How Brexit, US-China trade war may affect Nigeria’s forex earnings —PWC

THERE are stronger signs that the effect of Brexit and the US-China trade war on Nigeria will constrain exports from Nigeria to Britain, the United States and China, and therefore reduce foreign exchange (foreign exchange) earnings.

Andrew S. Nevin, Partner & Chief Economist at PriceWaterhouseCoopers (PWC) made this observation in the company’s note to clients called ‘Economic alert.’

In addition, the outflow of forex from Nigeria as payments for imports to these three economies could trigger depreciation pressures on the exchange rate, Nevin said.

According to PWC, consolidating these effects, “inflation will rise, and interest rates may likely be raised to mitigate the inflationary effects on the economy.”

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Whenever the level of inflation rises, the Central Bank of Nigeria (CBN) raises the monetary policy rate (MPR), and vice-versa.

This is likely to occur because the impact of Brexit and the trade war on inflation is positive.

“We believe that the level of imports to Nigeria is expected to rise, if Britain, China and America channel some of their exports to reverse the slowdown in their respective economies and improve manufacturing output. This could cause import-induced inflation in Nigeria,” the firm noted.

PWC, however, noted that if the CBN effectively executes its five-year monetary policy thrust to boost economic activities and output, especially with respect to inducing credit to the real sector, agriculture activities and small and medium enterprises (SMEs), there will boost in domestic production which will result in enhancing the import substitution policies of the Federal government (FG).

The trio of Brexit uncertainty, US-China trade war and Iran sanctions according to the global advisory firm hold important consequences for the Nigerian economy.

The firm further observed that Nigeria is exposed to global economic shocks due to significant debt accumulation, import-dependent economy and low diversification of exports.

“To assuage the effects of the global vulnerabilities in the Nigerian economy: debt accumulation should be reduced; the export base should be diversified; import-substitution should be encouraged and financed,” PWC suggested.