If it’s not broken, why Brexit?

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By Zeenat Moosa.

Against all expectations the UK has voted to leave the European Union (EU). And in the wake of the Brexit results released this morning Prime Minister David Cameron resigned.

England voted overwhelmingly to leave the EU (52%) while the majority of those in Scotland and Northern Ireland backed the campaign to remain (48%) in one of the most important referendums in recent UK history.

What it means for Africa

The affect on emerging markets is likely to be significant, and the result is sure to have varying outcomes for South Africa and the rest of Africa. This morning, the rand dropped the most against the US dollar since 2008 and fell to a record 6.5932 against the Japanese yen.

In the long run, South Africa could enjoy greater trading opportunities with EU countries. Rob Davies, South Africa’s Minister of Trade and Industry, is already offering British companies, who will now have lost their duty-free access to European markets, a home in South Africa. It will allow for the continuation of British access to the EU market via the EU-SADC Economic Partnership Agreement (EPA), which has just been signed between Brussels and six countries of the Southern African Development Community (SADC).

Global shocks

The outcome has affected markets globally: the Japanese Nikkei has suspended trading; the London Stock Exchange plunged nearly 500 points and lost about £124 billion off the value of UK companies within 10 minutes of its opening this morning; the British pound fell to its lowest level in more than 30 years during the vote – (en dash) and it’s expected to reach new lows in the next few days.

“Markets don’t like the unknown, and a Brexit vote presents a huge amount of unknowns, which includes questions about how this situation is going to play out, and even who is going to be dealing with it,” says David Zahn, head of European fixed income at Franklin Templeton Fixed Income Group.

Due to the complex nature of this situation the exit process may take two years, with global markets weathering most of the storm.