It has been revealed that some of the major challenges affecting the performance of the commodities market in Nigeria include unclear foreign exchange policy, poor infrastructure and stubborn insecurity.
This was revealed by the Managing Director of Sahel Capital, Mezuo Nwuneli, at the AFEX CEO Breakfast event in Lagos, where he was the keynote speaker. He did a presentation on the topic, ‘Convergence of Commodities and Capital Markets: Unlocking Liquidity for a $1tn Market.’
In 2013, the World Bank in a report titled Growing Africa: Unlocking the Potential of Agribusiness, said that the continent’s commodities market could hit $1tn by 2030.
Speaking with The PUNCH, Nwuneli said that the Nigerian government has to address three areas to be able to take advantage of the potential in the commodities market.
He said, “The first is, we need a predictable, clear and transparent exchange rate policy because that will help attract more capital to the market, to be invested within different opportunities within Nigeria.
“The second is that we need to look at road infrastructure within different parts of Nigeria because if we are moving food and commodities from one part of Nigeria to the other, the efficiency of the food and the cost are very critical. And security is a big one. If you are an investor and thinking “Should I invest 10, 20, 40 million dollars in Zamfara or Kaduna or Anambra or Oyo State and there is a security issue, you will be hesitant about allocating that money.”
“At the same time, you have people living in the rural areas coming to urban areas because of insecurity. If we want to attract more capital into the market to help drive the economy, we need to address insecurity.”
Commenting on the challenges in the agric sector, the Chief Executive Officer, of AFEX Nigeria, Akinyinka Akintunde, stated that there are lots of opportunities in the alternative asset classes but the infrastructure to ensure efficient use and appropriate allocation is missing.
“One of the things we do at AFEX is to put a structure around it by developing appropriate infrastructure and crowding in the key players to drive it. That is the crux of the CEO Breakfast.’’
Also, AFEX unveiled its updated pricing methodology for its commodities exchange business unit on the sidelines of the second edition of the AFEX CEO Breakfast Session. The updated price methodology set to go live on November 1 fills a gap in formalising participation in the Nigerian commodities ecosystem with enhanced price discovery and eliminating price gaps across the different boards on the Exchange.
The AFEX Commodities Exchange pricing methodology is a framework used by the Exchange to transparently communicate the prices of the commodities that are available for trade. Previously, the pricing methodology aggregated prices across all markets and represented them differently across each of the Exchange’s boards. However, the new methodology will unify these prices from different markets and boards to generate a homogenized price per commodity.
Giving a market overview, the MD, of Analysts’ Data Services and Resources, Dr Afolabi Olowookere, highlighted the consequences of the removal of the ban on sourcing forex from the official window for 43 items including rice, maize and cement.
He said, “The 43 items are back and that has a lot of implications for the economy, whether you need to dismantle a demand strategy in the face of liquidity challenges. That is something that a lot of people have been finding difficult to understand.
“Some of the items here have a lot of implications for commodities, rice, palm kernel, palm oil products, vegetable oil, meat and processed meat, vegetable and processed vegetable products, poultry, tinned fish and tomato paste. These are items that have a lot of implications for the commodities space. Some of them are also products of the commodities market, like margarine, woven fabric, and toothpick.
“If you say people can bring in those commodities, they can now compete for forex and if the official rate is lower than the parallel that can lower their cost and make import cheaper than domestic production. The impact may be that import becomes cheaper. Then whoever is producing domestically has to make sure that he/she is productive.
“In trade policy, the argument is that once you can produce, then we can lift the ban. If you can compete, then nothing should be banned. This particular decision may have a lot of impact on domestic companies and challenge them in terms of how competitive that they are.”
The CBN last Thursday lifted the ban on sourcing forex for the importation of some 43 items from the official market.
