On June 24, the UK voted to leave the EU in a historic referendum. In the wake of the decision the pound sunk and markets went wild due to uncertainty as I explained in this post.
No one can know for sure what a Britain outside the EU will look like or even whether the UK parliament will take the formal steps to officially leave the EU. Therefore, it is impossible to know for certain the impact of the Brexit vote on Ghana and the global economy. However, I will try to explain the implications of the Brexit vote for Ghana based on the immediate effects on the markets and the assumption that the UK will take the actual step of leaving the EU.
Firstly, Brexit triggered a sharp decline in the value of the pound sterling against the cedi as shown below.
This has the effect of making imports from the UK cheaper and exports from Ghana to the UK more expensive. This is good news for businesses who import goods from the UK but bad news for those who export to the UK and people who receive remittances from the UK. UK-Ghana trade stands at £1.3 billion and Ghana’s trade deficit with the UK could increase as a result of the loss in value of the pound.
Foreign minister, Hanna Tetteh, has already said that a formal exit of the UK from the EU will mean a renegotiation of trade deals between both countries. Will the UK want a separate free trade agreement like what Ghana is set to sign with the EU? The UK does not currently have the trade negotiators necessary to establish trade deals post-Brexit and we’re likely to have a period of uncertainty during negotiations which is bad for trade.
Also with remittances, Brexit is expected to have a significant impact on the UK’s economy. If the effects of Brexit should have anywhere near the negative impact predicted before the vote then this could reduce the amount that Ghanaians in the UK are able to send to relatives in Ghana. Remittances from Ghanaians abroad was $1.92 billion last year.
Brexit also had the effect of driving up gold prices since investors see it as a safe haven in uncertain times. You can see how the price of gold has shot up since the Leave vote’s victory below.
Gold accounted for 31% of Ghana’s total export revenues in 2015. An increase in gold prices is therefore a positive development for the country, at least in the short term.
The effect of the post-Brexit uncertainty on the willingness of investors to lend money to the government is currently unclear. In the short run, investors will be more likely to seek tried and tested investments and may shun bonds from Ghana and other emerging markets. Already the finance minister has suggested that Ghana will seek to issue bonds in emerging markets because Brexit has created an unfavourable environment in Western countries for Ghana’s bonds. However, I believe that in the long run the low interest regime going to arise from the loose monetary policies of the US Federal Reserve and the Bank of England to tackle the shock of Brexit will encourage investors to look elsewhere for yield and therefore reduce the interest rates they will seek in buying Ghana’s bonds.
Immigration was the biggest concern for voters who voted for the UK to leave the EU. It is likely that the next UK prime minister will be under pressure to reduce immigration numbers and this could affect the number of Ghanaians given visas to the UK. If any post-Brexit deal between the UK and the EU does not include the free movement of people, then it is likely that Ghanaians in the EU will find it more difficult to go to the UK.
As I said from the start it is only when the UK formally exits the EU and arranges new trade deals with the rest of the world that we can truly determine what the impact of Brexit will be. But for now, given the effects I have discussed above, I am not expecting any significant economic impact of Brexit for Ghana.