Brexit has increased the amount of economic uncertainty to a much higher level. Exit from EU is not immediate.
UK will negotiate its exit and it would take at least two years, and longer if there is an extension of the negotiation period. During that time, the UK will also have to face battle on the home front with the looming referendum of Scotland’s exit from the United Kingdom, followed perhaps by Ireland. As such there will be internal and external tensions for the UK.
The Process: During the two-year period, EU laws and agreements will continue to apply to UK and EU. For Mauritius therefore, the Economic Partnership Agreement (EPA) and existing agreements that we have with the EU would stand as it is for that period. The actual relationship between UK and the EU following the exit will depend on the outcome of the negotiations. In the simplest form, it can be a clean exit and UK becomes like any other non-EU member such as US or Canada. It can also become like Turkey and only have a preferential trade agreement with EU. Another form would be like Switzerland, i.e. a non-EU country which applies the Schengen free movement agreement; Norway offers another example, a-non EU member which participates in the European Economic Area and contributes to fund EU operations. The final form of a withdrawal agreement will depend on the final negotiations which may be bitter.
Business & Investment: During the negotiation period, there will be continued uncertainty and prospective disinvestment when possible for those who based their business plan on a united EU. If UK was a neighbour, we could have tapped into the investors’ flight, but there is only slim chance of that happening with Mauritius. However, this is worth exploring especially as UK companies will try to look for new markets outside the UK & EU to continue their business.
EPA: Mauritius currently has an Economic Partnership Agreement with the EU which allows for free access of our products to the EU. Post effective withdrawal, it would mean that whatever we currently export to the UK may become taxable again. That can also mean that we shall have to enter into new negotiations with the UK to allow access for our products.
Schengen: UK is likely not to adhere to the Schengen visa principle following the exit, as one of the objectives of the withdrawal would be to secure borders. As such, Mauritians travelling to the UK may need a visa when entering the country. That means extra constraints and extra costs.
Sugar: On our sugar export, EU will liberalize production quotas as from October 2017. Now the Mauritius Sugar Syndicate has agreements with two EU distributors, one from UK and one from France. Assuming that France also does not move far right in the 2017 elections and thus towards another EU exit, the question will be whether we need to renegotiate our agreement with British Sugar after the exit. Unbound by EU exigencies, the UK can produce as much sugar beet as is economically and politically viable – and so, will there still be a market for our sugar in the UK?
Financial Sector: Currently the City (London Financial Centre) serves as the EU financial centre. With Brexit, the financial centre will certainly move. One of the best candidates is Frankfurt. As the world financial sector is highly interconnected, it is possible to bring in business losses on the Mauritian International Financial centre with losses for those doing business with London based firms. Several banks have also seen their share price drop following the Brexit announcement. We should also consider that there is a large contingent of the Mauritian Diaspora living in the UK and working in the City. With job cuts, they are probably going to be affected as well. That said, it can become an opportunity if Mauritius wants to attract those talents back home.
Development Funding: Another area of concern is that the UK brings funds to EU funding. With an exit, these resources will be curtailed. That means that the EU cooperation will have to reduce its budget across the board as well as its cooperation budget. UK Aid through DFID for instance is also likely to be diverted to other causes. Mauritius is not a huge beneficiary of UK Aid, but we do get European Development Fund (EDF). The 11th EDF was signed earlier in June and has the objective of assisting Mauritius to move from an upper middle income country to high income country and to transform Mauritius into a knowledge-based and innovative society. It remains to be seen if the EU will still be able to maintain its commitment on the EDF.
Negotiation Process with UK: Negotiating the EPA with EU was a lengthy process. Renegotiating new trade, travel and cooperation agreements with the UK will also be tedious and certainly stretch our resources. UK will do the same with its other economic partners at the same time, and we may not be very high on their priority.
What happens to EU: More than just UK exiting, we may also start to think of what that means for EU. EU is one of our biggest trading and strategic partners. With UK exit, the EU is weaker in dealing with international threats and as an economic powerhouse. The UK exit opens the door to other member states of EU that wanted to do so too; there may thus be calls for new referendums from them to exit as well…
* Published in print edition on 1 July 2016