by British Exit From Europe (BRexit)
“Brexit Smexit” you say over the braai. You are dismissing it as another problem faced by those foreign creatures with posh accents we sometimes see on Camps Bay beach sporting bright red holiday ‘tans’.
In truth, back here in sunny South Africa, we are already feeling the repercussion of the UK citizen’s recent world-shaking vote to exit the European Union. And with the pound hitting its lowest doldrum in 30 years, we’re certainly not experiencing this volatility alone.
Everyone is affected by Brexit
“Given the UK’s position as the fifth biggest economy globally, a decision to break away from the EU will not only affect emerging markets but the majority of economies. Already we have seen the uncertainty brought about by the vote has caused significant uncertainty, in the short term manifested most prominently in the volatility of financial markets and currency fluctuations.
This ultimately affects the prices of imports and exports,” explains Cyril Prinsloo, a researcher in the Economic Diplomacy Programme at the South African Institute of International Affairs (SAIIA), in a conversation with The Guru. However, he explains that it’s not all bad news for South Africa in the short term.
We’ve seen, for example, the rand strengthening against the pound by more than 5 percent since the outcome of the referendum (a vote in which all voting citizens can take part) was announced. This would benefit importers that can import goods from the UK at lower prices, where cost savings can ultimately be passed on to consumers bearing in mind that we import countless essentials and luxuries from the UK.
Some of our key imports from the UK include petroleum, cars, alcoholic beverages and medicines, so the exchange rates are likely to affect these products, at least positively for local consumers in the short term, according to Prinsloo.
Trouble brewing
While it is important to keep in mind that the referendum outcome does not bind the UK government to make the same decision, if the UK decides to honour the vote and break away from the EU, by invoking Article 50 of the Lisbon Treaty sometime in the near future, the UK would have to negotiate its exit from the EU.
This would include trade agreements the EU is party to according to Prinsloo. Specifically with South Africa these include the Trade Development and Cooperation Agreement, as well as the recently signed Economic Partnership Agreement (EPA).
If the UK were to break away, the UK would likely not be party to such agreements, and would have to re-negotiate preferential tariffs with its partners. This process could take a significant amount of time (e.g. the EPA took more than a decade to negotiate), which could see prices for imports and exports rise, which in turn would have a negative impact on consumers who would have to bear the brunt of the higher prices on imported goods.
Such consequences would place additional strains on South Africa’s economy at a time when we can least afford it. Therefore, our vulnerability to such external risks should make us even more aware of the importance of creating predictability…and sticking to our belt-tightening according to SAIIA.
Stay the course but allow for flexibility
In addition, in these times of market turmoil, investors need to remind themselves of the importance of staying the course of their long-term investments according to Sanlam, where some flexible investments may additionally offer the opportunity to capitalise on opportunities briefly created by shock events such as a final Brexit decision.
Save costs where you can
Additionally, when our finances are already stretched to breaking point by high electricity, fuel costs and a stagnant economy that results in annual increases for essentials soaring miles above our salary increases, a final decision by the UK government to exit the EU (Brexit), could mean trouble.
The Association of Savings and Investments of South Africa (ASISA) affirms that during tough times where there is volatility in financial markets and outcomes are uncertain, such as any decision related to Brexit, it is essential to reduce costs and put money away for an uncertain future.
This invariably means reducing debt and reaping the benefits of a competitive financial marketplace by comparing costs and benefits, and ultimately choosing the best products available to you.
Read the initial SAIIA report here
