Business

Need for vibrant commodity exchanges

There is need for collaboration among relevant agencies to boost commodity exchanges. CHRIS UGWU writes

Following the downturn in the economy, stakeholders have stepped up campaign for the diversification of the exchange to accommodate, the commodity exchanges. 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, 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. The need for a vibrant commodity exchange has become necessary as agriculture, which supposed to be the mainstay of Nigerian economy, has suffered from years of neglect, inconsistency, and poorly conceived government policies and the lack of basic infrastructures.

In the 60s, the agriculture 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, currently, 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 revenue, 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 the exchanges in the country to enable farmer have value for their products. Lift agriculture from state of despondency and improve forex earnings. This is also why stakeholders last week stepped up call for partnership for standardisation of the commodities traded in the country’s platform as it is obtained globally.

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 the government to enhance the growth and development of commodity exchange as alternative sources of revenue. “The need to encourage the establishment and growth of commodity exchanges in Nigeria cannot be overemphasized 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 minerals, 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.

SEC urges collaboration on trading ecosystem

The Securities and Exchange Commission had urged for collaboration with the Standards Organisation of Nigeria by advocating for speedy approval and publication of standards relevant to the commodities trading ecosystem. This was stated by the Director General of SEC, Mr. Lamido Yuguda, during a meeting with the SON management in Abuja recently. Yuguda said the commission as part of its implementation of the 10-year Capital Market Master Plan constituted a technical committee on commodity trading ecosystem, whose mandate is to identify challenges of the existing framework and develop a roadmap for a vibrant ecosystem. “A committee comprising of various stakeholders including the SON was set up to drive the implementation of the report. One of the recommendations in the report identified development of grading and standardisation system in line with international best practice,” he said. Yuguda stated that it was globally recognised that a unique feature of a commodity exchange is the standardisation of the commodities traded on its platform. He said: “However, the determination of these grades and standards is dependent upon approved local standards which should take into cognisance internationally accepted standards. Imbibing international standards for export commodities cannot be compromised if the exchanges have to play a pivotal role in export promotion.” The SEC boss said in recognition of the fact that the statutory responsibility of standard setting in Nigeria lies with the SON, the commission on behalf of all stakeholders seeks to partner with the SON. This, he said, was with a view to ensuring the expedited approval and publication of standards for commodities in the ecosystem; expressing the conviction that the establishment of relevant standards would be transformational for the Nigerian commodity trading ecosystem. According to Yuguda, “standards provide consumers with an assurance of fitness of purpose, processors with commodities specifications, and serves as reference point against which features of commodities can be compared. Other benefits include increase in value to smallholder farmers due to premium paid on high quality commodities, reduction of post-harvest losses due to standard post-harvest handling, packaging and storage, as well as increased employment opportunities through the setup of warehouses and assaying companies to provide quality assurance services. “More benefits include global acceptance of commodities produced in Nigeria for export leading to increased foreign earnings, increase in number of processing plants in Nigeria due to better quality of raw materials and overall development of the Nigerian economy.” The SEC DG added that the commission was committed to mobilising relevant stakeholders in the commodity trading ecosystem to provide the support needed by the SON to achieve the approval and publication of the commodities standards, adding standard setting is a project of national importance and the SEC along with other stakeholders will work with the SON in the achievement of this objective and by extension national food security and self-sufficiency. In his remarks, the DG of SON, Mallam Farouk Salim, said SON was excited to collaborate with SEC as it seeks to develop the capital market in Nigeria and the Nigerian economy at large. Salim assured that SON was willing to work with SEC to ensure that the country is able to export commodities of high standards and attract the much needed foreign exchange. He said: “We are committed to helping our people, especially farmers and support them to attain food sufficiency. If there is standardisation, the banks will be willing to finance the farmers and the commodities can be exported for the much needed foreign exchange to boost our economy. “We need to restore our pride as a nation, if our amenities are up to standard, we will not import many of the things we currently import and, thereby boost our economy. Our famers will be happy to produce because they know they will earn good income from what they do.” He solicited the support of the business community, farmers, IT specialists as well as the media to pull resources together and make a difference in the ecosystem.

Last line

To have viable commodities 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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