Investors Forex Inflow Drops to $716m
By Nse Anthony-Uko
(Sundiata Post) – Nigerians may soon be able to buy goods from Britain and pay with our local currency the Naira as Britain’s export finance agency said it will add the naira to its list of “pre-approved currencies”, allowing it to provide financing for transactions with Nigerian businesses denominated in the local currency.
With this, the naira will become one of three West African currencies that UK Export Finance has pre-approved for its programme of funding transactions that promote trade with Britain, it said.
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 the EU struck an agreement in December that opened the way for talks on future trade ties.
According to British High Commissioner to Nigeria, Paul Arkwright, the development “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.”
A statement from the United Kingdom credit agency said the UK will provide up to 85 per cent of funding for projects containing at least 20 percent British content. The naira financing will follow the same structure as someone buying in sterling, except that Nigerian firms taking out a loan in the local currency can benefit from a UK government-backed guarantee.
Analysts welcomed the impact of the financing option on the local currency, although they said it might increase Nigeria’s liability as trades mature for settlement and questioned the rate at which funds would be disbursed, since local interest rates are in high double-digits. Managing director and chief executive of Financial Derivatives Company Limited, Bismark Rewane, said the financing deal with the UK 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 the Central Bank of Nigeria is unable to remit funds to the UK, then the liability will be on Nigeria,” Rewane said.
Meanwhile, Foreign exchange inflows at the Nigeria Autonomous Foreign Exchange market known as the Investors’ and Exporters’ window has declined for the second week running, dropping to $716.61 million as the Britain’s export finance agency said it will add the naira to its list of pre-approved currencies.
Compared to the inflow of $1.06 billion the previous week, the $716.61 million inflow at the I&E window declined by 32.3 per cent. The inflow of the penultimate week had likewise declined by 10.7 per cent from $1.19 billion which came into the market through the window the previous week. Weekly average turnover at the window has been well over $1 billion in recent times before last week.
The value of the naira at the window however, closed stronger than what it traded during the week. Opening last week’s trading at N360.25 to the dollar, the value of the local currency had declined to N360.31 before settling at N360.27 to the dollar on Friday. In total, the turnover at the I&E window on both sides of trades from its launch in April through to last week has exceeded $33 billion.
The CBN had injected $325.64 million into the interbank foreign exchange market as part of efforts to boost liquidity and reduce dollar shortages. The intervention was earmarked for the agricultural, airline and petroleum products sectors, as well as for raw materials and machinery.
The CBN’s quarterly economic report for the fourth quarter of last year, showed that aggregate foreign exchange inflow into the economy through banks and autonomous sources increased by 86.9 per cent year on year rising to $30.45 billion.