by Chinwendu Obienyi
Nigeria is said to be the economic heavyweight of West Africa, but it is currently facing challenges as approximately two-thirds of its people still live in poverty.
This is owing to the fact that its economy suffers from low productivity, uneven climate for trade and investment, inflation and, of course, the COVID-19 pandemic which has altered ways of doing things at domestic and international level.
The country’s dependence on oil has not helped either as it has experienced years of tumbling oil prices which has resulted in the devaluation of the Naira. But, the country was not always dependent on oil because it started out as a purely agrarian economy, trading in cash crops such as cocoa, coffee, groundnut, hide and skin, palm and oil, tobacco and rubber before the discovery of crude oil in commercial quantities in 1956.
The discovery brought about economic growth and infrastructural development and with huge money being made from the crude oil market, Nigeria forgot all about her agricultural economy. Today, external shocks characterize the international oil market and the nation can no longer depend on income from crude oil to finance its economy.
It is constantly said that there is a need for Nigeria to return to agriculture as it remains a springboard on which accelerated economic transformation can be erected. Successive administrations in Nigeria since 1960 have initiated various agricultural policies and established many institutions to boost income through the agricultural sector.
For instance, the country had witnessed Operation Feed the Nation (OFN), Green Revolution Programme (GR), Agricultural Development Programmes (ADP), National Agricultural Land Development Authority (NALDA), River Basin Development Authority (RBDA) and Directorate of Food and Road and Rural Infrastructure (DFRRI).
These lofty initiatives had progressively suffered from issues such as top-down approach to design and implementation, policy inconsistencies and bureaucratic bottlenecks.
The current administration has in its portfolio many initiatives aimed at transforming the agricultural sector. There is Livelihood Improvement Family Enterprises (LIFE), Anchor Borrowers Programme (ABP), Agricultural Equipment Hiring Enterprise (AEHE), Presidential Fertilizer Initiative (PFI) etc. Furthermore, Bank of Agriculture (BOA) and Bank of industry (BoI) have been strengthened for optimal performance but despite the huge cost of these initiatives, food inflation is currently at 22.95 per cent as of March 2021, the highest in four years.
Hence, the way to go for Nigeria at this critical moment is the commodities exchange. According to Investopedia, a commodities exchange is a legal entity that determines and enforces rules and procedures for trading standardized commodity contracts and related investment products.
This means that transactions worth trillions of Naira or dollars can be generated by just trading agricultural products and mineral resources on the commodities exchange. This is why the Securities and Exchange Commission (SEC) approved the commencement of the Lagos Commodities and Futures Exchange (LCFE) to operate as a full-fledged commodities and futures market.
According to the Managing Director, LCFE, Akin Akeredolu-Ale, the LCFE will trade in agricultural commodities, currencies, solid minerals, and oil and gas while adding that this would unlock its true potential in the financial market as well as open up enormous wealth across the country.
Already, Voriancorelli (VC) – a commodities aggregating company, which deals in digitisation of commodities assets such as paddy rice, sorghum, soyabeans and maize, has secured LCFE’s approval to float a N20 billion Exchange Traded Notes (ETNs) while Dukia Gold – who is seeking to boost Nigeria’s N344 trillion gold industry and fast-track 10 per cent contribution of the mining sector to Gross Domestic Product (GDP), has also gotten the LCFE’s approval.
However, there are still doubts as to how this would boost the country’s GDP and grow the economy’s reserves. Speaking to Daily Sun, the Chief Executive Officer, Sofunix Investment and Communications, Sola Oni, explained that companies globally, have been exposed to higher risks due to the pandemic and investors are more likely to hedge risk than in a normal period adding that this probably explains why investment in commodities trading have become more expedient.
Oni noted that data from the portal of World Federation of Exchanges (WFE) on the growing clamor for commodities trading is sending a message to Nigeria as regards the benefits of commodities trading.
“The data indicates that in 2020, 9.3 billion commodity derivatives exchanged hands, an increase of 35.3 per cent over the corresponding year. Of the volume, futures trading alone accounted for 96 per cent while the remaining 4 per cent was options. The underlying commodities cut across agriculture, energy, including emissions, ethanol and methanol, precious and non-precious metal, and index commodity derivatives”, he explained.
According to him, it is not the physical commodities that are traded on the commodities exchanges but electronic receipt of the underlying assets as direct trading of the physical products through warehouses is simply a spot market which exists everywhere.
“The data through WEF’s portal further revealed by underlying assets, agriculture and energy contracts accounted for the largest share in 2020, accounting for 36 and 31 per cent respectively while precious metals, non-precious metals and other commodities accounted for 8 per cent, 9 per cent, and 17 per cent, respectively.
The scenario has brought into fore the essence of leveraging agricultural derivatives to create employment, enhance food production and grow a country’s Gross Domestic Product (GDP) on a sustainable basis. The time is ripe for Nigeria to build conversation around the economics of commodities exchanges, the organised market where electronic receipts are traded under rules and regulations”, he said.