The Nigerian economy and the future of Trade Finance

The Nigerian economy has been in a dismal state since 1999. The country’s foreign currency reserves have not grown as aggressively as projected and the economy is yet to diversify its foreign currency generation sources from its 100% reliance on crude oil proceeds. The country is still grappling with large external debt and has maintained a very poor debt to revenue ratio in recent years. The World Bank reported that in 2022, Nigeria spent 96.3% of revenue on debt servicing, this was a rise from 83.2% in 2021. However, the Nigerian Bureau of Statistics (NBS) issued its 2023 figure showing a debt to revenue drop to 66.9%, largely driven by Government’s reforms introduced in May 2023.

‘’Between 2000 and 2014, Nigeria’s economy experienced broad-based and sustained growth of over 7% annually on average, benefitting from favourable global conditions, and macroeconomic and first-stage structural reforms. From 2015-2022, however, growth rates decreased and GDP per capita flattened, driven by monetary and exchange rate policy distortions, increasing fiscal deficits due to lower oil production and a costly fuel subsidy program, increased trade protectionism, and external shocks such as the COVID-19 pandemic’’ – World Bank


The newly elected government began its tenure with bold, new policies designed to address the exchange rate concerns and debt to revenue gap. The government proposed a free-floating currency and promised to increase the supply of US dollars through additional interventions and policies aimed at encouraging Foreign Direct Investments (FDIs) and inflows from Portfolio Investors (FPIs).

‘’Nigeria’s capital inflows fell in 2023 as FDIs and FPIs declined. Inflows fell 26% to $3.9billion in 2023 from $5.3billion the previous year’’ – Bloomberg.


In addition, the government removed the substantial petroleum subsidy, which had eroded the country’s revenue for many years.

Since the appointment of a new Central Bank Governor, several policies have been implemented, including the recent devaluation of the currency and the adoption of a free-floating Naira. In January 2024, the Central Bank of Nigeria (CBN) devalued the currency by 40%, from N899/$ in December 2023 to N1,516/$ in February 2024. This move significantly narrowed the gap between the official and unofficial exchange rates. Additionally, the CBN mandated that all banks in the country must limit their Net Open Position (NOP) of overall foreign currency assets and liabilities to not exceed 20% short or 0% long of shareholders’ funds. This measure aims to correct the market and increase the supply of foreign currency into the system.

Is this sustainable?


The immediate impact of these policies saw the Central Bank intervening in the FX market and temporarily reducing the pressure on the US$. The government also finalised a $2.4billion loan for a crude deal with Afreximbank, which was also deployed into the banking system to clear up previous forward obligations of $2.3billion (leaving a balance of $2.2billion and unverified outstandings of $2.4billion).

The free-floating exchange rate is designed to encourage FPI and FDIs into the economy to ensure FX supply is maintained. However not every investor is confident about the government’s policies just yet. Can they get their funds out when required? Will the government reverse any of these policies over time? Will they find a workable solution to moderate demand for FX? Are the government’s policies geared towards supporting the Real sector?

This creates an opportunity for alternative sources of funding to the Real sector and the financial system.


The FX supply constraints look set to continue and the only way to stay above water is to ensure a constant supply of FX at affordable rates and to maintain efficient structures. Trade finance will continue to support this initiative and drive the Real sector in Nigeria.

If you are interested in learning more about other African countries, you can read the Business Outlook for Ghana and Kenya.

References :