Operators decry slow take-off of commodities exchanges

Operators have attributed slow take-off of commodities exchanges in Nigeria to the government’s lack of understanding of the workings of the specialised market, which thrives on trading electronic receipts against the storage and sale of agricultural products in warehouses.

According to them, an organised commodities exchange with a clearing and settlement system, dealing with member firms and other registered operators has the potential to grow the country’s gross domestic product (GDP) by revamping the ailing economy through employment generation and agricultural development.

They pointed out that commodities exchanges provide numerous benefits, especially to a developing economy like Nigeria, if the relevant authorities provide appropriate support for their efficiency.

A commodity trader and Chief Executive Officer, Wyoming Capital and Partners, Tajudeen Olayinka, said price discovery is a major driving force in the organised market. This, he said, refers to the mechanism through which prices come to reflect known information about the market.

“The fact that farmers, merchants, commodity brokers, government and other stakeholders can reasonably gauge the mood of the market from publicly available information around demand and supply, makes planning, organising and forecasting easy.

“Nigerian economy will surely benefit from having functional commodity exchanges in the country and government must therefore align its economic diversification programme to commodity exchanges’ value chains to facilitate global trade and investments,” he said.

Another commodity trader and Chief Executive Officer, Sofunix Investment and Communications, Sola Oni, urged the Federal Government to remove any bureaucratic bottlenecks that may affect the smooth functioning of commodities exchanges to enable them to enhance economic growth and development.

He pointed out that the recent announcement of N50 billion lifeline for Nigeria Commodity Exchange (NCX) by the Central Bank of Nigeria (CBN) may have sent a wrong signal to the global community as it signals a conflict between the Securities and Exchange Commission (SEC) and the apex bank on who regulates commodities exchanges in Nigeria.

” The Investment and Securities Act of 2007, among others empowers SEC to not only regulate commodities exchanges but ensure that all commodity exchanges compete effectively on a fair playing ground. There should be clarification on the roles of the regulator of commodities exchanges to enable the investing public to determine who to hold accountable for the delay in the effective takeoff of the exchanges in Nigeria.

“The Nigerian commodities exchange’s ecosystem is a one trillion untapped dollar economy. The Commission has taken some bold steps towards the implementation of this ecosystem’s structure. For instance, it has issued regulations guiding the involvement of collateral managers, accreditation of warehouses, and approval of rules and regulations of structures of commodities exchanges.

“Unfortunately, it seems the role of commodities exchanges in Nigeria is still largely misunderstood and often mistaken for commodity traders who buy commodities, store in owned or leased warehouses, and decide when to sell. Business of commodities exchange cuts across agriculture, solid mineral, and oil and gas sectors. Fungible instruments can be generated from them and listed on a structured commodities exchange to inject liquidity into the system.

He also stated that the exchange provides opportunities for the trading of commodity-based contracts and instruments including spots, forwards, futures, and capital-raising instruments, noting that commodity exchanges as regulated platforms do not get involved in commodities till they have been dematerialised to digital contracts that are tradable electronically.

Oni added that this eliminates the possibility of hoarding products and the Nigerian Capital Market is yearning for investment opportunities.

The Vice-Chairman, Highcap Securities, David Adonri, noted that commodities exchanges could promote financial inclusion.

He explained that a commodities exchange’s value chain is a mechanism for formalisation of trading in commodities, adding that it brings informal participants to a structured system, for financial inclusion and de-risking.

He said: “The exchange provides a transparent pricing mechanism that enhances the volume of transactions. This a
attracts more investment into commodities, leading to a multiplier effect on the economy.

“The standardize contract terms, guarantee performance by all parties thus serve as a safe and profitable investment outlet in the economy. This can engender an increased inflow of export proceeds.

“As a formal and regulated market, commodity exchange offers great opportunity to unlock the potentials in mining and agribusiness from production to storage, logistics, and trading. This enhances the diversification capacity of the economy.”