In this engaging interview, the Managing Director and Chief Executive Officer, Lagos Commodities and Futures Exchange (LCFE), Mr Akin Akeredolu-Ale, highlights how commodities ecosystem can drive the Nigerian economy and advises the Federal Government on why Commodities Board is no longer relevant in the modern day financial market.
How would you respond to President Bola Tinubu’s Speech that the Federal Government would target six per cent growth of the Nigerian Gross Domestic Product (GDP)?
Governments around the world set a target for economic growth, such as a specified percentage rise in GDP. An increase in GDP growth rate can signify a thriving economy which can be brought about by an increase in productivity. This also leads to a higher living standard for the public. Such ambitious expansion necessitates a combination of good economic policies, infrastructural investment, human capital development, and promotion of favorable business environment. To examine the feasibility and possible impact of a six per cent GDP growth rate, numerous elements must be considered, including the current health of the Nigerian economy, sectoral contributions to the GDP, government policies, global economic conditions, and the country’s growth potential. Economic growth objectives should be founded on a thorough grasp of the country’s strengths, problems, and possibilities. It is important to note that obtaining a given GDP growth rate necessitates collaborative efforts from both the public and private sector. Furthermore, economic progress should be inclusive, with benefits dispersed equally and reaching all elements of society. Focusing on job creation, food security, and ending extreme poverty, as President Bola Tinubu mentioned in his speech, is a positive starting point because improving job opportunities could potentially increase healthy business competition and productivity in various sectors of the economy, eventually reducing reliance on imports, as the president also mentioned in his speech.
Where does the commodity ecosystem come in for the government to achieve this target?
The Commodities Ecosystem is a treasure trove of opportunities for this new administration to drive the Nigerian Economy. I have said it several times that the Commodities Ecosystem is a One Trillion Dollar Economy across all assets of Commodities- Solid Minerals, Oil and Gas and Agriculture. A lot of opportunities abound for the country to take advantage of to generate FX proceeds. One of such opportunities is the gap in the global wheat and Gas market caused by the Russia invasion of Ukraine and the subsequent ban on Russia products by global leaders. The Electronic Vehicle Industries is also developing fast and one of the minerals used for the batteries is Lithium. Nigeria has substantial deposits of Lithium and many other precious metals which can be harnessed to bring about a positive change in our current situation. We also have the capacity to produce the food we need to ensure food security thereby empowering local producers. This new administration can choose any aspect of the commodity ecosystem and with the relevant structure and support to drive the Nigerian Economy.
What are the main challenges faced by commodities Exchanges in Nigeria at the moment and the way forward?
The commodity exchanges have made huge strides in recent years but nonetheless. There are still challenges being faced. To name a few, Commodity Stakeholders are still unaware and do not understand the role and benefits of Commodity Exchanges. This cuts across farmers, dealers, and investors. The Commodities Ecosystem has been trading informally for many decades and we understand that they would not want to move right away to a structured system, but we are certain that with more engagement and sensitization they will adapt to this system. The ecosystem has struggled with post-harvest loss due to lack of standard infrastructure. To develop a structured ecosystem, a certain level of control and standardization is required. This is what has been absent in our Commodities Ecosystem. Access to standard infrastructure like warehousing, vaults, Cold Storage and effective transportation is limited in the ecosystem. Inadequate storage facilities can lead to post-harvest losses, reduced commodity quality, and higher transaction costs. All these pose significant challenges to Commodity Exchanges. The successful operation of commodity exchanges requires a strong and supportive regulatory environment. Nigeria has made headway in this area with the introduction of the Capital market under the supervision of the Securities and Exchange Commission and the amendment of the Investment and Securities Act that has included commodities as securities. There is still more to be done to ensure rules and policies with clear and comprehensive rules that address concerns like contract enforcement, quality standards, and market manipulation are still needed. LCFE and the Commission have developed some rules in this regard and with the guidance of the Commission. Commodity standardization is critical for facilitating trade and maintaining transparency. However, in Nigeria, the lack of consistent grading and quality standards across different areas and market participants makes creating a seamless trade environment difficult.
