Implications of Brexit: the possible impacts on the Zambian economy

As Britain focuses on how its relationship with the European Union might look like once it leaves the bloc in April 2019, African countries and Zambia in particular that benefit from UK development aid are already bracing for the post-Brexit era. For a country with bilateral relations with Britain and the European Union , preparing for the inevitable separation is not only prudent; it may be a matter of economic requirement.

At this time, many analysts are trying to answer a complex and important question: how will Brexit impact the Zambian economy?

Aid and budget support

The UK has pledged 0.7% of its Gross National Income (GNI) as development aid, a significant portion of which is earmarked for development in African nations. Depending on the political focus of Westminster and impact of Brexit on the UK economy, aid contributions may be slashed. Many economists have predicted a recession which might cause a reduction in UK’s GNI and consequently lead to reduced foreign aid.

Deputy executive director at the Institute of Fiscal Studies Mr Carl Emmerson said “In terms of the aid budget, the main issue is that if the UK continues to spend 0.7% of GNI on aid then any reduction in GNI caused by Brexit as predicated would feed into reduced spending on overseas aid. The value of £1 of aid will already be lower when measured in currencies against which the value of sterling has fallen since the referendum”

However, British High Commissioner to Zambia Mr Fergus Cochrane-Dyet has been consistent with assurances of the status quo. Mr Cochrane-Dyet said although the implications of Brexit on Zambia are not yet clear as the UK government awaits what form Brexit is going to take, he is confident that Zambia will continue to benefit from aid

“One important point is that the British Government has already announced that Zambia and other eligible countries who currently benefit from aid will continue to benefit from those terms when Britain leaves the European Union.” he said

Over the years, the British Government has channelled its support to Zambia through the Department for International Development (DFID). The funding covers national budget support and economic development projects in sustainable health systems, poverty reduction, increased access to water and sanitation, governance, education and gender.

Between 2015 and 2017, an estimated £160 million has been spent on projects across these sectors. It is clearly evident that United Kingdom has been a committed development partner to Zambia over the years. However as can be seen from the graph below, there is an indication of a slash in aid to Zambia for the next two years.

UK Aid to Zambia from 2014 – 2020 (Source of graphs: UK-Aid Zambia website)

There is wide acknowledgement that expected reduction in aid from the UK may affect the Zambian annual budget and development programmes. However, the impact will not be so much as Zambia which in the past had been largely dependent on donor funds has matured to a level where only less than 10% of the national budget comes from cooperating partners. It is increasingly dependent on home grown resources for its budget.

Zambia Institute of Policy and Research (ZIPAR) Executive Director Dr Pamela Nakamba – Kabaso said, “we are no longer highly UK-aid dependent and if anything donor aid contribution to the Zambian Budget has declined significantly already,”

At the recently held Town Hall meeting , former Zambian Minister of Finance Felix Mutati said external resources to the budget is just around 4%.

Trade and Foreign Direct Investment

The UK is no longer among the top trading partners or top Foreign Direct Investment (FDI) source for Zambia. It is currently Zambia’s tenth export market. In 2014, Zambia exported $97.7 million to the UK which was about 2.59% of total exports and imported $247.0 million which was 1.01% of total imports.

Independent Financial Analyst Kalima Nkonde said “although it can be argued that trade between the two countries will not be greatly affected, in the light of the impending recession of the UK economy and the great uncertainty that Brexit has created, one should not expect this trade to continue at the same level.”

Accordingly, British High Commissioner to Zambia Mr Cochrane – Dyet said it may be possible for Britain and Zambia to negotiate a free trade agreement at a later day which could improve the terms for bilateral trade. He added that the UK wants to to see a good trading and investment relationship with Zambia where British and Zambian companies will be able to trade with each other as easily as possible.

The impact of Brexit on Zambia will depend more on what happens between the UK and the rest of the Euro zone than on any unilateral, bilateral, regional or multilateral strategies on the part of Zambia.

It is expected that if as a result of Brexit, the UK starts to get crowded out of the European Union (trade and capital) markets, it is likely to take a more aggressive or proactive international relations exploration with other regions and Zambia would be an ideal candidate given the historical relationship. 

On the other hand, if the geopolitical situation between the UK and the rest of the EU remains fairly stable, the UK will most likely focus on trying to keep its EU relation as intact as possible. It thus will not make a move on Zambia. Either way, there is not much point in the Zambian Government thinking hard about Brexit.

"We need to figure out strategies for China, India, South Africa, DRC, Zimbabwe, etc. as our main trading and investment partners and also watch  the evolving rules of the international game while we are in the shadow of the IMF (on financing), WTO (on trade), and UN (SDGs and human development)," said Dr Kabaso

To fully appreciate the strategic thinking of others, there is more emphasis on the need for Zambia to first define its own position and interest, something which is not clear at the moment.