Nigerian Businesses Grapple with Foreign Supplier Rejections Amid Escalating Currency Shortages
Nigerian businesses dependent on imports face a severe setback as foreign suppliers reject letters of credit (LC) and insist on cash transfers due to mounting foreign currency shortages. The Central Bank of Nigeria (CBN) promised forward contracts for dollars to local businesses, but since February 2023, these contracts remain unsettled, resulting in a backlog of around $3 billion. This has eroded faith in the Nigerian banking system, leading foreign suppliers to seek alternative payment methods.
Key Points:
- Foreign suppliers are shying away from accepting letters of credit (LC), preferring cash transfers due to currency scarcity and concerns over the Nigerian banking system’s reliability.
- The CBN’s delay in settling forward contracts, initiated to secure dollars for local businesses, has resulted in a significant backlog.
- Correspondent banks, acting as intermediaries in international transactions, are withdrawing support for local Nigerian banks due to the unresolved dollar contracts.
- The unresolved issue is hampering financial liquidity and prompting local banks to suspend various transactions, including school fees and Personal Travel Allowance applications.
- Businesses are resorting to the black market for dollars, incurring a premium of over 20 percent, significantly impacting the cost of imports and exacerbating inflation.
Analysis: The rejection of letters of credit by foreign suppliers signifies the urgency of resolving Nigeria’s foreign exchange crisis. The delay in settling forward contracts and resultant backlog have created significant financial strain, underscoring the need for prompt resolution.
Background: Nigeria’s foreign exchange crisis, characterized by delayed settlement of forward contracts, has far-reaching implications for businesses reliant on imports. The situation underscores the necessity of effective policy measures and rapid resolution to stabilize the economy. (Published by Market News Nigeria).