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WESTERN CAPE PERFORMANCE AND

OUTLOOK

The Brexit Impact
The outlook for the province is informed by global, national and regional developments.

At a global level, recent developments in the UK are of significant interest given the
economic relationship between South Africa (as well as the province) and the UK,
demonstrated through trade, tourism, investment and the financial markets. The UK is
amongst the top export destinations, especially for the province’s food and beverages
exports. It is also one of the leading source markets for the tourism sector, and it
significantly contributes to Foreign Direct Investments in the province.

The initial reaction to Britain’s decision to exit the EU brought with it uncertainty and
shocks, punctuated with the depreciation of the Pound, which declined by around
8% against the US Dollar. There was a 3% fall in equity prices, and a fall of between 4%
and 6% in almost all commodities prices – with the exception of gold which firmed by
around 3%. This uncertainty was also felt in South Africa, where the Rand depreciated
initially by 7% to the Dollar before slightly gaining, though remaining 4% weaker than its
initial rate before the outcome of the referendum.

Current trade agreements are primarily with the EU, and therefore EU market access
is not threatened. Of note is the Economic Partnership Agreement (EPA), a trade
agreement between the European Union and six countries of the Southern African
Development Community (SADC). The EPA promotes the Tariff Rate Quota (TRQ) of
South African wine to be imported duty-free into the EU for a specified quota, which is
set to more than double in the first year of implementation for bulk and bottled wine.
The UK will have to renegotiate with each trading partner. This could be a lengthy
process, but should not take as long as the fifteen years taken for the EPA. Complexities
are less, given that this process will be between two economies as opposed to two
blocs of economies (SADC vs EU).
What is evident is that there is uncertainty concerning the impact of Brexit on the
Western Cape economy due to a number of factors which include internal political
discord in the UK concerning the exit decision, and the rules which will govern trade
with the UK. The financial markets maintained a level of volatility post Brexit, signalling
that this uncertainty is still prevalent. Currently, trade figures show that:

1. Of the R30 billion WC exports to the EU, 55% are food and agri-product related. It
is hard to imagine a sharp decline in these products due to the nature of demand
thereof.
2. R8.7 billion or 28% (2014) of the WC’s R30 billion exports are exported to the UK.
If the UK is a logistical transit to the EU, some of the R8.7 billion is at risk. A very
small percentage of that is likely transit products destined for the EU. Given that
SA’s current trade agreements are primarily with the EU, our EU market access is not
threatened. New agreements will have to be developed with the UK.

86 QUARTERLY ECONOMIC BULLETIN 2016