By Nkiruka Nnorom
IN an effort to boost the commodities market in Nigeria and make it more functional, the Nigeria Sovereign Investment Authority, NSIA, is exploring the possibility of making strategic investment in the Abuja Securities and Commodities Exchange.
Emomotimi Agama, Head, Registration and Infrastructure Department, SEC, said this while presenting a paper themed “Developing Nigeria’s Commodities Trading Ecosystem”, at the 2018 Journalist Academy organised by the SEC last weekend.
Funding constraints had stalled a full take off of the exchange for over 20 years now.
Agama observed that a vibrant commodity trading ecosystem would go a long way in achieving the country’s economic goals, especially in the drive towards diversification of the economy by the federal government.
He, however, lamented the drags since the inception of commodities exchange in Nigeria, saying that the exchange has not been functional due to challenges including funding and lack of regulatory framework to facilitate its smooth operation.
Agama also alluded to lack of government support in terms of mandate and incentives, saying that sound legal and regulatory environment is an important building block for the development of commodities market.
He stated: “More than ever before, African countries are initiating commodities trading projects and resources are currently being committed on commodity exchange development in the continent. The level of ambition has risen as most national projects envisage modern exchanges that meet global standards. Countries like Egypt, Ethiopia and South Africa have for most part been successful on commodity exchange development.
“Nigeria cannot afford to be left behind especially as there is now effort to reduce dependence on oil exports and develop agri-business by the federal government.”
Highlighting some of the constraints, he said: “The commodity exchange in Nigeria is presently beset by weak demand and supply and there is lack of adequate enlightenment given that players in the value chain such as farmers and merchants are not aware of the existence and importance of commodities exchange.
“Nigeria has many commodities, food and export crops as well as solid minerals but despite the array of commodities, AFEX, the only functional commodities exchange provides trading for only ginger, soya beans, maize and paddy rice with major export commodity like cocoa or cotton on board.”
He stated that the quality of some of the country’s agricultural produce has not been in tandem with global benchmarks given the recent ban by the European Union, while poor infrastructure such as road adversely affect the transportation of the commodities from one location to another.
According to him, efficient standard and grading system, clearing, delivery and settlement system, efficient logistics services and warehouse as well as variety of market participants, including operators, hedgers and speculators are required for efficient commodities market.
He added that strong risk management mechanism, collateral management services and price transparency (real time information on price, volume and quality) are also part of the building blocks for the development of commodities exchange.