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Britain's EU exit points to growing nationalist bug in the West

Saturday June 25 2016
DennisKabaara

Dennis Kabaara

Any national referendum that ends in a narrow margin of victory for one side is always a sure sign of a nation divided. That’s one way to look at Thursday’s vote in which the people of the UK voted to exit the European Union by a 52-48 margin. 

Some analysts have observed a neat split between the beneficiaries of globalisation (the “Remain” group) and its victims (the “Leave” group), and it is no surprise that England’s former industrial north, traditionally a Labour stronghold, have voted with their feet.  Others have looked at it as a simple urban-rural divide — a veritable gap between London and the rest.

Beneath these symptomatic observations, however, one gets a sense of a growing “nationalist” bug in the West, no doubt inspired by China’s increasing hegemony in the global economy. 

It was almost as if Donald Trump, having succeeded in his angry message to “Take America back” crossed the Atlantic to deliver similar tidings to his British cousins. No surprises, then, that he was triumphantly present in the UK when the vote was held, and in its aftermath.

Three political perspectives are useful in assessing this Brexit vote. First, and in very Trump-like fashion, this was about “taking our country back from city-slicker politicians.”

If representative democracy isn’t working then participatory democracy does. This was a clear message to UK politicians in a country experiencing slow job growth and falling productivity amid struggles with a twin budget and trade deficit. Yet, Brexit itself will expose the UK to even more economic difficulty in a global market.

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Second, one senses this referendum played well to Tory hardliners eager to shift the party position away from Prime Minister David Cameron’s deal making and much more firmly towards the (anti-EU) right.

It is instructive that, in a survey carried out by the independent Pew Research Group in early June across 10 EU countries, a super-majority of people from Greece and the UK felt that some of the EU’s powers should be returned to their national governments. That should have been a warning sign.

Third, what does the mixed Brexit vote, with Northern Ireland and Scotland voting for “remain” now mean for the “unity” of the United Kingdom? In the immediate aftermath of the vote, top politicians in both nations have called for a “second referendum,” the implications of which are unfathomable.

Mostly unsaid, however, is that this was a vote against young people. According to the Pew Research Group, the EU’s popularity and credibility as an institution was greatest among 18 to 34 year olds who have grown up during its time, and least among over 50s many of whom have suffered the effects of globalisation (and China).

The political uncertainty that has followed the vote, including PM Cameron’s resignation, contributed much to, especially, financial market uncertainty. 

The demand by EU leaders that Britain must “leave immediately” rather than after two years will add to the growing confidence crisis. There are fears that Brexit could lead to other exits, putting the entire European project in serious jeopardy (though some will argue that the project was already in trouble).

How does Brexit affect East Africa?  First, the likelihood of a recession in the UK will significantly affect outward exports from the region, especially Kenya’s horticulture. 

A long-term fall in the pound sterling will further challenge this export base. The signalling here is clear on the need to enhance trade within and across Africa and other emerging markets. 

Second, investment. The UK has been a leading source of FDI in the East African region. With the IMF gloomily predicting recession and even economic contraction, the multiplier effects of this retrenchment will be felt to some extent in the region. 

A counterpoint to this, of course, is that China is now taking the stack on FDI in the region. In a sense, therefore, the point for East Africa is that diversification is not just about products, but markets and investment sources. 

Third, there have been fears around massive capital outflows and financial market uncertainty over Brexit. That the pound sterling fell to its lowest level since 1985 and investors rushed to the dollar and safe havens like gold, stoked fears that our East African shillings would come under serious pressure, especially those perceived to be overvalued like the Kenya shilling.  Watch this space.

Fourth is the overall matter of trade and aid.  Brexit’s “real economy” impacts — in addition to exports — may also include new uncertainties around the need to renegotiate any trade and aid agreements and protocols outside the EU, especially in a context where, despite Brexit campaigners’ contrarian argument, the UK moves into a new era of inward-looking protectionism.

Dennis Kabaara is a management consultant ([email protected])

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