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February 20, 2019

Brexit has far-reaching economic consequences

I’ve been Brexit – reading for pretty much all of the past week, with a lot of sadness for one of my adopted homes (and, again, some regret that I didn’t study law).  And I’ve been thinking about what the implications for Kenya and East Africa will be.  I suspect we just don’t know yet –not the least because several commenters have raised the possibility that the UK will not see the exit through after all, for a number of reasons. I would certainly prefer it if Britain did the British thing, calmed down, had a cup of tea and then never spoke of this shameful affair ever again. We will only know for sure that Brexit happens when the UK has given formal notice under Article 50 and started the two-year exit negotiations. Kenya’s economic relations with the UK are extensive. Partly, this will then be an issue of trade relations and market access: If the UK is no longer part of the EU, Kenya and the UK will have to negotiate trade relations afresh. Kenya may not be a priority.

Then there is the impact of Brexit on the UK’s economy: if, as many people worry, this will slow down GDP growth, it will also affect demand for East African goods, mainly agricultural ones, and services, especially Kenya’s still vulnerable tourism sector. The recent weakening of the GBP may already have an impact.  And the UK has, effectively, punched above its weight in the aid sector in East Africa via its funding through the EU. Of course you could argue that this money will still be spent in East Africa, but it will no longer give the UK the influence on overall EU aid policy and spending.  What we’re stuck with in the short term, however, is increased volatility. Markets react to such momentous news. This is not necessarily always rational: We don’t know if the exit will actually happens, nor do we – and the UK’s leading Brexit campaigners! – actually know what a reordered, post-Brexit relationship with the EU should, or would, look like.  And it will take at the very least two years once the formal notification has been made to determine this, most likely much longer. CBK governor Patrick Njoroge said that central banks around the world were taking measures to address the volatility triggered by the Brexit referendum, but we have to deal with the wobbles for now.  And, as with Greece’s recent crisis, I think the EAC should take a very careful look at what is going on in the EU: not because regional integration should be abandoned, but because it’s possibly far more difficult than anticipated.

The writer is an independent country risk analyst
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