BY ANTONY MUTUNGA
In 1973 the United Kingdom became a fully-fledged member of the European Economic Community (E.E.C), now the European Union (E.U), as a means of bringing prosperity to the country. However, after just two years as a member of the E.E.C the public was ready to go to its first referendum to decide whether to stay in the Common Market or not.
This was according to the Labor manifesto that was agreed upon during the Labor General Election in 1974 that gave the people the right to vote on the matter. In 1975 the referendum was put to a vote and 67% of the votes supported Britain to stay in the European Economic Community. In 2016, 41 years later, a similar turn of events took place as the Brexit referendum decided on the future relationship of the European Union and the United Kingdom (UK).
The Brexit referendum was brought about by the divide of the nation as some opted to leave the E.U while other regarded staying in the E.U the best option. The people who were in favor of exiting felt that Britain was not in control of its own affairs as they felt the E.U was benefiting more than the country while those who opted to stay felt like the union was a big boost to the Britain economy.
On June 23, 2016 the people took to the polls to make a decision on the future of the UK. With almost 52% of the votes, the leave campaign won as most people decided to exit the EU marking the day as life-changing. To most people living in the UK it was Independence Day but to some it marked the start of the decline of a once great kingdom.
Even though the people of the United Kingdom voted on leaving the EU, this was only the first step in a long journey as article 50 of the Lisbon Treaty has first to be invoked. According to the treaty, which was passed by the member states in 2009, when a country wants to leave the EU it has to first enter into negotiations with the Union, which acts as a representative of its member states.
The negotiations are to determine terms under which the country is to leave the union and they are to take a time period of 2 years although this can be extended if the negotiations are not complete when the specified time elapses. At the time, until the negotiations are complete, the country that wants to leave still remains a member of the Union adhering to their rules and policies.
However, still being a member state of the EU, the effects of Brexit vote have already started to take a toll on the rest of the economies and the global economy as a whole. The effects of the Brexit referendum were already being felt even before Britons went to the polls. Prior to the voting the value of stocks around the world started plummeting as the global markets were immediately hit due to the uncertainty, which caused financial markets around the world including Asia, America and the rest of Europe to suffer huge losses.
The uncertainty caused most investors that dealt with the UK to sell off in the markets causing the stocks to lower. The move by the previous British Prime Minister David Cameron to retire and leave someone else to lead the negotiations of leaving the EU also created more uncertainty in the short run.
This further caused investors to be more risk averse hence fleeing to safer markets causing the Sterling Pound to start falling against other currencies including the dollar. With the dollar stronger, exporters suffered because of the decline in exports. This is caused by exports being more expensive and unattractive to overseas countries.
Emerging markets were also hit as most of them, for example, South Africa, Mexico and China weakened against the dollar. Richard Segal, emerging-market analyst at Manulife Asset Management said, “Brexit has hit sentiment across the board and will have a quite strong impact on emerging markets for the next month or two, at least.”
China’s exports reduced in number in June due to the uncertainty, which in turn weighed on demand in the EU, which accounts for about 16% of China’s total exports. This eventually hurts the growth of the global economy, as China is the second largest economy in the world.
It also affected other countries worldwide including Kenya, which felt the effect of the weakened Pound in its horticulture sector where exporters lost millions of shillings. UK is among one of their largest trading partners. The exporters are usually paid in Pounds and in turn pay their freight costs in Dollars. The falling of the Pound falling against the Dollar cost exporters almost Sh8 million.
The change of guard that saw Theresa May take over from David Cameron as Prime Minister of Britain helped ease the looming uncertainty that was growing. The market volatility started to ease as the Sterling Pound and the currencies of emerging markets started to strengthen slowly against the Dollar. These were considered as short-term effects created from the uncertainty of the Brexit referendum.
The uncertainty, however, is not completely gone. Most people are weary of how things will turn after Theresa May negotiates on the terms of leaving the EU. After these negotiations are done then more adverse effects will be felt that will most likely shake the world.
As Britain will be unable to trade freely with the members of EU after Brexit, it will be forced to create new trade agreements with other countries. This will give it the chance to enter into agreements with new countries hence more places it can sell its products. This will also be an advantage to some countries for examples, African, Asian and South American countries as they look to expand the market for their products.
However, being a positive effect it will also bring about several demerits like high trade costs that will probably cause the UK to be able to make limited trade agreements with a limited number of countries so as to minimize their expenses. Even with a boost from saving the contributions that they give the EU, the country will opt to save more to fend off inflation.
Inflation in Britain will be caused by the effect of imports being more expensive which will cause an increase in prices of commodities in the country hence the people will tend to spend less. Other than affecting the prices, incomes are also expected to reduce. This move will cause Britons to reduce foreign holidays which will hurt economies like Kenya that rely on tourists from the country as a source of revenue. Britons make up a large number of total tourists that visit Kenya.
On the other hand as the EU loses one of its largest contributors, it will have to increase the amount that the other member states contribute. This will cost the other countries and some of them like Italy may end up in a similar situation to that of Greece in 2010, where it needed to be bailed out, costing the EU more. This will eventually create more uncertainty that will hurt the Chinese economy more as a country that relies on exports with a large percentage being to the E.U. It will weaken the Chinese economy and because it is a major importer of US products, it will end up hurting exporters in America as well as affecting countries that are in trade with China, for example, most African countries.
Britain still has a long way to go until it actually leaves the EU but with a dependable Prime minister who says, “Brexit means Brexit”, the actual day will come when Britain will exit. The exit will fuel other nations to rethink their options and they may eventually also want to leave the European bloc. However, before the day that Britain actually leaves the EU what we are going to experience is the effects of the uncertainty created.
