Reinventing Nigeria’s Commodity Market: The Drives And Drags

OLUSHOLA BELLO examines the low state of commodity exchange markets in the country; and the new drive to breathe life into them. She notes that well-driven and functional commodities exchange markets are needed to boost economic growth and agricultural sector contribution to the nation’s GDP. Nigeria is a resource-rich country, but the focus has been on the production and exportation of crude oil and gas. With the prolonged tumbling of oil prices, it has been imperative for the country, more than ever, to move from being a mono-product economy to one with a more diverse revenue base.

Agriculture has been touted as the new oil for the country. Although the country has approximately 78 per cent of agricultural land, of which roughly half is arable, but with the discovery of oil, Nigeria permitted its agricultural sector to stagnate and die. Eventually the country became a net importer of food. According to research, Nigeria spends over $22 billion yearly on the importation of food items. The administration of President Muhammadu Buhari is seen as trying hard in reversing this trend and strengthen Nigeria’s underdeveloped commodities market.

What is Commodity Exchange?

According to Wikipedia sources, a commodities exchange is a market where various commodities and derivative products are traded. Most commodity markets across the world trade in agricultural products and other raw materials and contracts based on them. These contracts can include spot prices, forwards, futures and options on futures. Commodities exchange usually trades future contracts on commodities, such as trading contracts to receive something, say corn in a certain month.

A farmer who cultivates corn can sell a future contract on his corn, which will not be harvested for several months, and guarantee the price he will be paid when he delivers; a breakfast cereal producer buys the contract now and guarantees the price will not go up when it is delivered. This protects the farmer from price drops and the buyer from price rise. Speculators and investors also buy and sell the future contracts in attempts to make profit and provide liquidity to the system.

History of Nigeria’s commodity exchange

Commodity Exchanges are established to broaden an economy through investment in agriculture and serve as a platform for investors to mitigate the inherent risks in agricultural production and marketing. This led to the establishment of Abuja Securities and Commodity Exchange (ASCE) in 2000, which came alive in 2001. It was the first exchange in Nigeria to provide electronic trading, clearing and settlement for both the primary market as well as secondary markets. It was set up to trade in equities, unlisted stocks and plain vanilla bonds. However the purpose for which the ASCE was established was not  achieved.

Africa Commodity Exchange

Commodity exchanges began to emerge in Africa in the 1990s. Uganda, Zimbabwe, Kenya, Zambia and South Africa were pioneers in launching commodity exchanges. One of the most prominent examples is the Ethiopian Commodities exchange (ECX) set up in 2008. The commodities exchange trades coffee, beans, maize and a few other crops. Analysts say Ethiopia Commodities Exchange experiment has helped farmers to sell their commodities at a profit with agricultural mechanisms such as crop insurance and warehousing. The commodity market helps them gain collateral, and then loans to expand their businesses.

The ECX has been a big motivator for African nations to form their own exchanges. Only two countries have produced lucrative models: South Africa and Ethiopia. But there have been a large number of commodity exchanges tried over the past decades, many resulting in failure or little growth and activity. One of the examples cited is Nigeria.

Problems of Nigeria Commodity Exchange

The exchange is very vital as it stimulates the production of surplus commodities to enable farmers and farmers’ cooperatives to bulk their agricultural commodities for trading on the exchange. However, it has not been able to make the necessary impact since inception due to several challenges. Speaking to media, early in the year, the managing director and chief executive officer (CEO) of the Nigerian Commodity Exchange, Mrs. Zaheera Baba-Ari, lamented that, “Currently, NCX is operating sub-optimally as the conversion from stock to commodity exchange was done without the required structural and institutional infrastructure.” Baba-Ari said the exchange lacked adequate warehousing capacity; adequate physical infrastructure (communications, transportation); and appropriate legal and regulatory infrastructure in terms of a system of grades and standards, and a credible system of contract enforcement and governance in spot markets. Other drawbacks of the NCX, according to its CEO, are lack of supportive public policies and institutional infrastructure such as producers’ organisations as most African countries are characterised by smallholder farmers.

