242020Nov
Is Africa ready for Brexit?

Is Africa ready for Brexit?

31 December 2020 is an important date. It’s when Britain leaves the European Union – under a negotiated exit deal, or a no-deal “hard Brexit”. A recent LEX Africa webinar looked at the likely impact of Brexit on African trade and investment with the UK and the EU.

In the two years since Britons voted to leave the European Union, diplomats across the globe have been scurrying to sort out their countries’ trade arrangements with both the UK and the EU. The good news for southern Africa is that a “roll-over” economic partnership agreement (EPA) has been clinched between the region and the UK – in effect a duplicate of the existing deal with the EU. Other countries in Africa are still negotiating in hope of agreements with the “divorcing” parties.

Even where agreements are in place, the great unknown of the post-Brexit world means all sorts of problems might arise, with unforeseen disputes over the fine print of rules could see trade-flow bottlenecks and worse.

LEX Africa, seeking potential solutions to challenges and trying to identify new opportunities that might be thrown up in 2021, conducted a webinar in November, chaired by Pieter Steyn, Director, Werksmans Attorneys, South Africa.

Southern Africa’s trade ties with both the UK and the EU are strong. For example, the UK was South Africa’s fifth leading trade partner in 2019, while Germany was No 2 and the Netherlands and Belgium were in the top 12. Exports from South Africa to the UK in 2019 were valued at R68 billion and imports at R41 billion.

Since October 2016, southern Africa’s trade with the EU, including Britain, has been governed by the Southern African Development Community-EU Economic Partnership Agreement (SADC-EU EPA).

“This is an extremely important relationship, not only in terms of trade but also investment and development assistance,” noted Trudi Hartzenberg, Executive Director of the Trade Law Centre (tralac), South Africa. “So, what happens between now and the end of December is very important for us.”

Hartzenberg explained that six southern African countries had concluded a roll-over agreement with the UK following the Brexit vote – formally known as the Economic Partnership Agreement between the Southern African Customs Union (SACU) Member States and Mozambique, of the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part.

This EPA “shadows”, or duplicates, the prevailing EU pact and eliminates tariffs and quotas on all goods imported from Botswana, Eswatini, Lesotho, Mozambique and Namibia into the UK, as well as on products covering around 96% of goods imported from South Africa.

It also provides for a gradual reduction of duties in the SACU member states, plus Mozambique, for goods originating in the UK. It aims to provide continuity and continuity of the EU-SADC EPA in a bilateral context. In the event of either a negotiated Brexit agreement or no agreement, the EPA is intended to take effect whenever the EU-SADC EPA ceases to apply to the UK – or as soon as possible thereafter.

However, complications could easily arise in 2021 – such as disputes over rules of origin that govern traded goods and the routing of exports through third-party countries.

Dr John Maré, an independent consultant on international public affairs and a former South African diplomat, commented that grouping the relatively more economically developed South Africa with its neighbours was significant and had “taken some doing”.

“From a geopolitical point of view, it homogenises southern Africa in the agreement and we want to try to keep that as much as possible in the post-Brexit period,” added Maré.

This positive situation contrasts with what’s happened in east Africa, where regional trade status has been elusive.

Joseph Ng’ang’ira, Partner at LEX Africa member, Kaplan & Stratton in Kenya, explained that countries in the region had been trying to get preferential trade arrangements in place, but as yet they haven’t materialised.

Part of the reason for this has been Kenya being re-categorised by the EU in 2014 – from a least-developed country (LCD) to a middle-income country. By contrast, neighbouring Tanzania and other countries in the East African Community are still LCDs.

“A trade deal or EPA might do them more harm than good,” noted Ng’ang’ira. “Preferential rights have to be reciprocal and you don’t want your market flooded by goods coming in from the EU and the UK – damaging local producers.”

He said Kenya – the third largest economy in sub-Saharan Africa after Nigeria and South Africa – had been seeking bilateral deals with the EU and the UK, so far without success. The country previously enjoyed trade benefits with the EU under the latter’s “everything but arms” dispensation – under which LCDs can export duty-free and quota-free into Europe.

However, this no longer applies and, with Kenya supplying a third of all fresh-cut flowers in Europe and significant amounts of the tea consumed, import duties have a “huge impact” on Kenya’s economy.

