By Modupe Gbadeyanka
One of the leading investment research firms in Nigeria, FSDH Research, has revealed in a recent report that Nigeria stands to lose more in the recent trade deal with the United Kingdom, where the UK listed the local currency, Naira, as an acceptable lender tender for trade.
FSDH feared that the deal will not eventually favour Africa’s largest market.
Recently, the Export Credit Agency of the United Kingdom (UK), UK Export Finance (UKEF) announced trade incentives for Nigeria that will stimulate the importation of goods and services from the UK.
This is expected to ensure more exporters in the UK sell their goods and services in Nigeria as the incentives will remove some hindrances to trade between the UK and Nigeria.
The UKEF will guarantee a buyer credit loan to Nigerian borrowers in local currency (Naira) to finance purchase of capital goods and/or services from UK exporters.
Thus, it reduces the foreign currency risk for the import and avoids a variable debt service cost. UK will provide up to 85% of funding for projects containing at least 20% UK content. The loan will also benefit from a UK government-backed guarantee.
Many have lauded the proposal on the ground that it may reduce the demand for foreign exchange in Nigeria and consequently strengthen the value of the Naira.
However, FSDH Research analysed the historical trade figures between the UK and Nigeria to appropriately place the benefits in the arrangement in the right context.
Nigeria’s exports to the UK dropped significantly by 59% from N730bn in 2013 to N301bn in 2016 while the imports from the UK dropped marginally by 1% from N367bn in 2013 to N363bn in 2016.
We note that Nigeria’s exports is dominated by crude oil while Nigeria imports a variety of items from the UK. Thus Nigeria exports to the UK is more volatile than Nigeria’s imports increased to 10% as at Q3 2017.
The UK also accounts for an average of 4.75% of the total exports of Nigeria between 2013 and 2016. The figure dropped to 2% as at Q3 2017.
FSDH Research is of the view that the trade structure between the UK and Nigeria favours the UK. The proposed incentives may further place Nigeria at a disadvantage. This is because of the weak exports potential of Nigeria to the UK. Nigeria needs strategic policies to drive local competiveness in production in order to take advantage of the opportunities in the international markets.
