New Telegraph

Commodity exchanges: Need for level playing field

There is need for a level playing field to enable even competition among
operators. CHRIS UGWU writes

 

The need for vibrant commodity exchanges has become necessary as agriculture, which supposed to be the mainstay of Nigerian economy, has suffered from years of neglect, inconsistency, poorly conceived government policies and the lack of basic infrastructures.

 

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 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 the 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 more compelling reason why there is need to boost non- oil revenues, one of which is reviving the country’s commodity exchanges to encourage agriculture and also offer investors opportunities not only in the equity side but across the various asset classes.

 

There is a great need to strengthen commodity exchanges in the country to enable farmer have value for their products, lift agriculture from state of despondency and improve forex earnings.

 

This is why also stakeholders, last week, identified some impediments and step up calls for the government to support and create a level playing field for the operators.

 

Agents of forex earnings, job creation Some securities dealers in Nigeria, last week, urged the Federal Government to expand agriculture to create job opportunities for youths and leverage commodity exchanges to grow the country’s foreign exchange earnings in view of dwindling income from the international oil market. Besides, the securities dealers identified the need to put in place relevant structures that will enhance the growth of local industries, highlighting the benefits of commodities exchanges.

 

The Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), Chief Onyenwechukwu Ezeagu, explained that the negative impacts of COVID-19 on most sectors of the economy had made it imperative for government to enhance the growth and development of commodities exchanges as alternative sources of revenue.

 

“The need to encourage the establishment and growth of commodities exchanges in Nigeria cannot be overemphasised in the wake of the crippling impact of oil glut and COVID-19.

 

“If Nigeria is serious about diversification of her economy and forex earnings, the route to take is via functional commodities exchanges where all asset classes – agricultural, hydrocarbon and solid minerals etc are tradable in a most efficient and transparent manner and the quality of tradable commodities are guaranteed. “This is even more so for local industries that need to be assured of regular and uninterrupted raw materials supply as their production input.

 

The farmers, miners etc would benefit from an efficient commodities exchanges platform as they have opportunity for prices discovery and an assurance of off takers of their output.

 

“The economy would be better off as economic activities are catalysed and sustained. Consequently, any serious minded government cannot but be conscious of the importance of viable commodity exchanges and use them as catalysts for economic development and sustainance.

 

“This informed part of the reason why ASHON and other progressive minded Nigerians floated the Lagos Commodities and Futures Exchange so that through its establishment, we can assist the government of the day in not only doing all the above, but also in helping to create employment for our teeming youths in this country,” said Ezeagu.

 

Corroborating him, the Managing Director and Chief Executive Officer, Lagos Commodities and Futures Exchanges, (LCFE), Mr Akin Akeredolu – Ale, who volunteered information that LCFE would soon commence trading on agricultural commodities, solid ninerals, currencies and oil and gas submitted that at this critical period, a credible option for Nigeria’s accelerated economic revival would be for the government to put in place structures to promote agriculture and commodities exchanges.

 

FG’s position

 

The Federal Government recently stressed the need for the development of a vibrant commodity trading ecosystem in order to diversify the economy away from dependence on crude oil for improved government revenue and foreign exchange earnings.

This was stated by Vice President  Yemi Osinbajo, at a Roundtable on Nigerian Commodity Trading Ecosystem held by the Securities and Exchange Commission (SEC) in Lagos. Represented by Dr. Yemi Dipeolu, Special Adviser to the President on Economic Matters, Osinbajo said the commodity trading ecosystem was of paramount interest because Nigeria has an abundance of natural resources and accordingly a comparative advantage in agriculture, solid minerals and oil and gas, hence emphasis in the immediate term is the agricultural sector.

 

Osinbajo said the Federal Government attaches great importance to an active and vibrant capital market, which will contribute to national growth and development. He said in order to achieve this objective, the capital market has to operate at an optimum level, which is why the implementation of the 10-year Capital Market Master Plan remains a key priority.

According to the vice president, “agriculture accordingly occupies a pride of place in Federal Government policy, as stated on numerous occasions by the president and as articulated in the Economic Recovery and Growth Plan.

 

The importance of agriculture was underscored during the last recession as its growth then of about three to four percent prevented a steeper decline. Agriculture is also important for food security and as a means of generating a quick production response. Stakeholders seek level playing field ASHON last week identified the challenges militating against the growth of commodity exchanges in Nigeria even as it advocated enabling environment for enhanced healthy competition.

 

ASHON, which proposed some policy measures to stimulate activities in the commodity exchanges’ value chains argued that injection of N50 billion into the Commodity Exchange of Nigeria (NCX) was capable of creating uneven competition among commodities exchanges in Nigeria.

 

In a statement by ASHON’s Chairman, Ezeagu, the association advised investors to take advantage of investment opportunities in the commodity exchanges to boost their income  stream.

 

“The commodity ecosystem has been existing informally for many decades. “Introducing structure, transparency and price discovery to this ecosystem is expected to receive some pushback as introduction of change is always difficult.

 

 

The commodity exchange ecosystem in Nigeria is new and heavily misunderstood. The biggest drive for commodity exchanges is to ensure that all the participants and regulators of the ecosystem and capital market understand the commodity exchange market, the various opportunities and necessary regulatory and legal framework to support it.

 

“The announcement to inject N50 billion into the Nigeria Commodity Exchange by CBN is a welcome development. Any act by the Federal Government to stimulate the growth and development of the commodities ecosystem through the commodity exchanges is highly beneficial to the entire ecosystem.

 

Commodity exchanges play an important role in the commodity ecosystem because they introduce structure, transparency, and price discovery into the system.

 

“It is important to note that commodity exchanges are not commodity traders, they are simply a structured platform that deal in both commodity spots and commodity securities in multi-asset classes as approved by SEC. “Although this announcement is a welcome development.

 

It is also important to note that any intervention into one commodity exchange creates an uneven playing field that defeats the benefits of healthy competition among the participants of the ecosystem. It is also important to note that this injection of funds is better served within the ecosystem to support the farmers, aggregators, miners, refiners, processors and all the other participants in the commodity ecosystem.

 

According to the operators, to encourage the privately-owned commodity exchanges, government can ensure an open liaison opportunity between its agencies and the commodity exchanges to create the opportunity for “joint stakeholder sensitisation forums for commodity participants and regulatory bodies, committees for the development of financial funds and instruments to be listed on the commodity exchanges, partnerships for the accumulation of data to support the ecosystem such Warehouse distribution, commodity distribution, commodity consumption etc. and engagements for the development of legal and regulatory framework for effective commodity trading “Support for the ecosystem can be provided in terms of sensitization programmes for all the participants to educate them on the certification and standardisation requirements for commodities, relevant production practices, packaging best practices and cold chain equipment.

 

Support can also be provided by creating programme for leasing heavy equipment, acquiring enhanced seedlings, accessing effective storage and cold chain facilities and many others that enhance the entire commodities ecosystem.” Last line To have viable commodity exchanges is particularly critical now, given the increasing emphasis on agriculture, which is expected to enhance non-oil revenue in the country.

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