Brexit and world trade frictions give Africa opportunity to strut its stuff
The new African Continental Free Trade Agreement now covers the world’s largest free trade area.
Countries in Africa are preparing for the reality that a hard Brexit could lead to increased risk aversion and reduced investor appetite for trade in the region.
Akinwumi Adesina, president of the African Development Bank, said the bank might revise its economic growth projections for Africa if global trade conditions worsened. The growth projections are 4% for 2019 and 4.1% in 2020.
However, world trade frictions are also providing many opportunities for the continent, as well as a chance for Africa to showcase its new African Continental Free Trade Agreement, which now covers the world’s largest free trade area.
SA is a large recipient of British foreign direct investment in Africa. In 2018, investors from the UK completed merger and acquisition (M&A) transactions worth $5.9bn in SA.
The UK was the top acquirer country for M&As in Africa in the first half of 2019, with 30 deals completed by UK-based companies in Africa, according to analysis by Baker McKenzie of data released by Refinitiv. Nine of these 30 African deals by UK investors were in SA. South African outbound investment is also primarily focused on the UK.
The ease of doing business with the UK and SA is brought about by various factors, including, similar time zones, language, historical ties and familiarity. However, due to its close investment and financial ties to the UK, SA could be one of most exposed country in Sub-Saharan Africa in terms of the ramifications of a hard Brexit on the continent.
Volatility in financial markets and increased investor risk aversion are considered to be the main challenges brought about by a hard Brexit, not just for SA but Sub-Saharan Africa as a whole. Brexit is expected to result in losses to trade, tourism and aid across Africa.
The uncertainty associated with the continuously changing nature of Brexit has affected investment in the region. Reductions in export demand and disruption to supply chains between Africa and the UK could be challenges after Brexit. However, Brexit offers new export opportunities as partnerships and agreements are formed across the continent.
There is hope that Brexit could have a positive effect on investment between the UK and Africa, in that it has resulted in UK trade outreach initiatives to numerous historic trade partners on the continent. The UK has been working with African countries to replace existing EU trading deals with new UK trade agreements, and the co-operation between the UK and the continent has extended beyond trade to include collaboration in research, innovation and technology.
In 2018, then prime minister Theresa May announced on her visit to SA that the UK would invest an additional £4.5bn in African economies. May said the UK would carry over the EU’s economic partnership agreement (EPA) with the Southern African Customs Union, comprising Botswana, Swaziland, Lesotho, Namibia and SA, as well as Mozambique, once the EU’s deal stopped applying to the UK.
In September, SA’s minister of trade and industry, Ebrahim Patel, said that the Southern African Customs Union and Mozambique had agreed in principle to a new economic partnership agreement with the UK, and that the parliamentary processes to bring the agreement into effect were in progress.
The new agreement will allow the countries to continue to trade on the preferential terms set out in the current agreement.
In January, the UK’s department for international trade confirmed it had signed agreements with Madagascar, Mauritius, Seychelles and Zimbabwe. Engagement is still in progress between the UK and Tunisia, Morocco, Ghana, Kenya, Egypt, Côte d’Ivoire, Cameroon and Algeria.
According to the department for international trade, if the UK leaves the EU without any of these agreements in place, trade with these countries will take place under World Trade Organization rules. On balance, this is expected to result in higher import/export tariffs for all parties, and agreements that are more limited in scope than at present.
SA's President Cyril Ramaphosa has been encouraging trade relations and garnering support at the recent G-7 summit in France, not just for SA, but for Africa as whole, in terms of SA’s forthcoming role as chair of the AU for 2020. He has been vocal about the opportunities for trade across Africa that the African Continental Free Trade Agreement will bring.
As parts of the world appear to fragment or turn inward, the agreement provides a new opportunity for African nations to work together and speak with one voice. The launch of the operational phase of the agreement is considered to be a positive step, not just for the African continent, but for world trade in general.
The African Continental Free Trade Agreement is the first continentwide African trade agreement, with the potential to facilitate and harmonise trade and infrastructure development across Africa. It includes protocols, rules and procedures on trade, simplified customs procedures as well as dispute resolution mechanisms, all aimed at creating a single legal framework for the continent, and making it easier to trade and invest across borders. It covers a market of more than 1.3-billion people, with a combined GDP of more than $3.4-trillion.
So, where there are tendencies in some parts of the world to build barriers to trade, the development in Africa and the strong support for the African Continental Free Trade Agreement globally is a positive indication that collaboration counts and that there is a strong belief in free trade to the benefit of many.
Brexit may therefore provide a opportunity for African nations to work together, both to negotiate more advantageous trade deals and to show the world that free trade between co-operating countries can lead can great things.
• Van der Merwe is managing partner and head of the corporate/M&A practice at Baker McKenzie Johannesburg