Nigeria’s Foreign Trade by LC Payments Down 52.5% YoY to $506.1m           –

Kayode Tokede 

The Central Bank of Nigeria (CBN) has revealed that Nigeria’s foreign trade by Letter of Credit (LC) payments depreciated by 52.5 per cent Year-on-Year (YoY) in the nine months of 2024 to $506.1 million when compared to $1.07 billion in nine months of 2023.

Letter of credit is a financial instrument commonly used in international trade. It provides a guarantee by a bank (on behalf of an importer) to pay a specified amount to an exporter (the beneficiary) upon meeting predefined conditions.

This significant decrease in the nine months of 2024 highlights the challenges the country faced in international trade and financial transactions.

Part of these challenges include: Foreign exchange scarcity, importation restriction, CBN monetary policies, among others.  The reduced global demand or disruptions in international supply chains may have impacted Nigerian trade during the period. 

In 2023, the CBN in its ‘international trade’ statistics reported $1.31 billion letter of credit, about 4.01per cent drop from $1.36 billion reported in 2022. 

For the nine months of 2024, CBN recorded $102.6 million highest and $21.5million lowest letter of credit in February and May 2024, respectively.

Further breakdown showed that letter of credit in January 2024 was at $58.33 million, about 46 per cent decline from $107.78million in January 2023. However, in February 2024, it stood at $102.6million, representing a 40.33 per cent YoY decline when compared to $123.95million February 2023.

The trend continued in March 2024, with payments dropping to $43.54 million, a significant decline of 83.6 per cent YoY from $269.49million March 2023.

According to the data by CBN, letter of credit closed April 2024 at $54.03million, a decline of 64.58 per cent from $152.52million April 2023 and dropped to its lowest figure in May 2024 at $21.49million, a drop of 64.4 per cent when compared to $60.29million May 2023.

letter of credit stood at $32.3million June 2024, a 59 per cent YoY from $79.18million June 2023, while in July 2024, the CBN reported $79.65million, an increase of 12 per cent from $71.14million July 2023.

The CBN’s director in charge of financial markets, Dr. Omolara Duke, had disclosed a total sale, $67,500million to 27 dealers, while the sum of $2.5milion was bought from one authorised dealer on July 10, 2024.

The range of the bid for the July 10, 2024 sales was N1,480.0/US$- N1,500.0/ dollar, while the value date for the payments, going by the settlement cycle of two days, is July 12, 2024.

The 12 per cent YoY increase in July 2024 followed the sale of about $122.67 million to 46 authorised dealers by the CBN, in its determination to promote stability and reduce market volatility in the foreign exchange market.

Between August and September 2024, the CBN reported $62 million and $52.15million letter of credit, respectively.

The CBN had extended the timeline for the issuance of letters of credit from 24 hours to five working days as the country continues to struggle with foreign exchange scarcity. 

In the approved 2020 service charter of the CBN, the timeline for the issuance and management of LC was 24 hours. However, the newly approved 2023 service charter shows that the timeline is now five working days.

It is likely that weakened naira at the foreign exchange hindered the ability of businesses to open letter of credit. Towards the end of September 2024, Nigeria’s naira depleted significantly to $1,601.03 against the dollar from $768.76 as of September 2023.

On the flipside, the external reserves increased to $38.35 billion as of September 2024 when compared to $33.24 billion reported by CBN September 2023.

According to the CBN, external reserves closed 2024 at $40.88 billion, about 24.2 per cent or $7.97 billion increase over $32.91 billion it closed 2023. 

Analysts believe the reduction in letter of credit could have several implications on domestic economy.

“A sharp decline in such payments could indicate decreased import activity, which might be a result of foreign exchange scarcity, stricter import regulations, or other economic constraints,” said Vice President, Highcap Securities Limited, Mr. David Adnori.

The CBN Governor, Mr. Olayemi Cardoso, had stated that Nigeria’s $42.01billion reserves can finance imports for over nine months in 2025, bolstering economic stability and resilience.

He said, “External Reserves rose from $38.35 billion it was on September 30, 2024, to $42.01billion as of December 12, 2024.”

He explained that the increase in external reserves within the stated period, was driven largely by receipts from crude oil related taxes and third-party receipts in the third quarter of 2024.

He explained, “We maintained a current account surplus and saw remarkable improvements in our trade balance. Our external reserves level can finance over 9.09 months of import of goods and services or 13.91 months only, higher than the international benchmark of 3.0 months and a robust buffer against shocks.”