Vibrant commodities exchanges will play a vital role in advancing Nigeria’s economic diversification goals. Chris Ugwu writes
The need for vibrant commodities exchanges have become necessary as agriculture, which is supposed to be the mainstay of Nigerian economy has suffered from years of neglect, inconsistency, poorly conceived government policies and the lack of basic infrastructures.
In the 1960s, the agricultural sector was the most important in terms of contributions to domestic production, employment and foreign exchange earnings. The situation remained almost the same three decades later with the exception that it is no longer the principal foreign exchange earner, a role now being played by oil and gas.
The sector remained stagnant during the oil boom decade of the 1970s, and this accounted largely for the declining share of its contributions.
According to National Bureau of Statistics (NBS), the trend in the share of agriculture in the Gross Domestic Product (GDP) shows a substantial variation and long-term decline from 60 per cent in the early 1960s through 48.8 per cent in the 1970s and 22.2 per cent in the 1980s.
Unstable and often inappropriate economic policies (of pricing, trade and exchange rate), the relative neglect of the sector and the negative impact of oil boom were also important factors responsible for the decline in agriculture’s contributions.
However, currently, the reverse is almost becoming the case as the decline in crude oil prices is currently affecting the economy and the government is looking for a way to boost non-oil revenue in the country.
This is the more compelling reason why there is need to boost non-oil revenues, one of which is reviving the country’s commodity exchange to encourage agriculture and also offer investors opportunities not only in the equity side but across the various asset classes.
It is believed that for the government to fully realise the huge potential of other sectors, functional commodities exchanges are necessary. Aside from the proposed Lagos Commodity and Futures Exchange, (LCFE), there are two major commodities exchanges in the country – Nigerian Commodities Exchange and Afex Commodities Exchange – which are promoting the trading of commodities. But given the important role they will play in the diversification programme, more still needed to be done to ensure they function very well.
Since capital market is reflective of the economy, Securities and Exchange Commission (SEC) has said that in order to complement the government in the area of agriculture, there is need to strengthen commodity exchange to enable the farmers have value for their products.
In a bid to boost agriculture and promote commodity exchange in Nigeria, the SEC said it was set to roll out various initiatives to provide an enabling environment for commodities trading in the country.
This is in support of the policy thrust of the Federal Government to encourage investments in the agricultural and solid minerals sectors in a bid to ensure economic diversification and deepen capacity across the agricultural value chain.
Director General of SEC, Mounir Gwarzo, said this while delivering a Keynote address at a training seminar organised by Africa Exchange Holdings (AFEX) on Commodity Trading and Risk Management in Abuja recently.
He said the 10-year capital market master plan, which the market is currently implementing is the blueprint for the growth and development of the market over the next decade and acknowledges commodities exchanges as critical for enabling investment diversification, risk management, price discovery and transactional efficiency. He expressed strong belief that to boost Nigeria’s competitiveness, a thriving commodities trading ecosystem must be developed.
The DG said: “We believe this can be achieved by implementing the following strategic initiatives: Build a supporting and functional ecosystem for commodities trading.
“Others are: Build Centre of Excellence in areas of comparative advantage such as for oil & gas, cocoa, etc. Develop efficient commodities exchanges and trading platforms, sponsor legislation to ensure Nigeria’s crude oil sales are traded on local exchanges and build capacity in commodities trading at the SEC and among market operators”.
He said that as Nigeria pursues policies aimed at diversifying the economy, creating jobs and hastening socioeconomic development, it is becoming increasingly clear that Commodities Exchanges can play a crucial role in actualising the lofty objectives as 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.
Gwarzo said 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. Among the many insights in the 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).
Nigeria he said, ranks number one in global export rankings for commodities such as kolanut, shea nuts and shea butter, cassava, and yams and also feature in top exporters for other commodities such as cocoa, rubber, oil palm, cashew and sesame seed.
Recent stakeholders’ efforts
The Association of Stockbroking Houses of Nigeria (ASHON) recently signed a Memorandum of Understanding (MoU) with The Nigerian Stock Exchange (NSE) as it strengthened preparation for seamless take-off of the proposed Lagos Commodity and Futures Exchange, (LCFE).
