Johannesburg - UK Chancellor of the Exchequer, Philip Hammond, on Wednesday moved to reinforce South Africa’s trade relations with the UK - announcing that engine manufacturer Rolls-Royce had signed a R2 billion deal to supply SAA with 700 engines for its fleet - a sign of more deals to come in the future.
Hammond said he wanted to tell South Africa that “the UK was open to business” as he mounted a roadshow to reassure investors that great opportunities were available.
He said South Africa was the largest recipient of UK foreign direct investment (FDI) in Africa, accounting for 29 percent of its total last year.
He described the slowdown in growth in South Africa as a “temporary blip” and that the country had the potential to be a fast-growing economy in the long term.
Hammond said there might be greater opportunities for South Africa and the UK as trade partners, than with the current EU deals. Depending on the UK’s Brexit outcome and the deal it negotiates with the EU, a free trade deal with South Africa in the future might be possible, he said.
Hammond said South Africa’s current trade deals with the EU were not at risk by Brexit and that the UK would replace them once the country had left the EU.
Strategy
The UK plans to leave the EU by the end of March next year, but the timetable may be delayed as the government is at present fighting a case in the English Supreme Court of Appeal (SCA) that could force it to put the whole Brexit issue to Parliament to ratify the Brexit referendum outcome.
On Friday SAA, which posted R5.6 billion losses for the 2014/15 financial year, unveiled a new A330-300 aircraft aimed at improving efficiencies in line with the national carrier’s turnaround strategy.
SAA was not immediately available for comment.
Chris Gilmour, an investment analyst at Barclays Wealth and Investment Management, said on Wednesday that Hammond had inherited a messy situation in Britain, especially as debt to gross domestic product “is of nightmare proportions”.
He said: “Hammond is desperately scraping around former British Commonwealth countries, attempting to cobble together some embryonic trade deals that will take the place of the single market deals that the UK currently enjoys within the EU. These EU deals will expire in 2019, provided Article 50 of the Treaty of Lisbon is enacted by end March 2017 as envisaged by the UK government. An adverse ruling by the SCA could well delay the whole process.”
Gilmour said South Africa would still benefit even after the Britain had left the EU.
“If anything, South Africa should benefit from Brexit. Currently, Britain gets much of its fruit and vegetable tax and duty free from EU countries such as Portugal, Spain, Cyprus, Greece and France. After Brexit, that may not be as easy or as cheap and thus Britain will be seeking lots more outspan fruit from South Africa for example. We may be able to export more motor vehicles to Britain as well though not sure about this one. The bottom line is that South Africa should be a net beneficiary of Brexit and I suspect Hammond is here, clearing the way for new trade deals with South Africa,” he said.
Adrian Saville, the chief strategist at Citadel Asset Management, said a visit by the Chancellor of the Exchequer was material in signalling what it represented.
Saville said the visit reinforced economic and financial relationships between South Africa at a time of high political uncertainty in the advanced world. “Taken at face value, the fuller effects of Brexit are likely to translate into slower economic growth in Britain and make doing business with Britain harder.
“The visit by Hammond won’t change these outcomes, but what it could do is strengthen relationships between Britain and South Africa, which might open up opportunities and afford strength in economic ties.”