🗞️Strengthening Trade Relations and Easing Currency Challenges between Nigeria and the UK

In a new development for trade relations, the British government, through its export credit agency, UK Export Finance (UKEF), has announced that it will now accept naira payments from Nigerian business owners who make procurement in the UK. This decision places Nigeria among the three West African countries on UKEF’s pre-approved currencies list.

The inclusion of the naira makes it one of the three West African currencies that UK Export Finance has authorized for its funding transactions aimed at promoting trade with Britain. Following the UK’s decision to leave the European Union, London has been reevaluating its trade ties with nations around the world. In December, the United Kingdom and the EU reached an agreement that paved the way for discussions on future trade relations.

Paul Arkwright, the British High Commissioner to Nigeria, expressed the UK’s commitment to the relationship between both countries, stating, “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.”

Under the terms of the announcement, the UK will offer up to 85 percent funding for projects that consist of at least 20 percent British content. The financing structure for naira payments will resemble that of purchasing in sterling. However, Nigerian firms obtaining loans in the local currency will benefit from a UK government-backed guarantee.

Financial analysts have welcomed the positive impact this financing option will have on the local currency. However, some have raised concerns about potential liabilities for Nigeria as trades mature for settlement. Additionally, questions have been raised about the disbursement rate of funds, considering the prevailing high double-digit local interest rates.

Bismark Rewane, the head of Lagos-based consultancy Financial Derivatives, acknowledged that the financing deal with the UK would assist local importers in purchasing British goods. Importers had previously faced challenges in acquiring foreign exchange during Nigeria’s currency crisis.

In 2016, Nigeria experienced severe dollar shortages due to declining oil prices. Consequently, the central bank allowed the naira to float, resulting in a one-third loss of its official value. Since then, the naira has been trading within a range supported by the central bank on the interbank market.

Rewane further explained the benefits, stating, “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 the Central Bank of Nigeria is unable to remit funds to the UK, then the liability will be on Nigeria.”

This move by the UK to accept naira payments highlights the strengthening trade ties between Nigeria and Britain, providing Nigerian businesses with greater accessibility to British goods and services while fostering increased trade and investment between the two nations.