The Federal Government is planning to privatise the nation’s only commodity exchange, which has been inactive since inception. Asst. Editor Chikodi Okereocha writes that farmers can latch on the platform of a revitalised commodity exchange to cut post-harvest losses and increase earnings.
Smallholder farmers and other agro-based business operators in Nigeria, such as agro-commodity processors and merchants, will soon heave a sigh of relief.
In line with the liberalisation and commercialisation of its controlling equity investment in state-owned enterprises to pave the way for private sector participation, the Federal Government plans to privatise the Nigeria Commodity Exchange (NCX), formerly the Abuja Securities and Commodity Exchange (ASCE).
By privatising the nation’s only commodity exchange, which has been inactive since 1998, the government, according to Vice President Namadi Sambo, who is also Chairman, National Council on Privatisation (NCP), hopes to attract private sector investment, innovations and management in the country’s commodity exchange operations.
He explained that a privatised and revitalised commodity exchange would also enhance competition in the post-privatisation era and usher in a framework under which infrastructure like silos and warehousing facilities, modern trading platform and state-of-the-art information technology would be made available to farmers.
It is also envisaged that a strong legal, regulatory and compliance framework, commodity grades and standards, among others, would push more possibilities into the hands of smallholder farmers. He said the role of commodity exchange is critical to the economic growth and development of any nation, as it serves as the ultimate platform for trading and marketing various agricultural produce and commodities.
Citing China, United States, South Africa, Ethiopia and Kenya, among others, which he said leaned on the workability of their respective commodity exchange platforms as catalyst for economic transformation, regional economic strength and reckoning, even in the time of global economic meltdown of the past years, the Vice President noted that revitalising the Nigeria Commodity Exchange would “enhance employment creation that will engage the country’s teeming youth population, boost economic growth through non-oil exports, and improve tax collection as a veritable source of revenue. It would also contribute meaningfully towards strengthening the nation’s foreign exchange reserves and the naira, and improve cross-border risk rating in foreign direct investments in the sector.”
The NCP Chairman said revamping the commodity exchange could not have come at a better time than now when the giant strides of the Federal Government under the Agricultural Transformation Agenda has begun to yield noticeable results in the global commodity market where Nigeria is determined to be a net exporter of food and cash crops such as sesame seeds, cocoa, rice maize, sorghum, palm oil, gold, and bitumen, among others.
He explained that apart from strengthening local production, it is the administration’s earnest aspiration to place Nigeria on the global economic score card as a nation that has internationalised its revamp mechanism and regional economic prowess through non-oil exports.
Sambo spoke in Lagos at a recent Stakeholders’ Workshop for the Privatisation of NCX organised by the Bureau of Public Enterprise (BPE) in conjunction with the Federal Ministry of Industry, Trade and Investment, and other relevant government agencies. The workshop with the theme, Towards achieving best standards and practices in the Nigerian Commodity Exchange Market was aimed at providing a platform for key stakeholders to discuss critical success factors that would drive robust commodity exchange operations in Nigeria.
Specifically, the workshop seeks to entrench best standards and practices in Nigeria’s commodity exchange operations.
As Emmanuel Ijewere, a member of the Technical Committee of the NCP, explained, one of the issues that have been agitating the minds of policy makers is how to link up the poor farmer to a market.
“If you create a situation where all parties meet you have more effective utilisation of your economic resources including those hard working farmers. But where you have pockets of people who do things in their own private way, the farmers are the most vulnerable. I am talking about the economy of inclusion. Right now the poor people in our society are not included in the economy. There is a huge market for farmers’ produce, but the farmers are so small that they have no access to it,” he told The Nation.
Ijewere argued that there is no better way of creating that link between those who have been excluded from the economic enterprise of Nigeria and those yearning for the products.
“This commodity exchange will now force us to improve on those infrastructure like warehouses that will help reduce the losses suffered by the farmers, give information through the electronic wallet which means that each farmer will know what prices are in the market, he knows what prices that has been in the past two or three years, he knows where the demand is, he knows where to sell it. Through the electronic wallet he can do that so, we are trying to modernise these farmers, modernise the entire system and the entire value chain,” he explained.
Ijewere noted that the commodity market originally created was being run by government, but in line with the new thinking that government has no business in business, it should be a private sector driven thing. “Today we are in the process of taking it from government through BPE and handing it over to the private sector and creating the environment for everybody to be inclusive in the economy of Nigeria,” he said, adding: “The biggest problem for banks is knowing where to put their money to ensure that it comes back to them. The banks want to be part of the real economy, but have no knowledge in the sense that they have no way of getting to the small farmer. So, we are creating an environment, a platform where banks and farmers can talk to each other.”
The planned privatisation of the commodity exchange must be music in the ears of smallholder farmers most of who have had to contend with a multiplicity of challenges associated with production and marketing of their produce. The most daunting of these challenges is perhaps, the lack of proper storage facilities such as warehouses and silos. Without an efficient warehouse receipts system allowing smallholder farmers to deposit their agric produce in registered warehouses, farmers incur post harvest losses on account of damage to their harvests by pests and other crop diseases. This has adverse affect on the earnings of smallholder farmers thus, limiting their capacity to contribute to the realisation of the Federal Government’s Agricultural Transformation Agenda. The warehouses and silos would have served as storage facilities for farmers’ produce and commodities until they are sold through mutually beneficial contracts.