The MoU, which was signed in Lagos by ASHON’s Chairman, Mr. Patrick Ezeagu and The Exchange’s Chief Executive Officer, Mr Oscar Onyema, is aimed at creating professional and technical relationship between the two institutions for enhanced trading on commodities and futures.
Speaking after the signing ceremony, ASHON’S Chairman, Mr. Patrick Ezeagu, said that the MoU signed would enable LCFE access the superior technological capacity of the NSE as the oldest Stock Exchange in Nigeria.
According to him, LCFE would hit the ground running once it is able to perfect the registration process with the apex regulatory body – The SEC.
Commenting on the strategic objective of signing the MoU with the NSE, Ezeagu said the strategic objective of LCFE was to have a technical partner that has the technical competence to enable it commence trading immediately after the regulatory approval without setting up a new platform.
“What we have done is to tap on the existing capacity that is already at the Nigerian Stock Exchange so with that we cannot get it wrong.” he said.
Corroborating him, Onyema said that the NSE was willing and well positioned to support capital market development and provide necessary expertise to other emerging exchanges around the continent.
He stated: “The Association of Stockbroking Houses of Nigeria has championed the establishment of the Lagos Commodity and Futures Exchange and this MoU that we signed today is an MoU that positioned the Nigerian Stock Exchange to provide technology and other technical support to the Lagos Commodity Exchange.
“As you know, we do have a service that we use to provide such support for other emerging exchanges around the continent, given the expertise that we have developed over the years and so the significance is that we are supporting market development and we are providing expertise to make it easier and more cost effective for an exchange such as the Lagos Commodity exchange to hit the ground running,” he said.
Acting Chief Executive Officer of the proposed LCFE, Mr Akin Akeredolu-Ale, also reiterated the strategic position of the NSE in providing technical and technological support for the LCFE.
Managing Director, Crane Securities Limited, Mr. Mike Eze, described the efforts of government and regulators as a welcome development. He said: “As an investor, your chances of risks are very less if you choose to invest in commodities trading.”
Explaining the importance of commodity exchange, aside helping to deepen the activities of the capital market with the introduction of new products, Eze said that it will increase the earnings of the producers by reducing the effects or price volatility, provide a basis for risk management and serve as mechanism for effective pricing.
“The benefits of a commodity exchange include market price discovery as well as access to information concerning commodities traded on the commodities Exchanges, which are available to brokers in advance of trading i.e. quality, location and time of delivery, thus facilitating pricing, among others.”
A robust commodity exchange is particularly critical now, given the increasing emphasis on agriculture, which is expected to enhance non-oil revenue in the country.
Stock market opens week bearish
Trading activities on the floor of the Nigerian Stock Exchange (NSE) market yesterday opened this week on the negative territory as the overall performance measures, NSE ASI and market capitalisation, both fell by 1.53 per cent.
The downswing according to market watchers, was due to profit taking by investors after recent bullish rally.
Consequently, the All-Share Index dropped by 651.09 basis points or 1.53 per cent from 42,638.83 index points last Friday to close at 41,987.74, while the market capitalisation of equities depreciated by N234 billion or 1.53 per cent to close at N15.067 trillion from N15.301 trillion.
Further analysis of the day’s trading showed that Linkage Assurance Plc topped the day’s gainers’ table with 9.09 per cent to close at 96 kobo per share, while Livestock Feeds Plc followed with five per cent to close at N1.05 per share. Fidson Healthcare Plc added 4.92 per cent to close at N4.69 per share.
On the flip side, PZ Cussons Nigeria Plc led the losers’ chart with a dip of 8 per cent to close at N23.00 per share. Lasaco Insurance Plc shed 6.06 per cent to close at 31 kobo per share. Enamelwa Nigeria Plc followed with 4.95 per cent to close at 22 kobo per share.
Market turnover closed negative as volume moved down by -64.80 per cent as against +32.62 per cent uptick recorded in the previous session. Skye Bank Plc, Diamond Bank Plc and FCMB Plc were the most active stocks that boosted market turnover while Zenith Bank Plc and Guinness Nigeria Plc topped market value list.
