Brexit’s done: What it could mean for the South African economy

So Brexit is a done deal. At midnight on Friday 31 January 2020 the UK finally left the European Union. 

With Britain flying solo again for the first time in decades, what does it mean for the South African economy? Perhaps surprisingly, given all the political posturing and hysteria, the answer is initially: very little.

Trade deals, conditions already in place

Both the EU and the UK are major trading partners with South Africa and, indeed, the entire Southern African Customs Union (SACU). 

In 2018, South Africa exported almost R512 billion of goods to the EU, representing 32% of our total exports, according to Dirk de Vos, a director of corporate finance and advisory firm QED Solutions and columnist for the Daily Maverick. Of everything we exported to the EU, 23% went to the UK. 

The trade deals and trading conditions already in place with both entities will continue as before. In the case of the UK, at least until the end of 2020 and probably well beyond that until such time as Britain gets around to discussing new deals with SACU and other African nations.

South Africa’s trade relationship with the UK

The UK has an agreement with the European Union to continue its trading arrangements with EU nations at least until the end of 2020 and possibly for two years beyond that if the politicians believe it’s appropriate. For South African companies that export into the UE via the UK, this means no change until at least 31 December 2020.

With regards to South Africa and SACU trade with Britain exclusively, the Economic Partnership Agreement with the customs union was reached in September 2019, which ensures that the current trade relationship remains unchanged. 

It mirrors the agreement that the EU already has with SACU and is one of around about 40 continuity deals that the UK struck with approximately 70 countries prior to Brexit.

At the time, Britain’s international trade secretary Liz Truss said the agreement would “allow businesses to keep trading after Brexit without any additional barriers”.

South Africa’s trade relationship with the European Union

Given that the EU continues on its predetermined course, with or without Britain, South Africa and the SACU countries continue with an unchanged relationship.

According to De Vos, a substantial portion of South Africa’s exports to the EU relates to agricultural products.

“The Free Trade Agreement with the EU allows South Africa to export certain agreed quotas of agricultural products at zero or very low tariffs. This is important because average EU tariffs on agricultural products, at 12% (4% on non-agricultural goods) are a significant barrier.”

The EU’s website lists South Africa’s other key exports as fuels and mining products, machinery and transport equipment, and other semi-manufactured goods. 

A substantial and ongoing aid package provided to South Africa by the European Union also continues unabated. 

What are the potential future challenges post-Brexit?

One of the big concerns for South African companies doing business with the UK must be a post-Brexit slowdown in the British economy, perhaps even a recession. Should this occur, imports from South Africa would obviously be impacted.

As regards a future trade deal with Britain once the Economic Partnership Agreement with the Southern African Customs Union comes to an end, there is a body of opinion which suggests that the SACU nations could actually get an improved deal.

Notes the BBC: “Outside the big EU gang, the UK, technically, has less negotiating clout. That could mean that the African countries that trade with the UK may be able to squeeze out slightly more preferential terms in negotiations.”

But don’t expect that to happen in a hurry. Finalising new trade deals with bigger trading partners, such as the UE, United States, China and others, will be a far higher priority for the post-European Union UK government over the next few years.