Efforts of Federal Government In Revamping the Exchange

Nigeria is intensifying efforts to revive and spur the trading of its agricultural produce and solid minerals in a new proposed law that seeks to regulate the Commodity Future and Derivative trading in the country. The federal government put in place adequate strategies to reposition the exchange, and one of them is the privatisation and recapitalisation of the Nigerian Commodities Exchange. Analysts note that the success of a commodity exchange is dependent on the availability of both physical and complementary infrastructure as the privatisation of the NCX would provide the opportunity for investors to utilise both existing and additional resources to close the existent infrastructural gap and in turn improve trading volumes. The chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion said “In jurisdictions where commodity trading is conducted via privately established commodities exchanges, trading volumes are impressive.” Citing example, he said in South Africa, the South African Futures Exchange (SAFEX) trades well over a hundred thousand contracts a month since 2001. He noted that the exchange was bought out by the Johannesburg Stock Exchange in 2001, saying this has placed the exchange as the continent’s largest commodity exchange. He further stated that from all indications, it was clear that the privatisation of the NCX was overdue if trading capacity in commodities is to improve in Nigeria. Giving reasons why the present administration should re-position the exchange, Baba-Ari pointed out that the NCX is a key vehicle through which government can realize its objectives of employment generation through agriculture. She stated that the NCX platform, if re-positioned, would encourage increased production of agro-commodities as farmers would have ready access to an efficient market. Baba-Ari further stated that the exchange would enable food processors to have ready supply of traceable, quality certified inventories; be assured of timely delivery of supply, freeing them from the expense of stockpiling; and price products appropriately owing to improved operational efficiency. “Agribusiness data collection and analysis would be enhanced for the benefit of national economic planning agencies,” she added. She suggested that all the operators in the commodity market should be mandated to participate actively in the buying and selling of their commodities on the floor of the exchange to deepen the commodity segment of the capital market and enhance liquidity as well as increase market capitalization.


This Nigeria’s pioneer agricultural commodities exchange, commenced the export of farm produce to global markets, following a deal it signed recently with Camscorp, another commodities exchange firm based in the UK. Its aim is to end Nigeria’s N250 billion annual losses from its underutilised air freight export market. While countries like Kenya, South Africa, Benin Republic, Cote d’Ivoire, Ghana, Senegal, Ethiopia, Tanzania and Egypt are said to be participating in the trading of commodities such as fruits, fresh fish, vegetables and flowers through electronic exchanges, Nigeria, which produces these commodities in greater abundance, records zero participation. The country manager of AFEX-Nigeria, Ayodeji Balogun, said, “We traditionally trade soya beans, paddy rice and sorghum, but now we are starting a number of export crops, and ginger is the one that we are signing today.” According to Balogun, we already have contracts listed for cashew nuts and sesame seeds, and hopefully as we move along, we will be expanding our operations into other export crops that can help the country to diversify its economy and also increase the amount of non-oil dollar or hard currency generation.


The Nigeria Commodity Exchange (NCX), formerly known as the Abuja Commodities and Securities Exchange was originally incorporated as a Stock Exchange on June 17, 1998. It commenced electronic trading in securities in May 2001 and was converted to a commodity exchange on August 8, 2001 and brought under the supervision of the Federal Ministry of Commerce. The conversion was premised on the need for an alternative institutional arrangement that would manage the effects of price fluctuations in the marketing of agricultural produce which adversely affect the earnings of farmers since the abolishment of Commodity Boards in 1986. Lagos Commodities and Futures Exchange The proposed Lagos Commodities and Futures Exchange is expected to trade in currency, commodities, oil and gas and solid minerals.

The Association of Stockbroking Houses of Nigeria (ASHON) is the main promoter of the Lagos Commodities and Futures Exchange. The raising of the initial capital for the proposed Lagos Commodities and Futures Exchange (LCFE) has already kicked off in the state. According to the Memorandum of the Private Placement, 500 million ordinary shares of N1 each would be offered to investors at N1 per share. The net proceeds of the private placement will be used to fund the start-up and operational take-off costs, administrative and personnel costs of the LCFE as well as leasing of a trading platform for the trading of qualifying derivatives including options, futures and spots among others. Also, as part of the final preparations  for the commencement of operation of the Exchange, ASHON sealed strategic relationship with a frontline depository, Central Securities Clearing System (CSCS) Limited. Besides, the CSCS has confirmed its readiness for clearing and settlement of transactions on commodities and futures. Commenting on the new business relationship between ASHON and CSCS the acting chief executive officer of Lagos Commodity and Futures Exchange, Mr Akin Akeredolu-Ale explained that Infrastructure for trading, clearing and settlement of transaction were fundamental to the success of any commodity exchange and indeed remained real challenge that must be addressed at every point.

