A recent statement credited to the United Kingdom Export Finance agency (UKEF) is to the effect that it has concluded plans to include the naira in its list of “pre-approved currencies”. The granting of a “pre-approved currency” status by the UKEF gives exporters from the UK the opportunity to offer their overseas customers UKEF-backed finance in local currency of the importers. For Nigeria, it means that imports from the UK (subject to a minimum transaction value of £5m in naira equivalent) can now be settled in naira rather than the British Pounds. This deal makes it possible for the importer to access a loan from a bank in Nigeria of at least 85 per cent of the contract sum for a maximum period of two years while the Nigerian bank is guaranteed repayment by the UKEF in case the importer defaults. By this development, the naira joins other 62 pre-approved currencies which are directly accepted in trade by the UK government. Other countries in Africa whose currencies enjoy this privilege are Egypt, Kenya, Mauritius, Botswana, South Africa and Uganda while the currencies of Ghana, Morocco and Zambia are also considered for local currency financing but “on a case-by-case basis”.
To be sure, the UK Export Finance is the operating name of the Export Credits Guarantee Department which is the UK’s export credit agency and a ministerial department of the UK government that works alongside the Department for International Trade. As stated on its website, its mission “is to ensure that no viable UK export fails for lack of finance or insurance, while operating at no net cost to the taxpayer” while its primary role is to help the UK companies “win export contracts by providing attractive financing terms to their buyers, fulfil contracts by supporting working capital loans and contract bonds as well as get paid by insuring against buyer default”. It is clear therefore that this seeming privileged status for the naira is first and foremost about British interest.
It is easy to see why Nigeria is among the UKEF priority markets in Africa. The increase in crude oil production and the strong possibility that crude oil prices will sustain the upward trajectory (particularly with OPEC joining other key non-OPEC oil producers to constrain oil output), the surge in foreign reserves and exchange rate stability all point to a positive outlook for the country’s economy with the potential to support UKEF’s business volumes. At present, Britain appears to be losing out to China whose share of business with Nigeria has been on the rise and is hoping that this measure will help boost the UK exports to Nigeria and possibly overtake not only China but also the likes of Belgium, the US, The Netherlands and India which are among Nigeria’s top countries of import. In fact, this measure is expected to help make the UK goods cheaper on the back of the country’s decision to exit the European Union.
Without any doubt, the UKEF pre-approved status for the naira will have some positive spin-offs on the Nigerian economy. It will enhance the financial position of small and medium enterprises as foreign exchange risk associated with international trade is minimised thus eliminating a major source of uncertainty over debt servicing cost of credit facilities. So, business enterprises are in a stronger position to negotiate better terms with their banks in Nigeria and avoid variable debt service costs linked to fluctuations in exchange rate. Again, since the bank in Nigeria will receive a guarantee for full repayment of the loan, it will help to improve the quality of risk assets of Nigerian banks and hence enhance financial systems stability. The expected increase in Foreign Direct Investments could bring about transfer of technology to small businesses in Nigeria. Furthermore, UKEF flexible financing solutions have been described as the “next best thing to concessionary financing” due to their relatively cheap and flexible nature which are particularly healthy for small business enterprises.
Indeed, UKEF pre-approved status for the naira has the potential for strengthening economic ties between Nigeria and Britain. This much is corroborated by the British High Commissioner to Nigeria, Paul Arkwright, who is quoted as saying that “it is a clear indication of how much value the UK places on its relationship with Nigeria” adding that “It will provide a firm foundation for a significant increase in trade and investment between both countries”.
Undeniably, Britain is a global leader in many critical sectors for which the country has greatest demand including transport, infrastructure, energy education, health and ICT. In these and other specialist areas Nigeria, as some other African countries have done, can leverage the UK expertise to accelerate economic growth and development. In Uganda for example, UKEF is helping finance the construction of a new international airport in the Kabaale region to be undertaken by the UK arm of infrastructure firm, Colas UK. By the same token, NMS International, a UK-based company, is leading a consortium of the UK small and medium-sized firms to undertake the construction of seven district hospitals in Ghana through a buyer loan guarantee from UK Export Finance. Under the arrangement, UKEF guaranteed a loan to the Ghanaian Ministry of Health which made it possible for the NMS to offer a competitive finance package to the government of Ghana while being paid up front, allowing it bring a consortium of small UK firms to the project.
While applauding this UKEF privileged status for the naira, it is important to note that the British credit agency has not been without knocks especially as it relates to its aggressive export drive. For instance, Amnesty International has lampooned the agency for lack of transparency and accused it several times of human rights abuses. In a report it published in 2013 titled, “A history of Neglect: UK Export Finance and Human Rights”, it noted that the UKEF “eagerness to help secure new overseas contracts for British companies often comes at the expense of human rights” citing, among many instances, how it provided loans for the construction of a Chinese nuclear power plant in 2011. Against this backdrop, the Federal Government should be mindful of these controversies including the likely impact of the deal on Nigeria’s rising public debt. Figures released by UKEF in November 2012, for example, show that 75 per cent of Indonesia’s debt comes from loans to the former authoritarian government of President Suharto to procure weapons while loans for military equipment to the former regimes of Presidents Hosni Mubarak and Anwar Sadat account for about 25 per cent of Egypt’s public debt. According to the report, around £2.3bn of “Third World debt” is owed to UKEF.
Since the UKEF will coordinate the advance of loans to businesses and entrepreneurs for the purchase of goods made in Britain, the government can put in place mechanisms to ensure that these are essentially for infrastructure-related projects especially in sectors such as power, water and transport. The government should also firm up measures already in place to guard against dumping as this development promises to ease import of goods from the UK. In this new deal, the interest of Britain should go beyond export promotion to helping Nigeria, a dependable ally, create the enabling environment for a private sector-led inclusive growth. Indeed, the strategy of “pre-approved currencies” by the UKEF is a clear case of “thinking outside the box”- a major lesson for Nigeria’s sole export credit agency, the Nigerian Export-Import Bank.
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