• Sunday, April 14, 2024
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BusinessDay

Remittances, trade with Nigeria seen dropping as UK economy slows

The non-problem of Chinese currency manipulation

Nigeria’s remittances inflow and exports to the United Kingdom are being threatened by the recession the UK suffered in the second half of last year, analysts have said.

A recession is two consecutive quarters of contraction. The UK is Nigeria’s second-largest source of remittances after the United States.

Analysts say this situation could worsen foreign exchange liquidity challenges for Africa’s biggest economy as diaspora remittances are one of its major sources of FX, and the UK is one of the country’s top trading partners in terms of exports.

“The impact is multifaceted. With a recession in the UK coupled with a somewhat elevated unemployment rate and disinflation, remittances inflows into Nigeria might suffer some setbacks,” Temitope Omosuyi, investment strategy manager at Afrinvest Limited, said.

He said Nigeria’s key exports to the UK might also be negatively affected as aggregate spending takes a hit.

“But on the positive side, imports into Nigeria from the UK could become relatively cheaper in terms of GBP (British pound). However, the magnitude of the depreciation in naira might make this unnoticeable,” Omosuyi added.

Remittances refer to cross-border payments to family or friends and are often associated with migrant workers sending money back home to friends or relatives back in their communities of origin.

According to the World Bank, remittances can help alleviate poverty, improve nutritional outcomes, and are associated with increased birth weight and higher school enrolment rates for children in disadvantaged households.

“Studies show that remittances help recipient households to build resilience, for example, through financing better housing and to cope with the losses in the aftermath of disasters,” it said.

Israel Odubola, a Lagos-based research analyst, said the recession can reduce the flow of remittances from Nigerians in the UK.

Last week, the UK’s Office for National Statistics (ONS) revealed that the developed economy entered into recession, which has been described as ‘technical’, just months ahead of a general election.

According to ONS, the Gross Domestic Product fell 0.3 percent in the last quarter of 2023, following a 0.1 percent contraction in the previous quarter. It estimates that the country’s GDP grew by a meagre 0.1 percent last year.

“All the main sectors fell on the quarter, with manufacturing, construction and wholesale being the biggest drags on growth, partially offset by increases in hotels and rentals of vehicles and machinery,” Liz McKeown, director of economic statistics, said in a statement.

An article by CNN Business described the performance as the worst one since 2009 when the economy was still reeling from the global financial crisis, if 2020, which was affected by the pandemic, is excluded.

“More of Nigerian remittances come from the UK. So, when there is a recession, the Nigerians in that economy might not get better pay,” Damilare Asimiyu, a Lagos-based macroeconomic strategist, said.

He said recession, which is the slowdown in economic activities, will affect peoples’ incomes. “Typically, it will affect our remittances, which are the only resilient source of FX. If the source of the remittances is in trouble, then we are in trouble.”

BusinessDay analysis of the latest quarterly report from the Central Bank of Nigeria (CBN) shows that remittances inflow into the country through official channels fell to $4.58 billion in the third quarter of last year from $4.95 billion in the previous quarter. It also dropped by 4.6 percent from $4.8 billion in Q3 of 2022.

The World Bank in its latest Migration and Development report projected that remittances flow to the country grew by an estimated three percent in 2023 from $20.1 billion last year.

“The slowed growth in remittances observed in 2023 relative to 2022 is explained by the slow pace of growth in high-income economies where many Sub-Saharan African migrants earn their income,” the report said.

The multilateral lender added that remittance flows to Sub-Saharan Africa are expected to have increased by about 1.9 percent in 2023 to $54 billion, driven by strong remittance growth in Mozambique (48.5 percent), Rwanda (16.8 percent), and Ethiopia (16 percent).

Remittances to Nigeria, accounting for 38 percent of remittance flows to the region, grew by about 2 percent, while two other major recipients, Ghana and Kenya, posted estimated gains of 5.6 percent and 3.8 percent, respectively.

Over the past five years, many highly educated and skilled Nigerians have migrated to other countries as a result of the harsh economic conditions in the country that have been worsened by high inflation, unemployment, and insecurity, among others.

Many have relocated to countries such as Canada, the UK and the US through study and work visas.

The number of Nigerians given sponsored study or student visas rose by 768.7 percent to 59,053 in 2022 from 6,798 in 2019, according to the British government.

For work visas, the number grew by 574.8 percent to 13,449 in 2022 from 1,993 in 2019.

“If the recession continues, it might lead to job losses which could affect the migrants that are in the UK. This may now push them to consider coming back to Nigeria or migrating to other countries,” Ikemesit Effiong, partner and head of research at SBM Intelligence, said.