Nigeria’s remittances inflow and exports to the United Kingdom are being threatened by the recession the UK suffered in the second half of last year, analysts have said.
A recession is two consecutive quarters of contraction. The UK is Nigeria’s second-largest source of remittances after the United States.
Analysts say this situation could worsen foreign exchange liquidity challenges for Africa’s biggest economy as diaspora remittances are one of its major sources of FX, and the UK is one of the country’s top trading partners in terms of exports.
“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,” Temitope Omosuyi, investment strategy manager at Afrinvest Limited, said.
He said 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.
Remittances refer to cross-border payments to family or friends and are often associated with migrant workers sending money back home to friends or relatives back in their communities of origin.
According to the World Bank, remittances can help alleviate poverty, improve nutritional outcomes, and are associated with increased birth weight and higher school enrolment rates for children in disadvantaged households.
“Studies show that remittances help recipient households to build resilience, for example, through financing better housing and to cope with the losses in the aftermath of disasters,” it said.
Israel Odubola, a Lagos-based research analyst, said the recession can reduce the flow of remittances from Nigerians in the UK.
Last week, the UK’s Office for National Statistics (ONS) revealed that the developed economy entered into recession, which has been described as ‘technical’, just months ahead of a general election.
According to ONS, the Gross Domestic Product fell 0.3 percent in the last quarter of 2023, following a 0.1 percent contraction in the previous quarter. It estimates that the country’s GDP grew by a meagre 0.1 percent last year.
“All the main sectors fell on the quarter, with manufacturing, construction and wholesale being the biggest drags on growth, partially offset by increases in hotels and rentals of vehicles and machinery,” Liz McKeown, director of economic statistics, said in a statement.
