Financing: AFEX Projects Innovative Opportunities For Nigerian Commodities Market

Ahead of the 2024 local harvest season, Africa’s leading commodities player, AFEX, has reiterated the importance of driving investment in agriculture through innovative commodity-based instruments.

This was the focus of discussion at the just-concluded CEO Breakfast, where top capital market operators and financial market executives were present. The dialogue extensively explored the range of financial instruments for subscription while focussing on exchange-traded commodities as an alternative investment class.

Exchange-traded commodities (ETCs) are the commodities variant of the financial market Exchange Traded Funds (ETFs) and are designed as a basket of diverse commodities in one instrument. This allows investors to expand their scope and benefit by having access to the returns of all the components in the basket as opposed to just one commodity.

For the agriculture sector, ETCs play a crucial role in driving investment and supporting sustainable growth. By providing a transparent and efficient way to invest in agricultural commodities, ETCs attract a wider range of investors, including institutional investors, hedge funds, and individual investors. This increased investment helps to enhance market liquidity, reduce price volatility, support research and development, and promote sustainable agriculture.

The COO, AFEX Commodities Exchange, Oluwafunto Olasemo, in her presentation emphasised the importance of these types of investments, saying, “The country is growing at an average rate of 2 percent annually, but the year-on-year growth for agriculture productivity is just about 1 percent. The goal of the exchange has always been to facilitate investment in the commodities ecosystem by creating risk-adjusted instruments that allow players to contribute to the growth of the agric sector, which is incredibly necessary for economic growth, while simultaneously driving wealth creation for investors.”

She also reiterated, “The current government relief policy for the food security crisis is temporary, revolving around importation to close the gap, but we cannot import ourselves out of food insecurity because the gap is huge.”

The task at hand is to increase productivity and meet growing demand. One of the viable solutions discussed at the meeting was the need to unlock capital and encourage private investment for the agricultural sector through tailored products such as the ETC.

The Group CEO, Ayodeji Balogun, also remarked on AFEX’s journey in the commodities ecosystem, saying, “Our experience, and moving from that, success, in creating innovative financial instruments is rooted in a deep understanding of both the agricultural and financial sectors. By leveraging our expertise and leveraging the latest technologies, we have been able to develop products that meet the specific needs of investors while also contributing to the overall development of the Nigerian economy. This is perhaps the first step of that journey, as we require continuous partnerships with key stakeholders, including financial institutions, regulatory bodies, and agricultural cooperatives.”

With over 10 years of experience in the commodities market, AFEX at the event highlighted their commitment to seeing Africa feed itself. Moving forward, the team mentioned plans to introduce non-agricultural assets such as metals, allowing the ETC to be a blend of both agricultural and non-agricultural commodities, further encouraging year-round commodity investments as opposed to the currently tenured nature of the ETC.