Why Brexit is bad news for South Africa

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The decision by British voters to exit the European Union is going to have far-reaching financial consequences for South Africa and will have a negative impact on the economy.

Neil Roets, CEO of debt management firm Debt Rescue, said South Africans should prepare themselves for tough times.

“The United Kingdom is the biggest single investor in the South African economy and with the massive uncertainty the UK about the actual impact of the leaving the EU, we can expect severe volatility in the markets and quite possibly a further slowdown in the economy.

“This is going to have a direct impact on the workforce in the form of rising prices and possible layoffs. With the rand already under pressure imported goods which includes things like crude oil and maize meal which is in short supply form local growers is going to increase in price significantly,” said Roets.

“Virtually everything we consume is transported by road and we can expect commodities such as food to increase further still,” he added.

Roets noted that fuel prices are also expected to increase significantly in July.

Independent economist Dawie Roodt predicted a 50 cents a litre increase in the price of diesel with petrol costing 15 cents a litre more.

He said there was no doubt that South Africa was entering uncharted territory in terms of the full impact of Brexit and the effect that it was going to have on the economy.

“The exit of the UK from the EU may be the beginning of the end for the European Union. Right wing parties across the EU have been making it clear that they were dissatisfied with the rules and regulations imposed on them by Brussels.

“Now that the UK has actually voted to leave, I expect several other EU member states to take the same route.

“Exactly how this is going to impact the South Africa is not quite clear at the moment but I have no doubt that it is going to make life much more difficult for consumers.” Roodt said.

Daniel Silke, director of the Political Futures Consultancy, said that South Africa requires a broader ‘risk averse’ global investor climate. “Clearly, any Brexit-induced shock to the international financial system will do us no favours.”

He said that a Brexit vote will not only create currency instability, but it can also precipitate a sense of unease within the existing European Union over a host of member countries and even national regions which are increasingly sceptical of the entire EU project.

“Trade remains at of the heart of the UK-SA relationship. Any Brexit vote would hamper levels of trade between UK-based companies and South Africa as a result of negative economic consequences on London.

“Our country would also be harmed by the possible renegotiation of trade agreements between the UK and her EU counterparts,” Silke said.

The rand tumbled against the dollar in trade on Friday after Britain voted to leave the European Union. By 12h58, the rand traded at R15.21 against the dollar, down 6.38%. It firmed 2.83% against the pound, at R20.84, but weakened against the euro, by nearly 3%, to R16.83.

“Global risk appetite is being obliterated in the wake of the largest risk off event in recent times,” Nedbank Capital said in a note. “Markets are firmly in the grip of ‘risk off’, and caution is advised.”

Investors worried that Brexit could spark anti-establishment movements in other European countries, some of which have already seen decline in traditional political parties, Reuters reported.

The JSE All Share Index lost 3.5% to 51,696 points, while safe haven gold jumped 5.3% to R1,323.

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