London - The rand plunged about 7 percent against the dollar this morning, marginally strengthening against the pound, as news broke of Britain’s decision to leave the EU.
The rand was trading at 15.23 to the dollar by 9am, compared to R14.48 yesterday.
The British pound experienced further losses as global markets opened for the day.
Local political analyst Daniel Silke told The Star the UK’s vote to leave the EU would mean South Africa’s trade relations were likely to worsen and the rand was likely to deteriorate as uncertainty continued to loom.
“The Brexit vote will create uncertainty and financial markets don’t like uncertainty,” he said.
Silke said developing markets and highly tradeable currencies like the rand traditionally suffered most during volatile times.
“Investors often seek refuge in a safe haven and global volatility can cause emerging markets to be less attractive to investors,” he said.
The vote will also have major implications for trade relations with member countries belonging to the EU which will most likely be increasingly strained if the UK economy is hurt.
Although South Africa has several trade agreements with the 28-member EU member countries, the UK is a highly profitable market for the country.
Silke said trade relations between South Africa and the UK generated £10 billion annually.
He said the biggest imports to South Africa from the UK were vehicles, beverages, pharmaceutical and medicinal products while Britain imported manufactured goods. “The UK is one of South Africa’s biggest trading partners globally,” said Silke.
But now that the UK had voted to leave the EU, these and scores more trade agreements would have to be renegotiated, he said.
“If London takes a knock, then we could see South Africa working with other European cities,” said Silke.
Despite the negative effects, AfriBusiness says the exact consequences are “pure speculation”.
The UK could leave the EU anywhere between 2018 and 2020.
“To leave the EU, the UK government will have to invoke Article 50 of the EU Treaty,” AfriBusiness law and policy analyst Armand Greyling said.
“This gives the UK and the EU two years to come to an agreement over how they would separate.”
Greyling says because no country has left the EU, the effects on the rest of the markets and other currencies are unknown.
He said it was unlikely that there would be some sort of mass repatriation of people in Europe, but certain rights that expats had enjoyed might not be guaranteed in the future.
According to analysts, the majority vote to leave the EU meant British nationals prioritised independence over the potential negative implications of a life outside the EU.
Stevens Mokgalapa, DA spokesman for International Relations and Co-operation, described Britain’s vote to exit the EU as a catastrophe and “sad”.
“In terms of trade relations, it will severely impact South Africa because we have been negotiating with the EU as a bloc and in terms of multilateral relations, the EU will be now weakened,” he said.
* With additional reporting by Thabiso Thakali
THE STAR