Brexit

How Africa can leverage growing insularity in Europe and the USA

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This article first appeared in my weekly column with the Business Daily on March 19, 2017

 It had been brewing for years, but was fully exposed last year when Brexit happened. It was bolstered by Donald Trump being elected as the President of the United States, growing popularity of Le Pen in France and now Geert Wilders, the Dutch right-wing politician who wanted to be Holland’s next Prime Minister. While celebrating Trump’s victory, Sarah Palin termed it a movement. What is it? The growing popularity of a specific strain of right wing politics in Europe and the United States.

Sitting in Africa there seem to be common threads that run through this ‘movement’; it’s anti-Islam and selectively anti-immigration with a specific strain of aggressive (white) nationalism. It also comes across as racist, self-involved and insular. Europe and the United States have grown weary of taking care of the world, the rhetoric argues, having sacrificed the welfare of ‘real’ Americans and Europeans at the altar of immigration, laissez faire economics (the Chinese are taking over!) and generous aid packages to under-developed (and corrupt) continents such as Africa.

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Naturally right wing populism is making some in African capitals jittery. Civil Society Organisations (CSOs) heavily rely on Europe and North American organisations for financing, which, they argue, allows them to engage in activities that alleviate poverty, protect the vulnerable, and fight for human rights and good governance on the continent. Kenya was one of Africa’s top Foreign Direct Investment (FDI) destinations in 2015 with key investors coming from the USA, UK and the Netherlands. Large companies from Europe and the United States have also set up shop across the continent buoyed by the ‘Africa Rising’ narrative (now somewhat battered) and the growing African middle class. And military and security support from Europe and the USA have been important for countries such as Kenya currently trying to fight Al-Shabaab.

Just as Africa was starting to be seen as more than a basket-case of poverty and poor governance by Europe and the USA, just as the continent was beginning to be perceived as a serious and attractive destination for investment, right wing populism stepped in and changed everything. Some Africans worry aid from the US and some of Europe will drop; in fact last week State Department staffers in the USA were instructed to seek cuts in excess of 50 percent for funding UN programs. And the combination of the economic recovery of the USA coupled with right wing populism juxtaposed with slowing economic growth in Africa may relegate Africa to the periphery of investment once more. Right wing populism wants to Make America/Britain/the Netherlands/France great/ours again; and it seems continents such as Africa will be very low on the ‘to do’ list.

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However, there is another side to the story. Gone are the days where African economies were dominated by western metropoles. We now live in a multipolar world where countries such as China and India have become important economic partners for Africa. Research from a French research institute indicates that the share of Europe in Africa’s total trade has steadily declined from around 68 percent in 1990 to 41 percent in 2016. Asia has surpassed Europe as Africa’s biggest trading partner, accounting for around 45 percent of the continent’s total trade. And while some of Kenya’s top FDI investors were from Europe and the USA, key investors also came from India, Japan and China.

And it must be stated, frankly, that some Africans are relieved by the growing insularity in Europe and the USA; perhaps now those countries will have less impetus to meddle in African affairs and focus on their own domestic issues. Older Africans have not forgotten how the UK and USA in particular took out post-colonial African leaders such as Lumumba and Sankara and many modern Africans are not ashamed of being Africans; in fact we revel in Africa’s culture and newfound economic dynamism.

So while the growing popularity of (extreme) right wing politics may negatively affect the continent in some ways, let Africans also leverage the reality of a multipolar world. As some retreat into self-involvement and insularity, let the continent intelligently engage the many who are still seated at the table.

 Anzetse Were is a development economist; anzetsew@gmail.com

The Implications of Brexit on Africa and Kenya

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On Friday morning the world awoke to the news that the UK had decided to leave the EU.

The same day saw currencies, stocks and bonds plunge across Africa, and a slump in oil and other commodities. From an African point of view, the immediate aftermath of Brexit has exacerbated problematic trends in international markets which have already hit African growth prospects. African currencies slipped against other currencies like the USD and Yen but of course gained against the GBP. Further, in the aftermath of Brexit, some African Eurobonds plunged with yields rising for Nigerian, Ethiopian and Rwandan Eurobonds.

