… Brexit May Boost Forex Inflow to Nigeria, Says CBN

The Deputy Governor (Economic Policy), Central Bank of Nigeria (CBN), Dr. Sarah Alade has said Nigeria expects Britain's vote to exit the European Union to be good for its forex policy as interest rates are likely to stay low in the United States, channeling foreign investors to Nigeria.

Alade said this in an interview with Reuters.

"We only need to take advantage of this opportunity to grow the economy," she said.

Also commenting on the likely effect of the develop-

ment on Nigeria, analysts at Lagos-based CSL Stockbrokers Limited, in a note to THISDAY, listed key areas to be considered as capital flows, trade, immigration, and London as a financial centre.

In terms of capital flows, they stated that any large political dislocation increases risk. A good indicator of this, according to them is the option volatility index (VIX Index), which has moved up from 19.37 points to 24.21 points in a week.

"A rise in risk means risk aversion, so we expect global investors to move a portion of their money to safe havens, notably the US dollar. Not only do emerging market currencies suffer, but interest rates on US dollar emerging market debt are likely to rise. Funding Nigeria’s government deficit in US dollars, re-financing the US dollar debt of Nigerian banks and financing the US dollar debt of Nigerian companies all become more expensive," the report added.

In terms of trade, the report pointed out that Britain’s trade deals with the world are governed by agreements at the European Union level. Therefore, outside the EU Britain will be able to negotiate its own trade deals on a bi-lateral basis.

"This opens up interesting possibilities in trade between Britain and Nigeria. However, because the EU will remain a significant trading partner for both Britain and Nigeria, we would expect the EU to exert pressure on Britain and Nigeria when they negotiate bi-lateral trade deals. Progress in making new trade treaties, therefore, is likely to be slow," it further stated.

In the area of immigration, it noted that "undeniably, a significant factor in the Brexit vote was large-scale net immigration into the UK. While a large part of this came from the EU, much of it came from nonEU countries. It is very unlikely that recent immigrants to the UK will be encouraged, still less required, to leave. However, it is probable the UK will tighten its entry requirements. This could include work visas, student visas, and asylum. Countries affected by these changes are likely to reciprocate.

“London is an important financial centre for Nigeria. Though financiers in Frankfurt and Paris are doubtless thinking of ways to increase their market share at London’s expense, we do not expect London’s imminent demise. Nor, however, would one expect London to change its rules and regulations on accepting money from foreigners. Light-touch regulation went out of fashion with the global financial crisis, and stringent anti money laundering (AML) rules originate in UK, not EU, law."

Research Analyst at ForexTime (FXTM), Lukman Otunuga, revealed that gold surged ferociously with prices conquering near two year highs at $1358 following the shocking Brexit victory which triggered a wave of risk aversion and soured investor risk appetite.

Meanwhile, the naira continued it upswing yesterday as it rise slightly to close at N281.14 to a dollar, stronger than the N281.67 to a dollar it closed on Thursday. A total of $58 million volumes exchanged hands just before market close which traders attributed to central bank's intervention. The central bank sold an undisclosed amount on Friday. It auctioned a total of $4 billion on Monday, in both spot and forward trades, to clear a backlog of dollar demand.