Experts bemoan jumbled commodities exchange system

• Push for organized operations, electronic trading

Onome Amuge

Stakeholders and analysts in the commodities sector have attributed the long-delayed commencement of commodities exchanges in Nigeria to the government’s lack of understanding regarding the operations of the specialized exchanges.

Commodities exchanges, they explained, thrive on trading electronic receipts rather than storage and sale of agricultural products in warehouses as announced by the government. They also averred that an organized commodities exchange with clearing and settlement system, dealing member firms and other registered operators had potentials to grow the nation’s Gross Domestic Product (GDP) by revamping the turbulent economy through employment generation, digital transaction of  agricultural and mineral products and foreign exchange earnings.

Tajudeen Olayinka, a commodity trader and chief executive officer, Wyoming Capital and Partners, stressed that commodities exchanges provide  numerous benefits to an economy, especially, a developing economy like Nigeria if the relevant authorities provide appropriate support for  their  orderly functioning. Price discovery, he noted, is a major driving force in the commodities market and refers to the mechanism through which prices come to reflect known information about the market.

Olayinka further asserted that the fact that farmers, merchants, commodity brokers, government and other stakeholders can reasonably gauge the mood of the market from publicly available information around demand and supply, makes planning, organizing, and forecasting, integral part of the market easy.

“Nigerian  economy will surely benefit from having functional commodity exchanges in the country, and the government must therefore align its economic diversification programme to commodity exchanges’ value chains to facilitate global trade and investments, he stated.

Sola Oni, another commodity trader and chief executive officer, Sofunix Investment and Communications Limited, enjoined the federal government to remove any bureaucratic bottleneck that may affect smooth functioning of commodities exchanges in the country to enable them enhance  economic growth and development.

Oni noted that the recent announcement of N50 billion lifeline for Nigeria Commodity Exchange (NCX) by the Central Bank of Nigeria (CBN) is likely to have sent a wrong signal to the global  community by creating a conflicting role between the Securities and Exchange Commission (SEC) and the apex bank on  the institution that regulates  commodities exchanges in Nigeria.

“It seems the role of commodities exchanges in Nigeria is still largely misunderstood and often mistaken for commodity traders who buy commodities, store in owned or leased warehouses and decide when to sell,” he said.

Oni opined that business of commodities exchange cuts across agriculture, solid mineral and oil and gas sectors and fungible instruments can be generated from them and listed on a structured commodities exchange to inject liquidity into the system and will likely provide opportunities for trading of commodity-based contracts and instruments including spots, forwards, futures and capital  raising instruments.

He suggested a clarification of roles on the regulator of commodities exchanges to enable the investing public determine where to haul blame on the delay in effective  takeoff of the exchanges in Nigeria.

“Commodity Exchanges as regulated platforms do not get involved in commodities till they have been dematerialized to digital contracts that are tradable electronically. This eliminates the possibility of hoarding products and the Nigerian Capital Market is yearning for investment opportunities, “he remarked.

On his part, David Adonri, vice Chairman, Highcap Securities,pointed that commodities exchanges could promote financial inclusion as its value chain is a mechanism for formalization of trading in commodities which brings informal participants to a structured system, for financial inclusion and a derisked system, adding that the exchange provides a transparent pricing mechanism that enhances volume of transactions, attracting more investment into commodities and leading to a multiplier effect on the economy.

Uche Uwaleke, a professor of Capital Market and president, Association of Capital Market Academic of Nigeria (ACMAN), explained that commodities exchanges had multiplier effects on the economy. According to him, It  will help support the non-oil sector, diversify the country’s export base and make the economy less vulnerable to external shocks. Uwaleke added that it would enhance  the provision of price transparency including better access to market, farmers income and their living standards thus making agribusiness more attractive and also, creating investment and employment opportunities in the commodities value chain with positive multiplier effect on the nation’s economy.

 The  SEC currently has four registered commodities exchanges in Nigeria including; the Nigeria Commodity  Exchange (NCX),AFEX , Lagos Commodities and Futures Exchange (LCFE) and Kano -based Gazawa Commodity Market. However, the government is yet to fully align its economic diversification programme to the commodities exchanges’ ecosystem and this has to an extent, delayed the full operations of the commodities exchange sector in the country.