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Categorized | Currencies

Commonwealth fears fallout of Brexit vote


Posted on October 5, 2016

GG2THR African Elephants swimming across the Chobe River, Botswana with tourists on safari watching on©Tim Hester/Alamy

Tourists watch elephants swimming across the Chobe river, Botswana. Commonwealth states fear the impact of sterling devaluation on tourism from the UK

Commonwealth countries are increasingly concerned that the sustained fall in the value of the pound since the Brexit vote will hit exports and lead to a sharp slide in tourism from the UK.

Supporters of a British exit from the EU have argued that it could lead to a significant boost in trade with the Commonwealth, a development that would give fresh economic impetus to the nations of the former British empire.

    But in an economic assessment of the impact of Brexit, published on Wednesday, the Commonwealth Secretariat based in London warned that it posed potentially serious challenges to many of its 53 members and that the organisation needed to move from the “shock” of Brexit to finding solutions to the problems it had created.

    The secretariat said in its report that Brexit promised considerable potential for a boost in trade between the UK and its members, adding that the UK was the fourth most important market — behind the US, China and Japan — for Commonwealth exports.

    “There is scope for the UK to really boost its trade with other Commonwealth countries,” said Patricia Scotland, the Commonwealth secretary-general.

    However, the report by Baroness Scotland’s team focuses heavily on the negative consequences of Brexit on its members and in particular the three risks posed by sterling devaluation.

    Brexit and the weaker pound: what next?

    epa05408713 (FILE) A file picture dated 22 February 2016 shows British Pounds in London, Britain. The British Pound Sterling on 05 July 2016 dropped to its lowest level in three decades in reaction to the 23 June's referendum in which Britons voted to leave the European Union (EU). EPA/ANDY RAIN

    Currency hit by renewed weakness as looming Brexit negotiations test market sentiment

    The first is to exports. The report said the UK was a very important market for many Commonwealth countries seeking to sell overseas. It noted that six states, in particular — Botswana, Belize, Seychelles, Mauritius, Bangladesh and Sri Lanka — might suffer “a big hit” from a fall in the pound because the UK accounts for more than 10 per cent of their total exports.

    Botswana relied on the UK market for more than half of its exports, the report said. The UK’s share of imports from Canada, South Africa, India and Sri Lanka might also be affected.

    A second area of concern is the potential impact that sterling devaluation could have on British tourism among member states. Some 60 per cent of Commonwealth nations are small states and tourism is the main income earner for these countries. For most, the UK is in the top three countries from which tourists travel.

    A third risk is the impact that a falling pound might have on the flow of remittances from Commonwealth citizens living in Britain back to their home countries. In 2012, migrants in the UK sent $12bn of remittances to families back home. “A slowdown in UK remittances due to Brexit would have a negative impact on recipient countries,” the secretariat said.

    Another concern highlighted in the paper is the potentially negative impact that Brexit could have on EU aid to the Commonwealth’s least developed countries. The UK contributes 10 per cent of its aid budget to EU institutions and Baroness Scotland warned of the potential loss of “EU aid to these states after Britain leaves the EU”.