Currency instability – the fall of the pound will affect all global currencies as they readjust to the new reality. The dollar was strengthening before the pound collapsed and this will only make it stronger. Importers will suffer as prices go up, exporters get more powerful dollars which they convert to higher profits locally. The pound might stabilize at $1.40 from the current $1.34, which is a fall from $1.50 the week before. British goods are now cheaper, so UK might be a trade destination to rival Dubai.
Aid – The fall in the pound means the value of UK’s aid to Rwanda has gone down by 14% and this could lead to a budget shortfall of 3%, though the Pound looks like settling at $1.40. The bigger question is future funding. Will the UK reduce its aid budget? If so, by how much? With the looming prospect of austerity, we can expect calls to reduce the aid budget and spend the money at home. The last few years have proved austerity doesn’t work, it is better to borrow for future growth than cut money to projects which have a social impact. Rwanda is one of the best examples of how a country can effectively use aid, all over the country we can point to good projects that have improved life. So I doubt Rwanda will be one of the ones to be cut. In the longer term with more growth in UK we might see more aid as they compete with EU for influence.
New markets – with the UK trading 43% of its goods to EU, it is tricky to extricate itself from the bind of the EU. However, UK runs a trade deficit with EU of $160bn or 5% while Germany makes 7.5% trade surplus. UK will need to expand trade with emerging economies to plug the gap. EU regulations are a huge barrier to African exporters, with excessive standards and tariffs that nullify any potential profits. If Britain can have laxer regulations it would help us export more. Britain is an Island that imports almost everything, it needs to trade to survive, and it will never be isolationist. A weaker EU is in our interests, for more competition for markets, investment and labour. UK ceded too much ground to China in the recent years, Britain would need to invest $100bn a year in Africa to match the power. The Government doesn’t have that money but the City of London has trillions to invest, they lost $2 trillion in one day after Brexit but they made it back already. Rwanda can be at the front of the queue if we are ready, and seek more investment from UK, specifically the City, which is where most minerals and commodities are traded.
Less lecturing – The EU has been nauseating of late, a pious sanctimonious voice for Humanity while they let migrants drown in the sea. The same leaders are accused of being out of touch by their own voters, ooh wait…. They are unelected. Unelected leaders have been lecturing elected African leaders on democracy for decades. If EU is so democratic, then why can’t Juncker and the other commissioners stand for election? They know they would lose. The EU has now lost all credibility as an organization, the crucial word is “Union” and they are not united. They have much bigger problems; they won’t come to tell us how to paint our house, when their house is on fire. UK will be the nicer uncle to run to for help, thus nullifying EU power. The intellectual Left that led fight against demonized African leaders has been defeated by the Working Class Left, who are less bothered about human rights compared to fair economics. Foreign policy will be very different, reviving Commonwealth ties in competition with China and America. They will still object to massacres and extreme abuses, but a middle of the road overzealous leader is acceptable.
The overall effects are yet to be seen, the events are fluidly changing, but the worst fears are yet to arise as markets have settled. The biggest uncertainty is what kind of government there will be, both the Tories and Labour are in internal wrangles, and Scotland wanting to peel off. Then it is a question of what kind of relationship UK will have with EU. At the moment, the EU is being harsh, threatening the harshest punishment like a spurned lover. Neither side can afford to lose, the markets have shown that the EU was worse hit than UK, 5% losses in UK, were 10% losses in EU. If UK loses an eye, then EU will lose both eyes. The relationships between Rwanda, UK and the EU are yet to be determined until the UK-EU relationship is finalized. The best for all will be UK to be part of the European Economic Area like Norway and Switzerland, to have the benefit of trade without other unwanted aspects, like Statehood. Hopefully, UK can have lower export tariffs that allow emerging economies like Rwanda to flourish and then manufacture goods to EU standards for export to the continent.