British Prime Minister David Cameron announces his resignation after losing the vote in the EU referendum, outside his office at 10 Downing Street in London, on June 24, 2016. Picture: Facundo Arrizabalaga. Credit: EPA
Durban - After a day of turmoil on global markets following Britain’s shock vote to leave the EU, South Africans were relieved when the rand made up some of the day’s losses against the dollar as the government tried to calm local investor fears.
President Jacob Zuma said local banks and financial institutions could withstand the Brexit shock, as they did during the 2008/09 global financial crisis. Finance Minister
Pravin Gordhan said the Treasury and Reserve Bank were monitoring events into next week. Government, labour and business would have to work together to stabilise the economy, reassure financial markets and inspire confidence in residents and potential investors.
By 3pm on Friday, the rand recovered slightly and was 3.7 percent weaker at 14.9305 against the dollar after tumbling more than 7 percent in early trading, to 15.68 to the dollar.
On the Johannesburg stock exchange companies with exposure to Britain suffered, but gold stocks soared in tandem with the metal’s price, which surged as much as 8 percent to its highest in more than two years as demand for safe havens assets rose after the vote.
Investors fear Brexit could spark anti-establishment movements in other European countries, some of which have seen a decline in traditional political parties. British Prime Minister David Cameron, who had led the campaign to remain in the EU, announced his resignation. Britain has two years to negotiate an exit.
The pound fell as much as 10 percent against the dollar to touch levels last seen in 1985, on fears the decision could hit investment in the world’s fifth-largest economy, threaten London’s role as a global financial capital and usher in months of political uncertainty. The euro slid 3 percent.
World stocks saw more than $2 trillion (R30 trillion) wiped off their value. Big banks took a battering, with Lloyds, Barclays and RBS falling as much as 30 percent.
But in KZN, business leaders also saw positives in the split. The president of the Durban Chamber of Commerce and Industry, Zeph Ndlovu, said while the devaluation of the pound had impacted on the value of the rand, this storm also created opportunity.
“SA could see more trade with Britain as its focus changes to developing markets. SA is still seen as a favourable investment destination, having demonstrated its resolve to grow the country’s economy.”
KwaZulu-Natal Agricultural Union’s lead economist Wandile Sihlobo said Britain could offer new markets for citrus, previously hampered by tough protection of EU citrus growers, wines and fresh fruit.
The chief executive of the Pietermaritzburg Chamber of Business, Melanie Veness, said: “Considerable short-term volatility can be expected in the wake of this surprising outcome and it is difficult to anticipate what will happen.”
Britain was South Africa’s eighth-largest trading partner last year, according to figures released by the Department of Trade and Industry, accounting for R41 billion in exports and R35bn in imports.
The two-year period for Britain to negotiate the terms of its exit from the EU, would give South Africa and the southern African Customs Union at least that long to negotiate an agreement with the UK, the department said.
But Marelise van der Westhuizen, Head of Risk Advisory, Norton Rose Fulbright SA Inc, said there was a risk South Africa would end up near the back of the queue as Britain renegotiated trade agreements with all its significant trading partners.
Wits economics lecturer Yudhvir Seetharam said if Britain’s decision triggered a recession in that country and the EU, the negative sentiment could spill over into South Africa, causing a recession here as well.
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