A word to the wise: slim vang sy baas

After spending some time reflecting on the dramatic decision to leave the European Union (EU), Britons are now waking up to the harsh reality that their actions may not have been in the best interest of the people. It reminds me of an old Afrikaans proverb that my father told me when I was a “wise to the world” teenager: slim vang sy baas.

What we saw on the weekend of 24 June was the knee-jerk reaction to the immediate gravity of the Brexit vote. What we will see over the following two years – the expected time frame it will take the UK to fully exit the EU – will have a lasting impact on the country and will ultimately indicate whether the UK is really better off out of the EU.

The economic implications

In a release to the media, Investment Solutions Economist Rob Price says that the next year will be crucial.

The Brexit outcome has created uncertainty, which is negative for short-term economic conditions. However the long-term economic outcomes are determined by the economic policies implemented in the quarters ahead rather than by the vote itself.

“If the new UK leaders implement constructive economic policies, the UK economy will quickly recover from this fall in confidence. Politicians could reduce government involvement in the economy and implement policies that encourage savings and investments. They could also reform domestic welfare and implement sound monetary and fiscal policies. While this requires political will, if action is taken in this direction, the UK economy will not fall off a cliff and there won’t be an economic catastrophe,” said Price. 

As we are all well aware, global financial markets do not like uncertainty and are reacting very negatively on account of the uncertainty the Brexit decision has created.

“While financial market performance is important, this is not a direct reflection of what is taking place in the real economy; financial markets could recover quickly. The Bank of England has already stepped up efforts in this regard by pledging £345 billion worth of funds against any severely negative market events. While this isn’t necessarily the answer to any of the economic or political problems, it does indicate there are backstops in place,” concluded Price.

The trade implications

Following Brexit, German Chancellor Angela Merkel said, "If Britain votes to leave the EU, it will no longer be able to benefit from the advantages of the European common market. Any negotiation will involve the 27 remaining EU members with someone who would then be a third party."

In a release to the media, Werner Gerber, Audit Manager BDO South Africa pointed out that negotiations of such a magnitude will take considerable time. With the EU members being some of the UK’s biggest trading partners, this would definitely have a negative influence on their economic growth.

What does this mean for South African trade with the UK? “The UK’s trade position is especially of interest for a country such as South Africa. As per the Department of International Relations and Cooperation, the UK is South Africa’s most important export market. Currently all exported goods have to comply with the requirements set out by the EU. Normally these requirements are very strict, as to ensure that the quality of goods imported by the EU are of the highest possible standard. These demanding requirements can sometimes have a demotivating effect on the South African export market. Consequently, we are not exporting as many goods, especially fresh fruit and vegetables, as we are able to or as we would like to, to countries such as the UK,” said Gerber.

He added that due to the lengthy period of negotiations for new trade agreements, it is however very likely that the UK will opt for less strict importation policies. This will give South Africa the opportunity to increase its export market in the UK.

“With the Pound being stronger than the Euro, export revenue would therefore be able to increase significantly. This could be just what South Africa needs to stabilise our economy after the recent drought,” he concludes.

Will I stay or will I go?

The amazing thing about Brexit is that there is still a chance that the UK could still be a part of the European Union. While the referendum made it very clear that the citizens of the UK want to leave, many of these voters have publicly stated in the media that they are remorseful about their vote and that if they could go back in time, they would change it.

However, the fact that the UK parliament is a sovereign parliament makes it the supreme legal entity in the country with the power to create or end any law. British MPs are already calling for a law to be passed in parliament to cauterize thehaemorrhaging (as the UK media labelled it) caused by the Brexit decision.

Editor’s Thoughts:
Uncertainty is nobody’s friend; just ask any South African who can remember the Finance Minister Debacle of December 2015. If the UK want to save face, decisions need to be made early and they need to be decisive. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Ends 

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