Impact on Developing Countries Emerging Issues BREXIT

Emerging Issues: BREXIT - Impact on Developing Countries

Emerging Issues: BREXIT - Impact on Developing Countries

Brexit is an abbreviation term used to refer to British exit from the European Union following the decision through a vote on 23rd of June 2016. As a result, new trade policies were designed to look into the United Kingdom’s new strategic interests (Adeoye, 2021). The majority of Brexit supporters have claimed the need to redefine UK’s role in international politics, with trade at the core. British have henceforth been engaged in negotiating trade agreements to pursue national interests and retain global leadership (Moradlou et al. 2020). This is done through international development assistance to lure most developing countries into trade agreements with the UK (Pounder & Wollenberg 2020). Besides, most of the UK’s global leadership is due to its link with the developing countries. Also, before Brexit, the UK has been advocating for the use of European Union trade policy to enhance development amongst developing countries and contributed a significant amount of its aid to assist developing countries in diversifying and increasing their trade (Perez & Olivie 2020).

Brexit has consequently impacted developing countries in many ways. One, Brexit has caused a state of fear and hesitancy amongst the developing countries as far as their engagement with the UK in trade activities is concerned. After the Brexit, the UK is championing trade and development in developing countries like Kenya through new trade agreements, new aids, and new tools of the trade. The UK is also striving to make trade policies work more efficiently and effectively in enhancing development opportunities. Nonetheless, there is hesitancy if the UK will assume such a role willingly and effectively. Also, there is fear amongst the developing countries that the UK is likely to overlook them in the future following the magnitude and number of negotiation tasks the UK plans to engage in (Kohnert, 2020).

Two, Brexit has resulted in the development and enactment of new trade policies with the developing countries. According to Alan Winters, UK trade policies with the developing countries should appreciate the heterogeneity among the countries that are still developing; hence, need for a pragmatic and straightforward approach (Adeoye, 2021). Nonetheless, Alan also claims that such policy has to be made cognizant that as a minor player, the UK can lose direct influence on policies within developing countries (Kohnert, 2020). On the other hand, according to Adrian Wood, the UK will face several internal challenges in formulating trade policies towards developing countries. Moreover, the development assistance is not well known to the Brexit supporters, thus, creating pressure for trade restriction imposition (Perez & Olivie 2020). Also, considering the uncertainty on the UK’s evolution of new trade policy, developing countries like Kenya in East Africa find it hectic to assess what they can get plus what they want out of negotiation with the UK. As a result, most developing countries focused on defending their interests in a trade relationship with the World Trade Organization and the European Union (Pounder & Wollenberg 2020).

Also, Brexit has resulted in the loss of preferential UK market access by developing countries that they enjoyed under the European Union agreements. For instance, most African countries with Kenya leading would generate much income by exporting flower products to the UK market, the largest consumer for the flowers from African countries. Some developing countries like Ethiopia and Nigeria have become less competitive because they no longer enjoy the preferential tariffs on the United Kingdom market (Pounder & Wollenberg 2020). As a result, some of these countries have been hit by higher tariffs and non-tariff barriers. For example, due to tariffs, Ethiopia’s export to the United Kingdom has recently dropped by almost 23%, while Malawi’s export to the UK market has dropped by over 50% (Perez & Olivie 2020). Specifically, low-income countries like Malawi and Cambodia strongly depended on the UK’s market due to high export shares to the United Kingdom. Hence, they have suffered a drastic fall in their GDP. Some countries like Ghana have also experienced an increased poverty level due to changes in trade regime, less development aid, and lack of trade preferences in the UK market (Pounder & Wollenberg 2020).

Moreover, some developing countries like the Caribbean have suffered trade obstacles from the UK due to Brexit. For instance, the UK’s publication and adoption of the white paper have brought about several challenges to the CARICOM. As a result, there are multiple implications for CARICOM developing from the policy paper initially criticized by the EU chief negotiator Michael Barnier (Pounder & Wollenberg 2020). With this new policy paper, goods from CARICOM can enter the UK market and later be shipped to the European Union countries minus any further tariffs. With this new policy, UK has therefore become one of the trade obstacles for CARICOM, thus, the need to urgently negotiate a different trade deal to replace the existing one (Kohnert, 2020). To mitigate the harsh impacts of such a policy, the CARICOM has reorganized to trade with the United Kingdom through the terms of the World Trade Organization following Brexit, even though the policy paper had been adopted as the UK-EU relations official blueprint (Perez & Olivie 2020).

Furthermore, the CARICOM region has experienced a fall in trade due to the influence of Brexit. As a result, the businesses of CARICOM started trade relationships directly with the EU minimizing their reliance on the UK. CARICOM has continued to strategize to negotiate its future relationship with the United Kingdom and develop new supply and trade links with the European Union. They were too reliant on the UK before the Brexit (Pounder & Wollenberg 2020). CARICOM also aims to take advantage of the remaining EU-27 members and the EPA. However, Brexit has a substantial impact on CARICOM because CARICOM’s large share of EU-bond trade was with the UK. Since CARICOM countries are still developing states with minimal manufacturing and processing industries, CARICOM has become more vulnerable to global events exposing it to the effects of microeconomic ups and downs due to severe financial crises. Hence, fall in trade within the CARICOM region (Pounder & Wollenberg 2020).

Besides, small developing countries like those within CARICOM, with a disproportionate dependency on the UK trade through the EU due to their fragile environment, have suffered hugely (Perez & Olivie 2020). The United Kingdom’s economic structure hugely orients towards service provision and production of high-tech services and devices to the regional value chains (Kohnert, 2020). The UK imports only a small number of raw materials from developing countries. Otherwise, UK imports a considerable amount of consumer or final goods. About 70% of the goods imported by the UK from developing countries are consumer goods like garments (Pounder & Wollenberg 2020).

In addition, there has been a fall in pound plus forecast effect of Brexit on GDP with around 3% in 18 months further illustrates how Brexit affected exportation by the developing countries (Perez & Olivie 2020). Also, the fall in the pound has created an overall reduction in exports from developing countries by $385 million (value of exports times the change in a pound). Due to the fall in UK’s economic activities post Brexit, the developing countries have lost about $ 112 million in exports. It is estimated that the total cost of developing countries’ export will total $ 500 million until friendly trade policies are put in place. Notably, this presents a conservative estimate of the impacts of short-term trade (Pounder & Wollenberg 2020).

On the other hand, some developing countries have benefited from trade development Assistance by the UK even though trade agreements are undergoing. The British government has opted to put some transitional arrangements to cushion developing countries from the consequences of Brexit. Such arrangements include trade development assistance that can help mitigate the challenges faced by developing countries (Moradlou et al. 2020). Equally, the ongoing trade agreement talk between the UK and the developing countries should create policies that will enhance a more friendly trade relation between the developing countries and the UK (Kohnert, 2020). For instance, the policies should grant developing countries a great preference that enables them more significant value creation through multiple states, enhancing regional value chains (Perez & Olivie 2020).