The CBN's Planned Restructuring of the Nigeria Commodity Exchange Raises Concerns


Tuesday, February 02, 2021 / 09:57AM / OpEd by Sola Oni / Header Image Credit: Ecographics 


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The Beginning...


On Tuesday, January 26, 2021, the Governor of Central Bank of Nigeria (CBN), Mr. Godwin Emefiele addressed the first press conference in the year where he unfolded the decision of the Monetary Policy Committee (MPC) on the rates that will drive operations in the money market. Expectedly, all the key indicators were retained. Monetary Policy Rate (MPR) stays at 11.5 percent, Liquidity Ratio, 30 percent, Cash Reserve Ratio (CRR) and Asymmetric Corridor were also retained at 27.5 percent and +100 and-700 basis points respectively. While the rationale for retaining the monetary policy instruments' rates is not entirely rocket science, it may be a costly gamble for the apex bank to adjust any of the rates while the economy is trapped in stagflation. The bank has chosen the path of gradual synchronization of monetary and fiscal policies to rescue the economy from the pang of recession. 


Read: CBN Deals the House Card as Policy Rates Remain Unchanged - Jan 27, 2021


One of the high points of Emefiele's address was the decision by the CBN to restructure the government-owned and embattled Nigeria Commodity Exchange (NCX) whose history dated back to 1998, when it debuted as Abuja Stock Exchange. The organization could not find its bearing despite the government's ownership and consequently metamorphosed into a Commodity Exchange in 2001, perhaps the last option to remain in business.


As a follow-up to Emefiele's announcement of restructuring of the NCX, he finally stated that the apex bank and Nigeria Sovereign Investment Authority (NSIA) would invest N50 Billion lifeline in NCX to revive the struggling premier commodities exchange.


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Issues at Stake...


There is no doubt that Nigeria needs viable commodities exchanges if we must expand our sources of foreign exchange earnings in the wake of incessant external shocks from the international oil market. The government's huge investment in agriculture will be further enhanced if we have structured commodities exchanges. They create platforms for price discovery and enable stakeholders in the commodities ecosystem to earn return through different value chains in agricultural commodities. 


Food inflation is currently at approximately 20 percent in Nigeria while headline inflation hovers at 15.75 percent. The situation calls for more creative ways to reverse the trend. It is against this background that the federal government through the CBN is deploying a combination orthodox and unorthodox economic policies to salvage the economy. 


Read:  Coronanomics (25) - A Regulator's Burden - CBN's Tale of Heterodoxy - Proshare, Jul 01, 2020 and The Limits of Heteredox Economics Revealed, MPC Trapped and Has to Hold - Proshare, Mar 24, 2020


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The uncertainties in the operating environment have prompted global institutions such as the International Monetary Fund (IMF), World Bank and top global rating agencies to put their ratings on Nigeria's economic growth in the reverse gear. As the high priest of price stability in Nigeria Emefiele is daily sweating under his exotic blue jackets.  The situation has almost turned our economists to 'pseudo experts' as models are failing at frenetic pace across the globe.


After twenty-three (23) years of existence, NCX is still floating like a rudderless ship. The Exchange has trained many professionals, including my humble self and many others who opted for the training as part of retirement plan. But sadly, over two decades post-formation, NCX remains a market without wares. Apart from government's lethargic approach to managing the premier commodities exchange, its operations are stifled by weak legal and regulatory structures such as absence of rules, issues of efficient delivery with counter parties and warehouse receipts.


In his justification for the government's decision to recapitalize NCX, Emefiele blamed private commodities exchanges in Nigeria for hoarding agricultural commodities for arbitrage opportunities; viz: 

"We have found in the market that activities of the private commodities exchange have not helped our country and it is time for the Nigeria Commodity Exchange to be repositioned and restructured to perform the role which by law it has been empowered to. 


"We will be coming up with the agenda and framework for the restructuring and repositioning of the Nigeria Commodity Exchange and we will do so in a manner that prices must be stable in Nigeria. We will not allow some self-seeking private exchange commodity to be hoarding agriculture products and be creating problems for prices because price stability is the core mandate of CBN and we cannot shy away from the responsibility."


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Vital Observations...


Emefiele's emotional outburst contains some administrative and technical inaccuracies that need to be cleared for the avoidance of doubt. This may also help the public in understanding the basis for his sweeping accusation that private commodities exchanges are hoarding agricultural products.


As of today, the only publicly known commodities exchange registered by  the Securities and Exchange Commission (SEC) are AFEX Commodities Exchange Limited, popularly called AFEX and recently the Lagos Commodities and Futures Exchange (LCFE). 


Operationally, AFEX "is established in Nigeria with an overarching outlook to develop a workable warehouse receipt system". The company at present thrives on buying agricultural commodities into warehouses for sale. AFEX may later graduate into full blown trading as a structured commodities exchange. But as of now, the company has not announced its dealing member firms, settlement banks or depository which are all attributes of a structured exchange. 


Late last year, in one of the Capital Market Committee's (CMC) meetings hosted by SEC, the Commission stated that trading rules had not been approved for any commodities exchange.


This is perhaps why LCFE is just planning to commence trading this year. More importantly, every structured commodities exchange sells electronic receipts and not physical products. Juxtaposing these scenarios with Emefiele's reading of the riot act to private commodities and exchanges, he owes the Nigerian investing public and international communities some clarifications on accuracy of facts about the true position of private commodities exchanges in Nigeria today. This will minimize the reputational damage that his condemnation of private operators of commodities exchanges may have caused the system.


The news has gone viral and it has now become a game of damage control.


The announcement of N50 Billion capital injection into NCX theoretically looks good but has an undercurrent of creating unhealthy competition in the commodities space. The N50 billion is tax payers' money and government can as well support other commodities exchanges even if not with the same quantum of money. The more commodities exchanges, the better for the economy and it will also bring more food to the table for commodities brokers.


