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Beyond CBN’s restructuring of Commodity Exchange – Part 2


[FILES] Godwin Emefiele PHOTO:Twitter/CBN

Continued from yesterday

Late last year, in one of the Capital Market Committee’s (CMC) meetings hosted by SEC, the Commission stated that trading rules had not been approved for any commodities exchange. This is perhaps why LCFE is just planning to commence trading this year. More importantly, every structured commodities exchange sells electronic receipts and not physical products. Juxtaposing these scenarios with Emefiele’s reading of the riot act to private commodities and exchanges, he owes the Nigerian investing public and international communities some clarifications on the accuracy of facts about the true position of private commodities exchanges in Nigeria today. This will minimize the reputational damage that his condemnation of private operators of commodities exchanges may have caused the system. The news has gone viral and it has become a game of damage control.


The announcement of N50 Billion capital injection into NCX theoretically looks good but has an undercurrent of creating unhealthy competition in the commodities space. The N50 Billion is taxpayers’ money and government can as well support other commodities exchanges even if not with the same quantum of money. The more commodities exchanges, the better for the economy and it will also bring more food to the table for those of us commodities brokers. Beyond the jubilations that expectedly followed the announcement, there are issues. Will capital injection solve the problem of NCX? What has kept the Exchange stagnant over 23 years of existence, despite changing its business model from conventional stock market to commodities platform? What is the way forward for NCX and other private commodities in Nigeria?  It is settled in every strategic business decision that the government has no business in business. Government creates an enabling environment and allow the private sector to manage the business. Government has the financial muscle but lacks administrative, technical and operational competence to run a business profitably. This explains why companies such as National Insurance Corporation of Nigeria (NICON), Nigerian Re-insurance Corporation, Nigerdock Plc, National Aviation Handling Company (NAHCO), Nigeria Railways Corporation (NRC), Nigerian Ports Authority (NPA), Nigerian Postal Services (NIPOST) and NITEL among others ended as candidates for privatization.

I am not saying that privatization has no challenges but on a comparative basis, companies promoted by private sectors are doing very well as adjudged by the banking and telecoms sectors. But the ones managed by the government usually end in technical insolvency at the minimum and their final physicians are the private -sector operators. If the federal government believes that NCX is cash-trapped, what happened to every Naira it has spent on the organization since inception? Why is the decision to allow the private sector to turn around the company jettisoned and it is now back to square one? With its 60 percent controlling equity holding in NCX how come that CBN has been unable to make the company profitable all along? 


It seems our apex bank is losing focus on its core mandate of price stability as it is fast becoming a commercial bank in orientation by attempting various businesses under Emefiele.

The public will be interested in the impact analysis of billions of Naria already dolled out to farmers under the Anchor Borrowers Programme and explanation of how government can recoup the huge amount for further empowerment of entrepreneurs. 

Every business in Nigeria is a victim of policy inconsistencies, macroeconomic vagaries, subtle devaluation of Naira, insecurity, and parlous state of infrastructure. Beyond the facade of N50 Billion, the federal government should reverse its open-ended policy of agricultural financing without structures that integrate it to the operations of a structured commodity exchange. For instance, all export trades should be ratified on the commodities exchanges. By this, agricultural commodities for exports should be traded on a commodity Exchange. This will automatically kick-start activities on all the commodities exchanges in Nigeria and provide opportunities for data capturing with multiplier effects of leveraging such data to make projections on revenue. The data will also be useful for local and global financial institutions as well as rating agencies. Every legislative support for agricultural commodities must be linked to the financial market and government should encourage crude oil trading and this can be driven by NNPC and independent producers. 


At a time like this, Nigeria needs to encourage institutions that can promote price discovery, portfolio diversification, hedging and import and export competitiveness. Government must provide supportive legislation to enhance operations of commodities exchanges in Nigeria. Selective capital injection does not guarantee the turn around of NCX while denial of private operators’ involvement in managing the market may continue to rob it of competitive edge. Nigeria has a lot to benefit from commodities exchanges. Our apex bank should settle to create an enabling environment, guarantee off-take agreements and fungible financial products for capital raising via this specialized market. Government policies on agriculture should take into consideration the impacts on commodities exchanges. Agriculture contributed 31 percent to the Gross Domestic Product (GDP) as of September last year. It is one sector that has a direct relationship with the operations of a commodity exchange. Government should take a second look at all agricultural initiatives to ensure that they promote investment through commodities exchanges.


Oni, a communications consultant, chartered stockbroker and commodities trader was a former Spokesman of The Nigerian Stock Exchange. 



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