‘Hard Brexit’ may have negative consequences for South Africa

18th May 2017 By: Terence Creamer - Creamer Media Editor

‘Hard Brexit’ may have negative consequences for South Africa

British economist Professor Peter Sinclair
Photo by: Duane Daws

British economist Professor Peter Sinclair warns that a so-called “hard Brexit” could have negative spill over consequences for South Africa, which has strong economic ties not only with the UK, but also several countries in the European Union (EU) that could be negatively affected by such and outcome.

Speaking in Johannesburg on Thursday, the monetary policy and international economics expert gave odds of less than 50% on the likelihood of a “soft Brexit”, which would leave the UK's relationship with the EU as close as possible to the existing arrangements.

Instead, Sinclair anticipated that “complicated negotiations” were more likely to yield a “hard Brexit”, which could result in the UK falling back on World Trade Organisation (WTO) rules for trade with its former EU partners.

Part of his pessimism arose from the composition of Brexit negotiation teams, led in the UK by Brexit Secretary David Davis and by Michel Barnier, of France, for the European Commission. Sinclair anticipated that the relationship could easily fray, given the hard-nosed natures of both men.

Barnier and his 120-strong negotiating team were likely to hold firm to the demand that the UK make a financial settlement before substantive trade negotiations could proceed. A figure of €100-billion has already been mooted.

For his part Davis, a former soldier, is expected to push for assurances on retaining the City of London status as a financial centre and for safeguarding access for UK products such as automobiles, aviation systems and pharmaceuticals.

However, Sinclair told an audience at the University of the Witwatersrand’s School of Economic and Business Sciences that the danger for Britain lay not only in the introduction of tariffs. He also feared that nontariff “blockages to trade” could be engineered to frustrate trade relations.

By way of example, Sinclair highlighted the 1980s example where, in its determination to protect the video tape recording market from Japanese imports, France established a customs inspectorate in the inland city of Poitiers, which became a major bottleneck and dramatically reduced imports from Japan.

“If it’s a hard Brexit, it will hit Britain very hard and will also hit the economy of Europe, albeit unevenly,” he argued, warning that the worst-case scenario was that as much as 9% of Britain’s gross domestic product would be lost.

“Brexit is potentially damaging for South Africa, because there are strong economic and investment ties between South Africa and Britain. If Britain is hit for six this relationship will also be affected. There is a feedback effect”.

The Southern African Customs Union (Sacu) wrote a letter to the UK government in early April formally requesting the initiation of talks on the terms of the bilateral trade relationship that will be put in place when Britain exits the EU in 2019.

In order to minimise disruptions to the trade relationship, Sacu is proposing that the recently ratified Economic Partnership Agreement with the EU be used as the framework for the immediate period following Britain’s withdrawal from the EU. Any possible improvements to the agreement could form part of a “medium-term” bilateral negotiation agenda.

However, owing to Britain’s June 8 election, talks were unlikely to start until the end of June at the earliest.