Bankers and other operators in the Nigerian financial market have identified deployment of commodities ecosystem as a potent method by which the Central Bank of Nigeria (CBN) can achieve the plan to generate $200billion (in foreign exchange through the non-oil exports) in the next three to five years through its RT 200 FX programme.
By the set of policy, plan and programme, the proposed forex injection into the system shall be exclusively from non-oil exports. The current sources of forex inflow into Nigeria have been adversely affected by COVID -19 apart from inadequacy and unreliability of some of the sources.
Bankers and other financial market operators who converged at a breakfast meeting, hosted by Lagos Commodities and Futures Exchange (LCFE) at the weekend agreed that effective utilization of Nigeria’s Commodities ecosystem presents an ample opportunities for the apex bank to achieve mobilize forex through non- oil exports.
Their discussions were based on commodities products, structure of the market, funding mechanism, accessing the global market, size of the market and imperative of collaboration among operators.
In his presentation, the Divisional Head, Agribusiness, Natural Resources and Project Development, Heritage Bank, Olugbenga Awe explained that the Nigerian economy had been well diversified, going by statistics except the sources of forex.
Awe who spoke on “The Opportunities for financial Institutions in the CBN RT 200 FX Programme” stated that a commodity exchange was a risk management platform. According to him, the biggest challenge to exportation of non-oil products in Nigeria is the standardization to meet global demand.
He explained that the Nigerian non-oil products could boost forex earnings.” But the products must meet global standards. This is where commodities exchanges come in. Any product whose electronic receipt is traded on a commodities exchange must be of global standard. Banks are willing to support exporters provided they meet certain criteria, Including history of performance, export volume and frequency, payment methods, products sourcing strategy, risk mitigants and seasonality among others,” Said Awe.
Corroborating him, the Managing Director, Agvest Nigeria, Bode Abikoye noted that commodities prices offered offer protection from the effects of inflation.
“Investing some of your portfolio in commodities is recommended by many experts as it is seen as a diversifier asset class. Moreover, some commodities tend to be a good hedge against inflation, such as precious metals and energy products. Investors break down commodities into two categories: hard and soft. Hard commodities require mining or drilling, such as metals like gold, copper, and aluminum, and energy products like crude oil, natural gas, and unleaded gasoline. Soft commodities refer to things that are grown or ranched, such as corn, wheat, soybeans, and cattle.
“Commodities tend to bear a low to negative correlation to traditional asset classes like stocks and bonds. Supply-and-demand dynamics are the main reason commodity prices change. When there’s a big harvest of a certain crop, its price usually goes down, while drought conditions can make prices rise from fears that future supplies will be smaller than expected,”Abikoye said.
The Chief Executive Officer Lotus Capital, Hajara Adeola, who spoke on “ The Potentials of Non- Interest Financial Instruments to Finance Commodities Ecosystem “ explained that on non- interest financial instruments were based on managing businesses on moral principles and they offered many benefits to investors.
Other speakers articulated how the apex bank could leverage commodities ecosystem to develop potential sources of forex through exportation of non-oil products of global standards.
In his welcome remark, the Managing Director, LCFE, Akin Akeredolu-ale explained that a commodities exchange would always come in by catalyzing enabling environment, alignment of relevant stakeholders, transparent trading platform, certification and standardization, data and price discovery, enabling environment for price discovery and regulatory framework.