If one were to trace some of the short and medium term effects of Brexit on Africa, the departure of the UK from the EU complicates African access to EU markets. Countries and businesses that were using the UK as a point of entry for their goods into the EU will have to find new partners in mainland Europe. Further, any trade deals that African countries had with EU will have to be renegotiated with the UK as a standalone entity. Although it is unlikely that the UK will effect drastic departures in terms of trade deals with African countries, the process of re-negotiation will take a period of time during which African exports to the UK will be negatively affected due to the uncertainty in the limbo period.

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Closer to home, Kenya’s horticultural sector, particularly cut flowers, will suffer. Flowers are one of Kenya’s top exports and the UK is a major export destination. Thus again any trade deals that Kenya had negotiated with the EU will stall with regard to the UK because of Brexit; and this may well translate into losses in the short to medium term for those firms. Another example of how Brexit will negatively inform access to EU markets for African goods is the case of Kenyan tea. If Brexit leads to the tightening of access to the EU markets for UK goods, Kenyan blended tea exports will suffer because the UK has been a major re-exporter of Kenyan tea into EU markets. UK appetite for Kenyan tea was informed by this re-export function thus with Brexit, the UK may possibly lose easy access to EU markets which may lead to a cut in the volumes of tea the country imports from Kenya.

If one looks at the effect of the weakening of the GBP, Africa will be affected. Firstly, African exports to the UK will be more expensive for UK consumers and this may dampen their appetite for African products. Further, with a weaker GBP, Kenya will become a more expensive tourist destination which will negatively affect a sector that has already been under-performing as the UK is an important source of tourists for Kenya. On the other hand, a weaker GBP will be good news for an import economy such as Kenya as imports from the UK will be cheaper.

More broadly, if Brexit triggers a UK recession, there will be a more medium to long term problems with which Africa will have to contend in a context where African growth is at its slowest for decades. Not only will there be dampened appetite for African exports thus muting trade, FDI from the UK will also be negatively hit, the latter of which is particularly bad news for Nigeria for which the UK was the largest source of FDI in 2015. Further, remittances from Africans in the UK are likely to drop if the UK economy slides into a deeper recession. In terms of development assistance, it is unlikely that a new, post-Brexit government would drastically alter UK’s commitment to spend 0.7 percent of its gross national income (GNI) on development aid, but a struggling UK economy would translate to a decline, in absolute terms, in the amount of aid Africa will receive.

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Another key negative effect of the UK leaving the EU is that the country has been a proponent of African interests on certain issues in the EU. For example, the UK has been a voice in the EU calling for a reduction of EU subsidies to farmers, subsidies that negatively affect African farmers by keeping the price of EU agricultural produce artificially low. With the UK leaving the EU, the interest of African farmers will no longer have a voice in the bloc. Secondly, a decision was recently made to cut EU funding to the African Union mission in Somalia (AMISOM) by 20 percent; the UK opposed this. The departure of the UK from the EU means that African countries will have to look at the EU anew and identify which countries can be pulled in as allies on key issues.

However, Brexit can be seen as good news in this context because the UK will no longer have to live with EU decisions and regulations concerning Africa with which they don’t agree. Indeed, the UK Minister to Africa said Brexit will allow the U.K. to “focus more on our bilateral relationships with Africa” allowing the country much more flexibility when interacting with Africa than was possible while working under the EU.

It will be interesting to see what the post-Brexit UK government African strategy and policy will look like. In terms of Kenyan interests, given the deep and longstanding ties the country has with the UK, aid, trade and investment are likely to continue. In fact, an analyst made the point that in all of Africa, perhaps Kenya may benefit the most from Brexit as the UK may be particularly eager to establish bilateral ties with Kenya after leaving the EU, giving Kenya exceptional leverage.

Anzetse Were is a development economist; anzetsew@gmail.com

My thoughts on Brexit- TV Interview

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Yesterday I shared my initial thoughts on Brexit and the implications for Africa and Kenya.