How can these challenges be addressed?
The way forward for commodities exchanges in Nigeria involves addressing these challenges through various. LCFE has spent a lot of time organizing. various sessions of market sensitizations across the Commodities Ecosystem and the Capital Market. These sectors are vast and joint efforts should be made to improve farmer, trader, and investor market education and awareness. Training programmes, workshops, and awareness campaigns can assist in educating stakeholders about the benefits of commodities exchanges and how they can participate. It is critical to invest in standard infrastructure such as storage facilities, warehouses, and transportation. The Exchange and its registered members have created a framework for the development of financial instruments to channel relevant investment for infrastructure development. Exchanges play a significant role in risk management by implementing, regulating and enforcing risk management procedures across its members. This includes the use of hedging products, the broadcast of price information, and risk management training for market participants. The participation of Commodities Exchanges promote transparency, uniformity, and market integrity. To see an overall effect on the economy there must be an alignment of regulatory framework across all commodities exchanges. To effectively develop an enabling environment for commodities trading, regulatory agencies, exchanges, and market participants must work together.
Efforts should be made to create uniform grading and quality standards for various commodities. This will make trading easier, increase transparency, and foster confidence among market players. Overall, by addressing these challenges and implementing appropriate measures, commodities exchanges in Nigeria can unlock their potential, promote inclusive growth in the agricultural sector, and contribute to the overall economic development of the country.
What policy measures do you think the Federal Government should put in place to boost activities in the commodities ecosystem in Nigeria?
The ecosystem comprises stakeholders and value chains who engage in several activities within the ecosystem. The value chains include high-quality inputs, farming, mining, trading, logistics, processing, and the market. These stakeholders encounter different challenges in their respective segments, and these has hindered the growth potential of this industry. The government must establish and enforce enabling policies to protect value chain players and provide subsidies to stakeholders in the ecosystem. Access to cheap finance is a challenge for stakeholders in the ecosystem, by establishing a subsidy regime to cater to finance needs of ecosystem the stakeholders will have access to cheap finance thereby boosting their productive activities.
Are you comfortable with the plan by the Federal Government to introduce Commodity Board?
Commodity Boards played a very significant role when they were prevalent. They ensured price regulation. Price discovery and standardisation across all the participants. These are the services provided by Commodities Exchanges today. Reintroducing Commodity Boards back into the ecosystem will see a duplication of functions. The existing structure required by the Commodity boards are already being implemented by the Commodities Exchanges.
The Federal Government should work with the SEC-licensed commodities exchanges to grow and develop the Commodities ecosystem and the Nigerian Economy.
What can the government do to align with the operations of commodities exchanges in Nigeria?
One of the primary roles of the Commodities Exchanges is to align all the stakeholders of the Commodities Ecosystem to contribute to the development of the Nigerian Economy through the Commodities ecosystem. One of the major stakeholders in this ecosystem is the federal government. The Government can align the with Commodities Exchanges in the following areas; In the area of regulatory framework, Securities and Exchange Commission and the Ministry of Finance have supported the amendment of the Investment and Securities Act which is a great first step. More needs to be done to ensure the implementation of the Act. This will ensure commodities trading openness, fairness, and integrity, while also protecting all stakeholders.
There is a need for financial assistance to encourage farmers, cooperative societies and other agricultural stakeholders to participate in commodity exchanges. The government can align with Commodities Exchanges to ensure a structured financing system through the capital market for stakeholders. This aid may include transaction fee subsidies, credit access, and technical assistance in implementing best practices. The alignment with structured exchanges ensure that the funds are easily repatriated.
The government can partner with Commodities Exchanges to build dependable market information systems that give real-time data on agricultural commodity pricing, demand, and supply. Farmers will be able to make more informed decisions and increase their negotiating power when trading on commodity exchanges with this knowledge.
