The European Union is both an economic and political partnership which includes 28 countries. The aim of the union is to develop economic cooperation among members. Over the years, the EU has grown to be very strong with individual countries trading among themselves and having one currency.
On Thursday, June 23, 2016, a referendum was held to decide if the United Kingdom (UK) should remain in the European Union (EU). Fifty-two percent voted for the UK to leave the EU, while the remaining forty-eight percent voted to stay.
The exit of the UK from the EU has created mixed feelings not only in Europe but among Commonwealth nations. What does the future hold for countries like Ghana? Jumia House Ghana interviewed Dr Eric Osei-Assibey, a Senior Economic Lecturer with the University of Ghana to find out how the UK’s exit will impact the economy and the real estate sector in general.
Brexit – How will it impact the Ghanaian Economy?
There are likely to be some effects since Britain is an important trade partner to Ghana. Ghana exports many of its products to the UK through an EU arrangement known as the Economic Partnership Agreement (EPA). Using the Interim EPA, Ghana and other Commonwealth nations have tariff-free access to the UK market. If the UK is leaving the EU, this free access covered by the EPA will no longer be available. Ghana will, therefore, have to re-negotiate any trade agreement with the UK.
If the terms of the new agreement are less favourable than the interim EPA, then it is going to affect Ghanaians negatively. However, if the Government is able to negotiate much better trade agreements with the UK, the impact will not be felt much. Although the UK has voted to leave the EU, it is going to take a bit of time for it to exit completely, therefore, time can allow Ghana to adjust, plan and negotiate new agreement terms.
In terms of development financing, Ghana like most Commonwealth nations receive a lot of aid from the EU. Britain was a large contributor to the European Development Fund, therefore its exit could affect such projects. It is important to note that some countries in the Union have already pushed for similar referendums if conditions do not improve within the EU. If this leads to a disintegration, Commonwealth nations, especially Ghana will be affected by development projects that are EU-financed. Some of the projects could be abandoned.
Brexit could also affect West Africa’s efforts at regional integration. ECOWAS is pursuing regional integration which the EU is a sponsor, therefore, if the EU is disintegrating, West Africa will not have an example to help speed up its integration process. This can wane confidence and reduce the willingness of governments in West Africa to come together.
How will the exit affect the real estate sector?
A key negative effect for the real estate sector in Ghana will be the slowdown in Foreign Direct Investment (FDI). If the exit will lead to an economic slowdown, income levels of people living in Europe will be affected. The real estate sector depends largely on foreign remittances, therefore if they are reduced economic activities, low-income levels, and unemployment is likely to increase. The needed inflows, the FDIs among others for the real estate sector will reduce because initial buyers will not be forthcoming due to the distress in the European economy.
This can also present an opportunity for African countries like Ghana because the European countries will no longer be attractive for investors and they will begin to diversify and find new markets. If Africans are able to manage it properly, using their own macroeconomic conditions to make the continent more attractive and conducive for investors, there will be an alternative for foreign investors.
Is there a cause to panic?
There is no cause for panic. Countries can adjust and that basically depends on how the EU handles the situation. The initial response is that of panic but over time, these countries will adjust accordingly, therefore, there will be no cause for alarm that is, if it does not lead to disintegration