The Federal Government attaches great importance to an active and vibrant capital market which will contribute to national growth and development. Of course, in order to achieve this objective, the capital market has to operate at an optimum level which is why the implementation of the 10 year Capital Market Master Plan remains a key priority.
The development of the commodities trading ecosystem is of paramount interest because Nigeria has an abundance of natural resources and accordingly a comparative advantage in agriculture, solid minerals and oil and gas. Our emphasis in the immediate term is the agricultural sector in order to diversify the economy away from dependence on crude oil for government revenue and foreign exchange earnings.
Agriculture accordingly occupies a pride of place in Federal Government policy, as stated on numerous occasions by the President and as articulated in the Economic Recovery and Growth Plan. The importance of agriculture was underscored during the last recession as its growth then of about three to four percent prevented a steeper decline. Agriculture is also important for food security and as a means of generating a quick production response. By way of illustration, while it may take two to three years for a manufacturing plant to be fully up and running, it is quite possible to plant and harvest three cycles of rice in one calendar year.
The agricultural sector is also important for job creation and employment and for producing the raw materials that go into agro-processing. Indeed, the subsisting Agriculture Promotion Policy specifically aims to ‘integrate agricultural commodity value chains into the broader supply chain of Nigerian and global industry’.
A vibrant commodities trading ecosystem is therefore essential to underpin agricultural transformation in Nigeria. It is key to organise production in the agricultural sector so that every part of the value chain contributes to its growth. Starting with the strategic choice of crops, agricultural research should focus on seeds that can substantially improve yields. Agricultural extension workers should be deployed to teach farmers best practices in planting, use of fertilisers, and pesticides, while farmers are enabled to access improved seedlings and mechanisation. The ecosystem should be such that ensures uptake of produce at fair and stable prices, provides transport and storage facilities, and financing across the entire value chain which should link aggregators to processors, who in turn should be linked to distributors and exporters.
In other words, a commodities trading ecosystem must be inclusive and bring together all relevant actors in the commodities value chain. These range from entities such as farmers, traders, warehouses, and processors to institutions like commodity exchanges, banks, insurers and transportation companies. The establishment of the Technical Committee on Commodities Trading Ecosystem which brings many of these actors together and the organisation of this Roundtable are welcome examples of such inclusion.
Efficient, dynamic and responsive commodity exchanges lie at the heart of a successful commodities trading ecosystem. In addition to spurring increased production and improving the livelihoods of farmers, it will attract finance and investments into the commodities sector and help improve product quality while reducing post harvest losses. In addition, functional commodity exchanges can lead to the development of new financial products for the poor especially peasant farmers and also spur innovation and improved export performance.
The example of Ethiopia is salutary in this regard. In 2017, after just ten years of operation, the Ethiopian Commodity Exchange had 350 members and 15,000 clients who trade through such members. It had over 2.4 million famers participating directly through farmers cooperatives, and a physical presence of 55 warehouses. Similarly, it had over 1 million SMS subscribers and over 120 rural electronic displays. Needless to say, the impact was phenomenal. The share of export prices going to farmers nearly doubled over the period and there was an increase of over 200% in the production of sesame seeds for export. In the same vein, exports of top quality coffee tripled in just 18 months.
The Nigerian Commodity Exchange can attain similar heights with determination and focus. The plan for it going forward is for the Nigerian Sovereign Investment Authority to run it with a technical partner over the next three to five years. The intention is to make the NCX operational within an efficient time frame through the provision of finance for infrastructure development, engagement of additional skilled management personnel and upgrading of the trading platform. Once the operations of NCX have been stabilised it will be returned to the BPE for privatisation.
Although participants and trading are the nexus of activities in commodities markets and exchanges, there are there several elements that matter for smooth operation which is why it is important to think in terms of the ecosystem as a whole. Similarly essential is an appropriate legal and regulatory environment as well as stability in the macroeconomic and business environment. It would be difficult for commodities trade to take place if exchange rates are changing dramatically and inflation is eating away at commodity value rapidly. Time and margins are critical in commodities trading so it is essential that the business environment does not add to the transactions cost of trading in commodities. Transport infrastructure is also critical for lowering both time and cost of trading in commodities just as storage facilities have a critical role to play in reducing post harvest losses.
