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Waiting on commodity exchange 17 years after


The Managing Director and CEO of the Nigerian Commodity Exchange, Mrs. Zaheera Baba-Ari

Across the world, commodities exchanges are established to open up the economy through investment in solid minerals and agriculture, as well as serve as platform for investors to lessen risks in agricultural production and marketing.

Commodities under these exchanges, referred to as primary products, are raw materials extracted from the earth, undergoing little or no manufacturing or refining process.

They include fuels, agricultural products, minerals, ores, and metals, and are traded on the commodities market. They are expectedly the mainstay of emerging economies, especially African countries.


Regrettably, the Nigerian Commodities Exchange (NCX) is not yet repositioned to unlock the potentials inherent in this segment of the market and attract the investment needed to boost the nation’s revenue base and increase competitiveness across the continent.

Most commodity markets across the world trade in agricultural products and other raw materials. Commodities exchange usually trades in future contracts on commodities.

For instance, a farmer cultivating corn can sell a future contract on the corn, which will not be harvested for several months, and guarantee the price he will be paid when he delivers; a breakfast cereal producer buys the contract and guarantees the price will not go up when it is delivered.

This protects the farmer and the buyer from price rise and drop. Speculators and investors also buy and sell the future contracts in attempts to make profit and provide liquidity to the system.

Commodity exchanges began to emerge in Africa in the 1990s.

Uganda, Zimbabwe, Kenya, Zambia and South Africa were pioneers in launching commodity exchanges. One of the most prominent examples is the Ethiopian Commodities Exchange (ECX) set up in 2008.

The commodities exchange trades in coffee, beans, maize and a few other crops.

Analysts say Ethiopia Commodities Exchange experiment has helped farmers to sell their commodities at a profit with agricultural mechanisms such as crop insurance and warehousing.


This will help them obtain collateral, and loans to expand their businesses.

The ECX has been a big motivator for African nations to form their own exchanges.

Till date, only two countries have produced lucrative models: South Africa and Ethiopia.

But there have been a large number of commodity exchanges tried over the past decades, many resulting in failure or little growth and activity.

One of the examples cited is Nigeria. The Nigerian Commodities Exchange (NCX) has been operating sub-optimally and has failed to make the necessary impact since its establishment in 2001.

Managing Director and Chief Executive Officer (CEO) of the Nigerian Commodity Exchange, Mrs. Zaheera Baba-Ari, had in a recent media parley, regretted that the conversion of the commodities exchange from stock to commodities was done without the required structural and institutional infrastructure.

“Currently, NCX is operating sub-optimally as the conversion from stock to commodity exchange was done without the required structural and institutional infrastructure,” she said

Baba-Ari said the exchange lacked adequate warehousing capacity; adequate physical infrastructure (communications, transportation); and appropriate legal and regulatory infrastructure in terms of a system of grades and standards, and a credible system of contract enforcement and governance in spot markets.

Other drawbacks, according to the CEO, are lack of supportive public policies and institutional infrastructure such as producers’ organisations as most African countries are characterised by smallholder farmers.

The CEO stated that the exchange would enable food processors to have ready supply of traceable, quality certified inventories; be assured of timely delivery of supply, freeing them from the expense of stockpiling; and price products appropriately owing to improved operational efficiency.

She suggested that all operators in the commodity market be mandated to participate actively in the buying and selling of their commodities on the floor of the exchange to deepen the commodity segment of the capital market and enhance liquidity as well as increase market capitalisation.

Stakeholders have said Nigeria is losing billions to the absence of efficient commodity exchange and that without an efficient commodity exchange in the country, the government will continue to lose revenue.

Nigeria mainly trades in crude oil, which constitutes 96 per cent of export revenue, while agriculture products and other minerals contribute the remaining.


Considering that the prices of commodities are not solely determined by the Nigerian economy, but by the interplay of demand and supply for commodities in the international market, stakeholders called for effective Nigerian commodity market.

