Stakeholders flay N50 Billion lifeline for NCX

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Stakeholders flay N50 Billion lifeline for NCX
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Stakeholders in the commodities exchanges’ ecosystem have picked holes in the proposed injection of N50 billion into the Nigerian Commodity Exchange (NCX) to revive the ailing market. Recently, the Governor, Central Bank of Nigeria (CBN), Mr Godwin Emefiele announced the plan by the federal government to release N50 billion as an intervention fund to restructure the NCX to enhance its operations.

But stakeholders have described the plan as incapable of developing viable commodities exchanges in Nigeria.

They argued that such intervention fund should not be restricted to the government’s commodity exchange only as it would muscle out other commodities exchanges that are promoted by the private sector.

A commodity trader and Chief Executive Officer, Wyoming Partners and Capital, Mr Tajudeen Olayinka in a statement said such intervention fund should be utilized for provision of financial and other market infrastructure such as Central Counter Party (CPP), a market -wide clearing for the benefits of all commodities exchanges in Nigeria.

“It is not out of place for CBN to provide intervention fund, to support orderly functioning of a commodity market. But such intervention effort should not be restricted to the government owned Nigerian Commodity Exchange. It is capable of muscling out competition; a requirement that must be fulfilled before the economy can benefit from the law of one price.

“CBN’s intervention should be directed at providing Financial and other relevant Market Infrastructures, such as Central Counter Party (CCP), that can function as a market-wide clearing system for all the commodity exchanges in Nigeria. This can be done with private sector participation because of huge capital requirement.“

It must be understood that CBN’s decision to provide N50 billion intervention fund to NCX came from frustration arising from food price inflation. Solution to the problem lies in market wide intervention, not NCX specific intervention.

However, NCX may be recapitalised by CBN and other shareholders, to the extent of its capital requirement. “ Inability of NCX to function as a commodity exchange came from its decision to use its trading platform solely for spot market, where a well functioning and more efficient spot market already exist, even though it is largely informal. The truth is that you cannot reinvent the wheel. If we consider the more than 26% contribution of agriculture to real GDP figure in 2020, with crop production contributing more than 89% of that figure.“

Nigeria has a huge spot market for commodity, and that what is needed is commodity futures that can help provide future delivery and price assurances to both farmers and end-users, in a way that also mitigates their risks. If NCX had started as an Exchange for commodity futures, Nigeria could have doubled the contribution of agriculture to real GDP in 2020 because commodity futures could have propelled activities in the spot market. Farmers and agro-processors and consumers need price and delivery assurances, to enable them function optimally. This is what would help provide price stability, by driving down food price inflation.”, said Olayinka.

Corroborating him, the Managing Partner, Corporate Farmers of Nigeria, Mr Akin Alabi, took a swipe at the announcement of N50 billion for NCX, saying that Nigeria required commodities exchanges across all the states of the federation. According to him, government should not concentrate on one commodity exchange if the economy is to benefit immensely.

Only recently, the Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), Chief Onyenwechukwu Ezeagu in a statement advocated an implementation of some policies that would avail all operators in the commodities exchanges’ value chain such as farmers, aggregators, commodities brokers, lawyers, insurance and warehouse operators among others to benefit maximally rather than create uneven competition in favour of one commodity exchange.

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