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Beyond CBN’s restructuring of Commodity Exchange 


Godwin Emefiele of CBN. Photo: NAIRAMETRICS

On Tuesday, January 26, 2021, the Governor of Central Bank of Nigeria (CBN), Mr Godwin Emefiele addressed the first  press conference in the year where he unfolded the decision of the Monetary Policy Committee (MPC) on the  rates that will drive operations in the money market.  Expectedly, all the key indicators were retained. Monetary Policy Rate (MPR) stays at 11.5 percent, Liquidity Ratio, 30 percent, Cash Reserve Ratio (CRR) and Asymmetric Corridor were also retained at 27.5 percent and +100 and-700 basis points respectively. The rationale for retaining the monetary policy instruments rates is not a rocket science. It may be a costly gamble for the apex bank to adjust any of the rates while the economy is trapped in stagflation. The bank has chosen a path of honour through gradual synchronization of monetary and fiscal policies to rescue the economy from the pang of recession. 
One of the high points of Emefiele’s address was the decision by the CBN to restructure the government-owned and embattled Nigeria Commodity Exchange (NCX) whose history dated back to 1998, when it debuted as Abuja Stock Exchange. The organization could not find its bearing despite the government’s ownership and consequently metamorphosed into a Commodity Exchange in 2001, perhaps the last option to remain in business. As a follow-up to Emefiele’s announcement of restructuring of NCX, he finally stated that the apex bank and Nigeria Sovereign Investment Authority (NSIA) would invest N50 Billion lifeline in NCX to revive the struggling premier commodities exchange.
There is no doubt that Nigeria needs viable commodities exchanges if we must expand our sources of foreign exchange earnings in the wake of incessant external shocks from the international oil market. The government’s huge investment in agriculture will be further enhanced if we have structured commodities exchanges. They create platforms for price discovery and enable stakeholders in the commodities ecosystem to earn return through different value chains in agricultural commodities. 

Food inflation is currently at approximately 20 percent in Nigeria while headline inflation hovers at 15.75 percent. The situation calls for more creative ways to reverse the trend. It is against this background that the federal government through the CBN is deploying a combination orthodox and unorthodox economic policies to salvage the economy. 

The uncertainties in the operating environment has prompted global institutions such as International Monetary Fund (IMF), World Bank and top global rating agencies to put their ratings on Nigeria’s economic growth on the reverse gear. As the high priest of price stability in Nigeria Emefiele is daily sweating under his exotic blue jackets. The situation has almost turned our economists to pseudo experts as models are failing at frenetic pace across the globe.
After 23 years of existence, NCX is still floating like a rudderless ship. The Exchange has trained many professionals, including my humble self and many others who opted for the training as part of retirement plan. But sadly, over two decades after its formation, NCX remains a market without wares. Apart from government’s lethargic approach to managing the premier commodities exchange, its operations are stifled by weak legal and regulatory structures such as absence of rules, issues of efficient delivery with counter parties and warehouse receipts.
In his justification for the government’s decision to recapitalize NCX, Emefiele blamed private commodities exchanges in Nigeria for hoarding agricultural commodities for arbitrage opportunities. 
“We have found in the market that activities of private commodities exchange have not helped our country and it is time for the Nigeria commodity exchange to be repositioned and restructured to perform the role which by law it has been empowered to. 

‘We will be coming up with the agenda and framework for the restructuring and repositioning of the Nigeria Commodity Exchange and we will do so in a manner that prices must be stable in Nigeria. We will not allow some self-seeking private exchange commodity to be holding agriculture products and be creating problems for prices because price stability is the core mandate of CBN and we cannot shy away from the responsibility.”
Emefiele’s emotional outburst contains some administrative and technical inaccuracies that need to be cleared for the avoidance of doubt. This may also help the public in understanding the basis for his sweeping accusation that private commodities exchanges are hoarding agricultural products. As of today, the only publicly known commodities exchanges that are registered by the Securities and Exchange Commission (SEC) are AFEX Commodities Exchange Limited, popularly called AFEX and recentlyLagos Commodities and Futures Exchange (LCFE). 

Operationally, AFEX “ is established in Nigeria with an overarching outlook to develop a workable warehouse receipt system”. The company at present thrives on buying agricultural commodities into warehouses for sale. AFEX may later graduate into full blown trading as a structured commodities exchange. But as of now, the company has not announced its dealing member firms, settlement banks or depository which are all attributes of a structuredexchange. 
To be continued tomorrow
Oni, communications consultant, Chartered Stockbroker and Commodities Trader was a former Spokesman of The Nigerian Stock Exchange. 


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CBNGodwin EmefieleMPC
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