Nigeria mulls 700,000 barrels daily oil output surge
…envisages 250,000 barrels from local producers
Nigeria is planning an increase of 700,000 barrels a day in her oil production. Data from the Ministry of Petroleum Resources sighted by New Telegraph showed that indigenous producers from the country aim to pump almost 250,000 barrels per day additional crude by 2020 as part of a wider plan for the nation to lift output to 2.5 million a day.
“We are on course,” Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, who confirmed the data, said in Abuja last weekend, just as he intimated newsmen of the goal to pump 2.5 million barrels a day by 2020. “Capacity-wise, the volumes are there. Infrastructure-wise we suffer a little bit in terms of being able to deliver.”
There are at least a dozen small to mid-sized Nigerian producers pumping between 5,000 and 100,000 barrels each day. Together, they plan to add incremental supply of at least 150,000 barrels a day this year. Aiteo E & P Ltd., Nigeria’s largest independent, didn’t immediately comment about its expansion plans. Shoreline Group, the third-biggest independent, the data showed, wants to double output by December with Seplat Petroleum Development Company, the second-largest, also intending to produce more.
” In all, the country’s total planned increase, a report adapted from the data showed, is 700,000 barrels a day. “Just over a third will come from the state-run Nigeria Petroleum Development Co., a third from independents, and the remainder from oil majors.
The expansion depends, among other things, on peace being maintained in the Niger Delta. A militant group said last month it would attack oil and gas facilities,” the data adapted by Bloomberg showed. “One probability is at least some of the extra Nigerian supply will end up feeding the Dangote oil refinery, the continent’s largest, which is due to start operating next year. While doing that would help rid Nigeria of its dependence on fuels produced overseas, it wouldn’t extricate the country from its commitments to OPEC.
“Back in 2016, Shoreline had to cancel a planned $500 million Eurobond. With oil prices rallying, the company is making a comeback. It agreed a $530 million deal with financiers led by Vitol Group, the world’s biggest independent oil trader, as it seeks to double crude output to 100,000 barrels a day by year end.
“It represents a massive vote of confidence in the future growth of our operations and of Nigerian upstream producers,” Kola Karim, chief executive officer of Shoreline, said in an interview.
“Shoreline’s progress mirrors that of other Nigerian independents.Seplat, said to be among companies bidding for Petroleo Brasileiro SA’s African oilfields, expects to ramp up drilling this year after output recovered from militant attacks and low prices, according to company statements,” the report said. Half a decade ago, these producers were hailed as the future of Nigeria’s production because of their potential to pump 40 percent of the OPEC member’s output. They had bought oilfields that hold at least a third of the West African nation’s 37.5 billion barrels of crude reserves from companies including Royal Dutch Shell Plc, Total SA, and Eni SpA. Their day may still come.
The OPEC deal is currently in place until the end of this year and global demand is rising fast. The International Energy Agency this month revised up its growth estimate for world oil consumption by 100,000 barrels a day, taking it up to 1.4 million.
“As the oil market rebalances in the years ahead, OPEC will have to lift its production cap,” Pabina Yinkere, an energy analyst at Lagos-based Vetiva Capital Management, said by phone, adding that a lot of extra Nigerian crude could be used to feed the Dangote refinery.
“Moves to raise production are in view of expected demand growth.” The oil producers in Nigeria are planning to add barrels at the same time as Nigeria participates in a global pact to restrict oil supply that’s being led by the Organization of Petroleum Exporting Countries and non-member nations including Russia. If any one country relents – and similar internal pressures are bubbling up elsewhere – then the entire deal could come under strain.
“If they can pump more in Nigeria, I don’t see why they wouldn’t,” Warren Patterson, a commodity strategist at ING Bank NV, said. “If you get Nigeria exceeding the cap, then you’re going to get others who pump a little bit more. The longer the deal goes on for, the more likely it’s going to fall apart.”
2018: Experts predict vibrant real estate
As oil prices stabilise at 17 per cent higher than 2017 average and direct foreign investment increases, experts see surge in real estate activities in 2018. DAYO AYEYEMI reports
Following improvement in the economy, things are beginning to look up in Nigeria’s real estate sector with market operators getting set to tap into the opportunities, which exist in various segments of the market.
