UK referendum vote casts shadow on EA economies

There is uncertainty how the region will weather away a possible fallout as Britain votes on whether to leave the European Union today. Media reports indicate that East Africa’s largest economy, Kenya, is at high risk of being hardest-hit by economic shocks associated with Britain’s vote on EU membership (‘Brexit’). In Kigali, it was mixed reactions with some saying it will not be a big deal, most especially because the British partnership with Rwanda is not based on whether the former is in or out of the EU. But others warned of possible effects. The UK, through its Department for International Development (DfID), is one of Rwanda’s largest bilateral development partners and key backers of the country’s development blueprint, the second Economic Development and Poverty Reduction Strategy (EDPRS II). DFID supports progress toward the Sustainable Development Goals, focusing on education, health, agriculture and social protection. “There may be huge decline of aid that has been flowing in terms of foreign direct investment. Also, Britain may compete with the EU countries in finding market in Rwanda and EAC,” said Josephat Bosire Kerosi (PhD), a senior lecturer of Finance and Management at the University of Kigali’s School of Graduate Studies. But Bosire also thinks there could be positives from a possible UK exit from EU. “The positive benefits include the fact that Britain would have more flexibility to trade with EAC and Rwanda outside the terms of the 27 partners of EU. However, these may require new trading contracts, which may alter the terms,” he said. Other experts warned that that if Britons vote to leave the EU, it would be a shock for the Union and the global economy, and an earthquake for Britain. On Kenya, economists warned that the country is one of those at a high risk of being hit by economic shocks associated with Britain’s plebiscite today. The central bank of Kenya governor Patrick Njoroge, a former IMF economist, told the media that East Africa’s largest economy would “feel the shock wave” alongside other global economies should Britain vote to leave the EU. Kenya is seen as vulnerable to possible loss of trade, exchange rate pressure and capital outflows – arising from the strong wave of anxiety in global markets, which is expected to follow an exit vote – should Britons vote to leave the bloc. It is believed that activity on the Nairobi Securities Exchange has more recently been anchored on strong foreign participation. In the first five months of the year, foreign investors pumped in a net of Sh1.2 billion into the Kenyan stock market alone. But Angelo Musinguzi, a senior manager at KPMG in Kigali, said the Brexit would have no effect on the EAC.Musinguzi said: “EAC policies will continue to be the same.” EAC-EU partnership In October 2014, the EAC finalised the negotiations for a region-to-region comprehensive Economic Partnership Agreement (EPA), covering trade in goods and development cooperation, with the EU. The deal, which is in line with the EAC Common External Tariff, supports the EAC’s ambitious regional integration project and is expected to be signed and ratified by October 2016. Thomas Kigabo, chief economist at the National Bank of Rwanda (BNR), who was a negotiator, could not be reached for comment but Musinguzi noted that EPAs, too, would not be affected by a Brexit. “We will continue exporting what we have been exporting,” Musinguzi said. British Prime Minister David Cameron and his euroskeptic opponents made final pitches for wavering voters on the eve of a defining referendum with the outcome reported too close to call. The vote, which echoes the rise of populism elsewhere in Europe and the US, will shape the future of Europe. A victory for “out” could unleash turmoil on financial markets. “It’s very close; nobody knows what’s going to happen,” Cameron told Financial Times, with opinion polls showing the rival camps neck and neck. Today’s vote will take place a week after the murder of ardently pro-EU lawmaker Jo Cox shocked the country, raising questions about the tone of an increasingly bitter campaign. Much of the debate has boiled down to two issues: economy and immigration. The City of London financial centre, the International Monetary Fund and the majority of British business leaders back Cameron and his ‘Remain’ camp’s stance that to leave the EU would plunge Britain into recession, costing jobs and raising prices. Supporters of Brexit have struck a chord with many voters by saying Britain would regain control of immigration if it cut itself loose from a bloc they see as domineering and out of touch. In what has become an ugly fight, both camps have been accused of using unfounded assertions and scare tactics. ‘Remain’ campaigners accuse their opponents of embracing the politics of hate, while the Leave camp say their rivals have run a “project fear” to scare voters about the economic risks. Both sides hit the road and the airwaves to appeal to the large number of undecided voters who will be decisive, along with the level of turnout. Cameron, who called the referendum under pressure from his Conservative Party and UKIP opposition, urged voters to remain in the club Britain joined in 1973. “If we leave, we will diminish our country and our ability to get things done in the world,” he told a crowd in Bristol in western England. “We’ve got one day left to hammer out that message; stronger, safer, better off. Please give it everything you’ve got in these last hours to make sure that people go out and vote tomorrow.” Opinion polls have painted a contradictory picture of a deeply divided nation. Some published since Cox’s murder have suggested a slight lead for Remain, though often within the margin of error. World leaders including US President Barack Obama, Chinese President Xi Jinping, German Chancellor Angela Merkel and NATO and Commonwealth allies have urged Britain to remain in the EU. Additional reporting by agencies editorial@newtimes.co.rw

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UK referendum vote casts shadow on EA economies