New Telegraph

Commodity exchange and prospects for national economic development

A commodity is a raw material or primary agricultural product that can be bought and sold, such as copper or coffee. Myriad of commodities abound in Nigeria and they are domiciled in all the nooks and crannies of the country. Some are being optimally harnessed, while others are not.

Relatedly, commodity trading is the exchange of different assets, typically futures contracts that are based on the price of an underlying physical commodity. With the buying or selling of these futures contracts, investors make bets on the expected future value of a given commodity. Commodity pricing is the ability to set the sales price for commodity-based end items using the market replacement cost of the main ingredient. Commodity items such as iron ore, coffee, beans, and sugar, are items for which there is a demand across commodity trading markets.

However, a commodities exchange is an exchange, or market, where various commodities are traded. Most commodity markets around the world trade in agricultural products and other raw materials. Some of these include wheat, barley, sugar, maize, cotton, cocoa, coffee, milk products, oil, and metals. Trading includes various types of derivatives contracts based on these commodities, such as forwards, futures and options, as well as spot trades, for immediate delivery. Many exchanges also trade financial derivatives, such as interest rate and foreign exchange futures, as well as other instruments such as ocean freight contracts and environmental instruments.

A futures contract provides that an agreed quantity and quality of the commodity will be delivered at some agreed future date. A farmer raising corn can sell a futures contract on his corn, which will not be harvested for several months, and gets a guarantee of the price he will be paid when he delivers. A breakfast cereal producer buys the contract and gets a guarantee that the price will not go up when it is delivered. This protects the farmer from price drops and the buyer from price increase. Speculators and investors also buy and sell these contracts to try to make a profit; they provide liquidity to the system.

The above laconic submissions are aimed at giving a brief outlay of this all-important issue, which is of great socio-economic importance to all nations of the world. These are nations desirous of reaping colossal benefits from a robust and vibrant, as well as value-adding and mutually beneficial commodity exchange system.

It was in this bid that President, Muhammadu Buhari recently reeled out a marching order to the nation’s apex bank, the Central Bank of Nigeria (CBN), to expedited swing into action, with a view to reviving the Nigeria Commodity Exchange (abbreviated as NCX). This is aimed at making the Commodity Exchange more vibrant, alive and relevant to the seemingly monolithic oil-based economy. The approval by Mr. President for CBN to intervene in the NCX to make it vibrant and useful to the Nigerian economy has been applauded by many as timely.

The Commodity Exchange stakeholders have shown huge appreciation of this Presidential directive as the Exchange before now has been stuttering since inception. The stunted Nigeria Commodity Exchange has been trudging and regrettably lagging behind sequel to several obnoxious, formidable, and retrogressive factors. They include inadequate funding, dearth or near-zero supportive and sustained government policies, and sheer neglect of the entity. Indeed, serious developing economies such as Ethiopia and Ghana, as well as the largest developing country with the second largest developing economy in the world; China, have utilised their countries’ commodity exchanges profitably. They used the exchanges as vehicles for uplifting the fortunes of their farmers, for industrialization, and for political stability.

Their feats in these directions are as glaring as they are globally overwhelming and indispensably impactful. While dishing out the highly invaluable, apt and timely directive, President Buhari further emphasized the importance the nation attached to the Exchange. The President gave out the directive in his 2021 October 1st broadcast to the nation. In it, he also ordered the Federal Ministry of Agriculture and Rural Development and the Strategic Grains Reserve to work with NCX, other security agencies, and the National Assembly. This is to ensure that the thorny issue of hoarding by the middlemen is addressed frontally.

The Commodity Brokers Association of Nigeria (CBAN) elatedly welcomes this giant stride by the President. CBAN’s President, Hon. Altine Kajiji says that this singular act by Mr. President will bring about a significant change in the livelihood of the ordinary Nigerian. “We are aware that the CBN is engaging all relevant stakeholders across board in its quest to revitalize the exchange so that all the necessary building blocks are properly situated. “CBN also stated in a recent press release that apart from statutory bodies, it would be engaging with other bodies and agencies as the need arose. “When the Exchange began operations, one of its mandates was user-education.

“The NCX started educating and training prospective users on the modalities of a commodity exchange as far back as 2006 as the commodity exchange concept was and still is a novel concept. “The Exchange thereafter inaugurated the Commodity Brokers Association of Nigeria (CBAN) in 2009 and handed over the training of commodity brokers to CBAN in 2013. “Till date however, staff of the Exchange still facilitate the courses of CBAN,” Kajiji enumerated. The president, who is also a large scale farmer and an erstwhile Member of the House of Representatives, discloses that, CBAN as a body comprises over 600 brokers that cut across all professional cadres. According to Kajiji, the members comprise CBN staff serving and retired staff of SEC, IST, NNPC, Ministries of Finance, Agriculture, and stock brokers.

Others are legislators of the Eight National Assembly, members of the academia, bankers, warehouse operators, commodity merchants, Agro-processors, other civil servants and so on. “The Commodity Brokers Association of Nigeria performs the following roles on a commodity exchange.

“They ensure the furtherance, maintenance and observance of ethical standards and professionalism among practitioners of the commodity brokerage profession in Nigeria. “They act as intermediaries in the commodity trading business. “They discipline and sanction erring members to enhance the integrity of the body. “They monitor international market performance by reviewing trade media.

“They interpret market reports and advise clients accordingly. “They liaise with transport, shipping and insurance companies. “They advise on hedging strategies. “They negotiate price, specification and delivery details on behalf of their clients,” the CBAN President explained. However, Kajiji wondered why the Commodity Brokers Association has been left out of the numerous engagements the Central Bank has been having with various stakeholders. “We believe this should not go left the way some hitherto good intentioned interventions have gone.

“The solution is for the main stakeholders, who would actually bridge the gap and act as the brokers and dealers who are catalysts towards providing low hanging fruits, to be actively engaged. “The ignoble role of middlemen as they are right now cannot be over emphasized especially up North where a majority of grains are grown. “These middlemen buy grains off poor farmers at below production costs, hoard the commodities and eventually sell at very exorbitant prices. “Some of them also engage in out-grower schemes that keep the farmers at perpetual subsistence levels.

“Some of the people that engage in these malpractices are well known and have tentacles in some important government circles. “Commodity brokers on the other hand buy and sell on behalf of clients thereby encouraging price discovery whereby the farmers get the most realistic price for their produce,” he elaborated. Kajiji says that the commodity broker only earns an approved commission on every trade. “We therefore as a body feel that as the commodity broker plays an integral role in the Commodity Exchange ecosystem, the CBAN should form part of the stakeholders being engaged by the CBN,” he asserted. lBashir Rabe Mani is of the News Agency of Nigeria (NAN).

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