As Britons voted to leave the EU and Prime Minister David Cameron quit, the rand plunged about 7% against the dollar on Friday morning, marginally strengthening against the pound.
Pan African Investment and Research Services chief economist, Iraj Abedian, said the consequences of the exit could already be seen with markets “tumbling”.
“The rand has seen its biggest shock since Nenegate… from a political economy point of view the world is going into uncharted waters… over the next few years, Scotland might want to leave the UK and align itself with the EU, which means we will have another round of consequences,” said Abedian.
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With the EU bloc being South Africa’s biggest trade partner and the UK in the top five, the exit was; “hugely consequential” for South Africa.
“We can’t assess the full impact now. The turbulence has not settled. What we do know is that – from investment and trade point of view – if the European economy contracts for the next 2 to 3 years, it will adversely affect our markets, growths and trade.”
Aberdian said South Africa faced uncertainty and economic volatility. “The rand will lose value and a weaker rand means lower investment and lower growth which impacts on job opportunities.”
The JSE ALSI was down by 3.35% at 10.05 over the previous 24 hours.
Political analyst, Daniel Silke, said the UK’s vote to leave the EU would continue to affect South Africa’s trade relations and currency. The outcome made global business difficult and complicated trading between nations, he said. “Financial markets don’t like uncertainty.”
He said developing markets and highly tradeable currencies like the rand traditionally suffered most in 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 Brexit vote will also have major implications for local trade relations with member countries belonging to the EU which will, most likely, be increasingly strained if the UK economy is hurt.
Silke said trade relations between South Africa and the UK generated about £10 billion in revenue annually. The biggest imports to South Africa from the UK were vehicles, beverages and pharmaceutical products. Britain imported several manufactured goods.
But now that the UK has voted to leave the EU, Silke said these, and scores more trade agreements, would have to be renegotiated. The referendum would also likely result in South Africa seeking alternative trading agreements with other European nations.
“If London takes a knock, we could see South Africa working with other European cities,” said Silke.
The rand was trading at R14.94 to the dollar at 10.05am, compared with R14.33 24 hours earlier. The British pound experienced further losses against all major currencies and was trading at R20.51 to the pound, with the rand strengthening from R21.43 24 hours earlier.
Despite the negative effects of the UK voting to leave the EU, AfriBusiness says the consequences are “pure speculation”.
The UK could leave the EU anywhere between 2018 or 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 explains that because no country has ever left the EU before, the effect on the rest of the markets and other currencies is unknown.
He said it was unlikely there would be some sort of mass repatriation of people in Europe, but certain benefits that expats had enjoyed might not be guaranteed in the future.
Stevens Mokgalapa, DA spokesman for International Relations and Co-operation described the vote to exit the EU as a catastrophe, and “sad’.
“We would have hoped they would vote to remain… The EU is the largest trading bloc partner for SA and the UK is our second largest trading partner country within the EU… we have been negotiating with the EU as a bloc and in terms of multilateral relations the EU will be now weakened,” he said.