How Commodities Exchanges Can Boost Forex, By Securities Dealers

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How Commodities Exchanges Can Boost Forex, By Securities Dealers
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Top Securities Dealers in Nigeria have urged the Federal Government to expand agriculture to create job opportunities for youths and leverage commodities exchanges to grow the country’s foreign exchange earnings in view of dwindling income from the international oil market.

Besides, the Securities Dealers have identified the need to put in place relevant structures that will enhance the growth of local industries, highlighting the benefits of commodities exchanges.

The Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), Chief Onyenwechukwu Ezeagu, at the weekend explained that the negative impacts of COVID-19 pandemic on most sectors of the economy had made it imperative for the government to enhance the growth and development of commodities exchanges as alternative sources of revenue.

“The need to encourage the establishment and growth of Commodities Exchanges in Nigeria cannot be overemphasized in the wake of the crippling impact of oil glut and the COVID-19 pandemic. If Nigeria is serious about diversification of her economy and forex  earnings, the route to take is via functional commodities exchanges where all asset classes: agricultural, hydrocarbon and solid  minerals etc are tradable in a most efficient and transparent manner and the quality of tradable commodities are guaranteed. This is even more so for local induatries that need to be assured of regular and uninterrupted raw materials supply as their production input. The farmers, miners etc would benefit from an efficient commodities exchange platform as they have opportunity for prices discovery and an assurance of off takers of their output.

“The economy would be better off as economic activities are catalysed and sustained. Consequently, any serious-minded government cannot but be conscious of the importance of viable commodities exchanges and use them as catalysts for economic development and sustainance. This informed part of the reason why ASHON and other progressive minded Nigerians floated the Lagos Commodities & Futures Exchange so that through its establishment,  we can assist the government of the day in not only doing all the above, but also in helping to create employment for our teeming youths in this country.”, said Ezeagu.

Corroborating him, the Managing Director and Chief Executive Officer, Lagos Commodities and Futures Exchange, (LCFE), Mr Akin Akeredolu – Ale who  volunteered information that LCFE would soon commence trading on  Agricultural Commodities, Solid Minerals, Currencies and Oil and Gas submitted that at this critical period, a credible  option  for Nigeria’s accelerated economic revival would be for the government to put in place structures to promote agriculture and commodities exchanges.

Global Asset Management’s Chief Executive Officer, Mr Babatunde Shobamowo noted that Government all over the world utilized commodities as a veritable means to hold value in bearish period or when the currency is facing imminent depreciation.

“Nigeria is blessed with untapped and adequate natural resources, but the market needs to be developed to reach its potentials. Some of the products that can be traded in an exchange are Crude oil, Natural Gas, Gold, Silver, Cocoa and Cotton, Beni seed. A commodity is an economic good that has full or substantial fungibility. Commodities over time tend to provide return that differ from stocks and bonds   In addition, there are other inherent advantages that may accrue to the Government if well developed.”, Shobamowo said.

The Chief Executive Officer, Wyoming Capital and Partners, Mr Tajudeen Olayinka explained that Price discovery was a major driving force in an organized market as it provides a mechanism through which prices come to reflect known information about the market.

“There are numerous benefits to an economy, especially, a developing one like Nigeria as it provides appropriate support to the orderly functioning of a Commodity Exchange in the country. Commodity Exchange facilitates trading of agricultural produce, metals, and mineral resources in standardized contracts, whether on spot or cash basis, or for future delivery, at prices that have been agreed upon by parties to the contract. This therefore suggests that activities in the market are largely driven by publicly available information around demand and supply of commodities, which should ordinarily arouse government interest.

“The presence of an organized Commodity Exchange facilitates trade and investments in an economy. It makes it possible for small-holder farmers who are not so literate to deal directly on the Exchange, and who may not have capacity to meet trade size requirements of an organized Exchange. They can come together as an association or take advantage of warehouse receipt financing available in the system, to scale up their capacity for bigger contract delivery. This way, the small-holder farmers become an integral part of the commodity value chains, with job creation opportunities for unemployed youths and adults.

“ The fact that farmers, merchants, exchange- based commodity brokers, government and other stakeholders can reasonably gauge the mood of the market from publicly available information around demand and supply, makes planning, organizing, and forecasting, integral part of the market. This way, more players are attracted to the market, and the economy benefits. Government’s onerous responsibility to ensure food security could be further strengthened by way of accepting warehouse receipts when prices drop below a support floor, rather than taking delivery of physical inventories. Governments can achieve the food security objectives by merely holding these receipts.

“Nigerian economy will surely benefit from having functional commodity exchanges and government must therefore begin to pursue economic diversification program, by integrating local commodity value chains into the global value chains, to facilitate trade and investments. As a standard practice, commodity contracts usually cover, quality, quantity, passing of ownership and risk, price, payment terms, inspection, transport, delivery and weight, packaging, force majure, demurrage interest and arbitration. These features can serve as major boost to foreign direct investments (FDIs), as some might see the presence of orderly functioning commodity exchanges in the country as opportunities to set up firms that can further develop available raw materials into intermediate products for local production and exports. This way, the economy benefits more, as it becomes systematically integrated to the Global Value Chains (GVCs), a major driving force in international trade that is clearly replacing the traditional view of international trade.”, said Olayinka.

Chief Executive Officer, Highcap Securities Limited, Mr David Adonri explained that commodities exchanges formalize commodities business, facilitate de-risk agro lending, enhance quality of agricultural produce, facilitate export and enhance tax revenue to government.

“The positives are too numerous to cover. The Development of the Commodity Exchange space needs maximum support from government and banks to maximize its benefits.”  Adonri said.

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