Beyond the jubilations that expectedly followed the announcement, there are issues -

  • Will the capital injection solve the problem of NCX?
  • What has kept the Exchange stagnant over 23 years of existence, despite changing its business model from conventional stock market to commodities platform?
  • What is the way forward for NCX and other private commodities in Nigeria?
  • What is the governance and equitable basis for govt ownership of an entity in a competitive landscape?


It is settled in every strategic business decision that government has no business in business. Government creates an enabling environment and allows the private sector to thrive, manage the business vale chain. It is trite knowledge that Government has the financial muscle but may not always have the administrative, technical and operational competence to run a business profitably. This explains why companies such as National Insurance Corporation of Nigeria (NICON), Nigerian Re-insurance Corporation, Nigerdock Plc, National Aviation Handling Company (NAHCO), Nigeria Railways Corporation (NRC), Nigerian Ports Authority (NPA), Nigerian Postal Services (NIPOST) and NITEL among others; ended as candidates for privatization. It is as much about efficiency and productivity as it is about economic development.


I am not saying that privatization has no challenges but on comparative basis, companies promoted by private sectors are doing very well as adjudged by the banking and telecoms sectors. But the ones managed by government usually end in technical insolvency at the minimum and their final physicians are the private-sector operators. A few posers:

  • If the federal government believes that NCX is cash-trapped, what happened to every Naira it has spent on the organization since inception?
  • Why was the decision to allow the private sector turn around the company jettisoned; and we now return to square one?
  • With its approx. sixty (60) percent controlling equity holding in NCX how come that CBN has been unable to make the company profitable all along?  


Read:  Who Regulates the Board of an entity with CBN as the majority owner? - Proshare, Jan 29, 2021


It seems our apex bank is losing focus on its core mandate of price stability as it is fast becoming a commercial bank in orientation by attempting various businesses under  Emefiele.


The public will be interested in the impact analysis of billions of Naira (=N=) already dolled out to farmers under the Anchor Borrowers Programme and an explanation of how government can recoup the huge amount for further empowerment of entrepreneurs.  


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The Way Forward...


Every business in Nigeria is a victim of policy inconsistencies, macroeconomic vagaries, subtle devaluation of Naira, insecurity, and parlous state of infrastructure. Beyond the facade of N50 Billion, the federal government should reverse its open-ended policy of agricultural financing without structures that integrate it to the operations of a structured commodity exchange. For instance, all export trades should be ratified on the commodities exchanges.


By this, agricultural commodities for exports should be traded on a commodity Exchange. This will automatically kick-start activities on all the commodities exchanges in Nigeria and provide opportunities for data capturing with multiplier effects of leveraging such data to make projections on revenue. The data will also be useful for local and global financial institutions as well as rating agencies. Every legislative support for agricultural commodities must be linked to the financial market and government should encourage crude oil trading and this can be driven by NNPC and independent producers. 



Rounding Off...


At a time like this, Nigeria needs to encourage institutions that can promote price discovery, portfolio diversification, hedging and import and export competitiveness. Government must provide supportive legislation to enhance operations of commodities exchanges in Nigeria. Selective capital injection does not guarantee the turnaround of NCX while denial of private operators' involvement in managing the market may continue to rob it of competitive edge. Nigeria has a lot to benefit from commodities exchanges. Our apex bank should settle to create an enabling environment, guarantee offtake agreements and fungible financial products for capital raising via this specialized market. Government policies on agriculture should take into consideration the impacts on commodities exchanges. Agriculture contributed 31 percent to the Gross Domestic Product (GDP) as at September last year. It is one sector that has direct relationship with operations of a commodity exchange. Government should take a second look at all agricultural initiatives to ensure that they promote investment through commodities exchanges.


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About the Author

Sola Oni, Communications Consultant, Chartered Stockbroker and Commodities Trader was a former Spokesman of The Nigerian Stock Exchange. Responses to this article can be sent to him via  


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Related Links - Nigeria Commodities Exchange

1.         CBN Chairs Nigeria Commodities Exchange Repositioning Committee - A Note - Proshare, Jan 29, 2021

2.        About the Nigeria Commodity Exchange (NCX)

3.        About AFEX Commodities Exchange Limited Nigeria

4.        The Investments and Securities Act (ISA) 2007

5.        The Role of SEC in Public Issue of Securities and The Structure of The Nigerian Capital Market - by OC Nwachukwu, 2013

6.        A Report on Commodities Trading Ecosystem - Sec 2018

7.        Important Developments on NCX With Implications on Capital Market Activities

8.        Exposure of the Report of the Technical Committee on Enhancing the Commodities Trading Ecosystem  - SEC, Apr 26, 2018

9.        Report of the Technical Committee on Commodity Ecosystem - SEC, Apr 26, 2018

10.   Requirement for Registration as a Commodities Exchange - SEC, Feb 13, 2018

11.   The Privatisation of the Commodities Exchange and Prospects for the Diversification of the Nigerian Economy  - Detail Solicitors

12.   Nigeria's commodity exchange system stunted over limited private sector participation  - BusinessDay, Dec 17, 2019

13.   Unlocking Commodities Exchange Potential in Nigeria - The Guardian, Helen Oji, Oct 07, 2019

14.   Nigerian Commodities Trading System - " What You Need to Know - Jul 19, 2019

15.   SEC Publishes Registered Commodities Exchanges Warehouse Map - Jul 18, 2019

16.   The Role of Commodities Exchanges in Economic Development - Jul 05, 2019

17.   Building a Fair Commodities Exchange in Nigeria - Apr 01, 2019

18.   A Definitional Guide to Understanding Commodities Exchanges - Jan 30, 2019



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