Nigeria’s Foreign Trade Payments Dropped by 57%.
In the first seven months of 2024, Nigeria experienced a significant decline in Letter of Credit payments, which fell by 57.04% to $391.91 million, compared to $912.35 million during the same period in 2023. This notable drop highlights the challenges facing the nation’s foreign trade.
According to the Central Bank of Nigeria’s weekly International Payments Data, the total reduction in Letter of Credit payments amounted to approximately $520.44 million. Analysts attribute this downturn to several factors, including the departure of multinational companies, soaring customs duties, and an unstable foreign exchange market.
The instability of the naira has severely impacted Nigeria’s ability to engage in foreign trade effectively. The fluctuations in the exchange rate have created uncertainty for businesses relying on imports, making it difficult to predict costs and manage budgets.
An analysis of the data from the Central Bank reveals that February recorded the highest Letter of Credit payments this year, totaling $102.59 million. This was followed by July at $79.65 million and January at $58.33 million. In contrast, March saw a sharp decline in payments, dropping to $43.53 million from $269 million in March 2023.
April showed a slight recovery with payments rising to $54.02 million, but this was followed by a further decrease to $21.48 million in May. June saw a modest increase, with payments reaching $32.26 million, indicating a volatile trend throughout the months.
Tunde Amolegbe, Managing Director of Arthur Steven Asset Management Limited, commented on the situation, noting that the decline was anticipated due to the ongoing instability in the exchange rate and the increasing customs clearing charges. He also pointed out the impact of major international companies exiting the Nigerian market.
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Despite the challenges, Amolegbe expressed hope that conditions might improve. He mentioned recent tax waivers for the importation of essential food products as a potential factor for recovery, albeit slight. These measures could provide some relief to importers.
He emphasized that stability in the foreign exchange market, coupled with lower interest rates and a harmonized tax regime, would be crucial for enhancing the business environment in Nigeria. Such changes could encourage more robust foreign trade activity.
In summary, the sharp decline in Letter of Credit payments reflects broader economic issues facing Nigeria, including currency instability and increased costs. However, there is cautious optimism that recent policy adjustments may foster a more favorable trading environment in the near future.
As the situation develops, stakeholders will be closely monitoring the effects of these changes on Nigeria’s foreign trade and overall economic health.
