Chris Ugwu writes 
A vibrant commodity ecosystem will aid diversification from oil to non-oil sectors and boost the nation’s revenue. Chris Ugwu writes
The need for vibrant commodities exchanges has become necessary as agriculture, which is supposed to be the mainstay of Nigeria’s economy, has suffered from years of neglect, inconsistency, poorly conceived government policies and lack of basic infrastructures.
In the 1960s, the agricultural sector was the most important in terms of contributions to domestic production, employment and foreign exchange earnings.
The situation remained almost the same three decades later, except that it is no longer the principal foreign exchange earner, a role now being played by oil and gas.
The sector remained stagnant during the oil boom decade of the 1970s and this accounted largely for the declining share of its contributions.
According to National Bureau of Statistics (NBS), the trend in the share of agriculture in GDP shows a substantial variation and long-term decline from 60 per cent in the early 1960s through 48.8 per cent in the 1970s and 22.2 per cent in the 1980s.
Unstable and often inappropriate economic policies (of pricing, trade and exchange rate), the relative neglect of the sector and the negative impact of oil boom were also important factors responsible for the decline in its contributions. However, the reverse is almost becoming the case as the decline in crude oil prices is currently affecting the economy and government is looking for a way to boost non-oil revenue in the country.
This is more compelling reason why there is need to boost non-oil revenues, one of which is reviving the country’s commodity exchange to encourage agriculture and also offer investors opportunities not only in the equity side but across the various asset classes.
Since capital market is reflective of the economy, both the authorities and stakeholders in the Nigerian stock market have recently agreed that in order to complement the government in the area of agriculture and boost forex earnings for the economy, there is a great need to strengthen commodity exchanges in the country.
SEC’s recent efforts
The Director-General, Securities and Exchange Commission (SEC), Lamido Yuguda, last week, at a briefing with newsmen on the first virtual Capital Market Committee (CMC) meeting organised by the Commission in Lagos, said that in March 2020, the Commission successfully hosted its inaugural international conference on the Nigerian commodities market.
He note that as part of implementing some of the resolutions from the conference, the Technical Committee on Commodities Trading Ecosystem visited major stakeholders and encouraged them to actively participate in the activities of commodities exchanges.
Yuguda said that to ensure the existence of a conducive regulatory framework for the commodities ecosystem, the Commission has commenced work on the rules on warehousing and collateral management.
“These rules, as well as the review of commodity exchange’s rules, are at an advanced stage,” he said. FG’s thinking The Federal Government recently stressed the need for the development of a vibrant commodity trading ecosystem in order to diversify the economy away from crude oil for improved government revenue and foreign exchange earnings.
This was stated by Vice President, Prof. Yemi Osinbajo, at a Roundtable on Nigerian Commodity Trading Ecosystem held by the Securities and Exchange Commission (SEC), in Lagos. Represented by Dr. Yemi Dipeolu, Special Adviser to the President on Economic Matters, Osinbajo said the commodity trading ecosystem was of paramount interest because Nigeria has an abundance of natural resources and, accordingly, a comparative advantage in agriculture, solid minerals and oil and gas, hence emphasis in the immediate term is the agricultural sector.
Osinbajo said the Federal Government attached great importance to an active and vibrant capital market, which will contribute to national growth and development. He said in order to achieve this objective, the capital market had to operate at an optimum level, which is why the implementation of the 10 year Capital Market Master Plan remains a key priority.
According to the vice president, “agriculture, accordingly, occupies a pride of place in Federal Government’s policy, as stated on numerous occasions by the president and as articulated in the Economic Recovery and Growth Plan. The importance of agriculture was underscored during the last recession as its growth then of about three to four percent prevented a steeper decline. Agriculture is also important for food security and as a means of generating a quick production response.”
Commodity exchange as agent of forex earnings, job creation Some securities dealers in Nigeria, last week, urged the Federal Government to expand agriculture to create job opportunities for youths and leverage commodities exchanges to grow the country’s foreign exchange earnings in view of dwindling income from the international oil market.
