That the Securities and Exchange Commission (SEC) finally approved the application from Lagos Commodity and Futures Exchange, LCFE, for the commencement of commodities and futures trading is no doubt a welcome development. The step, another boost to the efforts of SEC to deepen the capital market obviously aligns with the current moves by the Federal Government to diversify the Nigerian economy and to strip it of the perennial fluctuations associated with the global oil market. It comes as an addition to the two commodity exchanges already in place, both based in Abuja: the Abuja Securities and Commodities Exchange (ASCE) founded in 1998, and AFEX Commodities and Exchange Limited, both of which are primarily devoted to commodity trading.
First, to the extent that the economy needs all the help that it can get to keep it on an even keel, its coming on board certainly broadens the range of products on offer and, with it, the direct potential of helping to deepen activities in that segment of the capital market. Second, that the promoters of the exchange have plodded on despite the stifling challenges can only mean that the environment is not only increasingly conducive but continues to show forth great promises.
To the two above we can add the coming of age of the commodity and future markets in the Nigerian environment. Given that a major bane in our production/trade cycle, particularly of agriculture products, is the factor of uncertainty/unpredictability that often characterises them, the buying, selling or trading in various commodities at current or future date –which the market is all about – will surely help to lessen, if not remove outright, the perennial cycle of fluctuations and instability.
Merely by the various initiatives of the Federal Government to boost agricultural output across the board, there would seem no better time than now for the LCFE, to come on board.
However, a commodity and futures market can only deliver to the extent that the other significant variables in the larger economy allow. With agricultural practices still largely dependent on the vagaries of weather, and other acts of nature as frequent as to render output unpredictable, nothing of stability of the commodity exchange market can be guaranteed or held as sacrosanct.
Add to this the fact that agricultural insurance remains at a rudimentary level. The latter in particular renders the risk of a futures contract, even with the best of intentions, frustratingly high. Also well-known are the constraining factors of poor transportation infrastructure, poor access to credit and extension services – all of which combined still render the sector, a non-starter.
We expect the Federal Government to tackle these challenges with greater vigour if only to provide the enabling environment for the sustainability of the exchange.
The other issue is whether SEC is ready for the rigorous challenge of regulating this segment of the market, particularly as Nigerians would readily recall how lax regulatory oversight and sharp practices by banks and brokers precipitated the crash of the Nigerian bourse in 2008; how from the then all-time high of N13.5 trillion market capitalisation in March 2008, the market plunged to less than N4.6 trillion by the second week of January 2009 – from which it has not fully recovered till date.
For SEC, the challenge goes beyond throwing the door open; it is more about getting players of all shades to play by the rules and to punish infractions whenever they occur. The least Nigerians expect from SEC at this time is its preparedness for the growing number of the exchanges.