How this businessman built a commodity exchange in Nigeria, Kenya

Ayodeji Balogun is the CEO of AFEX, a Nigeria-based company operating a private agricultural commodity exchange. Over $300 million worth of crops a year are traded on AFEX’s platform in Nigeria, and the business has recently expanded operations to Kenya.

Balogun spoke to BusinessDay about the company’s business model, the challenges it faced in establishing the platform, and trends within the commodity trading industry.

As Nigeria’s leading commodities exchange, could you share with us some of your landmark achievements in the last six years of operation?

In the last six years, we have traded over 500,000 metric tons, with a turnover of over $300 million; increased our storage facilities from 45 in 2018 to over 200 today; provided over 450,000 smallholder farmers with access to infrastructure, finance and markets.

We have also expanded our operations from West Africa into East Africa, specifically Kenya and Uganda. This expansion was driven by the strategic positioning of these countries as trade hubs, as well as the unique opportunities we saw in the eastern agriculture market.

In over two years of operations in East Africa, we have recorded over 20,000 farmers, financed 15,000 farmers, and traded over 12,000MT, with a value of 600,000KSH.

After building the physical infrastructure to manage commodities, we created a digital commodities exchange platform, ComX, to trade securitized commodities, and since 2020, ComX has processed over N750 billion, traded over 600 metric tons and serviced 66,000 clients with product offerings across Spot Contracts, Asset Backed Commercial Papers, Input Trade Finance Notes and FETCs.

It was recently reported that AFEX will expand to Ivory Coast this year and Ghana in 2024, before setting up in Benin, Togo, Tanzania, Ethiopia and Zambia. What is the aim of the expansion plans?

Since its inception, AFEX’s focus has been to establish a strong foothold in Africa, providing innovative solutions around financing, trading, and market development systems that bolster food security, improve livelihoods for smallholder farmers and enable seamless access to commodities trading across the continent.

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Having built a working solution to challenges of smallholder farmers around aggregation, storage, financial inclusion and providing a ready market for both farmers and buyers to participate in a seamless trade, we believe our model is scalable across the continent, because we combine advanced technology and infrastructures with a unique understanding of Africa’s food systems and local market needs to replicate our Nigerian success in other African countries.

We also aim to address the low regional trade level, which currently stands at 14.4 percent compared to 59 percent, 69 percent, and 30.4 percent in Asia, Europe, and North America, respectively.

What are your future expansion plans that both old and new investors can plug in?

As a fast-paced, ever-growing company, we are always optimizing for the future, and so, in addition to our African expansion, we are looking to expand our product offerings to cater to a wider range of investors. By the end of the year, we will be launching new product offerings such as derivatives and gold, that will allow both old and new investors to participate in the market.

And what untapped opportunities are there within the industry?

There are existing opportunities within the industry that stem from existing challenges in the commodities ecosystem of the continent. Identifying and ideating around these opportunities was a key factor in the establishment of our Code Cash Crop industry platform.

This year, we are running the second ag-hackathon for Code Cash Crop and inviting solutions to three challenges that were identified by market players. Data, extension and logistics are the three challenges which are being addressed by the Code Cash Crop ag-hackathon this year, and are three areas where we see immense untapped potential to transform our agriculture economy and the commodities market.

A major challenge in the Agric Sector is data-led statistics. As a major player in that sector, how have you been able to overcome the constraints of data for better productivity and mitigation of risks?

We are a very data-driven organization and we’ve had to find ways to source and build data for our operations around creating price transparency and access to markets for farmers.

We have built data banks across farmer activities, commodities and price historical over the past 8 years, through in-depth farmer survey and analysis and collation of open market and exchange-traded prices through the commodities indexes accessible to us.

We also understand the data constraints in the agriculture industry and to address this gap, we have made all this data available on our website for easy access to other market participants across the value chain.

What type of data do you capture, how are you able to do this (what technology) and what are your projections for the coming months and years?

We leverage a combination of data such as price surveys, market sentiments, and economic releases and other market data reports as well as open market prices and exchange prices.

Due to our outreach structure, which includes field agents and operation managers on the ground, constantly aggregating data, we are able to track open market prices. Furthermore, through ComX, our online trading platform, we can track exchange prices as well.

Speaking to projections for the year as anticipated from the 2023 commodities report we release yearly, we will witness an impact of the flooding such as high prices for production inputs like fertilizer, as well as high logistic costs, domestic crop production decline.

We would also see the outcome of the elections play a huge role in the trend in the market as this will determine to an extent investors’ activities as well as the broader socio-political climate post-election.

The aftermath of the 2022 flood incident, the Russia-Ukraine war, the rise in fertilizer prices, and unfavorable macroeconomic conditions and indicators are additional factors that would influence activities this year in terms of price and market changes amid socio-political uncertainty in 2023.

You were recently shortlisted as one of the fastest-growing companies, according to Financial Times, a leading financial news platform in the world. Tell us about it and what impact it has on your business?

We are very excited to have featured on the Financial Times list, first in 2022 as the third fastest growing company in Africa, and this time as the first fastest growing in Africa. The announcement is the culmination of the work put in by our group of Xperts to help transform the agriculture landscape in Africa.

We have made considerable progress so far and will continue to contribute to Africa’s food security and promote sustainable development for future generations, while helping farmers access markets directly. We are immensely proud to be building such a global business.

The coronavirus pandemic and the Russia/Ukraine have caused a lot of supply chain disruptions across the globe including the agricultural sector; how has this disruption impacted your areas of expertise within the industry?

The disruption has brought on a lot of consequences to the sector from the price increase on commodities like wheat and maize to increase in prices of fertilizers and inputs. We’ve grown to strengthen the warehouse facilities across our operations which includes Nigeria, Kenya and Uganda to boost the storage capacity of the continent as well as partner with fertilizer companies and distributors to not have the farmer bear the highest share of the increase.