Managing Director, Lagos Commodities and Futures Exchange (LCFE), Mr Akin Akeredolu, in this interview with CHRIS UGWU, speaks on challenges and prospects of commodity exchanges in an emerging economy like Nigeria
What is your take on the investment landscape in the country amidst COVID-19?
Every challenge creates an opportunity and the pandemic created a lot of investment opportunities in the investment climate, both in the commodity ecosystem, fixed income and other asset classes.
If you notice also that in the fixed income sector, the returns on investment and the rentals, that is interest rate payable on instruments, crashed
. That gave an opportunity to some people in different sectors to do some capital raise at this point in time at a good rate to lock in for people, who want to hedge their instruments and hedge their activities for any of the sectors.
Looking at the investment climate for now, the outlook is good and the GDP is going to be growing from the projections of N250 billion and the trajectory am seeing is that we are in that direction.
For people who want to venture into investment climate in Nigeria, I just think that this is the better period for them to go into that space for returns on investments.
And I’m very happy that the commodity space is coming up and we are going to be creating a new asset class for people to invest in whereby the underline will be commodities and real physical goods and that is going to create new sector for investment in Nigeria.
So, I think the outlook for investment is good, though the macro economic outlook, the bigger picture looks a bit challenging, but I think the current policies being put in places are there to address the macro economic challenges and we are very much hopeful that the turnaround of the outlook of the pandemic will be good for Federal Republic of Nigeria.
What are the current challenges faced by the commodity exchange sector in Nigeria?
The major thing about the commodity exchange in Nigeria is the knowledge gap and one thing we must realise and accept is the fact that this is a greenfield for Nigeria. If it is a fixed income, we have so many experts in that, if it is equities, we also have so many experts in that space. Commodity exchange space is an upcoming space in Nigeria and one of the major issues is the knowledge gap, which is being addressed and even being achieved.
Also, I am very happy that the Securities and Exchange Commission has created a proper structure in place for the commodity exchanges to thrive and that structures have started achieving results and one of the things we are trying to do is to be able to build a super structure on those structures SEC has created.
The Commission has created the legal framework and the operational framework for the commodity ecosystem to thrive. And also the Federal Government is supporting the commodity exchanges to diversify mono income economy, so those are the few things and all the issues are being addressed accordingly.
One of the things we are trying to address is the issue of fundability of instruments that are commodity based and to create a bridge between those commodities and finance.
For example, we know that agriculture is one of the underbanked sector whereby there is only five per cent of bank’s investment, there has to be an improvement in that area for banks to be able to participate more and for us to be able to do that, we must be able to de-risk that sector.
Whereby the sectoral risk in the commodities sector is derisked properly, when that is in place and we now have bankable instruments and fundable instruments, it will be easier for banking sector and for capital to flow into that space very well.
Those are part of the challenges that are being addressed by the Commission with the structures that are being deployed by the commodity exchanges.
What are the prospects for commodity exchanges in emerging economy like Nigeria?
You seee, if the commodity ecosystem is contributing about 65 to 70 per cent to our GDP, I am sure you can imagine the kind of potential that is in that space and those are the things we are targeting to be able to move that particular sector from informal position to properly structured formal position whereby instead of operating in silos it can be harnessed into a common position for us to be able to achieve greater goals for the country’s economy.
Our target is that very soon we will start seeing impact of the super structure that is being deployed, whereby we would start having GDP growth based on deployment of the various super structures into the commodities ecosystem.
As you record first company to be listed on LCFE, do you think the listing will help pull other companies into your fold?
Yes, we are very happy with their business model and they are coming to list on our exchange, which, at the end of the day will be the first exchange traded note commodity based that are going to be listed and traded on the exchange. Yes, am sure that it will encourage other people to come and participate in the ecosystem.
Do you think the Federal Government is doing enough to encourage commodity exchanges in the country?
The Federal government is doing very well in mobilsing commodity exchanges in the Nigerian ecosystem, but there has to be a delineation, whereby there is a clarity on how and who are regulating it.
By law and by IST, the Securities and Exchange Commission (SEC) is supposed to be the regulator of the commodity ecosystem; that delineation has to take place, when that takes place, it will be easier for us to be able to grow that economy from the point of apex regulator, which is SEC and the regulator is doing very well on that for us to be able to participate in that space. So, by way of regulatory framework and infrastructures,
SEC is doing very well to build that ecosystem for the structures to be deployed and with the new guideline to support the ecosystem, they have lincesed some exchanges to operate.
How can investors be encouraged to participate in the commodity market?
One of the major things about investment is that when people see returns on investment and there is ease of participation in the ecosystem, it will encourage investors to participate on the commodity exchanges.
Do you think the offshore listing being embarked on by some quoted companies in Nigeria has a direct impact on the domestic market?
We are going towards globalisation and, as long as we want to be a global player, we must make sure we are not just a global player. I think is a welcome development.
What is your take on the adoption of flexible exchange rate policy by the Monetary Policy Committee (MPC)?
For the exchange rate, my own take is that the fundamentals should be addressed first and the fundamentals that need to be addressed is the determination of price discovery, the two-way quote for the exchange rate.
And if there is a two way code for the exchange rate, we will be able to have a balanced position before we can say that this is what should be adopted by way of policy direction. One of the major things that still need to be addressed is where do we generate FX and what is the source and how does the price recovery come in.
For now, the major things that determined this is demand and supply and if we limit it to just demand and supply it does not always establish the intrinsic value of the currency.
This is because those demands are not necessarily demands that goes into manufacturing or production that could determine the outcome. So, those are things that need to be established first before one can say this is the right policy.
In which way do you think the Federal Government can revive the nation’s financial market, especially with identity management and other economic initiatives?
One of the major things the Federal Government should do that I would recommend is that we have a particular economy I will call service oriented. And before we can have a typical service oriented economy, we should first of all have a primary producing economy, that is we must be producing commodities first.
And the commodities we produce must be feeding into the manufacturing sector. When we feed into manufacturing sector and they start thriving that’s where the service sector – the banking sector, the insurance sector will start thriving too.
One of the major things I applaud the government is doing now is that they are focusing on the primary part of the economy, which is the commodities based.
When that thrives very well, then the manufacturing sector will thrive. So, we need to go back to the base and focus on generating commodities first, it is these commodities when generated that will drive the export proceeds coming into the country and the same time feed into the manufacturing sector for the service industry to also thrive, those are the key things that we need to do.