even take that holiday. I think for emerging markets this is serious stuff because it stops continuity. “These are troubling times and it will have a ripple effect across the world.” She added: “What it illustrates is how important it is to keep an eye on events and your finger on the pulse, as risk managers.” However, Ms Graham said risk managers need to be careful. “You can’t keep an eye on everything,” she warned. “You need to make it relevant to your sector or your operational zone so that you can keep control of it. Track it, track it and then react but don’t try to track the world.” Rachel Speight, a partner in the finance group at Mayer Brown, added: “There has been much discussion about what Brexit will mean and the short answer is – we just don’t know. Until the UK determines what shape Brexit will take, it is difficult to be definitive about how this will play out in the UK, Europe, Africa or indeed the global marketplace.” However, she believes that in the short term: “It is clear that the uncertainty created by the UK’s decision to leave the European Union has had global ramifications, with the South African rand and the Egyptian stock markets feeling the immediate effects.” With a warning for risk managers, she said: “Typically, an increase in uncertainty leads to more risk and disputes can multiply as parties try to terminate or renegotiate existing agreements. More than usual parties should focus on structuring relationships to protect against the risk of disputes. “If the UK does tip into a recession, this will trigger a reduction in trade with the continent – the largest impact being felt in countries like South Africa, Kenya and Nigeria. But China has been a more significant trading partner in recent years (along with markets like India and Turkey) and it’s difficult to see how Brexit will impact these relationships.” Ms Speight agreed with the London group of risk managers, saying the general uncertainty has also led to a pause in investment decisions. But she said: “It is unlikely that this pause will last and Africa may itself benefit from investors who move away from the traditionally ‘safe’ UK and European markets. Those experienced in the risks associated with investing in Africa may feel that they have little to fear from Brexit.” In the medium to long term, she said, the trade relationships and agreements between the UK and African countries will all have to be renegotiated. “[The] UK free from the EU may be keen to improve its trade relationships with Africa, particularly its Commonwealth partners, and without the burden of the EU these trading relationships could flourish.” Business intelligence company EXX Africa looked in depth at Africa’s largest economy, as Nigeria is the UK’s second-largest export market in Africa. It said bilateral trade between the two countries is currently worth $8.3bn and is projected to reach $25bn by 2020. The UK is also Nigeria’s largest source of foreign investment, with assets worth more than $1.4bn. UK-Nigerian remittances account for $21bn a year.

African countries face waiting game as UK votes for Brexit

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