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Brexit better opportunity for African countries?

By Admin

Added 15th April 2019 02:37 PM

Until the late-1990s, Britain accounted for nearly 7 per cent of Africa’s imports.

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Until the late-1990s, Britain accounted for nearly 7 per cent of Africa’s imports.

By Dr James Kanyije 

Events in the past couple of weeks’ point in a clear direction of a Britain that eventually ceases to be a member of the European Union (EU).

Much disagreement, horse trading, voting, resignations and criticisms have trailed the idea of whether or not Britain should still go ahead and exit the EU.

But, while the Eurosceptics, Europhiles, Brexiteers, ‘Backstopers’ and other politicians of various hues and colours are fighting it out at the British parliament in London, the Brussels establishment has been waiting to hear the last word from the British Prime Minister, Theresa May on the prospects of either leaving the EU or remaining in it.

And, whichever scenario plays out, it has far-reaching implications for the UK and many countries far and near.

For Africa, restricting our consideration to business relations with the UK, the continent could just be recognising the enormous opportunities existing between the continent and the UK. It is important to seek to know whether the UK can trade with Africa to fill a gap that would be left by Brexit.

The answer may not be far-fetched, however, as a recent event would seem to show. The Prime Minister Theresa May, it could be argued, may have been preparing the ground for post-Brexit eventualities.

As at August 2018, Theresa May attempted to reverse Britain’s declining share of Africa trade in a three-day tour of sub-Saharan Africa on a mission to strengthen Britain’s post-Brexit trade and investment with a continent that hosts some of the fastest growing economies in the world.

Hitherto, Britain’s trade links with Africa has been reckoned as weak, with the entire African continent accounting now for just three per cent of all UK goods and services exports. Until the late-1990s, Britain accounted for nearly 7 per cent of Africa’s imports.

The reduction is due to the lack of competitive exports from Africa and the rise of other competitive economies. Europe, by contrast, takes 54 per cent of UK trade.  During PM May’s visit, she made a speech in South Africa in which she expressed optimism that Britain would be the G7’s number one investor in Africa by 2022.

In the event of Brexit, Africa is expected to be able to position itself well enough to trade with the UK. One of the areas to consider includes the UK- African Economic Partnership Agreement (EPA) that would no longer apply.

African governments may need to redefine their trade and diplomatic relations with a post-Brexit Britain and Europe. Most of the trade arrangements the UK has with African countries were negotiated through the EU.

It means the agreements will cease to apply or will have to be renegotiated when the UK finally leaves the EU. There is a caveat, however, that while Britain would need to make an effort at striking new trade deals, the priority might be given to large trading partners such as the United States or Australia.

Besides, the emphasis would be more on opening markets in Africa for Britain, rather than the other way around. South Africa, the UK’s largest African trading partner, will bear the brunt of Brexit.

The UK-Africa trading relationship is estimated as worth more than £27bn and the UK is the second-largest investor in Africa, with over £21bn of investment.

British foreign direct investments (FDIs) in Africa, which, according to British government statistics, doubled between 2005 and 2014, from £20.8 billion ($27.6 billion) to £42.5 billion ($56.5 billion), were meant to be further enhanced by Brexit.

London envisaged increasing Africa’s long-term prosperity by combined trade-enhancing programmes such as ‘aid for trade’, financial instruments, and the promotion of FDI in Africa.

Most African exports to Britain are primary commodities that are already duty-free and quota-free. Mining industry and financial services have been the main industrial sectors receiving British FDI, accounting for 54.4 per cent and 34.3 per cent of total UK FDI into Africa in 2014, respectively.

Africa’s goods import in 2017 were reported thus: Italy 4.5 per cent, Spain (half the size of the UK’s economy) 4 per cent and the UK about 2.5%.

If South Africa and Nigeria are the two African countries receiving the largest value of UK exports of goods and services, then the value of trade must be very small.

Imports from Africa form just two per cent of total UK imports, partially as a consequence of falling commodity prices (and Africa’s export is dominated by commodities). Fuel, precious stones and fresh fruit dominate the trade, according to the International Trade Centre.

A strong competition that Britain has to contend with in Africa is China, which has increased its influence across the continent in recent decades. Chinese goods exports to Africa are eight times larger than those of the UK having a combined value of just £7.3bn a year that is only about one-sixth of the £39bn worth of goods UK exports to the Netherlands annually.

