Since September last year when the Bill seeking the establishment of a Commodities Future Trading Commission in Nigeria passed second reading at the House of Representatives, nothing has been heard of the bill again.
That legislation, if passed, will regulate the conduct of commodities business, register commodities exchanges and derivative trading facilities.
Other functions of the proposed Commission will include the registration, regulation of corporate and individual commodity future market operators, central depository companies, clearing and settlement companies and the establishment of a nation-wide system for commodities future trading in Nigeria.
Currently, the Securities and Exchange Commission (SEC) regulates and supervises Nigeria’s three commodities exchange markets which are the Abuja Securities and Commodities Exchange (ASCE), also called the Nigerian Commodities Exchange (NCX), Lagos Commodities and Future Exchange (LCFE) and AFEX Commodities Exchange Limited.
A commodities exchange is a platform or market, where various commodities are traded. Most commodity markets around the world trade in agricultural produce and other raw materials.
A commodity exchange brings together buyers and sellers of commodity price risk, permitting those who wish to reduce their exposure to price movements to transfer it to those who are looking for such exposure. Thus, it contributes to unlocking finance to the commodity sector through price risk management, as well as providing access to the capital market.
Unfortunately, the Nigerian Commodities Exchange (NCX) is not yet positioned to unlock the potential inherent in this segment of the market. Whereas the privately-owned AFEX Commodity Exchange, registered in 2014, is just managing to get by, the much older government-owned NCX is still struggling to find its feet due to several challenges.
The Nigerian Commodity Exchange, established in 1998, is currently comatose, compared to when other functional Exchanges in the African region, namely: Ethiopia, Rwanda, Madagascar, Mauritius, Kenya, South Africa, Tanzania and Uganda which generate multi-billion dollars into their respective gross domestic product (GDP) annually.
The Ethiopian Commodity Exchange (ECX), for instance, was set up in 2008, and within five years of operation, recorded trading volumes worth $1.4 billion as at 2012.
Even the managing director and chief executive officer (CEO) of the Nigerian Commodity Exchange, Mrs Zaheera Baba-Ari, agrees that, currently, NCX is operating sub-optimally as the conversion from stock to commodity exchange was done without the required structural and institutional infrastructure.
According to her, the exchange lacked adequate warehousing capacity, adequate physical infrastructure (communications, transportation); and appropriate legal and regulatory infrastructure in terms of a system of grades and standards, and a credible system of contract enforcement and governance in spot markets.
Presently, Nigerian farmers are at the mercy of commodity merchants who rip them off by dictating the amount they will pay for farm produce.
If properly strengthened and regulated, the commodities exchange market would play a critical role in driving agriculture and solid minerals, two key sectors in President Muhammadu Buhari administration’s drive for economic diversification, increased revenue generation and job creation.
This newspaper believes that a well-structured and revitalised NCX operation will create job opportunities among the market participants like produce inspectors, private warehouse operators and logistics managers, among others.
We believe that given the commitment shown so far by this administration to diversify the nation’s economy through agriculture and solid minerals, the government must also be interested in the creation of the right market for the marketing of the produce by creating a vibrant commodities exchange.
A viable commodities exchange will provide farmers and solid minerals’ merchants access to real time pricing information, improved profits and productivity, reduced market segmentation as well as boost export quality of agricultural produce.
The exchange would also promote standardisation, the lack of which is a major impediment to exporting of farm produce from Nigeria.
It will also allow for competitive and more profitable trade and exchange as opposed to the current status under which off-takers enjoy the larger chunk of market profitability.
For Nigeria to have a vibrant and viable commodities exchange, there is need for collaboration among various stakeholders in the commodities trading value chain. This include primary producers, the processors, the certification agencies, the export people, the banks as well as those in the insurance sector.
As it is today in Nigeria, the participants in the entire commodities exchange ecosystem have been working in silos with a lot of disjointed approach, a situation which has led to sub-optimal performance, despite the exchange’s potential to transform the economy.
There is the need for a robust education and enlightenment process, continuous engagement and cooperation among key stakeholders, favourable government policies and strengthening of legal and regulatory frameworks.
It is clear that SEC, as presently constituted, cannot effectively regulate commodities exchange. That is why it is necessary that the National Assembly do everything possible to ensure speedy passage of this Bill that will provide the necessary regulatory framework.
We also call on government to provide the enabling environment especially in the area of the provision of infrastructure to enable the Nigerian Commodities Exchange perform its statutory duty of unlocking the potential of this economy by providing an organised exchange market for commodity trading in Nigeria.