What Britain’s exit from EU means for Kenya

UK PM David Cameron to step down by October. (Photo: Courtesy)

In a democratic exercise that threw the entire world into a spin, Britain voted yesterday to exit the European Union. And immediately the results were out, Prime Minister David Cameron announced his resignation.

The vote by Britons to leave the EU means the United Kingdom – Kenya’s colonial master, closest political ally and biggest source market for tourism – has formally started the process of disengaging from the 28-member union.

The EU treaty allows member countries free movement of people and goods in a market of more than 500 million people.

Cameron was until yesterday anticipated to be the highest profile visitor to Kenya this year, but his resignation casts doubt if the State visit would happen.

President Uhuru Kenyatta’s spokesman Manoah Esipisu said State House was not sure if the visit would still happen, referring inquiries from The Standard on Saturday to the Foreign Affairs ministry.

Cameron announced his resignation early yesterday after the defeat was interpreted as a vote of no confidence in his leadership. He said he would be leaving office in October.

“This is not a decision I have taken lightly, but I do believe it is in the national interest to have a period of stability and then the new leadership required,” Cameron said in a televised address where he announced his widely anticipated resignation.

More than half of the 35 million voters chose to leave the EU in a process informally dubbed Brexit, coined from Britain Exit, handing a major loss to Cameron’s “Remain” agenda.

A win for the “Leave” campaign slams the door on the rest of Europeans who would in future require travel and work permits to enter and work in the UK.

Emboldened by the Brexit, citizens of other disgruntled European countries such as Sweden, Denmark and France are reported to be petitioning for a similar move in their respective countries.

A fractured EU also means that Kenya would be forced to seek new trade agreements to access the British market, whose annual trade is estimated at Sh83 billion.

Tea, flowers and vegetables make up for most of the exports to UK, while the principle imports include machinery, second-hand clothes and medicine. National Treasury Cabinet Secretary Henry Rotich said Kenya expects some impact from the vote considering the close ties the country enjoys with the UK – which is already a major economy globally.

“Any development will affect the flow of finances from the UK as the exit may have an impact on the financial flows to Kenya,” Rotich said.

Being the colonial master, a big number of major companies in Kenya are owned by the British, including the largest tea growers – Williamson and Kapchorua Tea companies.

UK firms are also big investors at the Nairobi Securities Exchange, with massive investments in Safaricom, East Africa Breweries and Standard Chartered Bank.

Barclays Bank of Kenya is also owned by a UK company, which has already started disposing its African business, partly because of currency volatility shocks.

Fears of a sustained devaluation of the British Pound could inform a capital flight from Kenya to currencies that are perceived to be more stable, to further hurt the already weak currency.

And in reaction to the possibility, the Central Bank of Kenya announced early yesterday that it would take any measure to cushion the Kenyan Shilling from external shocks associated with Brexit.

“The Central Bank of Kenya stands ready to intervene in the money and foreign exchange markets to ensure their smooth operation. Other major central banks have also announced their readiness to intervene to minimise disruption in their markets,” Governor Patrick Njoroge said.

Soon after the final results confirmed that UK citizens were keen on leaving the Union, the British Pound tumbled on the international markets to touch a three-decade low against the US dollar.

The reverberations of the exit were immediately felt in Nairobi, where foreign exchange traders quoted the Sterling Pound at a low of Sh138 during the day.

Bank of England, the central bank of Britain, said it expected some volatility on the Pound but announced it would take any necessary steps to ensure stability.

By noon, BoE had pledged to provide an equivalent of about Sh40 trillion, nearly seven times the size of the Kenyan economy, to support the financial markets and provide stability for the Pound.

Former East African Community Secretary General Amb Francis Muthaura said Brexit could mean slower growth for the UK and the other EU countries, with long-term consequences for the entire world.

“It is bad for the whole world. Countries are stronger together than when they are apart,” Muthaura said, citing that Kenya, Uganda and Tanzania got into economic depression after the collapse of the EAC.

The decision taken by the UK, the second biggest economy in the EU after Germany, could jolt other nations to follow suit with grave implications for Kenya.

At home, the UK is facing a different problem that could see Scotland and Northern Ireland leave to significantly reduce its size and population. Scotland and Northern Ireland voted overwhelmingly in favour of remaining in the EU.

As such, Kenya could be facing major uncertainty over the decision taken more than 10,500 kilometers away from Nairobi.