Impact of Brexit on EU-ESA trade and investment relations

The Project at A Glance

The UK voted to leave the European Union (EU), on 23 June 2016, referred to as Brexit. Given the political and financial importance of the United Kingdom for the EU, it is likely that the implications of Britain’s decision to leave the European Union will have direct consequences for trade, services, investments and development finance assistance in the Eastern and Southern Africa-Indian Ocean (ESA-IO) region.
International Economics conducted a study for the Indian Ocean Commission to analyse the impact of Brexit on EU-ESA trade and economic relations.

What We Found

Specifically, the study aimed to measure the significance of the UK in EU-ESA trade and investment relations, assess the risks related to Brexit, and the likely way in which future EU-UK institutional relations will work. Brexit opened a “Pandora’s Box”, as no independent state has ever tried to exit the EU. As a result of Brexit, the UK will no longer a member state of the EU, the world’s largest network of trade agreements. Following this same logic, it will also mean that the rest of the world will no longer have preferential market access to UK. The most immediate consequence for ESA States will be that the iEPA will, on the day after Brexit, be terminated with respect to the UK. The effects of Brexit on trade will vary by country according to the weight of the UK in a country’s total exports. Our team analysed several possible scenarios of Brexit and its likely economic effects using the CGE model.

Our Strategy and Impact

There are a number of risks associated with the UK’s exit from the EU, for the UK and EU economies, and also for the global economy. The potential economic slowdown would have major implications for international trade flows. Nevertheless, as with all changes in policy, a number of opportunities also arise for ESA States, in terms of revisiting the current trade relationships they have and the options for concluding a new preferential agreement with the UK, and possibly the EU.We recommended the need for ESA States to initiate discussions with the UK as soon as possible, as the failure to pre-negotiate a “replacement” agreement providing for a smooth transition once Brexit is implemented (Brexit +1 day) would mean that bothsides will have to trade with each other on MFN terms until a new FTA or other preferential agreement is concluded between the parties.

Our Core Solutions

Brexit would cause disruption to EU-UK trade, and also to businesses around the world. It is important for businesses to understand the operational impacts of Brexit to their operations. At International Economics Consulting, based on our experience in international trade and risk management, we can assist businesses to build resilience and provide practical measures to mitigate the shocks of Brexit.