According to ratings agency Moody’s, South Africa is the most exposed country in sub-Saharan Africa (SSA) in terms of the potential impact of the Brexit vote. This is due to the extent of SA’s integration into global financial markets, including its investment and financial links with the UK.
Despite both the rand and the JSE having almost recovered to pre-Brexit levels, SA’s current account deficit leaves it vulnerable to short-term capital outflows amid changes in investors’ risk perceptions and appetite, according to Moody’s, which has a current rating of SA as Baa2 negative.
Dampened growth prospects in the UK would also have a moderately negative impact on SA’s trade and growth, in its view.
SA has been the largest recipient of British foreign direct investment (FDI) in Africa, accounting for about 30% of total UK investment in Africa in 2014. Mining and quarrying and financial services were the main recipient sectors, accounting for 54% and 34% of total UK FDI into Africa in 2014, respectively. However, SA reported its lowest FDI levels in 10 years in 2015, with Brexit-related uncertainty likely to reduce these flows even further in Moody’s view.
Among “other investments” from the UK to SA, banking sector loans accounted for two-thirds of the total at the end of 2014, reflecting London’s role as a global financial centre. Although SA banks are well capitalised, the ability of parent banks in the UK to provide liquidity may be diminished in a challenging operating environment, cautioned Moody’s. Read more on this report here.