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What the Brexit vote means for South Africa

By June 27, 2016July 25th, 2020Newsletter

What the Brexit vote means for South Africa

June 27, 2016

With the UK voting for a British exit out of the European Union, many South Africans are wondering how this move will affect them.

We take a look at some of the possible scenarios following the UK’s referendum and how it could affect the UK, Global and South African economy.  Following the results, British Prime Minister, David Cameron announced his resignation in an emotional address to the press.

The referendum, of course, is not legally binding, and although it will be a two-year process once the official withdrawal is announced, widespread insecurity over the several countries’ future is to be expected.

What are the possible implications of Brexit?

Northern Ireland could call for a united Ireland

Ireland was one of the big-four to vote against Brexit, and the shock of a pro-Brexit vote has already sparked outrage in this area of the UK. It’s understandable how Brexit could shake Ireland – the political atmosphere of the divided country is still feeling tremors of war and unrest. It is therefore no surprise that deputy First Minister Northern Ireland, Martin McGuinness, has called for a border poll on a united Ireland. Whether a referendum like this would ever occur is another question, but it could deal a fatal blow to the UK’s stability.

Scotland could opt for another referendum to exit the UK and rejoin the EU

A mere two years ago the Scottish citizens voted to remain part of the UK against their own independence. Polls showed, however, that the majority of Scottish citizens voted against Brexit. This development has already sparked rumours that Scotland would opt for another referendum, exit the UK and rejoin the European Union.

Spain could fight for Gibraltar

96% of Gibraltar’s population voted against Brexit. This result wasn’t surprising given that many of Gibraltar’s employees and residents commute across borders from Spain. On Friday, Spain’s acting foreign minister, Jose Manuel Garcia-Margallo had already announced Spain’s intended co-sovereignty on Gibraltar. Such a move had already been rejected by a majority of Gibraltarians in the past, but the residents’ pro-EU vote might mean a new referendum is on the cards. Either that, or Brexit may just reignite the 300-year-old fight between Spain and Britain.

Other EU countries could vote for their own ‘Brexit’

In a YouGov poll preceding the Brexit referendum, six out of seven countries believed that Brexit would spark more exits from the European Union. With the UK shaking the current EU bonds as well as the economic repercussions of losing their second biggest economy’s exit, other countries may also weigh up the pros and cons of an EU exit. This seems to be weighing heavily on the Italian and French citizens’ minds, where polls show an inclination towards EU membership referendum of their own.

Displacement of migrants and devaluation of British passport

This seems to be an inevitable side-effect for UK citizens, but one economists seem to be less concerned about – Brexit will affect the way people travel across British borders. One of the benefits of the EU is free movement across borders – whether to work or travel. Following Brexit, it’s highly unlikely the EU will allow the UK to retain these benefits without their economic backing.  This is a worrying turn of events, given that there are approximately 3-million non-British EU citizens within the UK, and 2 million Britons living in other parts of Europe. The displacement of 5 million people would cause utter chaos. Although it’s unlikely that all these citizens will need to relocate back to their original homes – they will undoubtedly be affected by new passport policies.

Brexit could weaken the EU economy

European Commission President, Jean-Claude Juncker, may have already closed the negotiation table to UK (announcing that the referendum announcement would permanently close the UK’s re-entry), but the fact remains – the EU will definitely suffer following the UK’s exit. As the second largest economy in the EU after Germany, the exit will shake the very stability of the EU itself. Of course, the Pound had slipped significantly after Brexit polls had been revealed (falling in behind France)

UK’s credit rating could drop

Moody’s announced in February that a credit rating downgrade was on the cards, should UK vote for Brexit and they are not alone. S&P announced last week that Britain is likely to lose its AAA credit rating as Brexit dumps the country into political, economic and financial uncertainty.

South African Rand will struggle

No matter which way you look at it, the Rand will continue rallying amidst market and global economic uncertainty. Although analysts believe Brexit itself will not affect South Africa that greatly, the overwhelming sentiment is to look at Brexit in the context of a decidedly tumultuous year within South African borders.

Brexit may not have a direct impact on our economy, but as South Africa struggles to regain our footing following several economic upsets – including a near-fatal brush with junk status – it’s important to consider how the international markets affect our position. As the Pound reached its 30-year low following the Brexit announcement, the Rand echoed the Sterling’s trajectory, weakening by 8% on Friday.

Whether the Pound restores its footing (which is possible given its pre-Brexit dominance) or the country falls into recession – there’s every likelihood that investors will become even more conservative with their funds. This in itself will affect the Rand, as it’s highly unlikely that the shadow looming over Europe will – in contrast alone – prompt foreign investors to reinvest in our country. If anything, it’s more likely they will seek out low-risk opportunities within their own borders, or in countries with long-term economic stability.

One exception which could hold a small silver lining for South Africa, could be investors’ tendency to invest in the ’traditional safe harbours’ – gold and the Japanese yen. Given the state of South Africa’s mining industry, we could gain some footing should investors continue this trend, but only time will tell.

Unfortunately, as trade remains one of the most crucial economic ties between the UK and South Africa (South Africa being Africa’s largest trading partner with the UK), this Brexit vote will inevitably affect our dealings with the UK as well as our trade agreements with the EU. In addition, the UK is our largest import and export market.

What should you do?

So what should you do? Well, unfortunately there is no one-size-fits-all solution in this context. We can merely urge you to seek out the help of a specialist. How you manage your international financial portfolio will depend on the scope of your individual portfolio as well as your location. Our advice to South Africans living in the UK would not, for instance, be the same as our advice to South Africans living in Australia. Whatever your location, however, it would be advisable to consider your options as soon as possible. It’s easy – simply leave your details for a free consultation.

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