The hopes… the fears of UK’s exit from EU
IT is no longer news that Britain has parted ways with the European
Union (EU). What is news is the ripple effect of the unprecedented
democratic step taken by the United Kingdom (UK) on global markets and
the shock wave it has sent to its allies.
The impact of that decision – Brexit – has reverberated around the
world, and in Nigeria, led the naira and stocks to a free fall.
With investors sentiment dampened by a mixture of credit ratings
downgrade by Fitch Ratings as well as the outcome of the Brexit
referendum, activities on the floor of the Nigerian Stock Exchange (NSE)
resumed trading yesterday on a downward trend. The market
capitalisation dropped by N278 billion due to panic selling triggered by
Brexit.
The market capitalisation which opened at N10.526 trillion for
trading early yesterday had lost N278 billion (about 2.64 per cent) to
close at N10.248 trillion.
Similarly, the All-Share Index (ASI)
dipped 809.43 points (about 2.64 per cent) to close at 29,840.23
compared with 30,649.66 it achieved at the weekend.
The naira and equities felled last Friday, a day after the 52 to 48
per cent Brexit poll result was announced. The naira felled to N283 to
dollar on Friday from N282 the previous day on the interbank market.
As at the close of transactions yesterday, the local currency was trading at N284 to the dollar.
President, Association of Bureau De Change Operators of Nigeria
(ABCON), Aminu Gwadabe, said currency speculators used the opportunity
presented by the Brexit poll to sell large volumes of dollar and use the
proceeds to buy British Pounds Sterling which plunged more than 11 per
cent, touching a 30 year low.
He, however, predicted a recovery of the British Pounds Sterling in
the months ahead, depending on the response of Britain to the Brexit.
Managing Director, Afrinvest West Africa Plc, Ike Chioke, said the
equities market opened the week lower yesterday, declining 1.6 per cent
on profit taking.
He said profit taking as well as Brexit-driven panic selling
moderated gains as the NSE ASI slumped 1.4 per cent to settle at
30,649.7 basis points, up 4.8 per cent week-on-week.
Chioke said: “Accordingly, year-to-date return closed at even per
cent with market capitalization improving by N481.6 billion during the
week to settle at N10.5 trillion.”
Chief Economist, Renaissance Capital, an investment and research
firm, Charles Robertson, said the greatest uncertainty of the Brexit
surrounds the future of the EU. “Opposition parties in France and the
Netherlands are calling for referenda in their countries on the EU. If
either of them were to be given referenda (unlikely) and voted to leave
(presumably unlikely), it would trigger Euro break-up,” Robertson
predicted.
He went on: “What the Brexit vote will do is add to uncertainty among
corporates in Europe – who will be less likely to invest until there is
clarity about Europe’s future.
“The global economy is already weak. There is a chance this ends up
tipping the US economy into recession, and that it becomes the catalyst
that leads to a 50 per cent fall in the S&P500 over 15 to 18 months –
a risk-scenario we flagged in 2015 and reiterated in January 2016.”
According to Robertson, the base case should be a weaker global
economy, which will be more negative for oil, and means central banks
globally keep rates lower for longer. This is negative for banks. It
also means a prolonged market crash remains only a risk case scenario –
in which gold today looks the safest play.
Robertson said Nigeria has an idiosyncratic improving story courtesy of the reforms on electricity, fuel subsidy and currency.
He said: “We see it as similar to Russia, but expect more investors
to enter Nigeria when the currency has found a more liquid level. The
impact on Kenya should be limited. Tourism to Kenya is already weak.
More important over six months is the risk-on, risk-off trade, and the
extent to which Nigeria becomes more attractive since the naira float.”
To the Nigeria-China Business Council, Brexit will be inconsequential on Nigeria’s economy and businesses.
The Council’s National Coordinator and Chief Executive Officer, Chief
Mathew Uwaekwe, said Nigeria should not lose sleep over Brexit,
assuring that that UK’s decision to quit the EU will not affect
Nigeria-Britain trade relations, as majority of Nigerians do not do
business with Britain. He also said the few British investments in the
Nigerian economy were mostly those they made over the years, before the
end of colonialism.
Uwaekwe pointed out that the low investment profile of Britain in the
Nigerian economy over the years was because of a fixed perception.
He said: “The recent ‘Fantastically Corrupt’ statement on Nigeria by
British Prime Minister David Cameron bore testimony to the fact that
Britain doesn’t like Nigeria. How much looted funds have they (Britain)
returned to Nigeria?”
Describing Brexit as “a wake-up call for Nigeria,” the Nigeria-China
Business Council chief said rather than affect the Nigerian economy and
businesses, Brexit would encourage Nigeria to look beyond Britain for
other viable trade partners within the EU.
He argued that if Brexit would not pay Britain, Prime Minister Cameron will not be planning to resign.
According to him, fears over possible negative effects of Brexit on
Nigeria are merely rooted in the fact that Nigeria was colonised by
Britain.
But, in its reaction to the development, the Abuja Chamber of
Commerce and Industry (ACCI) said Britain’s decision will have negative
consequences on the Nigeria’s economy.
ACCI’s President Mr. Tony Ejikeonye said: “Now that the referendum
has taken place, the first practical impact of Brexit is that the pound
and euro are already falling against the dollar in the foreign exchange
market, which is encouraging for the naira.
“The markets anticipate that Bretix may be bad for the economy, and
so, investors are likely to move their money out of the United Kingdom,”
he said. Ejikonye said Bretix will no doubt create anxiety for
Nigeria’s policy makers.
According to him, the anxiety is occasioned by the prevailing slide
in global market; especially at a time Nigeria is trying to revive its
‘threatened’ economy.
Ejikonye said the bilateral trade between Nigeria and UK, currently
valued at six billion pounds and projected to reach about 20 billion
pounds by 2020 will be disrupted as trade agreements contracted under
the EU platform has to be renegotiated.
He said: “Besides, the data from the National Bureau of Statistics
(NBS) shows that UK is Nigeria largest source of foreign investment in
2015.
“Thus, a decelerating British economy could impact a drop in
investment, trade and also remittances from Nigerians in the Diaspora
who injected into the local economy over $20 billion dollars last year.
“In addition, reduced trade and investment from Britain may not necessarily be taken up by the rest of the EU.”
A source within the Nigerian Association of Chambers of Commerce,
Industry, Mines and Agriculture (NACCIMA), who pleaded for anonymity,
said UK’s exit from the EU has two sides.
Quoting some financial experts, he said Britain seems to have shot
itself in the foot while others said the exit is best for them,
recalling how the Popes advice that the EU should relax the conditions
for member countries was not heeded.
The source believed that Britain will eventually find its feet after renegotiate some trade agreements.
Predicting a slow business prospect between Nigeria and the UK, the source warned that it may be worse if Ireland followed suit.
The source furthermore said the UK decision may affect Diasporan
remittances and some Foreign Direct investment (FDI) because of the
falling value of the pounds sterling.
It urged indigenous businessmen to be patient with their UK partners for things to sort themselves out.
“The British pound has dropped because of uncertainty, it is reported
to have dropped to 9.8 per cent fall but l think Nigeria would be
better off with Britain instead of EU”, it said.
The President, Manufacturers Association of Nigeria (MAN), Dr Frank
Udemba Jacobs, said the pound sterling has depreciated following UK’s
exit from the EU.
He, however, described the exit as a good omen for Nigerian importers
who may pay less for imported items. “The exit of Britain from EU is
good especially as it will halt the pressure being put on Nigerian.”
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