Commodities Exchanges should host joint capacity building session for civil servants and commodity stakeholders. This can involve instruction on quality standards, post-harvest management, grading, and other features that increase agricultural produce’s marketability. The government must guarantee coordination among key ministries, agencies, and parties involved in agricultural and commodity exchanges to ensure effective policy co-ordination. This collaboration can aid in the streamlining of laws and regulations, remove bottlenecksand the promote a favorable environment for agricultural trading.
Can you give an insight into the trading on LCFE since its inauguration last year?
At our official Commissioning in July 2022 when we launched the first Gold Spot instrument on any Exchange in Nigeria, the Executive Governor of Lagos State, His Excellency Mr Babajide Sanwo-Olu, unveiled the first exchange traded Gold Coins, The Eko Gold Coin. These Coins are 99.99 per cent or 24 Carat pure Gold and weigh 50g each. Gold Trading Commenced on the Exchange started at 43,000 per gram and today, it is appreciating .
The Securities and Exchange Commission (SEC) granted approval of wheat, bringing the total number of SEC approved commodities to 14.
We signed the agreement with the Lagos State Government on rice initiative. Active Trading of paddy rice has commenced on the Exchange.
The Exchange has been highly visible in all activities about Lagos Rice Mill, Imota. What is driving this collaboration with the Lagos State Government?
LCFE and Lagos State Government relationship stems from the same agenda. We both understand the need to drive the development of the Rice value chain in the nation. This collaboration will drive the supply of Paddy to the Lagos Rice Mill, Imota, integration of all Rice Stakeholders in Lagos State, standardisation of Paddy and Head Rice in Lagos State, opportunity for investment in the Rice Sector through LCFE, creation of Financial Instruments for Paddy Trading opportunities for Rice distributors and stakeholders to trade on the Exchange, opportunities for financing for aggregators and distributors of rice and participation of the Nigerian Capital Market in the Lagos Rice Value Chain. We are looking to replicate this model with other Subnational across the country.
There is still a wide knowledge gap in understanding the basics of commodities exchanges in Nigeria. Are there plans to address this in order to attract investors into the market?
Yes, our first step when we entered the market even before we received our license from the Securities and Exchange Commission was stakeholder sensitisation and capacity building. This is a strategy we will never stop executing. When we started, the concept of a Commodities Exchange was still relatively new. Stakeholders could not draw the line between Commodities trading and being an Exchange. We understood that and ensured that we trained capital market operators to differentiate between Commodities Trading and being a regulatory entity. Commodities Exchanges shouldn’t own commodity assets like paddy rice and warehouses because they need to regulate stakeholders who own these assets. You can’t own and regulate at the same time. The Exchange will continue to drive this narrative and capacity building across all stakeholders in the Commodities Ecosystem and the Capital market.
How do you intend to attract youths into the commodities ecosystem in view of their population and strong technology inclination?
At LCFE, one of strategies is hinged on the understanding that the current investing population in Nigeria is an aging one and if the new generation is not encouraged to invest in Nigeria, our capital market will be in trouble. There is a need to sensitize the youths as they are becoming more involved in the activities of today. This simply comes down to the increase in accessible information online and the technological inclination.
These young investors are actively trading in foreign stock, cryptocurrencies, and multiple digital assets abroad but are not trading in the Nigerian Capital Market.
We are implementing the following strategies to ensure that the next generation of investors consider the Nigerian Capital Market as attractive: Digitization of commodity instruments, using blockchain technology to ensure that investors can invest in small fractions of commodity instruments which they can afford, providing a variety of financial instruments aid their portfolio diversification, organising educational programmes, campaigns and events to teach young people about the commodities ecosystem.
One of such programmee is our annual Financial Literacy Seminar for Secondary and University students, technology integration to facilitate easy access to commodity markets, creating user-friendly mobile applications or internet platforms that allow young people to easily watch market trends, access real-time data, conduct trades and networking events, seminars, or webinars,aimed exclusively towards young people interested in commodities. These are just some of the strategies we are implementing at LCFE at the moment.