Commodity exchange on verge of revamp

In the face of heightening unemployment and worsening government revenues, Nigeria is intensifying efforts to revive and spur the trading of its agricultural produce and solid minerals in a new proposed law that seeks to regulate the Commodity Future and Derivative trading in the country.

The bill seen by BusinessDay, which would soon be slated for second reading, is also expected to give a lifeline to the comatose Abuja Securities and Commodity Exchange (ASCE) which is responsible for the marketing of agricultural produce and spot trading on solid minerals.

The proposal also includes over the counter market, metal exchange, petroleum exchange, options, futures and derivative exchanges and other forms of commodities.

The proposed law, coming in the face of economic downturn would be critical in driving agriculture, the key focus of President Mohammadu Buhari’s administration, which is being repositioned to drive economic diversification, step up dwindling  revenues and create jobs.

Attempts to establish a Commodity Exchange and Futures market in the country began in 1989 when an Inter-Ministerial Technical Committee was set up at the behest of the Central Bank of Nigeria (CBN) to look into how a Futures Exchange for agricultural commodities could be established to address frontally, the agro-commodity marketing challenges, trade contracts in agricultural produce, solid mineral products, energy, financial indices and currencies.

Despite efforts, Nigeria’s commodity exchange which finally debuted in 1998 is currently comatose, compared with other functional exchanges in the African region, namely: Ethiopia, Rwanda, Madagascar, Mauritius, Kenya, South Africa, Tanzania and Uganda which generate multi-billion dollars into their respective gross domestic products (GDPs).

The Ethiopian Commodity Exchange (ECX), for instance, was set up in 2008 and within five years of operation, recorded trading volumes worth $1.4 billion, as at 2012 ,up from $1 billion in 2011.

But the Abuja Securities Commodity Exchange, as at today, is no longer functional, having stopped trading several years back, but then it has up to 60 staff who do nothing but collect salaries at the end of every month.

The Nigerian Sovereign Investment Authority (NSIA), managers of the nation’s Sovereign Wealth Fund, announced a recent interest to invest up to $20 million to revive the country’s Commodity Exchange, if the deal pulls through.

The government has scheduled the comatose Abuja Securities and Commodity Exchange (ASCE) for privatisation, but the NSIA and industry experts fear that selling the company in its present state would bring about a loss, since the assets are almost worthless.

The NSIA’s interest is therefore in pre-privatisation investments which would mean anything from fixing the software to drive an efficient trading platform, to putting  right processes and procedures in place, up to a point that the exchange can start trading.

As contained in the proposed bill, the Exchange is to be regulated by a Commission and would provide farmers access to real time pricing information, improved profits and productivity, reduced market segmentation and boost export quality of agricultural produce.

The commodities future exchange trading commission to be constituted, is expected to register and regulate commodities exchanges, trading facilities, and derivative exchanges; render assistance in all aspects, including funding, as may be deemed necessary to promoters and investors wishing to establish commodities exchanges and trading facilities.

It would further prepare adequate guidelines and organise training programmes and disseminate information necessary for the establishment of commodities exchanges and trading facilities, and register and regulate corporate and individual commodity future market operators.

In order to protect investors and maintain fair and orderly markets, the commission is to “facilitate the linking of all markets in commodities, through modern communication and data processing facilities in order to foster efficiency, enhance competition and increase the information available to brokers, dealers and investors; register and regulate depository companies, as well as clearing and settlement companies.

It is also to protect the integrity of the commodities market against abuses arising from the practice of insider trading.

In the area of investment, the bill provides that the commissioned may invest any of its funds in securities as prescribed by Trustees Investment Act.

To ensure effective day to day running of the Exchange and forestall unwholesome practices, section 27(6) provides that any commodity exchange or derivative trading facility which permits trading in commodities in contravention of a notice under subsection 2 of this section, commits an offence and is liable on conviction to a fine of N50,000 and to a further fine of N5,000 for everyday during which the contravention continues.

Onyinye Nwachukwu & Kehinde Akintola