Why SA should care about Brexit
Trade could be hit by any instability in the EU
THE raging “Brexit” debate on whether Britain should quit the European Union (EU), should be of particular interest to South Africans.
SA has strong historical and economic ties with Britain, but relations with the EU have grown tighter in the past two decades, and a strategic partnership agreement was signed in 2007.
The EU has been the source of 70% of development aid to SA, funding employment, education and initiatives to build the capacity of the state.
Crucially, the eurozone remains SA’s largest trading partner, accounting for 26% of total trade and is the largest source of foreign direct investment into SA.
The EU estimates it accounts for 77% of SA’s total foreign direct investment, with more than 2,000 EU companies operating within SA creating more than 350,000 jobs. Therefore, we should be taking the fate of the EU seriously and any instability should be of concern.
The US certainly is. During a visit to London last week, US President Barack Obama made unambiguous comments on why Britain should not leave the EU, offering a decisive moment in the campaign against Brexit. He made it clear that if Britain chose to exit the EU, it should not expect the US to welcome this, nor would it make life any easier for Britain out of the union.
Mr Obama emphasised that far from getting any special treatment, Britain would go to the “back of the queue” in negotiating trade and other economic relations with the US, which is in the midst of negotiating a far-reaching trade agreement with the EU. Britain would be less secure, less influential and less prosperous if it left the EU, he said.
Obama’s visit came a few days after the UK treasury released an economic study that calculated that leaving the EU would mean that every British household would be about £4,300 worse off in 2030 than it would have been had Britain stayed in the EU.
As the Guardian columnist Jonathan Freedland put it, Mr Obama’s comments crushed the decades-long Brexit fantasy that the US would welcome Britain into a more neutral “Anglosphere” if it left the EU, and that Britain would be better off on its own.
Mr Obama’s comments and the treasury intervention saw the pound lift to a five-month high against the dollar at the weekend. Betting in the UK swung heavily in favour of a remain vote, while the polls, which have been on the edge, shifted up with more than 50% saying they would vote to remain in the EU.
Yesterday, the Organisation for Economic Co-operation and Development likened the effects of leaving the EU to a permanent annual tax on people’s incomes.
Immediate uncertainty caused by a vote to leave would erode confidence and curb spending. By 2020, 3% of gross domestic product would be knocked off, and that would grow to 5% in the longer term.
The world is moving towards consolidation into larger trade blocs, so the campaign to get the UK out of the one it is in seems out of tune with the global trend. It is potentially
The positive response of the pound to the prospect that Britain is more likely to stay than to leave the EU is most telling
the cause of regional and global economic instability, and from the outside, it is hard to see why support for the “leave campaign” would be so fierce.
Equally, though, the arguments for staying in the EU are to many Brits quite abstract and technical.
The arguments to leave are not just xenophobic responses to migration, but also more rational questions about Britain’s sovereignty and democracy, and to what extent it wants Brussels to be calling the shots.
But the positive response of the pound to the prospect that Britain is more likely to stay than to leave is most telling.
The overwhelming evidence is that the economies of Britain and the EU would be stronger if the union is kept intact.
It can only be in SA’s interests to have a strong EU economy and a strong Britain.
The volatility in the pound and the euro in response to the twists and turns of the Brexit debate will continue, and this country must expect that to add to rand volatility in the next two months.