Monday, June 20, 2016 2:15PM /FBNQuest Research
We have been asked to give a view on the implications for Nigeria if the UK electorate votes this coming Thursday to leave the EU and so opts for “Brexit”. There are possible general consequences and those that may be specific to Nigeria.
Economists employed by the UK government, large banks and international organizations have been busy, and the majority have come up with forecasts to show negative consequences for the domestic economy in the event of Brexit. Despite being a member of the fraternity ourselves, we are wary of any forecasts out as far as 2021 in some cases.
The only EU member to have walked away to date has been Greenland. If the UK, which both sides in the domestic debate insist is the fifth largest economy in the world, takes the same step, there would be a period of legal uncertainty as several treaty obligations would have to be unwound.
The length of this period would hinge upon the stance of the EU and, to a lesser extent, that of the UK Parliament, which has a large majority in favour of continued membership The Brexit camp argues that the EU would not be obstructive since the UK runs a substantial trade deficit with the union.
The UK is not a member of the Eurozone. Sterling has sold off ahead of the referendum, and some investment banks are suggesting a further fall as far as 1.10 for GBPUSD in the event of Brexit. Renewed weakness would be consistent with a period of legal uncertainty. The path of GBPEUR is less clear since some market analysis centres on the possibility that other EU members might favour their own Brexit. This fear is overdone in our view.
London’s role as a financial centre would be diminished by the loss of some EUR-denominated activity in currencies and fixed income. We would not expect a loss of business in other areas, least of all in natural resources.
With Brexit, the FGN and the UK would have to reach a new understanding on tariffs. We doubt that the process would be problematic.
UK development assistance to Nigeria (and other countries) is delivered both bilaterally and through the EU. We would not expect much, if any change in the total envelope, given the traditionally close bilateral ties and Nigeria’s strategic importance.
Beyond the short term, we would not see downside for the prime Central London property market, which is international by any criteria.
We can identify one clear advantage from the UK’s withdrawal for Nigerian (and other non-EU) nationals with professional qualifications. Currently, many large companies in the UK will only consider such applications once all EU candidates have been considered.