Brexit Shocks The Market
News of Britain’s decision to leave the EU continues to reverberate far and wide.
Not simply an insular issue, the economic ramifications of ‘Brexit’ will be felt by businesses trading around the world for some time to come.
The global marketplace, already experiencing sluggish growth in 2016, can expect a renewed period of economic uncertainty, risk aversion and turbulence for the foreseeable future.
Following the announcement of the result, sterling fell more than 12% against the Dollar. The Mexican Peso, so often the first indicator of fresh emerging market volatility, experienced its heaviest daily loss in 5 years – slumping to 19.52 against the Dollar.
The effects were also felt across Africa, with South Africa hit hardest. The Rand sank to its lowest point since 2008, losing 8% of its value against the Dollar and 6.6% against the Yen. In Kenya, the Shilling remained stable. Even so, Finance Minister Henry Rotich still came forward to announce that East Africa’s trade and investment hub was braced for the economic fallout from ‘Brexit’. Taking steps to reassure the local market, he announced that Kenya has “sufficient forex resources” and will be monitoring the situation so as to take “appropriate action” when needed.
Whilst this initial violent reaction felt across the global financial marketplace has somewhat subsided, speculation continues to mount that economic contagion could intensify and spread in the coming weeks and months.
What does this mean in real terms for businesses engaged in cross-border trade?
First and foremost, businesses need to be prepared for even greater currency swings, with foreign exchange markets continuing to remain opaque and unpredictable.
To make matters worse, the EU remains a key global trading bloc. Any economic pain felt here will have a severe knock-on effect on its partners.
This pain could be most acutely felt in Africa, where the EU accounts for 26% of all trade, with two-way trade flows that total $170.1bn. What’s more, growth prospects in Africa have already been limited because of low commodity prices. This means that any slowdown in Europe would most likely have a direct, negative impact on African businesses that are trading with the EU bloc.
An additional point worth noting is that as the process of ‘Brexit’ moves forward with the activation of Article 50, any business engaged in direct trade with the UK will likely face the added expense and time delays imposed by new trade deals.
How Can Business Better Protect Themselves?
The spectre of a global slowdown has grown more apparent following the UK’s Brexit decision.
Businesses with foreign currency commitments must now ensure they take all steps possible to mitigate risk.
Volatile currency swings can wreck havoc on trading margins and directly impact overall business profitability.
This means that it’s essential that businesses always secure the best deal possible on their forex transactions.
This is how Kwanji can best help.
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