Britain’s vote to leave the European Union in June this year came as a shock to many Africans countries that had bilateral relations with the political West, especially those that receive aid donations from the United Kingdom.
Uganda, a former British colony, is one of the largest recipients of the aid donations from the Queen’s land and from the time the Britons voted to leave the EU, experts have been considering the implications of ‘Brexit’ in line with the aid donations the country has been receiving in almost all sectors among them health and education.
On Thursday a group of Uganda’s economic analysts and experts gathered at Sheraton Kampala Hotel to discuss Uganda’s relationship with Britain in a post – Brexit environment, with most pointing to an unpredictable ‘next couple of months’.
Stephen Kaboyo, a former Bank of Uganda Director said the implications of Brexit will be far reaching on Uganda and will eventually be felt despite the fact that right now it cannot be quantified or even felt.
Kaboyo, currently a Director with Alpha Capital Partners, added that the “volatility of the global financial markets as a result of Brexit will trigger capital outflow as investors dump riskier assets to get into dollar assets which are seen as a safe haven.”
He further noted that the capital outflows will result in the depreciation of the Ugandan shilling and other sub Saharan African currencies.
The Ugandan shilling has lost almost 100 shillings to the dollar since the ‘Brexit’ referendum was held in June, while the British Pound has plunged down from Shs4900 to an average Shs4400 on the ‘buying’ market. On the contrary, the Pound is now seling at UgShs5000, an indicator that dealers to want to cash in from those holding the Pound, the expert said.
“Market players are holding dollar positions uncertain of how the pound will perform,” Kaboyo said, adding the timing of Brexit happened at a time most countries were facing external shocks of fall in prices of commodities; a slowdown in China and high borrowing costs among others. He further said that weak trade ties would also be felt and that reduced British ‘outwardness’ will be realised through reduced development assistance.
Annually, Britain gives 100 billion shillings to the Ugandan government in aid and grants. Britain has also been a major funder to the European Union which gives Uganda up to shillings 1.2 trillion of external funding annually.
Professor Augustus Nuwagaba, the proprietor of Reev Consults International, said a weak Pound would translate into reduced exports from Uganda to the UK because the earnings will have reduced.
“Uganda should focus on goods with inelastic demand so that whenever changes in prices occur whether in the UK or globally the country’s exports do not suffer,” the globally-acclaimed Economics professor said.