Read time: 3 minutes

Brexit 'likely to slow down large-scale IT projects'

Brexit 'likely to slow down large-scale IT projects'

ICT vendors, suppliers and distributors in Africa, like their global counterparts, are urged to reassure employees and customers at a time of uncertainty, following the UK's surprise referendum vote to exit the European Union (EU).

John-David Lovelock, Research Vice President at Gartner, says it is important to keep perspective and said that this referendum does not necessarily mean the UK will leave the EU.

He explains that if the decision is made to do so, there is still no certainty as to when, precisely, the exit will take place -or whether or not Article 50 of the Lisbon treaty (which governs how EU members may voluntarily leave the Union) will be invoked.

He advises decision makers within this space to "craft messages of hope or help that address data protecting, data location, ongoing support and privacy concerns."

In a recent blog, Lovelock stated that business discretionary IT investments will probably suffer in the short term, and new, larger and long-term strategic projects are likely to be put on hold.

"It is not a certainty that the UK will exit the EU, and no one knows exactly when they might, if they do.... But that doesn't mean nothing is going on. Amongst all the uncertainty, corporations have to take certain actions. CIO clients must determine their risk, how they are exposed for data, location ... and for technology services clients, we say 'your goal here is to try to throw a little more in the way of certainty into the market'," says Lovelock.

He describes the South African UK trade partnership as strong, and believes the while Brexit won't 'export' to South Africa, there will be a secondary effect with the British Pound dropping and the ability to import from South Africa being impaired.

Considering the immediate impact on the Pound vs global currencies exchange rate, Lovelock was clear in saying that on today's financial terms, investors should expect to secure less return and there will be an impact in the ICT sector. "South African Rand versus the Pound has been on a pretty good trajectory for buying things, but not for selling things ... so things that you wish to sell into England is going to change, there will be more Pounds to spend on these things, but they will be spending the same number of Pounds, which translates into fewer rands," he says.

Lisa Callinan, Research Director at Gartner, believes should Brexit come to fruition, it will add additional supply chain and logistics complexity. "We have yet to see what the full political fallout will be in the UK, but supply chain and logistics leaders should avoid immediate reactions, review scenario plans and consider new opportunities."

"It's likely to take years to work out tariffs and trade agreements, although a new agreement for the U.K. could potentially be fast tracked by stripping out the layers of hierarchy and approvals across member states. Some form of customs controls appear inevitable which will add to transit times and increase the administrative burden for organisations," she adds.

A report by intelligence consultancy EXX Africa offers insight into how Brexit could impact on three strategic regions, being South Africa, Kenya and Nigeria.

In Nigeria, the report claims that the main impact will be further deterioration of the country's beleaguered economy.

Capital flight

"There is extensive trade and security cooperation between the UK and Nigeria that would be likely to face several years of disruption as the UK departs from the EU. Nigeria is the UK's second-largest export market in Africa. Bilateral trade between the two countries is currently worth USD8.3 billion and projected to reach USD25 billion by 2020. The UK is also Nigeria's largest source of foreign investment, with assets worth over USD1.4 billion. Moreover, UK-Nigerian remittances account for USD21 billion a year. The UK is also one of the largest development assistance donors to Nigeria, although Nigeria is not as aid-dependent as most continental counterparts," reads an excerpt from the report.

From a Kenya point of view, the immediate concern is "capital flight from Kenya" by investors in search of safe havens, which, according to the report, would weaken Kenya's currency and increase import costs.

Kenya's import bill has steadily increased by more than 10% over the past five years. Another key concern would be that ongoing negotiations of a trade agreement between the EU and the East African Community (EAC) would be delayed as the EU copes with the UK's departure.

According to Control Risks and NKC African Economics, the longer-term impacts on Africa from Brexit are speculative and depend as much on the attitude of future British governments as on the terms of exit. The longer term implications – both economic and geopolitical – hinge on what the terms of Britain leaving the EU are, and how this feeds through transmission mechanism to Africa through trade, aid and soft power and political influence.

Jean Devlin, Director for Africa Analysis, at Control Risks comments: "Ultimately, the impact of Brexit for the continent will be defined by the global agenda in the coming months. As political risk has increased in the traditionally safe havens of Europe and with the election in the US later this year, there is less scope for international cooperation to address issues of particular relevance to African countries such as peace and security issues, development, impacts of climate change.

"We see the longer term impacts as a continuation of the relative decline of European powers' influence on the continent that has been a feature of the past decade with increasingly diverse sources of investment from outside Africa. Britain will still retain cultural and trade links through the commonwealth, but outside the EU bloc will likely be more reliant on its own diplomatic channels. This will especially be the case in countries where it has fewer historical ties such as Cote d'Ivoire, Senegal, Angola and many smaller francophone or Lusophone countries."

Read more
Daily newsletter