The economic downturn currently experienced in the United Kingdom has posed a significant challenge to Nigeria’s economy in terms of both remittance inflow and exports to the UK.
This is coming after reports disclosed that the UK economy shrunk by 0.3% in the last three months of 2023, placing it in a technical recession.
Britain capped off a year of economic strain in which interest rates were pushed to their highest level in a decade and a half to stamp out high inflation.
Tekedia Mini-MBA edition 14 (June 3 – Sept 2, 2024) begins registrations; get massive discounts with early registration here.
Tekedia AI in Business Masterclass opens registrations here.
Join Tekedia Capital Syndicate and invest in Africa’s finest startups here.
As a result of this, it has slowed the remittances from Nigerians living in the UK, potentially impacting the livelihood of many families reliant on these funds.
With the UK being Nigeria’s second-largest source of remittance after the United States, analysts say this situation could worsen the forex crisis in Nigeria, as it is one of the major sources of FX, and the UK being one of the country’s top trading partners in terms of exports.
Speaking on the impact, manager at Afrinvest Limited Temitope Omosuyi said,
“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.
He further stated that 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.
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.
It is worth noting that Remittances have been more stable than Foreign Direct Investments in Nigeria, which has demonstrated considerable volatility over the past two decades. Remittances to the region significantly exceeded FDI flows in 2023.
Remittances to Nigeria accounted for 38 percent of remittance flows to the region, which 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.