According to fDi Markets, a company tracking greenfield investments, the UK is the continent’s fourth largest investor after the US, the UAE and China. Many economies (such as Angola, Nigeria, South Africa, and Zambia) were already reeling from low commodity prices exacerbated by sluggish global demand. These mean less job creation and yet higher unemployment.

After South Africa, Nigeria is Britain’s second-largest African market, with Kenya coming a distant third. Before Brexit, bilateral trade between Nigeria, Africa’s largest economy, and Britain was worth about £6 billion ($7.9 billion) and had been projected to reach £20 billion ($26.6 billion) by 2020.

We wait to see how reliable that projection is after Brexit. Nigeria is grappling with falling oil prices, its main income source. Crude chemicals and allied materials make up almost a quarter of Nigeria’s trade with Britain.

A potential drop in oil demand coupled with low oil prices could dim the Nigerian economy’s prospects for recovery. The International Monetary Fund announced in July that Brexit will likely plunge the Nigerian economy into a recession this year, shrinking by 1.8 per cent from the earlier 2.3 per cent growth projection.

Post-Brexit Africa-UK trade relations will still depend on much conjecture until the full pictures begin to emerge. Britain is expected to be able to focus more on our bilateral relationships with Africa and with “traditional partners” and to really look at Africa for its needs rather than looking at it through the prism of the EU, according to James Duddridge, a former British minister for Africa.

The World Bank confirms that China became sub-Saharan Africa’s “most important export partner” by 2013, accounting for 27 per cent of the region’s exports “compared with 23 per cent for the EU and 21 per cent for the US,” sub-Saharan Africa’s exports to India, at 9 per cent, are the fastest-growing globally.

With China, the US, Brazil, India and others strengthening their relations with Africa, the continent could look elsewhere for assistance if its ties with Britain or the EU get complicated in a post-Brexit era.

British government’s vision of a ‘Global Britain’ relies heavily on its reinforced cooperation with Commonwealth nations, to which 19 out of 54 African states belong, including the most populous and powerful states, Nigeria, South Africa, as well as Kenya, Egypt and Ghana.

However, up to now, commerce with Commonwealth nations represents just 9 per cent of UK foreign trade. Will London increase this share substantially by liberalising the markets in reducing tariffs and non-tariff barriers to trade? It remains unclear what the UK could offer Africa, which competing global players with increasing interest in African resources and markets, such as China, India, the US and the EU, are not already offering.

For most African Commonwealth countries, Britain has been by far the biggest market for their exports. London currently claims that it will protect nascent African industries with its post-Brexit trade policy, which is supposed to stand in stark contrast to the EU’s Economic Partnership Agreements (EPAs).

However, in the case of a hard or ‘no-deal’ Brexit, African countries will no longer have preferential access to the UK if London does not succeed in negotiating new bilateral agreements with African governments in advance.

With the limited time left before Brussels shut its door on Brexit crisis, this appears unlikely.

The exclusion from preferential access to the UK holds not just for signatories of the EPAs, but also for participants in the EU free trade agreements and the EU general system of preferences, including the duty-free quota-free market access under the Everything-But-Arms initiative.

Major adverse consequences are likely to await countries such as South Africa, Nigeria, Egypt, Kenya, and Mauritius, as the UK accounts for approximately 25 to 30 per cent of their exports to the EU. Kenya’s lucrative cut flower industry, for which Britain is the second-largest export market after the Netherlands, could suffer.

A trade deal on flower exports between the East African country and the EU was in the works before Brexit. Kenya will now have to negotiate separate deals with Britain and the EU—a potentially difficult task.

Without such deals, Kenya may lose up to 4 billion Kenyan shillings ($39 million) a month, the Kenya Flowers Association has predicted.

Brexit is of profound interest to the countries of Africa because the UK has a history of great and mutually beneficial relationships with the continent. On the contrary, Brexit could result in a decrease in UK aid for Africa.

The British government’s commitment to spend 0.7 per cent of gross national income on aid was enshrined in law in 2015).

Some scholars have suggested that the UK could, rather than seeking to renegotiate the EPAs or equivalent agreements with African countries, instead consider a continental approach for a comprehensive single trade agreement with all 54 African countries.