That Nigeria is blessed with huge agricultural potentials makes the need for a virile commodity exchange critical. As Benjamin Dikki, the Director-General of BPE, pointed out, there is need to complement the giant strides that are being recorded in the agricultural sector by a functional commodity exchange in order to add value to the economic value chain. This, he said, would pave way for competitiveness and stability in pricing of agricultural produce and commodities, as information would be available to market participants on sustained basis through modern information technology infrastructure. He also said that vast liquidity potentials would be available to farmers as warehouse receipts become tradable and negotiable; the commodity exchange sector would be guided by the enactment into law of the Warehouse Receipt Bill and market rules to be introduced by an independent regulatory body to be set up, among others.
Already, some companies, including Nigeria’s Heirs Holdings Limited, a Lagos-based investor with interests across Africa in banking, energy, real estate and agriculture, plans to acquire or set up a commodities exchange in the country. The Chairman, Heirs Holdings, Mr. Tony Elumelu, reportedly said he wants to acquire the state-owned Abuja-based exchange when it is sold. If it’s unable to buy the exchange, Heirs Holdings would apply to the Securities and Exchange Commission (SEC) to set one up.
The firm, through its African Exchange Holdings Limited unit, has stakes in Kigali, Rwanda-based and Lagos-based National Association of Securities Dealers trading platform. In collaboration with the Nigerian Grain Reserve Agency and the Agriculture Ministry, Heirs Holdings in November, last year established an electronic warehousing system linking farmers and traders as part of the groundwork to set up a commodities exchange.
“We have a number of both domestic and international players who are very interested,” Aruma Oteh, director-general of SEC, was quoted as saying. “They’d rather acquire the privatised exchange, so they’re trying to see how far the government is going with this initiative and if not they’re prepared to seek a registration for a new commodity exchange,” she added.
As part of the revitalisation of the exchange, the Federal Ministry of Trade & Investment in collaboration with other key stakeholders has initiated a pilot scheme of electronic warehouse receipt system (e-WRS) which, when it goes live, would facilitate seamless trading, bankability of the warehouse receipts and availability of liquidity, among others, among market players. For this, an executive bill, the Warehouse Receipt Bill, is in the second reading in the Senate.
Senator Olugbenga Obadara, Chairman, Senate Committee on Privatisation, said since the Bill is in the second reading, which is the most critical, “there is high hopes of getting the bill acceptable not only to the members of the National Assembly, but to everybody.”
Obadara, however, said the bill still has to go to the House of Representatives for concurrence and possibly public hearing, third reading and passage. “We will work in the best interest of Nigeria. We want to make sure we bring entrepreneurship to the doorstep of everybody. We want to consult widely, we want to involve the generality of Nigerians, we want to make sure that we have the enabling law that will guide this commodity exchange privatisation. What we are doing now is interfacing with stakeholders; this has to be driven by them. We will give the desired impetus at making sure the bill is well looked at, well harnessed, and well discussed in the best interest of the nation,” he said.
However, the plan to privatise the commodity exchange may not come without opposition from some operators and stakeholders. For instance, Commodity Brokers’ Association of Nigeria (CBAN), views the privatisation process with some elements of suspicion and mistrust. “We have really been thinking, what is Federal Government’s plan? Why do they want to privatise it?,” Altine Shehu Kajiji, President, CBAN, asked, adding: “For us we think that the privatisation is not the issue, the issue is that there are so many things left undone and that is why the system has not been working.”
Kajiji said the government should have first set up the exchange and get it working before selling it. “What is government selling when nothing is working. What is the aim of this privatisation? What does government aim to achieve? I think government needs to do certain things at least to set up a working exchange before it is sold,” he fumed.
Since its establishment in 1998, as part of efforts at developing the capital market and with an initial primary objective of dealing in securities trading, ASCE, now NCX, has been bogged by some operational challenges. Dr. Vincent Akpotaire, Acting Director, National Facilities & Agricultural Resources, BPE, listed some of the challenges hampering the ability of the exchange to deliver on its mandate to include poor funding and stakeholders’ buy-in, lack of enabling legal and regulatory framework, erosion of shareholders’ funds, poor sensitisation mechanism, and absence of trading platform/infrastructure, absence of WRS, and electronic warehouse receipt system (e-WRS), among others.
Akpotaire, however, pointed out that in spite of the numerous challenges, “the exchange could indeed, be the ‘beautiful bride’ through value addition to the agricultural value chain, enhancement of export of produce and commodities”.
He said as part of the government’s commitment to strengthen the operations of the exchange, a Steering Committee was constituted to recommend the best options for revitalising its operation. Also, the BPE, as part of its normal reform and stakeholders engagement framework, has embarked on active liaison with various stakeholders on ways of revamping the operations of the exchange.
Already, stakeholders and experts in agro-business see a silver lining on the horizon for farmers, as a private sector-driven commodity exchange would hopefully liberate farmers from poverty through exposure to reliable domestic and export markets. It will also serve as a veritable platform for farmers to mitigate the inherent risks in agricultural production and marketing. But the ability of farmers to leverage the opportunity, experts say, depends largely on their ability to participate through commodity associations or farmers’ associations who aggregate the hedging needs of several small-scale farmers and execute the trade on the exchange.
