Nigeria’s currency, the Naira, is to be added to the list of “pre-approved currencies”, by the British Export Finance Agency.
UK’s export credit agency UK Export Finance (UKEF) added Nigeria Naira to a list of 62 pre-approved currencies compared to just less than 15 as at 2010. Nigeria joins, Botswana, Egypt, Kenya, Mauritius, South Africa and Uganda as the list of African countries that have access to this deal without restrictions.
Ghana, Morocco and Zambia are also included in the list but support are restricted to case by case basis.
What this means for Nigeria
- Whenever you order goods from the United Kingdom you can pay in Naira rather than pay in the British Pounds. The Nigerian and British Government will now figure out the exchange rate that will be used to settle the trade.
- From what we gather, to be eligible for this program, the minimum transaction value for exports is £5 million in Naira equivalent.
- This arrangement is for importers and does not qualify for retail and debit card transactions.
- To be eligible, you will have to go through your bank in Nigeria, who will pay for the goods for you in Naira, directly to the UK exporter.
- Details regarding interest rate or what exchange rate will be used has not been determined.
How the credit works
- In cases where an importer does not have the cash to pay for their imports, this deal allows them to access a loan of at least 85% of the contract sum.
- They are expected to provide cash advance for the initial 15%. In fact, you first pay 5% of the value of the import to the UK exporter upon signing a contract and then 10% afterwards.
- As explained, the loans are denominated in Naira and will incur interest
- The Nigerian bank will be guaranteed by the UKEF in case the Nigerian importer defaults thus reducing their risk.
- The loans can only be for a maximum of 2 years.
What is in it for the UK?
This development is expected to help make UK goods cheaper following the country’s decision to exit from the European Union.
Data from the National Bureau of Statistics, places the United Kingdom at number 6 in the list of countries where Nigeria imports from and with an average transaction value of N325 billion annually.
Some reports suggest opine that the volume of trade between Nigeria and the United Kingdom could exceed N7.7 trillion (£20 billion) by 2020.
The UK will hope this deal will help boost its exports to Nigeria and topple the likes of China, Belgium, US, Netherlands and India as Nigeria’s top of 5 countries of import.
Exporters from the UK can now offer their oversees customers UKEF-“backed finance” in local currency of the importers.
An Aftermath of Brexit
It would be recalled that Britain voted to leave the European Union in 2016, which has forced London to refocus its trade agreements with the rest of the world. Also there are reports of preliminary talks with India about an eventual bilateral trade agreement.
The British High Commissioner to Nigeria, Paul Arkwright, said
“The Naira financing will follow the same structure as someone buying in sterling, except that Nigerian firms taking out a loan in local currency can benefit from a UK government-backed guarantee.”
The ambassador also noted that this is a clear indication of the importance the UK places on its relationship with Nigeria. This development is expected to drive a significant increase in trade and investment between both countries.