The UK’s decision to leave the EU (Brexit) brings long-lasting political and economic consequences and is rather inopportune for African economies, however asset managers and investors alike should focus on their long-term strategies.

After being a member for 43 years, the UK voted on Thursday, June 22, by 51.7% to 48.3% to leave the European Union (EU).

Charlie Robertson, Global Chief Economist at Renaissance Capital, said that South Africa is most vulnerable via the currency, which remains the risk proxy for this time zone.

“SA’s market is also exposed via global companies like the brewer SAB, as well as exports (eg SA makes the BMWs that are sold in the UK),” he said.

Rian le Roux, Chief Economist at Old Mutual Investment Group (OMIG) added that South Africa will not escape the market or economic fallout of Brexit, although the full impact will likely only become clear over time. 

“While our financial markets will pretty much echo global markets in the short term, the medium-term impact on SA will be determined by the extent to which commodity prices, SA’s export volumes and capital flows to SA are affected. Still, SA’s already poor growth prospects will be further undermined, although the extent of which remain uncertain at this stage,” he said.

The South African rand fell from R14.40 to as low as R15.40 against the US dollar and if the rand weakens further, it could place upward pressure on interest rates and inflation.

Le Roux said that as far as the outlook for local interest rates is concerned, in the worst-case scenario, the South African Reserve Bank (SARB) may be left with little choice but to raise rates further, should the rand take a major hit.

“In a milder global outcome, with relatively little impact on commodity prices, capital flows and the rand, we think the SARB will keep rates unchanged for an extended period,” he said.

“On a more fundamental level, the current global turmoil and likely negative impact on the world economy highlights the fact that South Africa cannot rely on the world economy to drag us out of our slow growth trap and that the urgency to speed up growth-enhancing structural reforms has just ratcheted up another notch,” he added.

As to other African countries, Robertson said that Morocco is more reliant on Europe, so loses some of the safe haven characteristics, whereas Egypt has a particularly closed economy which helps, but will not be a safe haven play for investors due to currency problems.

“Nigeria has an idiosyncratic improving story thanks to electricity, fuel subsidy and now currency reform. We expect more investors to enter Nigeria when the currency has found a more liquid level,” he said.

“The impact on Kenya should be limited. Tourism to Kenya is already weak. More important over 6 months is the risk-on, risk-off trade, and the extent to which Nigeria becomes more attractive since the NGN float,” he added.

The markets in Africa reacted heavily after the UK’s vote.

According to Bloomberg data, South African government bonds fell the most since March, with yields on benchmark rand bonds due December 2026 climbing 27 basis points to 9.14%.  

Meanwhile, JSE All-Share Index fell 3.6%, and Kenya’s benchmark equity index fell 1.8%. 

Nevertheless, according to Dave Mohr & Izak Odendaal of Old Mutual Multi-Managers, markets typically overreact to such events and are likely to be volatile while the outcome and its implications are digested. 

“A diversified portfolio remains the best way to manage the inherent uncertainty in investing, instead of a fearful concentrated portfolio of gold or cash,” they said. 

Nigel Green, Founder and CEO of deVere Group, added that there will be key buying opportunities for investors who will use this volatility created by markets overreacting as a time to go bargain-hunting.   

“They will, understandably, be seeking high quality equities, amongst other assets, that have become cheaper so that they might top up their portfolios and/or take advantage of lower entry points, which means greater potential returns,” he said. 

“In these times of increased volatility, more than ever a good fund manager will prove to be invaluable to help capitalize on the enormous opportunities that will be coming along and help to sidestep the risks,” he added.

Whilst the Brexit will certainly have an effect on the UK private equity and real estate landscape over time there is likely to be little effect on Africa funds in the immediate future, according to Augentius, the largest independent private equity and real estate administrator in the world.

"Africa funds rarely structure themselves through UK fund structures and in any event no real effect will be felt within the UK itself for at least two years - and more likely four to six years given the process required to Brexit. ESMA will shortly be reporting on the extension of “passporting” for a number of third party countries, which itself could transform the way in which non-EU managers are able to access European investors and this is likely to have a bigger effect for Africa managers, than Brexit, in the immediate term," said David Bailey of Augentius.

He added that it is important not to overstate the impact the Brexit will have on the industry.

"What is true is that, given the more complex environment this will likely create, and the need for more complex multi-domiciliary fund structures, it is even more important than ever that managers look to multi-jurisdictional providers, who are able to offer a range of solutions across multiple domiciles in a financially efficient manner," he said.