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‘How commodities exchanges can boost forex, export’

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Forex. Photo: SECURITIES

Top securities dealers in Nigeria have urged the Federal government to expand agriculture, to create job opportunities for youths, and leverage commodities exchanges to grow the country’s foreign exchange (forex) earnings amid dwindling income from the international oil market.

Besides, the securities dealers identified the need to establish relevant structures that will enhance the growth of local industries, highlighting the benefits of commodities exchanges.

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The Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), Onyenwechukwu Ezeagu, at the weekend, explained that the negative impacts of COVID-19 pandemic on most sectors of the economy, made it imperative for the government to enhance the growth and development of commodities exchanges as alternative sources of revenue.

He pointed out that if Nigeria is serious about economic diversification and enhancing forex earnings, the route to take is through functional commodities exchanges, where all asset classes – agricultural, hydrocarbon and solid minerals are tradable in a most efficient and transparent manner with guaranteed quality products.

“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 among others would benefit from an efficient commodities exchange platform, as they have opportunity for price 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 commodities exchanges, and use them as catalysts for economic development and sustenance.

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“This informed part of the reason why ASHON and other progressive-minded Nigerians floated the Lagos Commodities and Futures Exchange (LCFE), so that through its establishment, we can assist the government in not only doing all the above, but also in helping to create employment for our teeming youths in this country,” said Ezeagu.

Corroborating, the Managing Director/CEO, LCFE, Akin Akeredolu-Ale, who disclosed that the Exchange 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 set up structures to promote agriculture and commodities exchanges.

Global Asset Management’s Chief Executive Officer, Babatunde Shobamowo, noted that governments all over the world utilised commodities as a veritable means to hold value in bearish periods 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 potential. Some of the products that can be traded in an exchange are crude oil, natural gas, gold, silver, cocoa, cotton, and beniseed.

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“A commodity is an economic good that has full or substantial fungibility. Commodities over time tend to provide returns 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, Tajudeen Olayinka, explained that price recovery is a major driving force in an organized market, as it provides a mechanism through which prices come to reflect known information about the market.

According to him, there are numerous benefits to an economy, especially a developing one like Nigeria, as it provides appropriate support for orderly functioning commodities exchanges in the country.

He said a commodity exchange facilitates trading of agricultural produce, metals, and mineral resources in standardized contracts, whether on spot or cash basis, or for future delivery at prices already agreed upon by parties to the contract.

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This, according to him, 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 organized Commodity Exchange facilitates trade and investments in an economy. It makes it possible for smallholder 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 smallholder 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, David Adonri, explained that commodities exchanges formalise commodities business, facilitate de-risked agro lending, enhance quality of agricultural produce, export and tax revenue to the government.

“The positives are too numerous to cover. The development of the commodity exchange space needs maximum support from the government and banks to maximize its benefits,” Adonri said.

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