Saturday, June 25, 2016

Brexit a ‘Complicating Factor’ in South Africa’s Economic Outlook
Raymond Parsons
Business Day Live

A possible recession in the UK and slower growth in the EU as a result of Brexit will not be in SA’s economic interests, writes Raymond Parsons

THE momentous decision in the UK referendum yesterday to withdraw from EU membership not only creates substantial uncertainty for business and policy makers in the world economy, but could also have serious unintended consequences which will need to be managed.

It has already generated considerable shock and volatility in financial markets. As there is no precedent so far for an economy to exit the EU, the Brexit decision takes the global economy in general, and the SA economy in particular, into prolonged uncharted waters. It becomes a complicating factor in SA’s economic outlook at present.

A possible recession in the UK and slower growth in the EU as a result of Brexit will not be in SA’s economic interests, especially at a time when the global economic outlook is weak. Based on a previous preliminary study by North West University (NWU) of the possible economic implications of a Brexit, SA will need to devise contingency plans to offset or replace any negative effects that may emerge regarding its competitive position in the UK and EU markets.

Over the next year or two, SA will need to reassess several of its key trading relationships with the UK and the EU in order to redefine their future in changed circumstances.

The overarching free trade agreements that govern SA’s trade commitments with the UK and the EU may need to be renegotiated, a process which would be costly and time consuming. It would also create uncertainty among those businesspeople with an important stake in these markets.

SA will nonetheless need to plan for whatever adjustments in trade relationships may inevitably flow from Brexit. We must also seek to retain the UK and the EU as the major source of foreign direct investment (FDI) to the SA economy, as both trade and investment commitments regarding these areas remain important to SA.

To progressively recalibrate SA’s trading relations and explore new options in the light of Brexit, government, labour and business will now need to add the possible implications of Brexit to the national policy agenda. If Brexit becomes a game changer in several key aspects of SA’s external economic relations, it will be necessary to be pro-active.

For SA to continue to maximise its share of world trade and global investment in order to support its growth and employment goals, it will have to remain globally competitive in tough new circumstances

• Prof Parsons is an economist with the North West University School of Business and Governance

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