Brexit shakes Nigeria’s markets

*Floor of the Nigerian Stock Exchange.

*Floor of the Nigerian Stock Exchange.

*Opportunities and challenges may be underway—Experts

26 June 2016, Lagos — The UK’s decision to end its relationship with the European Union is not so much an earthquake, just for Britain, but a tsunami for the whole world. The development in UK has some, if not fundamental, impact on Nigeria, according to some analysts. In the immediate, the Nigerian Stock Exchange, NSE, All Share Index was 30,649.66, down by -1.36% on Friday.

Market capitalization closed at N10.5 trillion, down from N10.67 trillion. It is not clear if it was BREXIT fallout or just profit-taking on the back of 4-straight day bull run. In the interbank foreign exchange market, the exchange rate was largely stable at N281.14/ USD1.0 yesterday as against the pre-BREXIT Thursday closing price of N282/USD1.0, showing an appreciation while British Pound went down marginally to N386.3 as against N385 previous day.

However, Naira appreciated against both US Dollar and British Pound moving to N338, up from N342 to the US Dollar and N460, up from N480 against British Pound. T

he BREXIT, happening within the first week of Nigeria’s flotation of its currency market, may not give a clear impact as many other factors came into play, including market adjustments.

Central Bank of Nigeria, CBN, has battled to sustain the supply situation in the market so as to maintain market and exchange rate stability, a development which has kept the Naira value to US Dollar at about N281.75, almost same level as the day before BREXIT decision.

The situation in Nigeria’s market in relation to BREXIT could better be appreciated when compared with what happened elsewhere. U.S. stock futures had plummeted yesterday morning, caught up in a global sell-off, that saw Dow futures down more than 700 points.
European stock markets cratered, while stocks in Japan nosedived nearly 8.0%, oil price dropped and global bond yields were also in the red.

The British pound sterling had already taken a battering, falling to its lowest level for 31 years. Reacting to the BREXIT implication to Nigerian economy analysts at Greenwich Trust, a Lagos-based investment house, said “as one of the British Commonwealth countries and the second largest trading partner of Britain in Africa, Nigeria will feel the effect of Britain’s exit from the European membership via several channels: “As a bilateral trade partner, other benefits that accrue such as grants to non-profits, technical assistance and partnerships with other development agencies will be scaled back as their developmental projects in Nigeria will halt pending the time the UK experiences some form of stability.

“UK and Euro based Holding/Parent companies may postpone investment plans on subsidiaries· due to devaluations in their respective currencies.

“Trade between Nigeria and EU members that relied on the UK’s existing network will likely decline”. On the business opportunity in the BREXIT development, Greenwich said “the currency (British Pound) is at a 31 year low due to what we believe is short term panic·
The UK economy remains robust and resilient with a GDP (gross domestic products) of over US$2.8 trillion and is the largest recipient of FDI (foreign direct investment) in the EU”.

They added that ‘’investments in the UK may begin to look much more attractive· considering the exceptionally weak sterling levels that might be seen, representing something of a once in a lifetime opportunity to purchase UK assets’’. However, some analysts at Nairametrics, a Lagos-based financial and economic analytics house, are seeing some consequences in the horizon even though on the economic front the short-term perspective appears less consequential.

“In the short-term, being Nigeria’s former imperial rulers, the UK has been one of Nigeria’s traditional trading partners, and because of a shared language, has remained a destination of choice for most Nigerians”, they stated.

“Our elite are deeply ingrained in the UK and have bought into that country very deeply. With a population of 201,184 according to the 2011 Census, the UK is home to one of the largest concentrations of Nigerians outside Nigeria. Issuance of visas to Nigerians may take a hit as immigration was one of the key issues in the Brexit vote.

“However, in reality, the UK is not Nigeria’s biggest trading partner, even in Europe. As a destination for Nigerian exports, the UK at $5.21 billion comes fourth behind Spain ($9.7 billion), the Netherlands ($5.59 billion) and France ($5.48 billion). “As a source for Nigerian imports, the UK at $2.28 billion, comes third behind the Netherlands ($3.4 billion) and Belgium ($2.59 billion).

“These realities and the UK’s diminished status have to be taken into account in the renegotiation of trade agreements that are sure to come. Nigeria must look to increase her ties with the bigger market that is the EU, while taking into account the cultural ties, especially the monies spent by Nigerians in British schools”.

According to the Senate Committee on Tertiary Institution and Tertiary Education Trust Fund, Nigeria currently spends over $2 billion annually on education abroad, with the UK chalking up the lion share of those education dollars as 66 per cent of Nigerian foreign students attends universities in the UK, according to Euromonitor International.

Nigerians received a total of $3.7 billion from relatives residing in the UK in remittances in 2015 according to the Global Knowledge Partnership on Migration and Development, second only to the United States.

Also, a contracting UK economy will have a deep impact on aid programmes to Nigeria, especially DFID interventions, which have been a burning political issue in the UK.

Politically, Nairametrics stated, “Westminster has always been a strong supporter of Abuja. This will not change. However, the strength of that support will wane. This will give some impetus to separatist movements within Nigeria.

“For a start, the Indigenous People of Biafra, far and away the loudest separatist movement in Nigeria today, has a very large diaspora support in the UK.

“Should the political effects of the Brexit happen and the UK eventually disintegrate, IPOB, and its supporters will only get louder in their demands for a similar referendum here, and England, the only part of the UK that may maintain an interest in meddling in Nigerian affairs will no longer be in a position to offer unconditional support to Abuja.

“The case for self-determination would have been made stronger, and Nigeria may end up having to conduct referendums of its own, with uncertain results.”

*Emeka Anaeto – Vanguard

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