The Federal Government is making strenuous efforts to improve the business environment. Though a holistic approach involving the Executive, the Legislature, States and the private sector, Nigeria moved up by 24 spaces in the World Bank’s Ease of Doing Business Rankings over a three year period. And, just a few days ago, we were included in the top 20 reformers in Doing Business. This is an effort that must be continued into the foreseeable futrue.
In the area of infrastructure, the evidence abounds of the investments in roads and rail across the length and breadth of the country. As the President stated in his independence day broadcast just two days ago, up to N1.74 trillion was released for capital projects in the 2018 fiscal year and at least another N600 billion is to be released in the next 3 months. We are set to see substantial and landmark infrastructure projects coming on stream.
Another critical component of the commodity trading ecosystem is access to finance especially for small holder farmers. This is why Government is intent on revitalising the Bank of Agriculture and also why the Anchor Borrowers Scheme has been successful especially in boosting paddy rice production in the country. NISRAL (the Nigeria Incentive-Based Risk-Sharing System for Agricultural Lending (NISRAL) which helps to de-risk agribusinesses has been similarly impactful while the NEXIM Bank Export Stimulation Fund will also make a valuable contribution in this regard.
It is important at this time when the African Continental Free Trade Area is moving into the implementation phase, to contemplate on ways in which Nigeria can benefit from the Agreement. Most of current intra-Africa trade is in commodities and the initial expected spurt in such trade due to the establishment of the AfCFTA will come from sectors such as mineral products, foodstuff, vegetable products, and metals amongst other things. A vibrant commodities trading ecosystem will position Nigeria to be able to take advantage of such trading opportunities. Indeed, there is no reason why a repositioned Nigerian Commodities Exchange cannot become the place where the global reference price for some key commodities are established. After all this has been achieved with rubber in Kuala Lumpur, silver in India and soybeans in the Dalian Commodity Exchange in China.
There are undoubtedly many facets to building a strong commodities trading ecosystem in Nigeria but one thing that must be emphasised in the importance of partnerships especially between the government and private sector. Government must of course engage strategically in the commodities trading ecosystem in order to help it consolidate. Certainly, once the commodity exchanges are up and running, the requirements of Executive Order 3 on support for local content in public procurement by Ministries, Departments and Agencies will have to be taken into consideration especially with regard to government procurement of grains and other agricultural commodities. What would be key is that such purchases take place through commodity exchanges in order to help deepen them.
While government will set out the legal and regulatory framework especially as pertains to tax incentives, licensing and other related requirements, the private sector must also play a key role in terms of contributing to efficiency and good governance in the ecosystem. It must also promote active and transparent trading in commodity exchanges. This is important because price discovery especially by small holder farmers lies at the heart of a commodity exchange in a developing economy. The private sector should also make full use of the opportunities that will arise in the commodities trading ecosystem such as storage, logistics, packaging, data services, training and quality management.
The success of efforts to energise the commodities trading ecosystem requires public enlightenment and awareness. It also requires consultation and consensus on the best way forward. It is therefore encouraging that the Securities and Exchange Commission and the Technical Committee on the Commodities Trading Ecosystem have organised this Roundtable to elicit perspectives of stakeholders, get the buy-in of policy makers and encourage investment in the sector.
Ultimately however the success of our efforts to develop and deepen the commodities trading ecosystem will be determined by the impact on the national economy especially contribution to growth and the improvement of material conditions of the ordinary Nigerians and at this particular time small holder farmers but perhaps artisanal miners in the not too distant future.
It is my sincere wish that this Roundtable will contribute to achieving the stated objective of building a strong commodities trading ecosystem for inclusive economic development.
PROF. YEMI OSINBAJO, SAN, VICE-PRESIDENT OF THE FEDERAL REPUBLIC OF NIGERIA
TO THE ROUNDTABLE ON NIGERIAN COMMODITIES TRADING ECOSYSTEMTHURSDAY, 3 OCTOBER 2019