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Several scenarios face South Africa amid uncertainty over Britain leaving the European Union, says Trade and Industry Minister Rob Davies – such as the UK possibly slipping into a recession and global growth weakening, affecting the future of the financial sector in the City of London and SA companies operating in the country.
Davies, however, said the only concrete thing SA could do would be ensuring there is no interruption of trade with Britain, the country’s sixth largest trading partner.
"We’ve been working on that for quite a while… we’ve practically finished the agreement between the members of the South[ern] African Customs Union (SACU), plus Mozambique, who were the parties to the agreement with the Economic Partnership Agreement (EPA) and the EU," Davies said.
Davies addressed a pre-World
Economic Forum breakfast on Wednesday, a day after the UK House of Commons
voted resoundingly against Prime Minister Theresa May’s agreement, which would
have ensured an orderly exit from the bloc on March 29.
A vote of no confidence in the UK government will take place on Wednesday night. If May survives – which many analysts predict – she will need to table a new plan to leave the EU on Monday, and she could ask for an extension for negotiations from Brussels.
If May loses, political parties will have 14 days to prove they have the confidence of the house or fresh general elections will be held.
This could mean a second referendum will be held to decide on Brexit, a new agreement could be reached with the EU, or Britain could crash out of the bloc on March 29.
Continuity for trade
SA currently enjoys a favourable trade agreement with the EU, and if there is a no-deal Brexit, British trade terms will revert to the World Trade Organisation (WTO) rules unless there’s a deal in place.
In June 2016, SACU agreed to an "asymmetrical liberalisation" deal with the EU which grants Botswana, Lesotho, Mozambique, Namibia and Swaziland 100% free access to the bloc, while the EU has fully or partially removed customs duties on 98.7% of imports coming from SA.
SA and its neighbours, however, are allowed to keep tariffs on products sensitive to international competition, to protect their own markets; and thus only remove customs duties on around 86% of products from the EU, according to the European Commission.
Davies said the proposed basic agreement with the UK is to have a parallel agreement to the EPA, and they have already worked out tariffs on agricultural products such as wine and fruit, "which is actually pretty good".
He added that there was a technical meeting in December, and what he hopes will be a final meeting with all the ministers involved will follow soon "so the agreement is concluded well in time to ensure there’s continuity, at least, on the trade front".
The Bank of England has warned of a financial crisis if Britain leaves the UK without a deal. While some have dismissed the central bank’s caution note as alarmist, the UK government’s contingency plan states a no-deal Brexit on March 29 is "an exceptional economic event" requiring "exceptional measures", including the army being on standby.
SA, which is vulnerable to external shocks through its currency markets and trade, could find itself caught in the headwinds.
The motion of no confidence in the House of Commons is scheduled for around 19:00 GMT (9pm in SA).
The rand strengthened 0.28% against the British pound by Wednesday noon, trading at 17.61/ £.
Meanwhile, the pound surged on Wednesday morning against the US dollar and Euro, as markets bet Britain would either remain in the EU or renegotiate the terms of leaving.
