Post-Brexit Concerns in Emerging Markets: Aid and Trade

Following Brexit, not only did the British pound drop to its lowest level against the dollar ($1.3230) since 1985, but it hit record lows across numerous currency markets. For many in emerging markets, the sudden depreciation of the pound and subsequent volatile shifts in European economies spell uncertainty and raise specific questions regarding the future of economic integration beyond the borders of the European continent.

To assess just how heavily shifts in the British and European economies are likely to affect economies in emerging markets, members of OnFrontiers’ Expert Network discussed country-specific post-Brexit concerns.

The top concern for OnFrontiers Experts, Ely Katembo, Thomas Ferede, Bariki Kaale, of the DRC, Ethiopia, and Tanzania respectively, was the status of aid being afforded to their countries by the UK. This concern is prompted by the possibility of severe economic downturn and reduced economic performance within the UK following the Brexit decision. Ferede alluded to the fact that the 0.7% of its GDP that the UK donates annually to global aid projects could come to be considered an unwarranted expenditure. This speculation can be evaluated on the basis that the UK is one of only five countries to have met the 0.7% of GDP foreign aid target in 2014, set by the United Nations.

Beyond the issue of foreign aid, Experts Philip Koitelel and Dirk Hansohm, both of Kenya, clearly expressed concerns related to international trade.

In terms of exports, financial instability in the UK is bound to have an adverse effect on Kenyan exporters, especially when considering the fact that, as stated by Koitelel, “The UK alone accounts for 33% of Kenya’s exports to the EU and the Netherlands, another country threatening to leave the EU, is another top destination for Kenyan exports.” Hansohm added that “Reportedly, many exports to EU are going via the UK; these will likely have to be redirected to EU directly,” potentially further disrupting the state of trading among Kenya and multiple European countries. Both Experts went on to reiterate the importance of determining how Kenya will navigate this possible setback as time goes on.

In terms of imports, the outlook is significantly more positive. The depreciation of the pound and consequent appreciation of the Kenyan shilling is good news for those importing from the UK. Importers will be able to take advantage of increased buying power, at least during the short-term.

The commonality among all of the insights OnFrontiers received from Experts was the discussion of the uncertain future of globalization. The UK’s departure from the EU calls the accelerated rate at which not only Europe but the world as a whole, has globalized during the last 25 years into question. For Venkataraman Subramanian, located in India, the UK’s decision endangers the spirit of unity for the sake of shared economic prosperity – something those in emerging markets take seriously as they continue to push into economic spaces previously only available to those in developed economies.

Further reading on Financial Spillovers.

One thought on “Post-Brexit Concerns in Emerging Markets: Aid and Trade

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