‘Policy Mandate, Enabling Laws Way To Grow Commodities Exports’

| Leave a comment

In this interview with BAYO AMODU, KINGSLEY ALU AND VICTOR OKEKE, the managing director/chief executive officer of the Nigerian Commodity Exchange (NCX), Mrs Zaheer Baba-Ari, explains the economic benefits that will accrue to the country if the federal government can formulate a policy mandate on some of its export commodities.

What is the mandate of this commission?

The mandate of the Nigerian Commodity Exchange (NCX) is to provide an organised trading platform for the buying and selling of agricultural commodities and solid minerals. We have not delved into solid minerals yet, so we can concentrate on agricultural commodities.

We are guided by rules and regulations and as such whosoever wants to buy or sell on the exchange has to become a broker and has to be part of the rules and regulations of the exchange. The NCX does not buy for itself or sell by itself. The commodity exchange does not engage in outdoor schemes or in anchor programmes. It does not advance money to anybody.

What it does is to give a transparent trading platform that ensures the quality of whatever is sold and sanctity of contracts. Once you decide to trade on the exchange, you are bound by the rules and regulations of the exchange so that you cannot renege. If you indicate that you want to buy a commodity on the floor of the exchange, you must have put your money in a bank. If you want to sell your commodities on the exchange, you must have put your commodities in an exchange-accredited warehouse so that when trading takes place it is done simultaneously and instantly. That gives you the parlance we call: T+1, that is, trading day plus one day. You trade today, you get your commodities tomorrow and you get your money tomorrow simultaneously.

The person that wants to buy does not keep money with the exchange but in a settlement bank while the person that wants to sell must have the commodities      in a warehouse that has been accredited by the exchange. The exchange does not own the warehouse; it only accredits to ensure that warehouses are up to standard. Apart from commodity trading, we have a system called warehouse receipt system. This works during harvest time when, most times, people don’t have where to store their commodities and there are a lot of post-harvest losses. At this time the price is so low because people don’t have where to store their produce. Now with this system, what happens is that at harvest periods, when the prices are depressed, you bring your commodities into a warehouse for storage. Before you bring them into the warehouse, those commodities are assessed for their quality.

Now you have a choice, you can decide to leave the commodities in the warehouse for a period of time till the prices appreciate or you can decide again to use those commodities as collateral to get money from the banks. You know our farmers are small holder farmers, 70 per cent of them are peasant. We don’t really have commercial farmers and the major problem these farmers have is access to finance and storage facilities. When you bring your commodities in, you are given a receipt and that receipt is called a warehouse receipt which tells everything about the commodity.

When you take that receipt to the bank, it becomes your collateral and they can advance short term loans between 90 to 180 days loans to you. With this done, the commodities now belong to the bank because they can advance up to 70 per cent of the value of the commodities you have in that warehouse to you. It becomes a win-win situation because you now have money and you have adequate storage. If you want to trade, you can come and trade these commodities on the exchange. That is how the warehouse receipt works.

However, for the warehouse receipt to really work, you need a law – the Warehouse Receipt Law – because that receipt has become a negotiable tender and you should be able to transfer it from one person to another. You can only do that when there is a law backing it up. One of the things the exchange has done is to draft this Warehouse Receipt Bill since 2007 and it went to the National Assembly in 2009, but nothing has come out of it till now.

We started out as Abuja Stock Exchange in 1999 as a private exchange. On August 8, 2001, we were told that we had been converted to a commodity exchange and it was a step in the right direction then, though it came suddenly. But when we look back, government’s decision was not misplaced. You know the commodity boards had been abolished in the 1980s and the government decided that instead of having two commodity exchanges the Lagos Stock Exchange should be properly developed so as to  have a commodity exchange that would replace the defunct commodity boards which were abolished because there were a lot of infractions that happened – they were not paying farmers realistic prices,  were indulging in sharp practices and other things.

As the country is facing serious economic challenges now, what has been the contributions and achievements of your agency with regards to this government?

The number one thing is that government has now paid us attention because we are key to diversification. We are a vehicle through which the livelihood of the farmers can be improved. Farmers do not have to go through middle men or be cheated out of their sweat. Now that government has focused attention on us, one of the first things we did was to draw up a memorandum of understanding (MoU) with the Ethiopian Commodity Exchange (ECX). The ECX started a year or two after us. We went into this MoU with the ECX because it is very successful.

When they started trading in 2008, there was no liquidity in spite of all the things put in place – they were not making any trades. They now realised that there was something wrong as their main export commodity is coffee and  there was a thriving coffee auction floor handled by traditional traders. The government said that coffee is to them what oil is to Nigeria, they guard it jealously. To improve the lives of their farmers, government generates revenue for the benefit of the farmers and for society to move forward. To further accomplish this they mandated the trading of coffee on the exchange.

In Ethiopia till today, you cannot trade coffee in any other place except the exchange; if you trade outside the ECX, you will go to jail for five years. We signed an MoU with the ECX so that we can exchange some ideas and trainings and we have started that. They realised that the only way a commodity exchange in a developing country like ours can thrive is to do some mandating of our export commodities. We are not saying the government should mandate 100 per cent of export commodities on the exchange, but just a percentage that will enhance farmers’ lives,  generate employment, and encourage graduates to go into farming because they know that they will get paid appropriately, and most importantly, government will generate revenue. Whatever is being sold on the exchange will generate commission to the exchange and now with the Treasury Single Account, it goes straight to government.

In turn, government will articulate the volumes it has generated through agriculture and it’s a win-win situation because the government is helping itself and the farmers as well as generating employment and wealth creation. We have had opportunity to meet with people at the top and they have listened to us and there are things in the offing. Government has given us the necessary attention.

The reason we were not active prior to this time was  that all the necessary things were not there. Because there was oil, the previous governments didn’t pay us any attention. We were not being funded and some of the things government could do like passage of the necessary bills, development of grades and standards, and even simple government pronouncements to say a certain percentage of cocoa or sesame seed should be traded on the exchange were neglected. Right now, we are a government exchange and the government funds us the way it deems fit based on its lean resources, but it is not enough. We need money for so many things. But like I said, the most important thing for us is a kind of pronouncement by the government that will mandate the trading of a percentage of export commodities and commercially viable crops on the exchange. If government would just do that, give me six months and see what will happen. I will not even need government’s money afterall.

Since you don’t have the enabling laws, there must be a way out to save this country since you are very important here?

It is just that policy on mandate that would save us. That is what took the ECX to where it is presently. If you remove the mandate from the ECX, it will just collapse. I told you they started without a mandate, so they were like us. There was no liquidity but the government took a decisive step and made that policy. Here, the government can make a pronouncement before the laws in order to quicken the process. For us the policy is the most important thing and then the enabling law, that is why I don’t  emphasise funding because I know that if you give me that policy and the enabling law, I will be okay. I will be making money for government and there would be many jobs that will be created even in the area of quality control because they need laboratories all over and there are many chemistry and biochemistry graduates. It will definitely open up the economy.

comments powered by Disqus

Daily Columns