They were, however, particular about the low and middle income residential, millennial and student accommodation sections. Apparently equipped with the dynamism of happenings in the economy, they stated that investors (both local and foreign) were prepared to launch into pockets of opportunities in real estate market. Investors’ hope has been further boosted by the latest Bismack Rewane-led Financial Derivative Company (FDC)’s report on review of third quarter of 2017, which showed that Foreign Capital Inflows (FCI) to Nigeria increased by 148 per cent to $4.15 billion.
This positive trend, analysts said, happened as a result of renewed investor confidence in the economy. Also, the experts noted that oil prices had climbed to 17 per cent higher than 2017 average, expressing confidence that if the situation persists, oil revenues might help mitigate consequences of capital flight.
This newspaper gathered that while some developers are entering into Joint Ventures (JV) with the government to provide affordable housing units for citizens, others are currently repackaging their products to attract financiers and buyers.
In exclusive neighbourhoods such as Ikoyi, Victoria Island and Lekki, where landlords can no longer wait without getting tenants and buyers for their dormant properties, they have been converting their vacant houses to smaller apartments such as one-bedroom, studio and condos to attract people in need of smaller accommodation. This innovation by landlords, according to experts, has caught the attention of working-class singles who want to live very close to their workplaces.
Taking a look at what 2018 holds for the sector, experts, which comprised developers, institutional investors, mortgage providers, media practitioners, property consultants and brokers at Fine and Country West Africa’s investors series, agreed that the outlook was bright and promising for real estate, hinging their prediction on improved economic climate. According to them, the economy has started looking up with pockets of opportunities emerging in the residential segment of the market.
They observed that low to middle income market remained strong all through the recession period while the upper market struggled. “But developers are adopting creative ways of dealing with the persisting challenge with a view to stimulating demand and sustaining their business,” they said.
Setting the pace, Sales Consultant, Fine and Country in Lagos, Mr. David Mba, said that he saw a more vibrant residential market coming as a result of an improved economy in 2018, adding that what were considered challenges in the past have become opportunities. According to him, developers in their bid to share risk and also raise more capital were going into joint ventures, citing Brains and Hammers Limited’s example.
“Only recently, Brains and Hammers Limited, one of Nigeria’s leading real estate and infrastructure development companies, entered into a joint venture agreement with Lagos State Government,” he said. This move, he explained, is believed to be the company’s response to pressing demands from its clients who wanted to acquire property in Lagos.
He said: “The move will see the company developing 750 housing units, comprising 132-tower units and 618 units that will be part of the Jubilee Estate development in Iganmu area of Lagos.
“The Phase 1 of the project comprises 129 units made up of 12 units of 2-bedrooms, 24 units of 4-bedrooms terrace and 93 other units. There are also twin towers made up of 132 units, comprising 60 units of one bedroom, 24 units of two bedroom, and 24 units of 3-bedroom maisonette.”
Other market trends, Mba said, included increase in demand for good value three or four bedroom apartments in Ikoyi precincts, selling within the range of N120 million to N150 million; increase in demand for houses including terraces, semi and fully detached units. Publisher/CEO, BusinessDay, Frank Aigbogun, is of the view that improvement in the economy means increased business activities that will in turn trigger more demand for real estate products such as commercial office, retail and residential buildings.
Fine & Country’s CEO/Vice Chair, Udo Okonjo, stated that the sector’s positive outlook would come with opportunities for only investors who are ready to understand that the market had changed.
From market survey, she stated that there would be opportunities across various segments of the real estate’s market including residential, commercial office and retail. “Lifestyle communities are the new face of residential real estate.
These communities have the advantages of economies of scale and security,” the Fine and Country’s CEO said. She hinted that opportunity currently existed in millennial and student housing, adding that many investors were tapping into these areas.
Dean, Faculty of Environmental Sciences, University of Lagos, Professor Timothy Nubi, confirmed that many investors had already taken position around the university campus and were delivering one-bedroom self-contained apartments for N500,000 per annum.
In a bid to maximise the value of their property, a recent Northcourt Real Estate report 2018 outlook, noted that land owners looked more favourable to joint ventures with developers.
This newspaper also discovered that many developers and investors have been taking advantage of the ongoing construction of Dangote Refinery in Ibeju-Lekki, Lagos to acquire more lands in the axis for housing estate development.
As the business investment climate gets betters, necessary actions must be taken by the government to improve ease of doing business in the country.
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