Vibrant commodity ecosystem will aid diversification from oil to non-oil sectors and boost the nation’s economic development. CHRIS UGWU writes
The need for vibrant commodity exchanges has become necessary as agriculture, which is supposed to be the mainstay of Nigerian economy, has suffered from years of neglect, inconsistency, poorly conceived government policies and lack of basic infrastructure.
In the 1960s, the agric 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 was stagnated during the oil boom decade of the 1970s and this accounted largely for the declining share of its contributions.
According to 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, the reverse is almost becoming the case as decline in crude oil prices is currently affecting the economy and government is looking for a way to boost non-oil revenue in the country.
This is the more compelling reason there is need to boost non-oil revenue, one of which is reviving the country’s commodity exchange to encourage agriculture, create jobs, facilitate development, enhance financial inclusion 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) has 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. These include 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 products 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.
This is the more compelling reason there is need to boost non-oil revenue, one of which is reviving the country’s commodity exchange to encourage agriculture 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, both the authorities and stakeholders in the Nigerian Stock market have recently agreed that in order to complement government in the area of agriculture and boost forex earnings for the economy, there is a great need to strengthen commodity exchanges in the country.
Exchanges to facilitate development
Commodity exchanges have been described as critical to enabling investment diversification, risk management, price discovery and transactional efficiency which will in turn create jobs and facilitate economic development among other benefits.
The Director General of the Securities and Exchange Commission, Mr. Lamido Yiguda, stated this at a one day stakeholders sensitisation workshop on commodities standards organised by SEC in collaboration with the Standards Organisation of Nigeria in Kano recently.
Yuguda stated that commodity exchanges had the potential to efficiently link commodities to industries, thereby creating jobs, improving living standards and unlocking the economic potential of farming communities, promoting rural development, enhancing financial inclusion of small holder farmers, and ultimately facilitating economic development, amongst other benefits.
He described the workshop as indeed timely, considering government’s policy shift towards economic diversification and the need to deepen capacity across the agricultural value chain. He said a thriving commodity trading ecosystem, with grading and standardisation features, would ensure compliance with established grades and standards, eliminate or reduce the proliferation of sub-standard commodities in the markets, and encourage global acceptance of commodities produced in Nigeria, among other benefits.
Roadmap for vibrant commodity ecosystem
According to the SEC boss, the Technical Committee on Commodity Trading Ecosystem had, in 2017, developed a roadmap for the actualisation of a vibrant commodity ecosystem.
The committee specifically identified the development of a grading and standardisation system that will align with international best practice as an important precursor in achieving vibrancy in the ecosystem.
“I am happy to report that the Ecosystem Roadmap Implementation Committee has been working tirelessly on the development of a grading and standardisation system. The initial stage of the development process would concentrate on delivery of standards for agricultural commodities.
“In this regard, we are working closely with SON to create awareness for existing agricultural commodities standards, but more essentially to obtain feedback from stakeholders on the standards to be presented for consideration of stakeholders at this Workshop to trigger a review of inadequate standards if and where applicable.
In addition, Yuguda said the 10- year capital market master plan, which is the blueprint for the growth and development of the capital market over the next decade, designates commodity exchanges as critical for enabling investment diversification, risk management, price discovery and transactional efficiency.
He said efficient commodity exchanges, coupled with a grading and standardisation system that will align with international best practices, are no doubt critical elements in achieving a thriving commodity trading value chain.
Prospects of commodity exchanges
Yuguda said: “Commodity exchanges offer significant value addition by providing a platform that improves confidence and assurance, as trading activities within the platform are conducted in a fair, transparent and efficient manner. “In addition, commodities purchased through these exchanges are guaranteed to comply with standards in terms of quality and weight.
“Nigeria strives to achieve a sustainably- diversified economy, food security and sufficiency, there is need for all stakeholders to ensure the effective adoption and enforcement of appropriate standards to establish quality, and reverse the embarrassing rejection of Nigerian- produced agricultural commodities outside Nigeria,” he stated.
The SEC boss assured that the Commission remained a strong advocate for a thriving commodity trading ecosystem, adding, “believe, and very strongly too, that this is a project of national importance, given that an efficient commodity ecosystem can transform our economy by promoting economic diversification and export promotion, amongst others.”
The Director-General, Standards Organisation of Nigeria, Mallam Farouk Salim, said the role and importance of commodity markets could not be overemphasised in connecting both producers and consumers in a centralised liquid marketplace and for the economic growth of the nation.
Salim stated that countries with older and better commodity exchanges had historically gained economic advantage over others, adding that in support of Nigeria’s readiness to key into the global sustainable commodity market, SON is ready to partner in areas where its services and products are needed including development of new standards and review of existing ones.
According to him, “trading in agricultural produce among which are wheat, rice, corn, soybeans, maize, groundnut are growing steadily.
There is no gain saying that ‘without agricultural commodities, the world will starve. This sector of the commodity market has thus become important in support of the economic diversification policy of the Federal Government. “Commodity standards and grades provide a means for measuring levels of quality and value for agricultural commodities.
These standards provide a basis for domestic and international trade and promote efficiency in marketing and procurement. “In connecting buyers and suppliers, the market ensures that the quality of the commodities exchanged is in accordance with the required guidelines which is none other than standards.
This, you will all agree, is largely achievable with compliance to quality requirements specified in each commodity standard. Salim assured that SON is committed to ensuring that the primary objective of the commodity exchange to offer fair pricing to the producers and deliver genuine commodities to the consumers is continuously achieved through quality production based on conformity to applicable standards.
In a message, Governor of Kano State, Alhaji Abdullahi Ganduje, said the state was at the forefront of enhancing agricultural activities in the state, adding that there was also need to be able to reach out to the farmers in the languages they can understand to as to understand the importance of the programme.
Represented by the Deputy Governor, Alhaji Nasir Gawuna, Ganduje expressed the need for the farmers to be familiar with the standards first before they can be encouraged to use it in packaging of their products.
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.