Besides, the securities dealers identified the need to put in place relevant structures that will enhance the growth of local industries, highlighting the benefits of commodities exchanges.
The Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), Chief Onyenwechukwu Ezeagu, explained that the negative impacts of COVID-19 on most sectors of the economy had made it imperative for the government to enhance the growth and development of commodities exchanges as alternative sources of revenue.
“The need to encourage the establishment and growth of Commodities Exchanges in Nigeria cannot be overemphasized in the wake of the crippling impact of oil glut and the COVID-19 pandemic.
“If Nigeria is serious about diversification of her economy and forex earnings, the route to take is via functional commodities exchanges where all asset classes: agricultural, hydrocarbon and solid minerals etc are tradable in a most efficient and transparent manner and the quality of tradable commodities are guaranteed.
“This is even more so for local industries that need to be assured of regular and uninterrupted raw materials supply as their production input. The farmers, miners etc would benefit from an efficient commodities exchange platform as they have opportunity for prices discovery and an assurance of off takers of their output.
“The economy would be better off as economic activities are catalysed and sustained. Consequently, any serious minded government cannot but be conscious of the importance of viable commodity exchanges and use them as catalysts for economic development and sustainance.
“This informed part of the reason why ASHON and other progressive minded Nigerians floated the Lagos Commodities and Futures Exchange so that through its establishment, we can assist the government of the day in not only doing all the above, but also in helping to create employment for our teeming youths in this country,” said Ezeagu.
Corroborating him, the Managing Director and Chief Executive Officer, Lagos Commodities and Futures Exchange, (LCFE), Mr Akin Akeredolu– Ale, who volunteered information that LCFE would soon commence trading on agricultural commodities, solid minerals, currencies and oil and gas submitted that at this critical period, a credible option for Nigeria’s accelerated economic revival would be for the government to put in place structures to promote agriculture and commodities exchanges.
Global Asset Management’s Chief Executive Officer, Mr Babatunde Shobamowo, noted that government all over the world utilised commodities as a veritable means to hold value in bearish period or when the currency is facing imminent depreciation.
“Nigeria is blessed with untapped and adequate natural resources but the market needs to be developed to reach its potentials. Some of the products that can be traded in an exchange are crude oil, natural gas, gold, silver, cocoa and cotton, beni seed.
“A commodity is an economic good that has full or substantial fungibility. Commodities over time tend to provide return that differ from stocks and bonds In addition, there are other inherent advantages that may accrue to the Government if well developed,” Shobamowo said.
The Chief Executive Officer, Wyoming Capital and Partners, Mr Tajudeen Olayinka, explained that price discovery was a major driving force in an organised market as it provides a mechanism through which prices come to reflect known information about the market.
“There are numerous benefits to an economy, especially, a developing one like Nigeria as it provides appropriate support to the orderly functioning of a commodity exchange in the country.
Commodity exchange facilitates trading of agricultural produce, metals, and mineral resources in standardised contracts, whether on spot or cash basis, or for future delivery, at prices that have been agreed upon by parties to the contract.
This, therefore, suggests that activities in the market are largely driven by publicly available information around demand and supply of commodities, which should ordinarily arouse government interest.
“The presence of an organised commodity exchange facilitates trade and investments in an economy. It makes it possible for small-holder farmers who are not so literate to deal directly on the exchange, and who may not have capacity to meet trade size requirements of an organised exchange. “They can come together as an association, or take advantage of warehouse receipt financing available in the system, to scale up their capacity for bigger contract delivery.
This way, the small-holder farmers become an integral part of the commodity value chains, with job creation opportunities for unemployed youths and adults,” said Olayinka.
Chief Executive Officer, Highcap Securities Limited, Mr David Adonri, explained that commodity exchange formalised commodity business, facilitates derisk agro lending, enhance quality of agricultural produce, facilitate export and enhance tax revenue to government. “The positives are too numerous to cover. The Development of the commodity exchange space needs maximum support from government and banks to maximise its benefits,” Adonri said.
Last line
To have a viable commodity exchange is particularly critical now, given the increasing emphasis on agriculture, which is expected to enhance non-oil revenue in the country.
