So, UK Prime Minister Theresa May has triggered article 50 at last, and the countdown to Brexit has begun. Her letter to the EU in Brussels to announce the UK’s intention to leave the EU, delivered at lunchtime on Wednesday, means the UK will be divorced from Europe in exactly two years’ time.
The huge question is what that divorce will look like and what it might mean, not only for the UK, but for its trade and investment partners, SA included.
It’s not clear what the May government’s plan is or whether it even has a clear plan at this stage for what it wants to achieve out of the negotiations with the EU. There’s been plenty of blustering and rhetoric on all sides, but now the negotiations will have to begin in earnest on what, if anything, will replace the enormously complex and extensive set of agreements that have made the UK part of Europe for the past few decades.
So many of Britain’s rules and regulations have been European ones, for so long, that its policy makers are probably only starting to tally up all the mini-disasters in the making if it leaves without putting new agreements in place — and the catastrophe it could be for the UK’s economy if it can’t reach accord with the Europeans.
There’s pretty much no chance that new accords can be signed within two years. It is likely to be a very long and fraught process, and for all the bravado of the Brexiteers, Britain will almost certainly end up worse off outside Europe than it is inside it.
A clear narrative has emerged, however, about a new more global Britain that trades with the world, not just with Europe. A big part of this is about Britain restoring the close trade ties it traditionally had with its former colonies, such as Canada, Australia and the US. As commentators such as Martin Wolf have emphasised, proximity matters — trade with distant New Zealand (or a protectionist US) is hardly a substitute for Britain’s crucial trade links with Germany
Yet there may be opportunities here for SA, and its policy makers and companies should keep a close eye on the Brexit talks. As it is, SA has close ties with Britain. The UK is the largest single source of foreign direct investment into SA and is the second-largest market in Europe for South African goods. Several South African companies have operations in the UK, with many having London listings, and London is the hub for a good few local companies’ thrust into Europe. South African banks’ largest offshore holdings and counterparty relationships are in the UK.
All of that makes the UK’s fortunes during and after the Brexit talks quite important to SA.
SA has a particularly good trade deal with Europe following the signing of the Economic Partnership Agreement late in 2016 and that favoured status with the UK is now at risk. Against that, though, the UK might be more open than Europe was to favourable access for South African products — such as red wine and oranges — which the UK does not produce.
SA will have to start talks on a new trade deal with the UK in the hope of favourable terms, but the queue will be a long
one and we are not necessarily high on the list of British priorities, whatever Brexiteers might say about traditional trading partners.
Meanwhile, SA will have to hope that the political and economic uncertainty that will prevail in the UK and Europe as the Brexit clock ticks doesn’t do too much damage to markets or to those economies.
We have to hope, too, that pragmatism prevails and that the Brits and the Europeans find some way to mitigate the fallout from this mess.
SA has enough problems of its own to deal with.