14 February 2018

Nigeria: Economist Raises Concern Over Britain's Endorsement of Naira As Trade Currency

Photo: Pixabay
(file photo).

As Britain is set to add the Naira as one of its pre-approved currencies, which will allow the UK Export Finance to provide financing for transactions with Nigerian businesses denominated in the local currency, the move may transfer payment liabilities for individual transactions to the government.

The move is expected to promote Nigeria's trade with Britain, the UK export finance agency said in a statement.

The statement said the UK will provide up to 85 percent of funding for projects containing at least 20 percent British content.

Recall that Britain voted in 2016 to leave the European Union, which has forced London to rethink its trade ties with the rest of the world. The United Kingdom and EU struck an agreement in December that opened the way for talks on future trade ties.

"This is a clear indication of how much value the UK places on its relationship with Nigeria. It will provide a firm foundation for a significant increase in trade and investment between both countries," Paul Arkwright, British High Commissioner to Nigeria, said in the statement.

The Naira financing will follow the same structure as someone buying in Pounds, except that Nigerian firms taking out a loan in the local currency can benefit from a UK government-backed guarantee.

But the statement did not indicate the exchange rate for the programme, just as one of Nigeria's leading economist, Bismark Rewane noted that the move could shift payment liabilities from individuals to the Federal Government.

They are also worried about the rate at which funds would be disbursed since local interest rates are in high double-digits.

Bismark Rewane, CEO of Financial Derivatives, said the financing deal would help local importers buy British goods. "If I buy a Rover, the British government is now guaranteeing that I can pay in naira, so the foreign exchange risk has been shifted from me to the Nigerian government. If CBN is unable to remit funds to the UK, then the liability will be on Nigeria," Rewane said.

Severe dollar shortages in Nigeria in 2016 caused by lower oil prices forced the Central Bank of Nigeria (CBN) to allow the Naira to float, after which it lost a third of its official value. The Naira has since traded within a range supported by CBN on the interbank market.

Nigeria

Most African Children Without Birth Certificates Are Nigerians

For every 10 Nigerian children that are at least five years old, there are no records about the birth of seven. Even… Read more »

See What Everyone is Watching

Copyright © 2018 Vanguard. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 700 reports a day from more than 140 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.