The UK Export Finance Agency pre-approved status for the naira as a medium of exchange will enhance the financial position of small and medium enterprises, a financial expert has said.
Prof. Uche Uwaleke, the Head of Banking and Finance Department, Nasarawa State University Keffi, expressed the view in an interview in Abuja on Monday.
Uwaleke said that with such development, the naira had joined other 62 pre-approved currencies directly accepted for trade by the UK Government.
The UK Export Finance Agency (UKEF) recently stated that it had concluded plans to include the naira in its list of “pre-approved currencies”.
The granting of a ‘’pre-approved currency’’ status by UKEF gives exporters from the UK the opportunity to offer their overseas customers UKEF-backed finance in local currency of the importers.
‘‘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.
‘‘Therefore, 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,’’ Uwaleke said.
According to him, 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 enhance financial systems stability.
Uwaleke said that the expected increase in Foreign Direct Investments could bring about transfer of technology to small businesses in Nigeria.
‘‘The UKEF flexible financing solutions have been described as the “next best thing to concessionary financing’’ due to their relatively cheap and flexible nature which is particularly healthy for small business enterprises,’’ he said.
Uwaleke said that the UKEF pre-approved status for the naira had the potential for strengthening economic ties between Nigeria and Britain.
He said that with the deal, it meant that import bills from the UK could be settled in naira rather than the British pound.
‘‘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.;;
He said that under the arrangement, “the Nigerian bank is guaranteed repayment by the UKEF in case the importer defaults.’’
According to him, 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.
He said that for instance, Amnesty International has lampooned the agency for lack of transparency and severally accused it of human rights abuses.
Uwaleke, however, said that the Federal Government out to be cautious in embracing the deal, especially as UKEF had been accused of human rights violation issues.
He said Amnesty International report of 2013, entitled ‘‘A history of Neglect: UK Export Finance and Human Rights’’, highlighted the concern.
Uwaleke noted that the report stated that UKEF’s “eagerness to help secure new overseas contracts for British companies often comes at the expense of human rights’’
He said against such backdrop, the Federal Government should be mindful of these controversies, including the likely impact of the deal on Nigeria’s rising public debt.
Uwaleke said the Federal Government should be concerned since UKEF would coordinate the advance of loans to businesses and entrepreneurs for the purchase of goods made in Britain,
He advised the government to put in place mechanisms to ensure that the loans were essentially for infrastructure-related projects, especially in sectors, such as power, water and transport.
He said that the government should also firm up measures already in place to guard against dumping as this development would ease the importation 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,’’ Uwaleke said. (NAN)