Nigerian companies are leveraging on opportunities in the commodities market to source funding for their operations as Voriancorelli (VC) and Agvest Limited have secured approval of Lagos Commodities and Futures Exchange (LCFE) to float N25billion financing.
Transactions worth trillions of Naira could be generated by just trading agricultural products and mineral resources on the commodities exchange. This was the main reason the Securities and Exchange Commission (SEC) approved the commencement of the Lagos Commodities and Futures Exchange (LCFE) to operate as a full-fledged commodities and futures market.
Similarly, the Nigerian Commodities Exchange (NCX) and Afex Commodities Exchange are equally promoting the trading of commodities
In the commodities ecosystem, access to liquidity for small scale stakeholders is uneasy and thus stakeholders find it difficult to expand business operations, hence, are forced to operate on a small-scale. The entry of the commodity exchanges into the commodities ecosystem is a gleamer of hope for these stakeholders as they can raise funds through the commodity exchanges that have the structure to trade unique financial instruments.
To this end, LCFE has screened Agvest Limited, a frontline player in the agricultural value chain in Nigeria, for listing of its N5 billion cashew nut contract by diversified financial instruments while Voriancorelli (VC) will be raising N20billion through the floating of Exchange Traded Notes in a bid to operate optimally in the Nigerian agriculture sector.
Also, the exchange is the first commodities exchange licenced to trade gold in Nigeria by SEC and is set to admit Dukia Gold’s diversified financial instruments worth over N300 trillion backed by gold as the underlying asset.
Reacting to this development, the managing director, LCFE, Akin Akeredolu-Ale, said, the commodities sectors are the primary sectors of an economy and once properly harnessed, they will have multiplier effects on production, manufacturing and by default, the service and other sectors.
“We started with a vision to create an enabling environment for all the commodity stakeholders to participate effectively for the development of the commodities value chain, ecosystem and the economy of the country. The exchange is poised to deal in Exchange Traded Notes and not equities of listed companies.
“The Commodity sector did not suffer setback under COVID-19 pandemic period as people must always consume commodities. Our commodities ecosystem is a combined one trillion-dollar economy in the various asset classes comprising Oil and Gas, Solid Minerals and Agriculture and remains largely untapped,” he pointed out.
Moreover, the CEO of Sofunix Investment and Communications, Sola Oni, explained that companies globally have been exposed to higher risks due to the pandemic and investors are more likely to hedge risk than in a normal period, adding that, this probably explains why investment in commodities trading have become more expedient.
Oni noted that data from the portal of World Federation of Exchanges (WFE) on the growing clamour for commodities trading is sending a message to Nigeria as regards the benefits of commodities trading.
“The data indicates that in 2020, 9.3 billion commodity derivatives changed hands, an increase of 35.3 per cent over the corresponding year.
ing alone accounted for 96 per cent while the remaining four per cent was options. The underlying commodities cut across agriculture, energy, including emissions, ethanol and methanol, precious and non-precious metal, and index commodity derivatives,” he explained.
According to him, it is not the physical commodities that are traded on the commodities exchanges but electronic receipt of the underlying assets as direct trading of the physical products through warehouses is simply a spot market which exists everywhere.
“The time is ripe for Nigeria to build conversation around the economics of commodities exchanges, the organised market where electronic receipts are traded under rules and regulations,” he added.