New Telegraph

CBN’s last push for dormant commodity exchange

The Central Bank of Nigeria, last week, unfolded fresh strategies to reposition the dormant Abuja commodity exchange, ABDULWAHAB ISA reports

A key mandate of the Central Bank of Nigeria (CBN) as stipulated by the constitution is price stability, which is to keep price of goods and services from persistent rise (inflation) or decrease (deflation). In the last 16 months, inflation has remained uptick, with food inflation being the core component revving the figures, according to monthly inflation data from the stable of National Bureau of Statistics (NBS).

The uptick has been attributed to increase in both food and core components of inflation, which rose to 19.56 per cent and 11.37 per cent in December 2020, from 18.30 and 11.01 per cent in November 2020, respectively. Rise in food prices was attributed to logistics across food value chain. Persistent hike in food prices is both a worry and challenge to the monetary authorities.

In its quest to finding a solution to the high price of food, the Centra Bank of Nigeria, three years ago, came up with strategic interventions to support production of major food items. The Anchor Borrowers’ Programme (ABP) intervention of the bank is a novel idea that spurs funding flow to cultivation of select food items.

Under the real sector interventions, ABP disbursement stood at N554.63 billion to 2,849,490 beneficiaries since the programme’s inception. A sum of N61.02 billion was allocated to 359,370 dry season farmers. The apex bank disbursed N106.96 billion to 27,956 beneficiaries under the Agri-Business Small and Medium Enterprises Investment Scheme (AGSMEIS), all in a bid to hold and moderate prices of food items.

Bottlenecks

Commodity exchange plays critical role in attaining stability in various food prices. It’s an avenue; a platform for different type of investors willing to buy or sell commodities through fair price discovery. Like conventional equity exchange, the commodity exchange is a platform to acquire and disseminate commodity news to help traders in making decisions. Regrettably, Nigeria has a dormant, ineffective, Nigeria Commodity Exchange located in Abuja. Bureaucratic bottlenecks, inconsistent government policies are among factors that led to inactivity at exchange 23 years after its establishment. At some point, government toyed with the idea of converting the building to a dual purpose exchange.

This, government reasoned, would make it function both as commodity and stock market exchange. The idea, however, died. Thereafter, government brought in Bureau of Public Enterprises (BPE) to, firstly, reposition and, thereafter, sell it to private investors. For over 15 years till last week when CBN announced drastic policy direction in the management of the exchange, the organisation featured on the privatisation schedule of BPE.

The privatisation body was not only helpless on how best to chart efficient path for a dormant exchange; each step took by BPE ended in a motion without movement. BPE accused NCX management of hoarding information it required to fast track the privatisation of the trading platform. To clear the fogs inhibiting potency of the exchange, another option was invented. BPE enlisted the services of Nigeria Sovereign Investment Authority (NSIA) to overhaul the entire trading structure at the exchange. A restructured trading platform in place at the exchange would give farmers awareness of what global commodity prices are.

They (farmers) are incentivised to improve their production and prices become competitive. As pretty good BPE and NSIA idea seemed, there was delay in execution. Prices of food items kept soaring each month NBS releases inflation data.

CBN’s strategic decision

The apex bank is a core investor in the National Commodity Exchange with 60 per cent majority stake holding. Other stakeholders include BPE and NSIA while representatives of Ministry of Industry, Trade and Investment, and Ministry of Agriculture are there on NCX board. Determined to bring sanity and arrest high price of food items, which is a major albatross to CBN’s effort to stabilise price, the bank announced strategic decisions last week in the management of NCX.

CBN Governor, Mr. Godwin Emefiele, while addressing the media at the first Monetary Policy Committee (MPC) 2021, announced that the bank would be taking deliberate steps to stabilise prices of food items. Emefiele lamented that previous efforts by the bank to contain spiral increase in food items via various funding interventions had been thwarted by commodity dealers and middlemen profiteers in agriculture value chain. These people, Emefiele said, were responsible for the creation of artificial scarcity of food items.

He said: “We have found in the market the activities of private commodities exchange. Their activities have not helped our country, and it is time for the Nigeria Commodity Exchange to be repositioned, restructure to perform the role, which by law it has been empowered to do. “We have written to the president, and luckily, we have received the approval to restructure and reposition the Nigeria Commodity Exchange. It will operate like standard commodity exchanges that you can find in any part of the world, which includes stabilising of food prices generally. “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. “Luckily, the CBN owns 60 per cent of Nigeria Commodity Exchange and we take control of it and will run it the way commodity exchanges are supposed to be run in any part of the world; that is one way that we would work to stabilise prices in Nigeria.”

NCX post-CBN intervention

Follow-up to governor’s preliminary remarks at the MPC briefing, Emefiele took a bolder and decisive step two days after. The governor inaugurated members of a steering committee for NCX last week in Abuja. The occasion was a positive turning point in the chequered history of the 22 years old exchange.

Some valid decisions announced by the CBN governor in what looked as a last push to make NCX vibrant, efficient for optimum delivery include the injection of N50 billion towards its revival. The government, in addition, halted the sale process being undertaken by BPE and in its place empowered the CBN to constitute a steering committee to bring up the moribund exchange to optimum operation.

Constituting NCX steering committee chaired by himself, the CBN governor, with representatives from NSIA and AFC as well as the federal ministries responsible for Finance, Budget & National Planning; Industry, Trade & Investment; and Agriculture & Rural Development as members, Emefiele declared: “As you all are aware, the Federal Government, along with the Central Bank of Nigeria, has implemented several intervention schemes in the agriculture and manufacturing sectors, aimed at boosting employment generation & wealth creation, reducing our dependence on imported food items, conserving our foreign exchange earnings, and spurring economic growth.

“These interventions in agricultural sector, particularly the Anchor Borrowers’ Programme (ABP) and Commodity Development Initiative (CDI), sought to strengthen key agricultural commodities’ value chains, enable improved productivity in the agricultural sector, and increase sourcing of inputs locally by stakeholders in the manufacturing sector. These programmes have also helped to improve our self-sufficiency in the production of key staple items, which is in line with the government food security objectives.

“Notwithstanding the gains that have been achieved, there are still significant challenges within the Nigerian agricultural commodity value chain that would need to be addressed, in order to accelerate investment and productivity in the sector. Some of these challenges include poor infrastructure and logistics, which impede the movement of produce from farm to market and/ or processing centers resulting in massive revenue losses to farmers; limited storage and preservation facilities, lack of adequate liquidity to support offtake of agricultural goods; unavailability of pricing information to market participants; and activities of middlemen, who currently aggregate commodities with the sole aim of manipulating prices for selfish gains among others.”

Emefiele said the ills were core issues affecting Nigeria’s commodity market, which must be addressed in order to properly harness the benefits that the agriculture sector could provide to our economy.

“There is no doubt that an effective and efficient commodity exchange ecosystem has a critical role in achieving the aforementioned objectives, through its provision of an organised platform for farmers to trade products in a transparent and efficient market,” he said. The CBN governor said the bank had been engaging the management of NCX and other key stakeholders on strategies to revamp the exchange and upgrade its facilities, similar to what exists in other African and western countries where commodity exchanges are a key driver of economic growth.

Last line

Given the level of commitment by the apex bank, the expected N50 billion capital injection and the planned restructuring being packaged to be deployed into NCX, this last push promises to be a game changer for turning around the fortunes of NCX.

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