According to him, ASHON and CSCS are well-positioned to ensure seamless take-off of the new Commodity and Futures Exchange. “The memorandum of understanding signed  by ASHON and CSCS  is the key heartbeat of the setting up a commodity exchange. Basically anywhere in the world some of the fundamental challenges in setting-up a commodity exchange are the issues of trading, clearing, settlement and electronic receipts. Akeredolu-Ale also explained that custodians would later participate in the system. Corroborating Akeredolu-Ale, the chief executive officer, CSCS, Mr Jalo-Waziri confirmed that the clearing house had always been associated with the state-of-the art technology for clearing and settlement of transactions . Jalo-Waziri expressed optimism that  with the memorandum of understanding, MoU, signed with the Commodity Exchange, the clearing house was ready to handle all its clearing and settlement. “After careful study of the details of the proposed Commodity and Futures Exchange, we  were very convinced to go ahead in partnership with ASHON. This has brought about the signing of the MoU.

The CSCS is fully ready for trade settlement aspect of the deal,” he said Regulators View The Security and Exchange Commission (SEC) through the capital market community (CMC) said it has set up a team to look into restoring the Nigerian commodities market. Before he was suspended, director-general of  Securities and Exchange Commission (SEC), Mounir Gwarzo,  disclosed that considering the important role commodities exchanges will play in advancing Nigeria’s economic diversification goals, they in the capital market community had taken steps to prepare the stage for vibrant commodities exchanges to emerge in the country.

Gwarzo noted that as Nigeria pursues policies aimed at diversifying the economy, creating jobs and hastening socio-economic development, it is becoming increasingly clear that commodities exchanges can play a crucial role in actualising these lofty objectives. According to him, a detailed empirical study by the United Nation’s Conference on Trade and Development (UNCTAD) analysed the impact of commodities exchanges on development in emerging markets. He explained that countries that were part of the study are also emerging countries with the most vibrant commodities markets such as India, Brazil, China, Malaysia and South Africa. He said among the many insights in study’s report is the fact that commodities exchanges play a central role in facilitating economic development especially by helping farmers to enhance their marketing and risk management capacity such as reducing their exposure to price and other production risks.

“For Nigeria, developing the commodities market could prove even more critical. With the policy thrust of the federal government to encourage investments in the agricultural and solid minerals sectors, now more than ever all hands must be on deck to develop a commodities market that can support these policy objectives,” he said. The SEC boss noted that Nigeria ranks number one in global export rankings for commodities such as kolanut, shea nuts and shea butter, cassava, and yams. “We also feature in top exporters for other commodities such as cocoa, rubber, oil palm, cashew and sesame seed. Our ginger is reputed to possess the best aroma in the international markets. Export opportunities also exist for a wide variety of other agricultural commodities. This simply magnifies the potential of our agricultural sector to contribute significantly to economic growth and development,” he said. Also, the minister of Industry, Trade and Investment, Dr. Okechukwu Enelamah,  said that the proposed strategic investment in the Nigeria Commodity Exchange (NCX) by the Nigeria Sovereign Investment Authority (NSIA) was aimed at revitalizing the operations of the exchange to make it more responsive to its mandate of serving as a platform for trading agricultural  produce and other commodities.

He said it was also to facilitate trades in financial derivatives, contributing meaningfully towards the development of agricultural production through regulation of robust and standard warehousing facilities; including silos and enhancing liquidity in the sector through the Warehouse Receipt System (WRS). Stakeholders’ view The managing director of HighCap Securities Limited, Mr. David Adonri said to enhance the long term integrity of the new commodity exchangesq initiative, relevant authorities may need to engage the private sector further to promote the provision of solutions and services to bridge the identified gaps in supporting infrastructure. According to him, from the provision of private warehouses to privately owned transportation hubs, there are opportunities to drive logistical efficiency that will make the exchange effectively functional

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