The importance of a formidable commodity trading ecosystem in achieving Nigeria’s economic goals was recently x-rayed in a finance forum held in Uyo, Akwa Ibom State.

Head, Registration and Market Infrastructure Department, Securities and Exchange Commission (SEC),  Emomotimi Agama, while presenting a paper at the forum on Commodities Trading Ecosystem, identified the challenges facing the current trading ecosystem in Nigeria and proffered solutions on the way forward.

Commodities Trading Ecosystem is the environment within which commodities trading takes place and directly or indirectly affects activities and development of the commodities market and the exchanges.

It comprises various elements, which are integral to the architecture of the market and vital to the smooth and efficient functioning of a commodity market or exchange.

It encompasses all spheres of the commodity trading environment such as its operations, products traded, infrastructure, logistics, traders/brokers, commodity merchants, farmers, miners, end users, other stakeholders and the legal and regulatory environment.

According to Agama, Commodities Trading Ecosystem will not function properly and maximum value from its existence may not be derived if any of the above elements are absent, inefficient or underdeveloped.

On the direct impact of Commodity Exchanges, he said there will be higher farmers’ share of final price due to reduced marketing margins, incentives for farmers to improve post-harvest management and improve quality of market output and increase in export volumes and better price with quality premium.

Commodity Exchanges also generate increase in agro-industrial processing of commodities and domestic value addition, as well increased tax revenue from previously informal sector activities

The catalytic impacts according to him are increased investment in modern storage infrastructure and handling technology, increased investment in training and education services as well as increased investment in data warehousing and data Security services among others.

He lamented that Nigeria Commodity Exchange set up by the government in 1998 has not been fully operational due to some challenges including funding, though all hopes are not lost as the Nigerian Sovereign Investment Authority is currently in discussions on the possibility of making strategic investment in the Exchange.

However, Agama informed that AFEX Commodities Exchange which is the first private commodity exchange registered in Nigeria facilitates spot trading of commodities such as maize, paddy rice, soya bean, ginger and others.

“The exchange links up sell-side (farmers and farmers associations, middlemen) and the buy-side (processors) through its warehouses and collection centres located across the country.

“Farmers can deposit commodities in these warehouses in exchange for receipt which can be used as evidence of storage or used for trading. The exchange also provide for logistics and transportation,” he said.

He highlighted the challenges within the Current Structure of the Nigerian Commodity Market to include 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 exchanges; lack of government support whether through mandate or incentives; dearth of clear and straightforward regulation that is required for the effective operation of a commodity exchange and lack of understanding of the potential benefits and workings of the market.

They also include the development of the derivatives and futures markets are slow at best due to the non-existence of a vibrant spot market, which is its foundation; the commodity exchanges in Nigeria are presently beset by weak supply and demand and 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.

Also challenging, Agama said is the fact that Nigeria has many commodities, food and export crops as well as solid minerals and also boasts of several untapped solid minerals.  “This wide array of commodities notwithstanding, AFEX, the only functional commodities exchange, currently provides trading only for ginger, soya beans, maize and paddy rice with no major export commodity like cocoa or cotton on board,” he said.

He equally identified that poor infrastructure such as roads, in quality and network, adversely affect the transportation of commodities from one location to another, as a longer time is spent freighting at a higher cost. “This affects the quality and price of the commodities as they get to destination,” he pointed out.

“In addition to poor infrastructure, in some markets, highway insecurity, illegal and multiple levies are major concerns in shipment of commodities. The quality of the haulage vehicles often falls short of expectations with frequent breakdowns along the way, owing in part, to poor infrastructure and quality of vehicles used,” Agama further pointed out.

For the development of the Commodities Market, he said there is need for large demand and liquidity, existence of commodities to form nucleus of trading and good enabling business environment.

He said needful also is capacity building and public awareness, derived value in using the market and that there must be a clearing house for derivatives.

Agama said that an organised commodities market will among other benefits promote economic growth, create employment and raise the living standard of the farming and mining communities. He added that it will create economic diversification and make investment in commodities more attractive.

He noted that more than ever before, African countries are initiating commodity exchange projects, and resources are currently being committed each year on commodity exchange development on the continent.

He said: “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 the most part been successful in commodity exchange development.”

He therefore urged that Nigeria should not be left behind, especially as there is now a drive to reduce dependence on oil exports and develop the agri-business by the federal government.  “A vibrant commodity trading ecosystem will go a long way in achieving Nigeria’s economic goals,” Agama stressed.