This would be in line with Africa’s long-term plans for continental regional integration, and it would address criticisms that the EU’s patchwork of trade arrangements with the developing world has restricted the development of intra-regional trade between these countries.

London could use the chance to co-operate with the newly created African Continental Free Trade Area, approved by 44 African governments in Kigali in March 2018. African governments envisage using their negotiating advantage as in-demand partners to press for more protection of their domestic markets and infant industries.

The UK needs to prepare itself for a future UK-Africa trade agreement.

As the UK’s economy feels the effect of Brexit, the demand for commodities and other natural resources such as copper, iron ore and crude oil may fall, further slowing growth in African countries, while major economies such as Angola, South Africa and Nigeria, which depend on the export of these natural resources to boost their economies, are already suffering from the impact of falling oil and commodity prices.

South Africa is the continent’s largest recipient of foreign direct investment (FDI) from the UK. South Africa’s trade with the UK falls under the economic partnership agreement (EPA) between the Southern African Customs Union and the EU. When the UK eventually leaves the EU, it will have to negotiate its own separate trade agreements with South Africa and other countries.

It’s rational to assume that Brexit may also negatively impact Africa’s continued access to the European single market. This is because the UK has been a traditional conduit for many of Africa’s exports to Europe.

The Kenya flower industry is illustrative. More than 30 per cent of flowers sold in the EU come from Kenya. The UK is one of the top two buyers, second only to the Netherlands.

Kenya’s current trade deal with the EU will have to be reviewed in light of the UK’s exit from the bloc and the east African country will be forced to negotiate new deals with the UK as a consequence.

The tea industry in Kenya, one of the largest producers of tea in the world, is also taking a hit.

The UK imports more than 50 per cent of its tea from Kenya, a proportion of it for re-export to European countries. According to the Tea Directorate, the volume bought by the UK in the year to March 2017 fell from 5.4 million tonnes to 3.1 million – a fall attributed to the prospect of Brexit.

Nigeria’s patchwork of fresh produce growers and exporters body that is trying to access the EU may have to rethink strategy as the UK may no longer be their easy entry route to the EU after Brexit.

This has many implications for the prospects of fresh produce export to the EU. Regional economic blocks could have arrangements with the UK, as in the Southern Africa Economic Partnership Agreement.

The UK is increasingly reliant on external resources, especially food. It has been reported that more than half of the UK’s food and feed now comes from overseas, with South America, the EU and south-east Asia as prominent among the places.

Despite all other disputations, imports from developing countries facilitate economic development through international trade. Examples are ‘non-indigenous’ items such as exotic fruit – bananas and mangoes, tea, coffee and spices – foods that cannot be grown (either at all or on a meaningful scale) in the UK.

A source, the Agriculture and Horticulture Development Board (AHDB), has revealed a huge deficit in fruit and vegetable production. In 2015, imports of fruits to the UK were valued at £3.1 billion; imports of fresh vegetables (excluding potatoes) at £2.1 billion.

UK’s food import figures are such that 79 per cent of the food and drink imported comes from the EU; 11 per cent  is from countries granted Most Favoured Nation status, such as the USA, China, Brazil and Australia; 9 per cent comes from bilateral agreements with countries such as Canada, Norway and Chile; and one per cent from Generalised Scheme of Preferences (lower than WTO tariffs), such as India, Ukraine and Iran.

After Brexit, the UK may change its policies on import duties; and this change could potentially introduce new dawn for African businesses.

Since so much of what happens in the UK has a direct impact on trade, investment and aid to Africa, trade ties between the UK and Africa may be weakened in the short term because the process of renegotiating trade deals is likely to be lengthy.

Other countries may also raise their game, putting Africa in a position of weakness. After it leaves the EU, the UK will cease to be a party to the EU-Africa EPA that currently governs UK-African trade.

The UK Government has stated that it will try to “roll over” the agreement, presumably for the sake of speed.

Whether that “rollover” will be to Africa’s advantage remains to be seen. For now, Africa needs to act proactively in the engagement with the post-Brexit UK so as not to lose substantial market access as well as associated revenue opportunities.   

The writer is a Ugandan scholar and expert in fruits and vegetable business 

 

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