The aftermath of Brexit

The initial numbers show that UK trade with the EU collapsed by 42% in January and is currently down 18% in the first quarter of 2021. While there have been winners over the course of Brexit so far, the one to watch is Africa as Brexit creates room for London to look beyond the European Union and strengthen its ties with other markets.

Following the UK-Africa trade summit in January 2020, and the virtual summit at the start of this year, the UK has reaffirmed its commitment to its relationships with Africa. The negotiation and creation of new trading agreements, something the UK couldn’t do as part of the EU, is already leading to mutually beneficial, and better-tailored trade agreements for Africa. As Africa is home to eight of the 15 fastest growing economies in the world, its economic prosperity matters significantly to the UK as it seeks to establish wider global trade links.

Opportunities for African countries

Within the trade of goods, the removal of European market caps post-Brexit has increased opportunities for African countries trading with the UK. The UK has already managed to secure 15 EU trade deals with African countries, accounting for £21.4 billion of annual trade.

The deals include the UK’s free-trade agreement with the Southern African Customs Union and the Mozambique-UK Economic Partnership (SACU+M). This trade deal, while largely similar to the deal that the SACU+M has with the EU, has removed a number of quotas, most notably on wine, sugar, canned fruit, and fruit and fruit juices, in favour of the African countries.

New trade agreements

Ghana and the UK have also just signed a trade agreement worth £1.6bn, which covers mineral fuels and oil, preparations of fish, fruit, and cocoa. Elsewhere, Kenya and the UK have recently ratified their trade agreement.

As one of Kenya’s largest trading partnerships, with the UK market accounting for 43% of total vegetable exports from Kenya and at least 9% of its cut flower exports, the UK is an important trading partner for Kenya. And, as Kenya is part of the East African Community (“EAC”), a trading block which includes Uganda, Rwanda, Tanzania, Burundi and South Sudan, the trade deal has also been extended to the rest of the EAC as well.

The AfCFTA as the largest free trade agreement in the world

In addition to the negotiation of trade agreements with the UK, Africa also ratified the African Continental Free Trade Agreement (“AfCFTA”) at the start of this year, easing intra-African trade. This makes the AfCFTA the largest free trade agreement in the world, and opens opportunities for global investors looking to invest capital in Africa, and businesses in Africa hoping to secure funding.

It is estimated that the AfCFTA will increase Africa’s exports by $560 billion, increase intra-continental exports by 81%, and increase non-African country exports by 19%. The agreement will also make global trade with Africa easier through unified regulation and processes, which in turn attracts investments and allows for a seamless operation.

Africa is focusing on ESG

While the UK is intent on delivering improved trade relations with Africa post-Brexit, it can also utilise these opportunities to stimulate growth in a number of key sectors. In line with the UK’s strategy around the green transition and ESG, Africa offers a wealth of opportunities for British businesses to invest in developing sustainable infrastructure. The Continent is not only young and growing, but has huge infrastructure needs and is home to some of the most fruitful geographies on the planet which presents several untapped opportunities.

Africa is the world’s largest provider of specific commodities, including platinum, oil and gas, diamonds, crude oil, cobalt and copper. If you look at the current market climate, with commodity prices rising steeply pointing to another ‘supercycle’ on the horizon, investors need to pay attention.

In addition to rising commodity prices, Africa’s population continues to surge – it is expected to double by 2050. This population is young, diverse, and growing, meaning that there is a need for massive infrastructure expenditure – including the building of physical urban networks such as roads, transport and housing, and modern and digital communication systems, such as low-cost broadband. In 2019 alone, China invested around $4.4 billion in Africa, substantially outspending other countries.

Infrastructure gap

However, there is currently a $1 trillion infrastructure gap in Africa, the opportunity of which presents itself in both physical infrastructure and services. Scaling up infrastructure, especially green and sustainable infrastructure will be crucial to meet the demands of Africans as the labour force and population grows and changes while supporting the green transition.

Africa is a fantastic opportunity for those who are seeking diverse investment opportunities. It does require a shift in mindset as it needs to be thought of as a long-term investment, with a higher risk than developed market investments. However, with greater risk, comes greater reward, and in a world which is light on yielding assets, Africa remains a source of elevated yields.

London has always been the gateway for financial and trade flows with Africa due to the historic and geographic advantages it has held, but Brexit has created an opportunity for the City to look beyond these traditional investments and trade venues and strengthen its ties with the African Continent.

This opens up significant trade and investment opportunities for UK businesses, and puts the UK in an excellent position to work with British and African companies to deliver jobs, growth and investment opportunities to the benefit of both the UK and Africa.