Weekend Argus (Saturday Edition)
Britannia rules the waves of uncertainty
Zuma, Gordhan reassure investors
A DAY of turmoil on international markets after the United Kingdom’s shock decision to leave the EU has signalled alarm over the political uncertainty and ramifications of the outcome, particularly fears that it could trigger a wave of nationalist movements with the potential to unravel the European project.
Economists saw this uncertainty as the biggest threat to the already sluggish global economy, with potentially serious implications for South Africa, which is struggling to emerge from a sustained period of low growth and rising unemployment.
President Jacob Zuma and Finance Minister Pravin Gordhan both sought to reassure citizens and investors that the country was resilient enough to withstand any shocks.
“Our banks and financial institutions are well- positioned to withstand financial shocks to the system as demonstrated in previous episodes, including the 2008/09 global financial crisis,” Zuma said.
Gordhan said the Treasury and Reserve Bank had met early yesterday morning to assess the implications and would continue to monitor the situation. “The monitoring of these processes and events will continue into next week, but this is a time when the efforts that government, business and labour have been putting into avoiding a downgrade must now continue into ensuring that we collectively stabilise our economy, reassure the financial markets and inspire confidence, both among South Africans and those interested in investing in South Africa, that we are indeed a country where there is a set of resilient institutions, on the one hand, and that we are as a country open for business, as we all say,” Gordhan said.
The UK now faces the prospect of a second Scottish referendum on independence, which First Minister Nicola Sturgeon described as highly likely, while far right- right politicians in Europe such as France’s Marine le Pen and Geert Wilders of the Netherlands pounced on the UK result to call for referendums on leaving the EU in their own countries.
In a day of high political drama in the UK as the implications of the outcome became clear, British Prime Minister David Cameron announced his intention to resign within three months after failing to galvanise the remain campaign, while Labour leader Jeremy Corbyn faced a vote of no-confidence from his party, adding to the sense of uncertainty pervad- ing the country.
The pound suffered its biggest decline since the global financial crisis and the rand also lost ground against the dollar, before both recovered somewhat.
George Glynos, chief economist at ECM Analytics, said he expected the markets to settle after the initial knee-jerk reaction.
And while the rand was lower against the dollar, it had gained against the pound, Glynos said.
The outcome would be negative for growth because of the uncertainty, which would cause UK and EU businesses to delay or abandon investment plans and, because they were significant trading partners for South Africa, this would reduce final demand for its exports.
Britain was South Africa’s eighth-largest trading partner last year, according to figures released by the Department of Trade and Industry, accounting for R41 bn in exports and R35 bn in imports.
There would now be a twoyear period for Britain to negotiate the terms of its exit from the EU, which also gave South Africa and the Southern African Customs Union at least that long to negotiate an agreement with the UK, the department said, adding it would explore all options.
But Marelise van der Westhuizen, head of risk advisory, Norton Rose Fulbright South Africa Inc, said there was a risk South Africa would end up near the back of the queue as Britain scrambled to renegotiate trade agreements with all its significant trading partners. Meanwhile, South African firms doing business in the UK and the EU should brace themselves for a period of flux, in which there might often be at least two regulatory regimes in place as the old regime was phased out and a new regime phased in. “It’s certainly going to have an impact on real estate, the environmental regulations applicable to the UK, the employment aspect, the funding, operational and trade regulations, anti- trust and competition regulations, which is key, because at the moment a merger approval is a one-stop shop,” Van der Westhuizen said.
“All that’s going to change, data privacy laws – is the UK considered to be a safe third country by the EU – all those things are pertinent.
“It’s going to be a regulatory minefield,” she said.
Wits economics lecturer Yudhvir Seetharam said if the UK’s decision to leave Europe triggered a recession in that country and the EU, the negative sentiment there could spill over into South Africa, causing a recession here as well.