UK approves naira for trade financing

Britain will add the naira to its list of “pre-approved currencies” for financing transactions.

This will enable United Kingdom (UK)’s export finance agency to provide financing for transactions with Nigerian businesses denominated in the local currency.

The naira will become one of three West African currencies that has been pre-approved for funding transactions that promote trade with Britain, the agency said.

Britain voted in 2016 to leave the European Union (EU) and this has forced London to rethink its trade ties with the rest of the world. The UK and the EU struck an agreement in December that opened the way for talks on future trade ties.

“This is a clear indication of how much value the UK places on its relationship with Nigeria,” Paul Arkwright, British High Commissioner to Nigeria, said in the UK’s credit agency statement.

Arkwright stated that it would provide a firm foundation for a significant increase in trade and investment between both countries.

Under the arrangements, UK will provide up to 85 per cent of funding for projects containing at least 20 per cent 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, but 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.