The Consequences of Brexit on Africa
Owing to the existing trade ties between the UK and Africa, it is crystal clear that the Brexit deal will not solely affect the UK and Britain but Africa as well (Langan, 2016). The Brexit deal brings uncertainty to the Global market, and Africa is no exception (Mold, 2018). Although the Brexit deal does not present a direct impact on the African market, once the European market has been affected, the effect shall proliferate to the African market as well since Africa is a significant trading partner of Europe. For instance, sources indicate that British is Tanzania’s leading trading and investment partner, with the UK investors ranked top of the country’s foreign investment. With this trade partnership, a decline in Europe’s GDP can result in a drastic reduction of Africa’s GDP and vice versa (Langan, 2016). The exit of the UK out of the European Union translates to a contraction of their economic activity, financial capital flows, and financial abilities. These elements are going to negatively impact Africa economically, as it hinders the flow of capital and goods from Africa to European nations.
Undoubtedly, the United Kingdom has acted as a significant investment partner for Africa over the past years. Economic analysts established that British foreign direct investment (FDI) in Africa doubled £20.8 billion UK investment in 2005, with the FDI standing at £42.5 billion by the end of 2014 (Hardie, 2016). Most of the British FDI has primarily been channeled towards financial service and telecommunication sectors, and relatively on infrastructure and development aid. In the effect that Brexit succeeds, the upward trend in British investment in Africa is more likely to decline. Africa’s financial services will the most hit by the British exiting the European Union if the proposed Brexit deal succeeds.
Over the past years, Africa has reaped big from the strengthening of the banking sector, together with the expansion of banking activities across borders, all thanks to financial technology products established in London. The UK based institutions provide Africa’s most needed financial solutions. For instance, the Standard bank, which is Africa’s largest bank, solely depends on institutions based in the UK for business solutions. The disappearance of such services will be inevitable if Brexit succeeds, thus causing collateral damage to the African economy. In East Africa, banks like the Central Bank of Kenya could be the worst hit by Brexit (Mold, 2018). However, this only happens if Brexit renders weak the role of London as a financial center. The collateral damage caused by Brexit on Africa would translate to declined investor confidence (Mold, 2018), interrupted business network, and gaps created in banking services. In the event that the UK financial-services become weak after Brexit, the African market could experience a shortage of talent. Brexit would also ruin diplomatic ties that exist between the UK and Africa. Brexit will see the UK bar students from enrolling for their studies in British Universities, and prevent African travelers from entering the UK. In other words, the long-enjoyed political, historical, and economic ties could drastically decline if Brexit goes through.
Despite the foreseen effects of Brexit on the African economy, the risk should not be overstated. Over recent years, trade has ceased to be the backbone of Africa’s growth as it was in some decades back. Only a few African countries, especially East African countries, rely heavily on the UK market for exportation of commodities such as tea and horticultural products, and banking services. However, most African countries are seeking to trade with fellow African countries. African countries are learning to make Africa an independent continent. To avert the impacts of Brexit, African leaders must focus on improving the business environment and creating new alliances with neighbors as well as collaborate in enhancing industrialization projects to develop a market for raw materials exported to the UK and markets overseas.