A vibrant commodity ecosystem will aid diversification from oil to non-oil sectors and boost the nation’s revenues. CHRIS UGWU writes
Need for vibrant commodity exchanges has become necessary as commodity trading, which should be the mainstay of Nigerian economy, has suffered from years of neglect, inconsistency, poorly conceived government policies and the lack of basic infrastructures.
For instance, in the 1960s, the agricultural sector was the most important in terms of contributions to domestic production, employment and foreign exchange earnings. The situation remained almost the same three decades later with the exception that it is no longer the principal foreign exchange earner; a role now being played by oil and gas.
The sector remained stagnant during the oil boom decades of the 1970s and this accounted largely for the declining share of its contributions.
According to the National Bureau of Statistics (NBS), the trend in the share of agriculture in the GDP shows a substantial variation and long-term decline from 60 per cent in the early 1960s through 48.8 per cent in the 1970s and 22.2 per cent in the 1980s.
Unstable and often inappropriate economic policies (of pricing, trade and exchange rate), the relative neglect of the sector and the negative impact of oil boom were also important factors responsible for the decline in its contributions.
However, currently, the reverse is almost becoming the case as the decline in crude oil prices is currently affecting the economy with government looking for a way to boost non-oil revenue in the country.
This is more compelling reason why there is need to boost non-oil revenue, one of which is reviving the country’s commodity exchange to encourage agriculture, solid minerals and all other tangible goods and articles and also offer investors opportunities not only in the equity side, but across the various asset classes.
Since capital market is reflective of the economy, the Securities and Exchange Commission (SEC) had said that in order to bring about economic diversification, there is a great need to strengthen commodity exchanges in the country.
What is commodity
A commodity is a product, which trades on an exchange. This includes cocoa, rubber, palm kernel, palm oil, coffee, hides and skin, gold wheat, cotton, rice, corn, grain, sorghum, butter, eggs, potatoes, wool tops, fats and oil (including lard, tallow meal, groundnut oil, Soya bean meal oil, and all other fats and oils), cotton seeds, groundnut, Soya beans, Soya bean meal, livestock prod ucts and oranges, solid minerals and all other tangible goods and articles, except all services, rights and interest in which contracts for future delivery are presently being dealt with.
Solid minerals significant for diversification
The Director-General of SEC, Mr. Lamido Yuguda, had said with over 44 minerals found across the federation, the solid minerals sector could be significantly instrumental in the ongoing quest to diversify the economy from its heavy reliance on crude oil.
Yuguda stated this at a recent webinar organised by SEC in collaboration with the Ministry of Solid Minerals Development with the theme: “Financing the Solid Minerals Sector through the Capital Market and the Critical Role of Commodity Exchanges.”
Yuguda said it had also been identified as a backbone for investor value chain, which is an essential source of input for key industries such as construction, automobiles, electronics, aircrafts and ship building.
He said: “We believe that the Nigerian commodity trading system and indeed the capital market can be the transformational patronage to bring about this positive changes in the sector.
“With opportunities provided for better access to marketing of produce, price discovery and valuable market information, a striving commodities trading eco system has the potential to foster inclusive mining prosperity by efficiently linking commodities to industries in sufficient scale thereby promoting the output, creating jobs, improving living standards and unlocking the economic potentials of mining communities.
“It will also enhance financial inclusion of artisan miners, foster mineral production, stimulate exports and ultimately engendered economic development amongst other benefits.
Undoubtedly, greater connectivity of the mining sector and the commodities trading eco system will ensure that mineral commodities could be traded on transparent, efficient and organized trading platform provided by commodity exchanges.”
Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, had described the Nigerian capital market as a prodkey catalyst for the development of the critical sectors of the economy as it poses a credible platform of obtaining medium to long term finance.
The minister said the facilitation of funding and provision of structured market platforms such as the commodities exchanges portended significant addition for the mining and solid minerals sector, saying that the event and its theme were very relevant to the economy given the need to diversify and grow the economy and to enable the nation achieve sustainable development post-COVID-19.
According to her, “given the economic challenges occasioned by the pandemic, the on-going efforts of the Federal Government to achieve economic diversification has been affected by a decline in revenue, underlined by volatility in global oil prices which is our main source of foreign exchange earnings.
“The mining sector is strategically based as alternative source of revenue generation in the economic diversification plan of the Federal Government of Nigeria. It also has the potential to create employment and develop rural settings for other benefits.
“The mineral export guidelines by the Federal Government was formulated to address the need to keep accurately mineral trade data, ensure effective monitoring of the evacuation of export proceeds, to optimise the collection of royalties, and facilitate the implementation of free shipment inspection policies of the Federal Government on each export transaction as this is international best practice in line with the Marrakesh Protocol of GATT 1994. Ahmed said the initiative of employing the commodities exchange in this regard would encourage responsibility, accounting and fairness to governance.
This and other initiatives, she stated, would also facilitate the collection of all royalty and fees due to government from the export of solid minerals sector, ensuring the integrity of the mining data, mini ising revenue leakages and removing undue bottlenecks experienced with transactions by both exporters of minerals as well as our regulatory agencies.
“Identified as one of the frontiers of opportunity in the new economic reality, the Nigerian commodity trading eco system serves as the core point that supports and accelerate the development of non-oil commodities, which will be complimentary by ongoing efforts to diversify the national economy.
“Inefficient linkages of buyers and sellers in sufficient schemes will possesses the capacity to proffer solutions to some of the fundamental challenges inherent in the mining sector. “Streamlining the operations of the mining sector, therefore, through the commodities trading eco system and through other initiatives will ensure proper regulation of solid minerals extractive industry in Nigeria.
“I am positive that the outcome of this webinar and the strategic partnership between the mining sector and the capital market community will enhance the competitiveness of our new non-oil commodities and compliment the economic diversification of the Federal Government,” she stated.
She assured of the unwavering support of the ministry to ensure the achievement of the overarching objective of the Federal Government to develop the mineral potentials of the country.
“The reality is that the nation stands to benefit more in an organised mining and solid mineral extractive industry and the capital market is here to contribute its quota.
“This webinar is a signal that with the appropriate collaboration amongst sectors, institutions, regulators and operators, we can exceed out targets sooner rather than later and Nigeria will reap huge benefits from such forums,” she added.
In a keynote address, Minister of State for Ministry of Solid Minerals and Steel Development, Dr. Uchechukwu Ogah, described the webinar as timely because it came at a time Mr. President had put all necessary machinery in place to revamp the sector for economic stability.
He, however, expressed disappointment that over 90 per cent of artisanal miners and small scale operators’ contribution to employment was still very low with GDP contribution of 0.5 per cent.
He said: “We eagerly want to change this through implementation of the roadmap to contribute about five per cent to GDP by 2025. Inadequate funding has been the bane of underdevelopment; it is on this premise that I welcome this partnership with the SEC.”
Ogah said some of the expectations of the ministry were that for the exchange to create the vital nexus between demand and supply chain to enable investment to be demand driven.
The minister, while adding that the collaboration would be of immense benefit to the nation, enjoined all stakeholders to key into the partnership for sustainable development of the sector as that will bring Nigeria to the limelight as a major mining centre of the world.
A robust commodity exchange is particularly critical now, given the increasing emphasis on economic diversification, which is expected to enhance non-oil revenue in the country.