As polling opens in Britain on Thursday for a referendum on whether to stay or leave the European Union, African central bankers are closely watching and preparing for any results the referendum will throw their way.
The British vote, popularly known as Brexit, could have greater consequences on how Africa — where scored of countries were colonized by the British Empire — trade and relate with one of their largest partners.
While colonialism ended decades ago, Britain’s relations with its former colonies is still strong as ever under the Commonwealth. So are other European nation like France and Portugal.
Opinion polls suggest that the Brexit referendum will be close to call as most British citizen are divided, including those of African decent.
According to Patrick Njoronge, Kenya’s central bank governor, a vote by the British to leave EU will have serious consequences on emerging markets, including the East African country, which exports most of its horticulture and sources its tourists from Europe.
“It’s going to affect all of us and there’s no insurance, no position we can take to manoeuvre ourselves to be in a better position,” Financial Times quoted the former senior adviser at the International Monetary Fund (IMF) saying at a press conference in May.
Njoroge added that an exit vote in the UK’s EU referendum could be worse than the US decision to taper its quantitative easing programme in May 2013 that cut investment inflows into emerging and frontier markets.
Brexit or Stay?
Sub-Saharan Africa is currently struggling with effects of a global commodity prices rout, a slowdown in the Chinese economy — the regions’ largest trade partner — and a Brexit will add to these uncertainties that have caused many currencies on the continent to weaken.
Already, the IMF estimates the region will record growth of 3 per cent this year — down from 3.4 per cent last year, with the continents largest economies, Nigeria and South Africa, facing an imminent recession.
The South African economy, the most industrialized nation on the continent, contracted by 1.2 percent on the first three months of 2016, with annual growth predicted to be at just 0.6 percent.
The country’s currency, the rand is seen as one of the emerging market currencies most vulnerable to the possible impact of Brexit, due to the country’s high dependence on British lenders for their foreign currency reserves, Bloomberg reported.
This Day cited research by investment bank FBN Quest that suggested that the British-Nigeria ties would not be likely to be significantly affected if the UK votes to leave the EU.
“We would not expect much, if any change in the total envelope, given the traditionally close bilateral ties and Nigeria’s strategic importance,” analysts at FBN Quest said in a research note.
Razia Khan, head of research for Africa at Standard Chartered Bank, told Daily Nation that emerging and frontier markets could come under pressure if Britain exits and causes investor capital flight to relative safe havens such as US treasuries, which would lead to a stronger dollar.