By Taofik Salako, Deputy Group Business Editor
A virile commodities exchange system has strong potential to increase and diversify the country’s foreign exchange earnings.
Securities dealers said the Federal Government should leverage development of agricultural sector and commodities exchange system to improve the country’s foreign exchange earnings and create more job opportunities for youths.
They noted the need to put in place relevant structures that would enhance the growth of local industries, highlighting the benefits of commodities exchanges.
Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), Chief Onyenwechukwu Ezeagu, said the negative impacts of COVID-19 pandemic on most sectors of the economy had made it imperative for the government to enhance the growth and development of commodities exchanges as alternative sources of revenue.
“The need to encourage the establishment and growth of Commodities Exchanges in Nigeria cannot be overemphasised in the wake of the crippling impact of oil glut and the COVID-19 pandemic.
‘’If Nigeria is serious about diversification of her economy and forex earnings, the route to take is through functional commodities exchanges where all asset classes: agricultural, hydrocarbon and solid minerals, among others, are tradable in a most efficient and transparent manner and the quality of tradable commodities are guaranteed,” Ezeagu said.
According to him, this is even more so for local industries that need to be assured of regular and uninterrupted raw materials supply as their production input. The farmers and miners would benefit from an efficient commodities exchange platform as they have opportunity for prices discovery and an assurance of off takers of their output.
He said the economy would be better off as economic activities would be sustained, noting that the government cannot but be conscious of the importance of viable commodities exchanges and use them as catalysts for economic development.
“This informed part of the reason why ASHON and other progressive minded Nigerians floated the Lagos Commodities and Futures Exchange so that through its establishment, we can assist the government of the day in not only doing all the above, but also in helping to create employment for our teeming youths in this country,” Ezeagu said.
Managing Director, Lagos Commodities and Futures Exchange, (LCFE), Mr Akin Akeredolu-Ale said the LCFE would soon commence trading on agricultural commodities, solid minerals, currencies and oil and gas.
He pointed out that at this critical period, a credible option for Nigeria’s accelerated economic revival would be for the government to put in place structures to promote agriculture and commodities exchanges.
Chief Executive Officer, Global Asset Management, Mr Babatunde Shobamowo said government all over the world utilise commodities as a veritable means to hold value in bearish period or when the currency is facing imminent depreciation.
According to him, Nigeria is blessed with untapped and adequate natural resources but the market needs to be developed to reach its potential. Some of the products that can be traded in an exchange are crude oil, natural gas, gold, silver, cocoa and cotton.
“A commodity is an economic good that has full or substantial fungibility. Commodities over time tend to provide returns that differ from stocks and bonds. In addition, there are other inherent advantages that may accrue to the government if well developed,” Shobamowo said.
Chief Executive Officer, Wyoming Capital and Partners, Mr Tajudeen Olayinka explained that price discovery is a major driving force in an organised market as it provides a mechanism through which prices come to reflect known information about the market.
He outlined that there are numerous benefits to an economy, especially, a developing one like Nigeria as it provides appropriate support to the orderly functioning of a commodity Exchange in the country.
“Commodity exchange facilitates trading of agricultural produce, metals, and mineral resources in standardized contracts, whether on spot or cash basis, or for future delivery, at prices that have been agreed upon by parties to the contract. This therefore suggests that activities in the market are largely driven by publicly available information around demand and supply of commodities, which should ordinarily arouse government interest,” Olayinka said.
He noted that the presence of an organised commodity exchange system facilitates trade and investments in an economy as it makes it possible for small-holder farmers who are not so literate to deal directly on the exchange and who may not have capacity to meet trade size requirements of an organised exchange.
“They can come together as an association, or take advantage of warehouse receipt financing available in the system, to scale up their capacity for bigger contract delivery. This way, the small-holder farmers become an integral part of the commodity value chains, with job creation opportunities for unemployed youths and adults,” Olayinka said.
Chief Executive Officer, Highcap Securities Limited, Mr David Adonri added that commodities exchanges formalise commodities business, facilitate de-risk of agro lending, enhance quality of agricultural produce, facilitate export and enhance tax revenue to government.
“The positives are too numerous to cover. The development of the commodity exchange space needs maximum support from government and banks to maximize its benefits,” Adonri said.