Crowd funding platforms in agriculture emerged a few years ago and many individuals have been turning to them as a way of investing in the sector. However, when AFEX commodities launched ComX about two weeks ago, it presented yet another way of investing in agriculture, one the company emphasises is not in any way crowd funding.
For instance, as an individual, one could go on ComX and buy Maize or Soya Bean on the spot market. When a person (or entity) buys those products, the transaction occurs at a certain price. The prices of those commodities however change daily based on demand and supply (just as share prices on the stock exchange). Therefore, in three months time, such an individual could sell that product and then make or lose money based on the price changes. “It works exactly like the stock market,” said Ayodeji Balogun, country manager for AFEX Commodities Exchange Limited in an interview.
When the app is downloaded on a device, even without committing funds, there is access to a demo account that allows users to interact with the platform and trade without actually putting in money.
This is expected to provide a prospective investor some measure of knowledge and market understanding, as well as those of the function of the app.
This, the company expects will guide prospective users and then ensures they have a smooth user experience while using the platform. “One of the things that we push in ComX is to put the user at the centre of the design of the system,” said Balogun. This he says is to ensure that investment “has a soul and has an emotional connection” but also for users to be able to connect and trace it directly to the impact they are creating in terms of food security for the nation, and empowering lives of smallholder farmers.
As the system works like a stock market, users can of course lose money. Balogun explains any user on the platform is investing against price appreciation and depreciation. Therefore, if prices move against them, they will lose money. However, if prices are appreciating, such users will equally make money, depending on the commodities they have invested.
He however explained that, understanding that Nigeria is a country where agriculture is predominantly rain fed, and where grains are produced around the same time. It implies demand both peaks and declines around the same time that can be easily deduced. This, he says makes it easy to manage risks when trading on the platform.
In a three-year average comparison, Balogun says it was discovered that returns on the AFEX All Commodities Index (ACI) was 19 percent as compared with 4 percent on the All Share Index (ASI) of the Nigerian Stock Exchange, describing the ACI as an investment capable of giving about five times what the ASI would return.
Differentiating itself from crowd funding or other unregulated schemes, Balogun had explained that the Securities and Exchange Commission (SEC) subjects the company, first to regulation, since AFEX is part of the capital market structure in Nigeria. Second is the balance sheet requirements for it as an entity plus the size and robustness of its field operations that back it, making it stand out in terms of credibility, operational efficiency and capacity to scale.
The third attribute, as he explained is an important element of an exchange, which pertains to fungibility of assets; that is, ability to transfer ownership among players. When a person buys a treasury bill or a company’s stock, they can always transfer the ownership to any other entity very easily and very efficiently. It does not have to be held for a long term from the beginning to the end, or as Balogun describes it “be stuck with it like what you will find in crowd funding”. The platform allows players to come in and invest in assets that are listed and traded, and also allowing exit at will.
The platform also has physical products stored (in its network of warehouses), with Balogun asserting these are very well wrapped around with “several risk guarantee mitigants and world class collateral management system”. These he says are attributes required by regulation to give investors protection.
“For us to bring this to the market, it is a very rigorous process that we have to go through, and where SEC has to be assured that everything we are doing conforms with regulations,” he said.
