Nigerian manufacturers' letters of credit (L/Cs) for essential raw material imports are being rejected by foreign suppliers who are refusing to deliver goods.

Africa's largest economy is struggling with severe foreign currency shortages, apparently worsened by apparent mismanagement at the Central Bank of Nigeria, leading foreign suppliers to demand that the manufacturers replace L/Cs with cash transfers into escrow accounts.

Unsettled Forex contracts

The Central Bank of Nigeria (CBN) sold forward contracts to several Nigerian businesses, promising US dollars at an agreed future price.

On the back of the forward contracts, banks opened L/Cs, which were then used to buy goods from foreign suppliers.

But the CBN has not settled the contracts since February 2023, resulting in a backlog of around US$3 billion, according to Business Day.

Correspondent banks withdraw

As a consequence, the Nigerian business and financial news provider says foreign correspondent banks are refusing to write L/C business with local Nigerian banks.

Manufacturers unable to obtain L/Cs through the usual channels are reportedly turning to the black market to obtain US dollars at a premium of over 20 per cent the official exchange rate.

CBN mismanagement

Nigeria's US dollar liquidity crisis has been partially attributed to poor management at the CBN under its former governor, Godwin Emefiele. He was dismissed after auditors found that the central bank's foreign exchange reserves had been overstated.

Nigeria's foreign-exchange reserves, officially reported as equivalent to 7.8 months of imports, were assessed by auditors for the first quarter of 2023 at the equivalent of just 4.5 months of imports.

Emefiele was suspended as governor in June by Nigeria's president, Bola Tinubu, who ordered the appointment of a special investigator to examine the CBN's books.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.