What Brexit holds for Nigerian economy, others

Britain’s exit from the European Union (EU), popularly known as Brexit, could trigger the renegotiation of Nigeria’s existing trade deals, estimated at over $5billion with country, which was done through the union.

After more than 1200 days when Britain voted to leave the EU, the country still remains in the trading bloc, pondering exactly how to leave, but sending jittery to trading partners.

Although the October 31 “do or die” Brexit deadline has been extended to January 2020, it is more about kicking an empty can down the road and with the United Kingdom set for general elections on December 12, it will certainly not be a quiet festive season for the country and the pound.

Additionally, the “seismic tremors” already created from such an unfavorable development are sure to ripple far beyond the borders of Britain, with everyone across the globe feeling the heat, including Africa and Nigeria, in particular.

The Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, also acknowledged the headwinds inherent in the United States (U.S.)-China trade war, uncertainties around Brexit and fears over decelerating global growth, warning that Nigeria is immune to them.

“Output growth across major advanced economies remained subdued, confronted by legacy headwinds, including the subsisting trade war between the US and China, regional hostilities in the Middle-East, rising debt levels.

“There is also growing uncertainties around BREXIT and increasing political tensions between the US and Iran, including fragilities in the financial markets,” he said.

For the Senior Research Analyst at FXTM, Lukman Otunuga, it will be unwise for investors to rule out the possibility of the United Kingdom crashing out of EU next year, given the unpredictable nature of Brexit.

Given how Brexit adds to the growing list of geopolitical risk factors straining investor confidence, appetite for emerging markets may diminish if the UK leaves EU without a deal.

“It is not only the appetite for emerging markets that will be under threat but trade and diplomatic relations with Britain and Europe following the divorce.
 
“It must be kept in mind that trade deals with the UK and African countries are negotiated through the EU, which plays a middle man. With the agreement becoming void when Britain departs from Europe, this presents significant disruptions and economic risk to African nations who trade with the UK,” he said.

From the records, Britain’s top trading partners like Nigeria, Kenya, and Egypt will most likely be punished by a no-deal Brexit. The UK was Nigeria’s sixth largest trading partner in 2018, with total trade at about $5 billion.

In 2018, Nigeria exported £2.23 billion worth of oil to the UK, an improvement over the level of £1.1 billion in 2017. But with the UK’s economy exposed to downside risks, the outlook for Nigeria’s oil sales appears less promising.

“Nigeria’s oil sales in the UK and Europe face another challenge. Over and above the UK’s declining economic circumstances is increased competition from the U.S. light sweet crude oil industry.

“In August, oil sales slowed to their lowest level of the year because U.S. Shale Oil flooded European markets. In July, Nigeria’s oil sales to the U.S. fell to zero, as U.S. President, Donald Trump’s administration powered up its energy dominance policy. It is essential for Nigeria to regain market share in the UK and Europe, which accounts for 46 per cent of its crude oil sales.

“As demand and supply-side challenges grow, Nigeria could benefit from closer relations with the UK government, which points out that it has extensive experience in building and managing oil industry infrastructure.

“A trade deal, which secures the UK as a guaranteed buyer of Nigerian crude oil could certainly support demand in the long term,” Otunuga noted.

In the meantime, as part of the post-Brexit strategy, the UK government hopes to revive its relationships with the Commonwealth markets and has already begun talks with Nigeria to improve bilateral ties.

“In one example, the UK provided credit and finance worth £1.25 Billion to facilitate British companies to export goods to Nigeria, resulting in £76.5 billion worth of trade in the last 10 years.

“During the second quarter of 2019, British Foreign Minister, Jeremy Hunt, visited Nigeria, promising a big pool of funds, which could be invested in infrastructure.

“In other developments, the two countries launched an economic forum to explore mutual investment interests. The governments are already discussing the introduction of Naira-backed financial instruments in the UK and expanding cooperation in the insurance sector,” he added.

The analyst noted that generally, Nigeria’s post-Brexit relations with the UK are faced with several headwinds, which could blow off course the priority to maintain and increase investments in the development of its oil and gas industry infrastructure.

On the upside, it is positive that trade talks with the UK are deepening and there are pre-existing diplomatic and trading relationships, which date back many decades.