Opening up the Nigerian commodities ecosystem  

BY SOLA ONI   

Sola Oni, an integrated communications strategist, Chartered Stockbroker and Commodities Broker, is the Chief Executive Officer, Sofunix Investment and Communications. You can reach him at onisola2000@yahoo.com

Commodities are raw materials or primary agricultural products that can be bought or sold. The prices are driven by factors such as demand and supply, weather or disaster, seasonality, geopolitics, market information and storage level and transportation.  Prices of commodities are generally inelastic. Commodities impact on all human activities and this makes every commodity an integral part of economic growth and development of a country. There are commodities exchanges globally where electronic receipts of commodities products are traded. With the right policy and legal framework as well as the enabling environment, commodities ecosystem can contribute significantly to the gross domestic product (GDP).

At the basic level, the gloomy global economy, coupled with Russia’s invasion of Ukraine,  rattled commodities market in 2022 and signaled  a mixed outlook for 2023. The war in Ukraine disrupted the supply chain of commodities’  products with attendant hike in their prices.

Unanticipated changes in supply and demand of commodities can lead to wide price swings. The outbreak of Russia’s invasion elicited an abrupt rise in commodity prices in February 2022. This was followed by supply constraints and worries about inflation. Analysts  from BMO Capital Market expect “increased volatility in the energy market in the short term due to efforts to curb Russian oil prices. Agricultural prices are torn between uncertainty surrounding grain exports from Ukraine and slowing global demand.” It is therefore believed that the overall commodity price index may pull back further this year across the globe while energy prices may experience upside risks.

In its outlook for Commodities market, analysts at S & P Global Commodity Insight fingered China’s COVID policy as the most important fundamental factor for global demand in commodities and energy in 2023. According to the outlook, China’s energy demand will increase by 3.3 million barrels of oil equivalent per day, up from virtually no growth in 2022, representing 47 percent of global energy demand growth next year.

From the foregoing, the analysts noted that, “While forecasting markets based on the economics of supply and demand can be difficult, predicting what policy makers will do is next to impossible. It is obvious that the emergence of new trading patterns in response to the Russian invasion of Ukraine has led to greater levels of inefficiencies in the shipping sector,” according to the analysts.

In Nigeria, supply chain of commodities products are hampered by insecurity as typified by kidnapping in the six geo-political zones.  Similarly, until recent time, government policies on agriculture have not yielded desired results  despite huge amount of money earmarked for agriculture annually. However, there are strong expectations that the future of commodities ecosystem in Nigeria is bright.  The inauguration of Lagos Commodities and Futures Exchange (LCFE) on July, 28, 2022 brought into fore the imperative of a commodities ecosystem in building a strong and competitive economy. The hallmark of the inauguration was the listing of the Eko Gold Coin. The Exchange is already in partnership with the Lagos State Government on the multibillion naira Imota Rice Mill.

The Securities and Exchange Commission (SEC) has approved 13 products for trading on the Exchange. The Exchange has capacity to trade electronic receipts of oil and gas, agriculture, solid minerals and currencies. The Exchange has also put in place necessary infrastructure to trade in derivatives as hedging instruments for investors. It also has the capacity to trade derivatives.

The goal of LCFE is to play a pivotal role in growing the nation’s gross domestic products (GDP) into double digits. “In Africa, [the] commodities ecosystem is the largest employer of labour. It provides a platform to deploy resources into the fungible assets that have been de-risked. We bring transparency through the operations of commodities exchange through our structures and two-way quote,” according to Akin Akeredolu-Ale, managing director, LCFE.

However, there is a compelling need for the federal government  to unlock the potentials of the Nigerian commodity ecosystem. This is part of the great expectations when the   Investment and Securities Bill is finally passed into law  by the National Assembly. At the minimum, it  will enhance the competitiveness of commodities exchanges in Nigeria.

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