So Brexit has become a reality. What does this mean to Ethiopia? I think it comes with a mixed bag of opportunities and challenges.
1. Economically, it could bring a reduction in cost of pound-denominated debt service. This relates to the historic nose diving of the British pound. But with much of Ethiopia’s debt denominated in dollars, the reduction will be marginal.
2. On the other hand, with global capital markets in huge uncertainty, not to mention the bond market, there is a possibility that Ethiopia’s Euro Bond could decline to a junk state. Furthering this possibility is the fact that many of the institutional investors in Ethiopia’s Euro Bond have bases and portfolios in London.
3. The economic uncertainty in Europe could push Ethiopian exports down. This would affect the trade balance and worsen the current account deficit of the nation. With the export regime being hugely constrained for years, this new pressure will be a further pain to it.
4. The decline in pound and a stringent upcoming immigration policy would also have its own impact on the remittance coming to Ethiopia.
5. With Britain being out of Europe, Ethiopian businesses and policymakers have now to deal two separate legal regimes. No doubt this will pose its own cost for businesses and policymakers.
6. With UK being a major ODA provider to Ethiopia, there obviously will be a new rule to the game in the sphere. Previously, UK ODA was coming both in bilateral and EU platforms. But now, it will only be through bilateral and multilateral platforms. With the results-based rule of ODA UK follows, unlike the rights-based rule of EU, amount might increase.
7. Ethiopian policymakers will be facing a daunting task of trade deal with UK, unlike the preferential treatment they had had through EU, if they are to continue to have access to British market.
8. If there is one area that will get a boost with Brexit, it will be the security relationship of the Ethiopia and UK. With UK out of EU, its anti-terror partnership with Ethiopia will strengthen. Note that UK wants to make sure its large Somali Diaspora is checked from being radicalised and bring security risks through the al-Shabab – al-Qaeda link, and Ethiopia is a natural neutraliser to this.
9. Diplomacy will also see a boost with a UK out of EU wants to have influence in Africa (and Africa institutions) and wants to use Ethiopia as a means to get that influence.
Or at least that is what I see coming.
By Getachew T. Woldearegai