The Nigerian economy faced significant headwinds in 2024, marked by a substantial decline in Letter of Credit (LC) payments despite an improved foreign exchange supply. LC payments, a critical instrument for facilitating international trade, plummeted by 33.28% compared to 2023, dropping from $1.31 billion to $873.1 million. This substantial decrease raises concerns about the health of Nigeria’s import sector and the broader economic implications. LCs serve as a guarantee to exporters that they will receive payment for goods, and a decline suggests potential constraints on import activity, possibly due to lingering foreign exchange shortages, tighter import regulations, or other economic challenges. This drop reflects a broader difficulty in meeting international trade obligations, impacting businesses’ ability to import essential goods and potentially contributing to supply chain disruptions.
A detailed monthly breakdown of LC payments in 2024 reveals a volatile and generally downward trend. October recorded the highest payment at $150.86 million, while May saw the lowest at a mere $21.49 million. The data consistently shows year-over-year declines in LC payments throughout most of the year. For instance, January 2024 experienced a 46% drop compared to January 2023, while March saw an even more dramatic decline of 83.6%. These figures paint a picture of persistent challenges in accessing foreign currency for imports, potentially stemming from competing demands for forex, including debt servicing and other financial obligations. Although July bucked the trend with a 12% increase, attributed to the Central Bank of Nigeria’s intervention in the forex market, the overall picture remained one of significant contraction.
The CBN’s efforts to inject liquidity into the forex market by selling dollars to authorized dealers appear to have had a limited and short-lived impact. The subsequent months, August through December, continued to exhibit fluctuations, with no sustained recovery to pre-2024 levels. This suggests deeper underlying issues beyond short-term forex availability. The challenges likely include persistent economic instability, policy uncertainties, and perhaps a reluctance by businesses to engage in import activities given the unpredictable exchange rate environment. The substantial drop in LC payments indicates a weakening import sector, raising concerns about potential shortages of essential goods and potential inflationary pressures.
Several factors contribute to this decline in LC payments. Limited access to foreign currency remains a persistent challenge, hindering businesses’ ability to secure LCs for imports. The significant financial burden of external debt servicing further exacerbates the situation. Nigeria expended a staggering $5.47 billion on external debt servicing between January 2024 and February 2025, placing immense strain on the country’s foreign reserves and diverting resources away from import financing. This debt burden limits the availability of foreign exchange for other critical needs, including imports, and underscores the challenges of balancing debt obligations with other economic priorities.
Experts within the financial sector, such as Tunde Amolegbe, Managing Director of Arthur Steven Asset Management Limited, attribute the decline in LC payments to multiple interconnected factors. These include the volatile exchange rate, escalating customs clearing charges, the departure of major international companies, and the closure of several domestic manufacturing firms. These factors collectively create a challenging environment for businesses engaged in international trade. The unstable exchange rate makes import planning and pricing difficult, while high customs charges add to the cost of imported goods. The exit of international companies and closure of local manufacturers further reduce overall economic activity and demand for imports.
While the outlook remains challenging, some experts suggest a potential for improvement, albeit slight, due to recent tax waivers on essential food imports. These waivers aim to ease the burden on importers and consumers, making essential food items more accessible and affordable. Further measures to stabilize the forex market, lower interest rates, and harmonize the tax regime could also contribute to a more conducive environment for international trade. However, a sustained recovery in LC payments and overall import activity will require a comprehensive and coordinated policy approach to address the underlying structural challenges facing the Nigerian economy. Addressing these issues is crucial for restoring confidence in the economy and fostering sustainable growth in the import sector.
