Brexit on a knife edge
May’s Brexit vote delay hits the pound and sows yet more confusion, not least for some JSE companies
"Please, oh pretty please, could we have some certainty." The same thing businesspeople from all over the world often say about SA, local businesspeople are now saying about Britain in the wake of the calamitous Brexit negotiations, dragging the pound all over the shop and causing more delays to pending business deals.
Facing ignominious defeat, Prime Minister Theresa May delayed a crucial vote on the Brexit deal in a week described by UK political watchers as the most tumultuous in British politics in half a century. She will meet German Chancellor Angela Merkel and Dutch Prime Minister Mark Rutte this week to try to agree on more concessions, even if they take the form of mere reassurances, from the EU to get the Brexit deal passed, which the EU itself insists it will not provide.
Vestact fund manager Michael Treherne says SA business is at this stage really just looking for a "stick in the sand" — some point of certainty around which it can start strategising. In the context of such uncertainty, it’s almost impossible to make investments and the result has been a volatile and declining pound. The pound is trading at very close to its lowest point in living memory of £1.2 to the dollar, which it hit late last year. It has dropped about 16% this year.
Treherne says there are a host of companies listed on the JSE which have an enormous stake in the outcome, and some have pending deals on hold. "A weakening pound means earnings are lower and NAV declines." Companies affected include Intu, Hammerson, Capital & Counties, Brait, Famous Brands, Bidcorp and Investec.
The root of the problem is that the Britons who voted for Brexit have differing expectations on what doing so would mean in practice, ranging from the delusional in which Britain would get all the advantages and none of the downside, to the masking-tape and staples deal, which they have been ultimately offered. Add to the mix a substantial number who wanted to leave and don’t want to now, and you have a potentially explosive concoction.
The result is knife-edge negotiations in which all outcomes are bad but the art will be achieving the least-bad result. The Labour Party is caught in a classic prisoner’s dilemma. It could call for a vote of no-confidence in May which it could conceivably win. Yet that would mean new elections and some attempt to renegotiate the exit before the clock runs out in March next year.
For the ruling Tories, the party remains split, but the poor deal May was able to achieve has made the divisions even more pronounced.
The knife-edge nature of the deal means the smaller parties, such as the Liberals and Scottish National Party, which both originally wanted the UK to stay in the EU, have outsize importance. They have now said they will support a Labour vote of no-confidence, opening a glimmer of a possibility that a second referendum might have to be called. Yet the problem is that none of the alternatives, including a no-deal Brexit or a new referendum, would command a majority in parliament.
Everything now depends on the EU summit later this week, and whether May can deliver enough to gain sufficient parliamentary support for the existing deal.