Aside from the proposed Lagos Commodity and Futures Exchange, (LCFE), there are two major commodities exchanges in the country, Nigerian Commodities Exchange (NCX) and Afex Commodities Exchange, which are promoting the trading of commodities. Experts said more still needs to be done to ensure they function very well.

According to a commodity broker of Commodity Association of Nigeria, Abdul Bamidele, “what we are missing for not having a commodity exchange are so many.

Government is not getting any revenue, almost no money at all from the amount of commodities that Nigerians are buying and selling both internally and for export.”

He said that the need for a commodity exchange would help support the non-oil sector to become a major export earner for the country, pointing out that the move would improve the marketing of commodity products, leading to improved income for operators as well as revenue collection by government.

“Everyday coal is being exported out without data that shows amount of coal that goes out of the country, if we have an Exchange where it has to be bought and sell, the moment transaction of the product is going on, government is getting its own income immediately.

We are losing internally generated revenue from there.


If there is an Exchange, the framers will be getting up to 70 per cent of the international price of commodity to be exported.

Reacting to the development, capital market stakeholders who spoke in an interview with The Guardian called for concerted efforts towards establishing a functional commodities exchange in Nigeria, stating that this would support the non-oil sector to become a major export earner for the country.

They regretted that the nation’s commodities exchange, which is very vital in the production of surplus and storage of agricultural commodities for trading on the exchange, has not been able to make the necessary impact since its establishment in 2001.

Therefore, they implored the present administration to reposition the nation’s commodities exchange to increase production of agro-commodities by farmers, employment generation and contribute optimally to the nation’s GDP growth.

Specifically, Managing Director of Crane Securities Limited, Mike Ezeh, said a functional commodities exchange will strengthen the economy and make it one of the greatest in the emerging economies of the world.

“Commodities Exchange like the stock exchange is also an important component of an economic system. Just like the stock market is the engine room of most economies where it is prevalent, it can be the engine room for those economies that do not have stock markets.

“But for Nigeria, with a vibrant stock market in place, and an effective commodity market added to the stock market will further make our economy one of the greatest in the emerging economies of the world.

He continued: “Our commodities and solid minerals that our country is endowed with such as gold, diamond, agricultural products among others will attract the best competitive prices bearing in mind that our commodities are world-class when compared with those from other countries.

It will no longer be under priced or lying waste so you can see that the importance of a commodities exchange in an economy like Nigeria cannot be overemphasized. It is long overdue.”

An independent investor, Amaechi Egbo, who lamented that the nation’s commodities exchange has not made the necessary impact since its establishment in 2001, noted that such exchange in other emerging market have helped to enhance liquidity as well as increase market capitalisation in their various jurisdictions.


According to Egbo, a strong and vibrant commodities exchange would support the non-oil sector to become a major export earner for the country.

He added that it would also improve the marketing of commodity products, leading to improved income for operators as well as revenue collection by government.

“Farmers will see value for the business, cultivate more and then create wealth for themselves, for government and for the entire nation which will lead to the growth in GDP.”

President, Association of Issuing Houses of Issuing Houses of Nigeria (AIHN), Sonnie Ayere, argued that any country that failed to create a viable commodities exchange would not be able to cash in on the prices of commodities it produces.

He, however, stressed the need for the country to establish an effective value production system for farmers before creating a commodities exchange.

“We have not being able to hedge oil prices, we could have been hedging commodities prices like the wheat, the sorghum and all the commodities we produce.

“More over, I do not think we want to really begin to have a commodities exchange until we have a good value production system which is from the farming side, so to my mind, let us sort out the issue of farming and then move to the next level which is having a functional exchange.”

The Managing Director of HighCap Securities Limited, David Adonri, weighing in on the subject, said commodities exchanges facilitate economic development especially by helping farmers to improve their marketing strategies and manage risks such as reducing their exposure to price hike and other production risks.

“The commodities exchange is beneficial to all segment of the economy, because it enables commodities to be appropriately priced and transactions to be appropriately done because of the ability of the commodities exchange to deal in future.

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