Investment advisory firm Alliance Capital Limited (ACL) says Brexit could cost Malawi 60 percent of its exports to the UK following fundamental changes in the country’s relationship with the Least Developed Countries (LCDs).
In its weekly markat update, the firm says Brexit will likely result in the re-imposition of duties and tariffs on imports from 116 developing countries, including Malawi, which currently benefits from preferential market access to the UK under different European Treaties.
These include the European Generalised Scheme of Preferences (GSP), Everything But Arms (EBA) and the Economic Partnership Agreement (EPA).
Reads the update in part: “Although LCDs will be impacted negatively depending on how [and if] the UK leaves European Union [EU], the effect will mostly be negative via trade, financial markets and investments, aid, migration and remittances and global collaboration.
“For starters, if Brexit goes through, the UK will no longer be part of GSP and EBA treaty, which is a set of EU rules allowing exporters from developing countries to pay less or no duties on their exports to the UK.
“The EPAs between the EU and the African, Caribbean and Pacific countries will not apply to the UK either. Therefore, trade and investments will be most affected by Brexit.”
The firm further said it is also expected that Brexit will result in the depreciation of the pound sterling, which will cost most LCDs in lost exports due to declining demand as well as transalate to reduced aid.
But over the years, the country has underutilised such a window as evidenced by the low volumes of exports destined for the EU.
According to the 2019 Annual Economic Report, EU emerged Malawi’s biggest export market in 2018 receiving over 39 per cent of Malawi’s exports worth $382 million (about K283 billion).
Despite the EU being Malawi’s biggest export destination, overall, Malawi’s trade gap is still wide with latest statistics showing that between 2016 and 2017, trade balance widened by 44 percent from K869 billion to K1.2 trillion.
Ministry of Industry, Trade and Tourism spokesperson Mayeso Msokera said if preferential market access arrangements are not maintained, developing countries, including Malawi will suffer through decline in UK exports.
He also indicated that with the UK being one of the biggest contributors to the European Development Fund (EDF), Brexit will likely deprive the EDF of British resources, which may affect the amount of support to the developing countries.
“Malawi has greatly benefited from these funds in terms of capacity building for trade and private sector development. The Malawi Enterprise Productivity Enhancement project is a good example. However, direct disbursement of the aid may replace the UK’s contribution to the fund,” he said. The UK government formally announced its withdrawal from the EU in March 2017, starting a process which is expected to conclude this month.