Following the listing of the Nigerian Naira as an acceptable lender tender for trade in the United Kingdom, FSDH Research, in a recent report has revealed that Nigeria stands to lose more in the deal.
The prominent investment research firm has posited that the deal will not eventually favor the country.
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 in a bid to ensure more exporters in the UK sell their goods and services in Nigeria as the incentives will clear 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.
As such, 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.
FSDH Research analyzed 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.
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.