The Capital Markets and the Commodities Futures Trading Commission

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The Problem Statement

The Commodities Exchange Bill 2019 seeks to establish the Commodities Futures Trading Commission as a corporate body to regulate commodity futures trading in Nigeria by registering and regulating commodity exchanges, trading facilities and derivatives in Nigeria and creating a regulatory framework for their operation in order to protect investors and maintain a fair and orderly market and thus bring together purchasers and sellers of commodities.

Other functions and powers of the proposed commission in which the bill was read for the second time on Thursday, 19th of September 2019 would include the establishment of a nationwide system for commodities future in Nigeria and act as the regulatory apex organization for the Nigerian Commodity futures market.

The Policy Solution

The Commodity Exchange bill will contribute to unlocking finance to the commodity sector through price risk management as well as by providing access to capital markets.

A functional commodity exchange will attract investors into the agriculture value chain and enhance job creation.

It will help support the non-oil sector, diversify Nigeria’s export base and make the economy less vulnerable to external shock.

Through the provision of price transparency via the act, there will be better access to market; the income of farmers and their living standards will be enhanced.

Agribusiness will become more attractive creating investment and employment opportunities in the commodities value chain with positive multiplier effect on Nigeria’s economy.

NIGAC Constructive Position/Take

As much as we are excited about the much development the 2019 Commodity Exchange Bill would have on the economy, it has not acquired the required traction to take off owing to a weak legal and regulatory regimes especially in terms of absence of rules that enable an efficient delivery mechanism through warehouse receipts.

The government, through the Ministry of Agriculture and rural Development should channel every effort in partnership with the private sector to unlock the potentials of the Nigeria Commodity Exchange by putting in place adequate funding arrangement as well as jettisoning the reported plan to reintroduce marketing boards for some designated commodities.

The experience of many European and Central Asian (ECA) countries, including some in Africa, seems to suggest that the government should take the leading the development of a national commodity exchange because there is no full government buy-in, the potentials of the exchange may never be fully unlocked.

For instance, beyond the planned investment by the Nigerian Sovereign Investment Authority (NSIA) in the Nigeria Commodity Exchange, government contractors can be encouraged to buy minimum quantities of designated commodities from the Nigerian Commodity Exchange as seen in the Ethiopian Commodity Exchange (ECX) model which is considered as one of the success stories in Africa due to her government intervention.

Government should as a matter of policy, procure grains into the strategic grains reserve through the exchange and mandate all of its agencies such as National Emergency Management Agency (NEMA) to procure their grains through the commodity exchanges.

International agencies such as World Food Programme (WFP) should be encouraged to buy their agricultural commodity through the exchanges.

This will ensure quality, price transparency and foster development of the exchanges.

Government should also conduct awareness-raising campaigns among key stakeholders in target areas to improve the understanding of the commodities market and encourage participation.

Enacting the warehouse bill into law will ensure farmers have access to credit, bring on board smallholder farmers through well-organized cooperatives to improve liquidity.

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