“Brexit is a major opportunity for us,” said Ng’ang’ira. “When the UK does leave the EU, we can commence negotiations for bilateral agreements with both parties.”

Nigeria is also pinning hope on bilateral deals, based on assurances given by British Prime Minister Boris Johnson at the January 2020 UK-Africa Summit that his country intended forging independent trade relationships with as many African countries as possible.

Currently, Nigeria has no EPA with the EU, said Uchenna Okechukwu, Senior Associate at LEX Africa member, Giwa-Osagie &Co, Nigeria. She explained that the Nigerian government shared east African concerns that an EPA with the EU might see European goods flood its domestic market to the detriment of local producers.

However, Nigeria is keen to see Brexit forge a closer relationship between it and the UK – with which it already has “a long-standing partnership”.

“At the moment, Nigeria is trying to discuss directly with the UK to ensure more economic development is brought to the country,” said Okechukwu. “Nigeria exports much of its crude oil to the UK and 2% of its agricultural product goes there. We want to build a stronger relationship and especially increase agricultural exports.”

Maré warned against allowing “divergence” between the various EPAs concluded by African countries with the UK and the EU. This could create cleavages between African economies at a time when regional economic integration was a priority.

Leon Ayo, President of the British Chamber of Business in Southern Africa, said post-Brexit agreements would facilitate trade, but believed business should not wait around for them to happen.

“Business must push ahead,” he said. “In many ways, other world events are superseding Brexit. The Covid pandemic, political events in the US and growing threats from Russia are all things that business and markets must deal with. These developments have brought home the need for new alliances and for collaborative trade initiatives.”

Unprecedented diplomatic efforts are being put into concluding new post-Brexit agreements, but synergies between the UK and African countries such as Nigeria, Kenya and South Africa would ease the process, noted Ayo.

For example, two-thirds of the companies on South Africa’s JSE have UK interests – direct ownership, shareholdings, listings or other links. Kenya might be determined to forge a trade deal with the United States (or China), but it has greater cultural synergies with the UK – such as language, time zones and even sporting codes – meaning its markets are ready to do business with British companies, and vice versa.

The Commonwealth has been under-utilised, according to Ayo, but could be a key to facilitating post-Brexit trade negotiations – alongside the African Continental Free Trade Agreement (AfCFTA) due to become operational in 2021.

Ayo raised the question of potential trade “bottlenecks”, particularly resulting from rules of origin requirements. Products might be developed in one country, assembled in another with components from a third, making origin a grey area when overlayed by the triangle between Africa, the UK and the EU.

Hartzenberg agreed that “the devil is in the fine print” and rules of origin, tariff preferences and well-established trade routes were potential problem areas.

She cited the case of highly successful South African citrus exports, which are mostly routed through the Dutch port of Rotterdam, then on to destinations throughout the EU, including the UK. How will UK consignments be treated in future by shipping agents and EU officials in Rotterdam? Will there be border checks?

“How will we ‘break bulk’? How do we assign goods to final destinations? What will happen to my consignments? These are the questions business people are very interested in,” said Hartzenberg.

With southern European nations having specific interests in their own citrus exports and Britain not having citrus-protection measures in place, existing rules might be called into question.

As with citrus, South Africa’s thriving vehicle export market could hit problems, with most exports going through the UK on their way to destinations across the world. How will German-made car components, for example, be viewed?

All participants emphasised the potential for the AfCFTA to be aligned with new trade agreements across Europe, to leverage benefits for the African continent.

These new dispensations provide major new opportunities for Africa to harness its demographic advantage of a youthful and talented population to provide business services across the globe.

“The trade in services is not often in the conversation,” noted Hartzenberg. “In recent months, with the pandemic, we have seen the enormous potential in this area. How many African-trained health professionals are working in the UK’s NHS [National Health Service]?”

The “Anglophone dividend” of much of Africa also presents opportunities in business process outsourcing – such as call centres, a sector India has capitalised on but that Africa has capacity for, too.

In the opposite direction, Africa’s economic and social development could gain much impetus from technology and skills transfers, with, for example, digital literacy and internet access being keys to unlocking the continent’s potential.

1 January 2021 is indeed an important date for Africa’s future.

Share this article

Facebooktwitterlinkedinmail