Foreign trade payment rises to $267.96 million – CBN

Nigeria’s foreign trade payments through Letters of Credit (LCs) rose to $267.96 million in the first four months of 2025, according to recent data from the Central Bank of Nigeria (CBN). This represents a 3.68 percent increase compared to the same period in 2024 and signals a gradual recovery in the country’s international trade financing activities amid a complex economic environment marked by foreign exchange volatility and broader structural challenges.

Understanding Letters of Credit and Their Role in Trade

Letters of Credit are critical financial instruments in international trade transactions, serving as guarantees from banks that payment will be made to exporters once specified terms and conditions are met. For Nigeria, which relies heavily on imports for essential goods and services—including machinery, pharmaceuticals, food items, and raw materials—LCs provide a secure and trusted means of facilitating payments and reducing risks for both importers and exporters. By assuring exporters of payment, LCs encourage continued trade flows and help stabilize supply chains.

The $267.96 million recorded in LC-facilitated trade payments from January to April 2025 reflects steady, if cautious, growth. This modest increase demonstrates some improved liquidity in the foreign exchange market and a better operational environment for trade financing compared to previous years. The increase in LC usage also suggests that businesses are regaining confidence in Nigeria’s banking and trade systems, which have been strained by currency fluctuations and regulatory uncertainty.

Economic Challenges Impacting Trade Finance

Despite the positive movement in LC trade payments, Nigeria’s broader economic outlook remains mixed. The country faces several headwinds, including inflationary pressures, insecurity, and an unstable foreign exchange market, all of which impact the flow of trade and investment.

One significant concern is the decline in Foreign Direct Investment (FDI), which dropped below 1 percent of Nigeria’s Gross Domestic Product (GDP) in 2024. This contraction has been linked to a range of factors, including policy inconsistency, security issues, and global economic uncertainties. Lower FDI inflows limit the availability of long-term capital essential for infrastructural development and industrial expansion, which in turn constrains the country’s ability to boost exports and diversify its economy.

Contrastingly, Nigeria saw a sharp rise in Foreign Portfolio Investment (FPI) in 2024, which surged by 110 percent to reach $13 billion. While FPIs can provide valuable short-term capital inflows and support liquidity in financial markets, they are often volatile and sensitive to global risk sentiments. This volatility makes FPIs a less stable source of funding compared to FDI and highlights the importance of improving trade financing frameworks to attract and sustain real investment.

Implications for Nigeria’s Trade and Economic Policy

The growth in LC-facilitated trade payments is encouraging, but it also underscores the need for further reforms and improvements in Nigeria’s trade and financial ecosystems. To maintain this upward trend, the government and the Central Bank of Nigeria must continue efforts to stabilize the naira and provide sufficient foreign exchange liquidity for trade-related transactions.

Moreover, enhancing the ease of doing business remains critical. Streamlining regulatory processes, reducing bureaucratic bottlenecks, and improving port infrastructure would facilitate smoother trade flows and encourage more businesses to engage in international commerce. Upgrading customs procedures and adopting more transparent trade policies can also bolster confidence among importers and exporters, contributing to higher trade volumes.

The CBN’s monetary policy decisions will continue to play a pivotal role in shaping the trade financing landscape. By managing inflation, ensuring stable exchange rates, and maintaining adequate foreign reserves, the central bank can help create a predictable environment that encourages both domestic and foreign trade activities.

Sectoral Impacts and Opportunities

The increased availability of trade finance through LCs benefits various sectors of the Nigerian economy. Manufacturing companies that depend on imported raw materials can maintain production levels, thereby supporting industrial growth and employment. Similarly, the pharmaceutical sector relies on foreign supplies for essential drugs and medical equipment, making LC access vital for public health outcomes.

Agriculture also stands to gain, as importers source machinery and agrochemicals needed to boost productivity. Access to trade finance helps bridge supply gaps and reduce delays, enabling farmers and agribusinesses to meet domestic food demand and explore export opportunities.

Looking Ahead: Sustaining Growth in Trade Payments

While the rise in foreign trade payments facilitated by LCs is a positive signal, Nigeria’s economic recovery and growth will depend on a broader set of factors. Ensuring that the benefits of improved trade financing reach all sectors requires sustained policy commitment, security improvements, and infrastructural development.

The government’s ongoing reforms aimed at diversifying the economy beyond oil, alongside efforts to promote exports, will be critical in enhancing Nigeria’s foreign exchange earnings and reducing vulnerability to external shocks. Strengthening trade relations with regional and global partners can also open new markets and encourage greater integration into global value chains.

 

In conclusion, the increase to $267.96 million in LC payments in early 2025 is a step in the right direction for Nigeria’s trade and economic environment. However, for this growth to translate into sustained economic development, it must be supported by comprehensive reforms that enhance trade facilitation, stabilize the macroeconomic environment, and improve investor confidence. With these measures in place, Nigeria can unlock greater potential in its foreign trade activities and move towards a more resilient and diversified economy.