Picture caption: Peter Draper, managing director of Tutwa Consulting.

 

The only certainty is uncertainty.

That was the conclusion reached by a team debating the implications for local exporters of the British exit (Brexit) from the European Union at the Export Summit on October 18.

Peter Draper, managing director of Tutwa Consulting, explained that although there was a lot of trade in products between South Africa and the United Kingdom (UK), this was not big when it came to South Africa’s overall global footprint.

The same went for the export of services where data was, at best, unreliable.

Draper pointed out that Europe was South Africa’s third largest export market at 25% while the UK accounted for just 4% of global exports. About 31% of South Africa’s imports came from Europe while just 3% came from the UK.

The most immediate concern was whether or not tariffs would be imposed by the British government on South African goods should a new trade agreement between the two countries need to be negotiated.

He said that, at present, almost no tariffs were charged when exporting to the UK and the EU with nine out of 10 products receiving preferential tariff rates of 0%.

“But we don’t know what it will be like in the future. Depending (on whether there is a hard or soft exit), South Africa might face different market entry barriers,” he cautioned.

This could actually work in South Africa’s favour as, once outside the EU, the UK was unlikely to adhere to existing charges on agricultural goods as per the existing trade deal in place between this country and the EU.

However, he said that even Brexit was not a certainty and there was even a possibility of a second referendum. “Politics can change and there can be a shift in the fundamentals,” he suggested.

He added that it was not yet clear who would make the final decisions about the exit – the Prime Minister or Parliament – whether this would be a soft or a hard exit and even whether further alternatives would not be investigated.

South African companies also needed to realise that this would be lengthy process that would take at least two years.

This and the negotiation of a new trade agreement as well as the setting down of new tariffs and rules of origin would be “complicated.”

Pieter Laubscher, an economist at the Bureau for Economic Research at Stellenbosch University described the likely process as “intense”.

“It will only be once (the UK) finally exits that we will be able to see bilateral opportunities,” he said.

He suggested that the key Brexit issues highlighted by Draper could play out in wider European politics as key members of the EU faced upcoming elections and a push for greater autonomy within their own borders. Issues include control over immigration, returning legislative autonomy to London and control over its trade policy.

He noted that there was a definite “deglobalisation trend” as well as a tendency towards rising trade barriers. These should be of greater concern to South Africa than Brexit.

Lisa Lewin, global economist for BMI Research, South Africa, agreed that Brexit had ignited similar sentiments in Europe.

The team agreed that “fault lines and rumblings will be exposed” in countries such as the Netherlands, Germany and France, putting the EU in an extremely weak position.

Questioned as to whether a weakening of the pound in the wake of Brexit and the volatility of the rand would help local exporters, Lewin said she felt this had already been priced into the pound which would become stronger in the longer term. This and the fact the likely loss of South Africa’s global investment grade would result in greater rand weakness would not help local companies.

All agreed that membership of the Commonwealth was unlikely to help South Africa as it would lead to greater competition with fellow members such as India, New Zealand and Australia lining up for equal access. South Africa could well find itself at the back of the queue.