Nigeria’s foreign trade payments crash by 33%
Despite an improved supply of foreign exchange, Nigeria’s fulfilment of Letter of Credit payments plummeted by 33.28 per cent in the 12 months of 2024 compared to the same period in the previous year.
The amount dropped by $435.51m from $1.31bn total letter of credit payments made via official channels in 2023 to $873.1m in 2024
This is according to the International Payments Data provided by the Central Bank of Nigeria on its website and obtained by our correspondent Sunday PUNCH.
A letter of credit is a mode of payment used for the importation of visible goods.
It is a written undertaken given by a bank (issuing bank) at the request of its customer in which the bank promises in writing to pay the exporter a certain sum within a certain time frame in return for goods, as long as the customer provides the bank with the proper paperwork.
This significant decrease highlights the challenges the country faces in its international trade and financial transactions and could have several implications for Nigeria’s economy.
Letters of credit are a crucial component of international trade, assuring exporters that they will receive payment.
A sharp decline in such payments could indicate decreased import activity, which might be a result of foreign exchange shortages, stricter import regulations, or other economic constraints.
A breakdown of the LC payment in 2024 showed that the highest payment of $150.86m was paid in October, with the lowest amount of $21.49m.
Further analysis of the CBN numbers showed that LC in January 2024 was at $58.33m, about a 46 per cent decline from $ 107.78m in January 2023.
However, in February 2024, it stood at $102.6m, representing a 40.33 per cent YoY decline when compared to $123.95m in February 2023.
The trend continued in March 2024, with payments dropping to $43.54m, a significant decline of 83.6 per cent YoY from $ 269.49m in March 2023.
The trend continued in March 2024, with payments dropping to $43.54m, a significant decline of 83.6 per cent YoY from $ 269.49m in March 2023.
It closed April 2024 at $54.03m, a decline of 64.58 per cent from $152.52m in April 2023 and dropped to its lowest figure in May 2024 at $21.49m, a drop of 64.4 per cent when compared to $60.29m in May 2023.
In addition, LC stood at $32.3m in June 2024, a 59 per cent YoY from $79.18m in June 2023, while in July 2024, the CBN reported $79.65m, an increase of 12 per cent from $71.14m in July 2023.
The 12 per cent YoY increase in July 2024 followed the sale of about $ 122.67m to 46 authorised dealers by the CBN in its determination to promote stability and reduce market volatility in the foreign exchange market.
In August 2024, $62m was paid, $52.15m was paid in September, $150.86m in October, $88.1m in November and $128.05m.
It is likely that limited access to foreign currency likely hindered the ability of businesses to open letters of credit.
Similarly, fulfilment of debt repayments and other standard financial obligations are likely reasons for the decrease.
Nigeria expended a total of $5.47bn on external debt servicing between January 2024 and February 2025, data from the Central Bank of Nigeria have shown.
The figures, published on the apex bank’s website, indicate the growing burden of debt obligations on the country’s external reserves and fiscal stability.
Speaking in an earlier interview, the Managing Director of Arthur Steven Asset Management Limited, Tunde Amolegbe, opined that the decline was expected given the unstable exchange rate, skyrocketing customs clearing charges and the exit of major international companies, as well as the closure of other manufacturing in the country.
He, however, added that the situation might improve even if it is slightly on the back of the tax waivers given recently for the importation of some essential food products.
“Stability in the FX market and a lower interest rate and harmonised tax regime should also help,” he stated.
