Naira as trade currency

Unexpectedly the cheering news filtered in as the United Kingdom announced its preparedness to include the Naira as one of three currencies in West Africa to be accepted for trade transactions by the British Government. Specifically this information was released by no other than Paul Arkwright, the British High Commissioner to Nigeria.

He explained that the UK Export Finance (UKEF) will now be able to provide loan guarantees through local banks in Naira to support Nigerian businesses procuring goods and services from the UK as a practical measure to underwrite increased business between the two countries.

This scheme we were told would be restricted to dealings with UK businesses that have given their consent to accept payment in Naira effectively underwriting the exchange risks inherent is such transactions.

The maximum funding by way of guarantee that could be attracted under the scheme is 85% of project costs and the only condition precedent is that the transaction would have a minimum 20% British content. It was also indicated that a sum of 750 million Pounds Sterling had been earmarked by UKEF for the takeoff of the scheme. And opinion has been canvassed that with guaranteed long tenure credits at low interest rates for quality British products and Services makes this proposition very competitive and attractive.

As should be expected even before this measure had been fully digested and understood, compatriots had, as has been the case with us, adorned their full garment of skepticism. I was involved in arguments on two vibrant WhatsApp platforms on the full implications of this development for the Nigerian economy. And was privileged to have granted online interview to Radio Nigeria on the implications of this development for the Nigerian economy which was carried on their network service.

There has been fears expressed to the effect that this liberalisation would worsen the trade imbalance between Nigeria and Britain which had traditionally been in favour of Britain, to questions raised regarding how the accumulated trade balances in Naira which it was feared could be humongous would be settled by the Central Bank in which case if we are not careful we might have on our hands a cure worse than the disease; to issues regarding logically how the rate of exchange to be adopted for the determination of the Naira equivalent of the deals would be determined to the rate of interest to be charged on the transactions; to even what impact this development or rather to what extent it would impact the exchange rate of the Naira.

No doubt we should suspend wild celebrations until the full details of the proposed scheme are made known as counseled by the saying that the enemy is often in the details. But my well-considered position is that this development is wholesome and salutary for the Nigerian economy as it at once commences the process of conferring on the Naira the status of a tradable currency with the many advantages pertaining thereto.

Most certainly this development if nothing else should at least reduce the dollar demand pressure on the economy thereby firming up the Naira exchange rate. And as has been explained above some of the more than five hundred British companies that do business in Nigeria have accepted to absorb the exchange risks. And therefore any involvement of the Central Bank in this matter should be limited to ensuring that extant guidelines on such business relationships were not observed in the breach.

There will be no prize for guessing what precipitated this welcome change in policy. Britain following the reality of Brexit which denies the country the advantages of a large common market with its associated benefits particularly as it relates to the economy of scale has been forced to think outside the box if the growth of its economy is not going to be undermined with the negative potential of such a development for the quality of life of the average British.

And as a result of this thinking the need to boost bilateral trade relations particularly with countries with large markets and shared historic ties became inevitable hence this development which in our opinion as already explained is considered most welcome and salutary.

What this development portends for Nigerian businesses is that with a viable business proposal sourcing funding from their banks for doing business with British companies is made so much easier as the guarantee is in place and similarly exchange rate risks will no longer pose an inhibiting constraint.

Why should Nigeria celebrate this development? The reality of the Nigerian economy is that it is still overly dependent on the external sector despite all the several efforts and attempts made over a fairly long period now notably commencing from the Babangida Structural Adjustment Programme of 1986.

The fact remains that all the policy measures needed for the attainment of the diversification of the Nigerian economy were well documented under this program. But what has been the bull in the China shop with regard to inability to register commensurate progress has been the country’s poor record when it comes to implementing adopted policies.

And the economy on the other hand being mono cultural; dependent on the oil sector for upwards of 85% of foreign exchange income clearly highlights the precariousness and vulnerability of the economy. Most certainly some progress has been recorded by this administration to blunt the sharp thrust of this situation on the economic jugular of the economy.

Some of the recent landmark developments that have contributed considerably to the reduction of the vulnerabilities of the Nigerian economy worth celebrating would most certainly include the effectiveness of the Investor, Exporters (I&E) window for the autonomous inflow of foreign exchange into the economy.

The success in this regard in effect means that we do not have to spend only what dollars we have directly earned. There are also developments with the agricultural sector where the country is targeting self-sufficiency in the not too distant future in rice production and other deliverables.

And with the success recorded under the fiscal regime with the rapid and massive augmentation of tax revenue which is being positively impacted by the VAIDS scheme currently under intense publicity and the unprecedented boost in fiscal flows through more focused, aggressive, transparent returns to the treasury by most revenue collection agencies of government, we must admit in all honesty that we have just commenced witnessing the glimmering of the return of a robust economy.

The Government has projected a growth rate of 3.5% for the Nigerian economy in 2018 and all the other relevant agencies have followed suit with various levels of positive GDP growth predictions during the year.

But in spite of such major strides being recorded, the acceptance of Naira as a trading currency by the British Government with its potential ripple effect, is yet another success milestone which we are convinced that as the details are being finalized would most certainly give a fillip to the growth prospects of the Nigerian economy.

• Dr. Chizea wrote from Lagos.