The exit of Britain from the European Union (EU) has a number of immediate and remote implications for the Nigerian economy. First, the outcome of the referendum has triggered some measure of uncertainty and anxiety in the global economy. The British economy, which is worth $3 trillion, is the fifth largest economy in the world and the second largest within the EU. It is, therefore, a major component of both the global economy and that of the EU. Naturally, therefore, shocks to the British economy will have some transmission effects on the global economy. This perhaps informed the immediate responses of global and domestic financial markets. However, this dimension of the impact is unlikely to endure. They are responses driven by expectations and uncertainties.
Secondly, there is the currency effect. There is a high probability that the British economy will suffer some setbacks arising from the resultant weakening of investors’ confidence within the economy. The Brexit implies that investors within the British economy will no longer have free access to the EU market of over $16 trillion and a market size of over 500 million people. This will reflect in the strength of the currency as there is a relationship between the strength of the currency and the robustness of its economy. A weak British currency offers an advantage to importers from Britain.
Thirdly, there is a trade effect. Britain accounts for only 4.4% of Nigerian global trade and the EU accounts for 38.8%. It is therefore unlikely that the Brexit will have a material impact on our balance of trade situation. If anything, the trade between Nigeria and United Kingdom could be further improved on account of the likely depreciation of the British pounds and the affinity with Britain within the context of the Commonwealth.
It is also a fact that Nigeria is yet to sign the European Partnership Agreement (EPA) which also reduces Nigeria’s exposure to the shocks of the EU economy, especially from a trade perspective.
Fourthly, there is a diaspora dimension. The current sentiments in the United Kingdom are to adopt tougher stance on immigration issues. We have over one million Nigerians in the United Kingdom; Nigeria is also a major recipient of diaspora remittances in Africa. Therefore, the unfolding scenario may have some adverse implications for remittances to Nigerians from the UK. This will happen from the perspectives of tougher immigration regulations and enforcement as well as the likely slowdown of the British economy.
On the whole, the impact of Brexit on the Nigerian economy is unlikely to be profound. Besides, negotiations will still take the next two years. Most of the current responses are driven by uncertainties and expectations which will fizzle out in the not too distant future.
