David Ofosu-Dorte is a senior partner at leading Ghanaian law firm, AB & David. We continue our "In conversation" series with him below.
1. Overall is there a material impact on Africa from Brexit in both the short and long term?
I don't foresee a major impact on traditional exports such as cocoa as these tend to be protected under special export arrangements. However, there will be a long term impact on trade of non-traditional exports such as handicrafts, particularly for Ghana and Nigeria, as a large part of the exports from these countries are to the UK. The result of this is two-fold. Firstly, those operating in non-traditional sectors are likely to be the most vulnerable following the UK's departure from the EU, especially smaller companies. Secondly, African countries may need to improve commercial relationships with other European countries to mitigate any adverse effects on trade following Brexit. AB & David has already had two sessions with the European Union Office in Ghana in order to work out how businesses can best survive with those countries remaining in the EU.
In the short term, the UK is also likely to focus on improving its own trade relationships. There will clearly be a need for the UK to negotiate direct bilateral agreements with African countries. We have already seen that the UK has prepared by establishing dedicated Brexit teams which will develop the UK's trade strategy, including investments in Africa, in a post-Brexit environment.
2. What are the 3 most significant impacts in your view?
Further to the above, there will be a noticeable impact on trade. The UK’s economy is not as integrated with the Francophone African countries as France so the focus may be more Anglophone. Unless the UK can become integrated in a similar way (and this will be difficult because France has a strong influence in West African Francophone countries), it will be required to enter into multiple bilateral trade agreements with West African countries. The Ghanaian government has already hinted that it is likely to ask the UK to negotiate a bilateral trade agreement which operates in a similar fashion to the existing Economic Partnership Agreements. I believe that donor aid will be reduced. The UK is one of the most significant economies in the EU. The size of the EU's budget will therefore be reduced should Brexit occur and, consequently, the EU's ability to provide aid to Africa will weaken, particularly given that many EU countries are facing their own economic challenges (such as Greece and Portugal).
3. We now know that the current government intends to trigger Article 50 by the end of March 2017. How can African nations and businesses begin to position themselves to mitigate any adverse effects of Brexit and how can African nations maximise any opportunities presented by Brexit?
For African nations, the right step is what Ghana has hinted at i.e. to negotiate bilateral trade agreements with the UK. Unless Africa can completely change the paradigm of its economy and begin to increase intra-African trade significantly (and that doesn't happen overnight!), in my opinion, African countries should attempt to achieve most of the same terms as those which may exist under the current EPAs in their bilateral agreements as this will be most expedient and in the mutual interest of the parties. Remember, it has taken over ten years to reach conclusion of the EPAs! African nations can also put pressure on the UK to encourage more support from DFID in order to reduce any adverse impact of Brexit on funding from the EU.
In terms of the private sector, businesses should develop strategies to diversify and find more buyers outside of the UK. It doesn't make general economic sense to target over 20% of your exports to one country nor does it make much commercial sense over-export to the UK in a time of such uncertainty.
4. Will other countries outside the EU be able and/or willing to enhance their role in Africa?
I expect so and I think that Africans will encourage the investment and trade relationships. The EU is still collectively a larger market than the UK alone which will be attractive to forward-thinking African businesses. Also, in recent years, sub-Saharan Africa has seen an increase in investment from countries such as China, Japan and India. All of these countries have invested heavily in infrastructure. For example China is investing in the building of railways (between Mali and Senegal) which will facilitate trade between African countries.
Brazilian businesses have also increased their presence in Mozambique, Angola and Ghana, though this has slowed down slightly because of the Petrobras scandal. It will be interesting to see whether the evolution of the BRICs Bank (now called the New Development Bank) will facilitate investment from businesses in these emerging economies.
Another area where there is likely to be growth outside of the UK is alternative finance. Malaysia has become prominent in providing alternative funding sources to businesses in Africa because a lot of Islamic finance used in African transactions tends to come from Malaysia and I expect that this will continue.
5. Many have seen the UK as an important voice for Africa within the EU. Do you think that the EU is likely to adopt more protectionist measures once the UK withdraws its membership from the Union? Do you see any other countries within the EU assuming this voice once the UK has left the EU?
The UK was indeed a balancing force, mainly because of the ties of its economy to Anglophone Africa. Brexit will in the short term, weaken the UK's position. It's not clear whether France will assume the former voice that the UK had in relation to African interests but as mentioned previously, France is well-integrated into the Francophone African nations and it is likely to continue to assert itself through the arrangements that it has with Francophone nations. A big disadvantage for the UK is that the OHADA regime is likely to become strengthened as a result of Brexit. Most investors will realise that African economies are not very big individually and so it is more commercially prudent to engage in cross-border investments. OHADA makes it easier to do business in the participating countries in Africa. Interestingly, a number of investors will want to continue to transact in English and under English law however, I do not think that this gives the UK any particular advantage. Many francophone countries already conduct business in English and use English law as the basis of their transactions. At AB & David, we have seen a growth in the number of referrals from France, even when the transaction is under English law. This suggests that France may continue to grow as a transit point in Africa.
6. There has been a greater move towards interdependence (e.g. the establishment of regional-economic communities such as the East African Community and the Economic Community of West African States) and, in some ways, the EU has been a benchmark against which these unions can model and measure themselves. Is regional integration likely to be affected by Brexit?
If anything, I think that Brexit will encourage African nations to integrate more. I am yet to meet an African advisor or businessman who thinks Brexit is a good thing and because of this, African nations are unlikely to follow suit. The existing regional economic communities are working well and many African countries depend on each other more than it may appear. By way of example, 35%-40% of the students in the top ten universities in Ghana are from other West African countries. Similarly, today several street hawkers in Ghana are citizens of other African countries. This was not the case some years ago. The all-Africa passport, recently launched, in some ways was the conclusion of the natural progression of this movement of integration.
Equally, African economies are not matured and therefore, the most expedient way to stimulate growth and development is to integrate and reduce trade barriers. The UK will need to appreciate this in developing its trade strategy in the post-Brexit era.
7. What lessons can Africa learn, if any, from Brexit?
The biggest lesson is that African nations cannot rely on economies of other countries as a way of developing our own economies. Our economies are structured differently which has allowed Africa as a continent to withstand some global crises such as the financial downturn of 2008. African nations should appreciate this and continue to integrate as a method of managing their own economies and positioning themselves. A simple vote in UK can affect a lot of African economies. In addition, African nations should not follow the examples of asking for referendum where the ordinary voter may not necessarily understand the implications of the results!