Growing Nigeria’s commodities exchange

Balogun

Balogun

The AFEX Nigeria Commodities Exchange, created to provide a national trading platform and develop a supply chain network for select commodities, recently hosted a risk management and commodities trading seminar in Abuja. CNBC Africa’s Wole Famurewa spoke to Ayodeji Balogun, Country Manager AFEX Commodities Exchange and discussed a range of issued relating to the growth of the exchange in Nigeria.

BALOGUN: our approach in Africa is to create a market that includes the small local farmers which means we are not providing an exchange for the financial market alone. That means that we have to look for ways to educate the market in a way that they understand what the phenomenon is broadly, but also how we’ve tried to hatch it out into the realities of the sub- Saharan Africa and the Nigerian Agricultural sector.
Provide an update of the activities of the Afex commodities exchange, how much trading is happening now?

BALOGUN: It’s been a phenomenal success. Market acceptance and repeat patronage has been outstanding. We have done this year three times the volume of what we did last year. Our plan is to actually grow about ten folds. So we moved about 15/18 thousand metric tons last year and we should be about 150 thousand metric tons by the end of this year and that includes normal stable crops which we focused on from the beginning, but this year, we are also rolling out export crops so we looking at top export commodities with high liquidity and we will be listing them for territorial, we are already working on the research for the market development work for those as well. Then we will also be rolling out our trading platform by early Q3 for the markets in preparation for the harvest in Q4 so by Q4 this year, you will be able to buy and sell throughout the electronic platform.
But to what extent will Nigeria’s financial community be integrated in what you are planning or are we going to have specialized institutions that will be carrying out this straight?

BALOGUN: One of the key elements of the entire capital market master plan is to create the interactability of the capital market so that players in the capital market, be it a stock broking firm or other players in the market will be able to trade across multiple platform as you know, there is FMDQ, OTC Market, Equities, NASD OTC market as well. So with the commodities also being available, I think that is one of the things that will place Nigeria ahead of other African countries when it comes to interfacing with both the international commodities and financial investment public. So I think the answer is that, there will be cross collaboration. It won’t be farmers or the financial market alone.
Speak to the value of your relationship with INTL FCStone. What does this partnership do in terms of taking Afex to the next level?

BALOGUN: There different facets to it. Firstly, Afex as the forerunner of the commodities exchange space in Africa has actually been pushing the idea and explaining what the exchange is, the benefits it will bring and how the government can participate in the evolution and development of the market.  For us, it is also important that the public gets to hear from a neutral partner what it is and what the opportunity is and that is where we see INTL FCStone playing in the foremost international, trading on the leading markets and then, they can say, this is what it. So it’s not only the Afex narrative but you hear from experts so that the market has a common understanding of the potentials.

What are the major challenges facing the commodities exchange today and more specifically,  what would you say are the key impediments to driving the export of Nigerian products?

BALOGUN: Some think-tanks of the industry will put it that there are four Ps you need to put in place when you are setting up a commodities exchange. So you need a product and have a definition of what your product will be, you have to have a purpose, in our case, one of our purposes is inclusiveness, so we want to have the entire markets both from the high level sophisticated financial banking institutions all the way to the small local farmer with one or two bags of maize included in the entire market. You have to have the participants which are the players on the market and then you have a policy framework for the market.  If you look at all these, our strategy means that we have to have a very robust approach to cater for the different tiers of the market but we have found very innovative ways to manage that and I think we are doing very well. On the policy part, the warehouse receipt bill for instance is very crucial to the development of the capital market and we’ve seen this play out in many African and the Middle Eastern and Asian Countries. We have had Warehouse receipt bills that have been created and actually worked against the market developments, so  there is a need for a very inclusive and very robust approach to the development and I am very happy that the Securities and Exchange Commission as well as the ministry of Agriculture, trade and investment and other financial market players are approaching this  so that we have a broader view, create a bill that is inclusive and unlock the opportunities we could have with the commodities exchange.
As you know, the Nigerian government has taken its decision to ban the export of certain commodities, in your view, why should the government rethink that policy.

BALOGUN: The country is more important now than ever to manage its balance of trade. We need to promote the Naira as an international currency. At the minimum, we need to foster the growth of it being within the ECOWAS sub- region.  Now, we see a lot of opportunities of three tier regional trade in terms of commodities being traded even within the sub-Saharan Africa. Nigeria has by far the largest production in Sub-Saharan Africa of the major staple crops. If you look at the West African trade corridor, Nigeria produced over 60% of the cereals and oils seeds for the entire markets so all other 15 countries combined have a lesser output than Nigeria alone.  So we see this as a buffer, the strategic grain reserve and a number of others are trying to create a buffer stock within Nigeria for the Sahelian countries. So if we have these trade barriers or non-tariff barriers to trade and they unlock this opportunities and we don’t know how much we are losing, typically, this also happens within the informal sector. Products move within Nigeria and outside to Niger and Chad, up to South Sudan, so these things can be brought to the formal economy.



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