Friday, June 24, 2016

African Markets Prepare for Brexit Turbulence
By Mark Anderson, Charlie Hamilton and Nicholas Norbrook
Africa Report
African currencies, markets and political unions are readying themselves for turmoil after Britain's vote to leave the European Union (EU) sent shockwaves through global financial markets and cast doubts on one of the most ambitious political projects in modern history.

The British exit, dubbed Brexit, has sent the pound to its lowest rate in more than 30 years and triggered a record-setting movement of more than 10% between its highest value and lowest value on the same day.

The coming days will be telling

Yields on dollar bonds across the continent have risen steadily after the Brexit vote, according to
Bloomberg. The price of gold, which is seen as a safe haven during financial instability, rose by the most in four months.

The South African rand spiralled to its lowest level since 2008, shedding 8% of its value against the dollar and 6.6% against the yen. The Johannesburg stock index tumbled on the news, falling the most since January.

South Africa's liquid foreign exchange market has meant it has had a particularly violent reaction to Brexit, according to Razia Khan, chief economist for Africa at Standard Chartered bank. "The immediate market reaction has been more muted elsewhere," Khan told The Africa Report.

"However, the coming days will be telling. We could see more spread widening in African eurobond markets, reflecting global risk aversion."

South African President Jacob Zuma said he is confident that the country's banks and financial institutions would be able to weather any repercussions resulting from the Brexit vote.

"Our banks and financial institutions are well positioned to withstand financial shocks to the system as demonstrated in previous episodes including the 2008-2009 global financial crisis," Zuma said in a statement issued by the presidency.

Nigeria may also feel the consequences of the Brexit decision. Trade between the two countries last year was worth around $8.3bn and which had been on track to more than triple to $28bn by the end of the decade.

However, the referendum means trade deals previously agreed in line with EU directives may have to be renegotiated. Economic consensus suggests Brexit will trigger a recession in the UK, which was the largest source of foreign direct investment to Nigeria, with some analysts fearing this could slow investment into Africa's largest economy.

Kenya's Finance Minister Henry Rotich said the country is braced for economic fallout from Brexit, saying it has "sufficient forex resources" and is monitoring the situation."We will take appropriate action should there be any impact," he told Reuters.

The central bank of Mauritius also said it was ready to intervene in case of financial shocks. "Should the need arise, the bank stands ready to take measures as appropriate to protect the best economic interests of Mauritius in the circumstance," the bank said in a statement.

African regional political projects could be hurt by Britian's vote to leave the EU, which could be seen as a referendum on the very idea of such pan-national zones.

But the East African Community (EAC), a political bloc made up of Burundi, Kenya, Tanzania, Rwanda and Uganda, said it would move forward with its plans to forge a closer union. The EAC's secretary general Liberat Mfumukeko, said: "Our [union] is stronger now we learnt from past collapse [in 1977]," adding that the bloc would soon start drafting a constitution.

Moroccan twitter users joke that they could take the UK's place. But Morocco's plans join the EU could be hurt by Brexit, according to Nabil Adel, a professor at Casablanca's business school. The Brexit vote will make it harder for the country to join because it has created a tendency toward bilateral deals rather than multi-lateral frameworks, he told the Huffington Post.

But Malawian writer Levi Kabwato argues that there may be upsides to Brexit, given that it would weaken the UK and the EU, both of which have structured trade deals that often hurt African interests. Not to mention their rightwing movements, who are “calling for migrants – and Africa has a lot of them – to be denied entry into Europe, forgetting that the chaos these migrants are running away from is engineered, in most cases, by Britain and its stronger EU allies.”

British Prime Minister David Cameron, who said he would step down before October shortly after the results of the referendum were announced, will go down in history as "the last prime minister of the United Kingdom," said Tanzanian opposition politician Zitto Kabwe.

Read the original article on : African markets prepare for Brexit turbulence | East & Horn Africa
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