In a move signaling its commitment to bolstering trade ties with Nigeria, Britain’s export finance agency has announced the inclusion of the naira in its list of “pre-approved currencies.” This development allows the UK Export Finance to provide financing for transactions involving Nigerian businesses, denominated in the local currency. The naira will now join two other West African currencies on the list, facilitating funding for projects that promote trade with Britain.
Following Britain’s decision to exit the European Union in 2016, the country has been reevaluating its trade relationships with the rest of the world. A December agreement between the UK and the EU paved the way for discussions on future trade ties. The addition of the naira to the pre-approved currencies list is seen as a significant step in strengthening bilateral trade and investment between Nigeria and the United Kingdom.
Paul Arkwright, the British High Commissioner to Nigeria, lauded the move, stating that it underlines the value the UK places on its relationship with Nigeria. He believes that this decision will provide a solid foundation for a substantial increase in trade and investment between the two nations.
Under the new arrangement, the UK will provide up to 85 percent of funding for projects that incorporate at least 20 percent British content. The naira financing will operate similarly to transactions in sterling, with the key difference being that Nigerian firms obtaining loans in the local currency will benefit from a UK government-backed guarantee.
The financing option has been well-received by analysts, particularly for its potential impact on the local currency. Nigerian importers, who faced difficulties accessing foreign exchange during the peak of the country’s currency crisis in 2016, can now turn to the naira financing option to purchase British goods. The severe dollar shortages at that time led the central bank to allow the naira to float, resulting in a one-third depreciation of its official value. Since then, the naira has been trading within a range supported by the central bank on the interbank market.
While the financing option provides a relief for local importers, concerns have been raised regarding potential liabilities for Nigeria as trades mature for settlement. Additionally, the disbursement of funds may be questioned due to the country’s high double-digit interest rates.
Bismark Rewane, the head of Lagos-based consultancy Financial Derivatives, believes that the UK financing deal will mitigate foreign exchange risks for Nigerian importers. He explained that if a Nigerian firm purchases a product like a Rover, the British government guarantees that they can pay in naira, effectively transferring the foreign exchange risk to the Nigerian government. However, if the Central Bank of Nigeria faces challenges remitting funds to the UK, the liability will rest on Nigeria.
The inclusion of the naira in Britain’s pre-approved currencies list presents promising opportunities for enhanced trade and investment between the UK and Nigeria. As both countries navigate their post-Brexit trade relationships, this move strengthens the economic ties and mutual benefits that can be derived from their collaboration.
