Our commodities investment platform will go live in 2020
AFEX Commodities Exchange has reached over 106,000 farmers in Nigeria and traded 126,400 MT of commodities with a total turnover of N14.1bn.
In this interview, Ayodeji Balogun, CEO, AFEX Commodities Exchange Limited (AFEX Nigeria), discusses with Jide Akintunde, Managing Editor, Financial Nigeria, the activities of the commodities exchange in Nigeria.
Jide Akintunde (JA): We got the wind that AFEX Nigeria just completed a major fund-raising. Congratulations on this. May we know the details, including how the fund will be deployed?
Ayodeji Balogun (AB): This funding round was fully subscribed to by Consonance Investment Managers who we are very excited to welcome on board. Consonance commits to supporting high-quality, early-stage, and growing businesses across sub-Saharan Africa; investing in companies that provide solutions to key infrastructural challenges, which allows for the attraction of global capital into African markets and unleashes economic growth. AFEX joins a proud roster of Consonance’s portfolio of companies that are fostering collaboration and trust in industries across sub-Saharan Africa.
The fund will be channeled towards increasing liquidity in the commodities market as well as strengthening our operations and technology system. Essentially, we will be able to provide more value to producers, processors and investors who can take advantage of our growing infrastructure to exchange value along agricultural value chains in the country.
JA: I could even imagine some industry people asking what exactly does AFEX Nigeria do as a commodities exchange. What would be your response?
AB: AFEX provides a platform that promotes efficiency of trade in commodities, essentially connecting producers of commodities to consumers. The Exchange also creates value by unlocking investment for agriculture. When finance and investment flow in the direction of the farm, producers are able to see returns up to 3 – 4 times what they would have made without access to adequate credit and inputs at the right time.
For us it was very important to build trust with the players and make them understand that we are selling a bundle of goods and services that snowball into one delivery. It was important that through accessing our services, farmers would be able to produce efficiently and sell their products to a market that ensures they earn enough to pay their equity (and generate returns). We do not see our relationship with the farmers as transactional, we see it as a community that we are building.
The other part is to be able to structure these transactions to look like classical investment instruments. As an exchange, we needed to structure our model to mirror fixed income and money market instruments that investment bankers and fund managers could understand, relate with, and invest in.
JA: Why are commodities exchanges important, especially in Nigeria?
AB: Fundamentally, the role of a marketing board was to: first create the market, create value to the producers, and share value across the value chain. A marketing board would also give a direction to people on what part of agriculture they should invest in. When a transparent and fair market system exists that determines what the true value of commodities are (which is what a commodities exchange would do), it helps to promote investments; it helps with transparency; and it helps with an equitable distribution of value across the system.
A commodities exchange, as a more modern and better option to marketing boards, promotes market-led competition, fairness, transparency, liquidity and all those things you want to have with trade. It puts transactions in Africa on par with what is happening across the world. It also helps to create a platform for a functional and organized trade regime for the African Continental Free Trade Area (AfCFTA), which will become operational on July 1, 2020.
JA: What have been the impacts that AFEX Nigeria has made operationally, since it was established in 2014?
AB: Since coming into Nigeria in 2014, we have been able to develop and deploy a workable commodities exchange model for West Africa. The Exchange has built a strong supply chain infrastructure that is now able to support the dream of creating and launching sophisticated investment products for Nigerian agriculture.
AFEX operates 45 warehouses in Nigeria’s key grain-producing areas and accounts for 100,000 metric tonnes (MT) of total national storage capacity. We have reached over 106,000 farmers and traded 126,400 MT of commodities with a total turnover of NGN14.1 billion.
Instrumental to the impact that we have had so far with our operations at AFEX are the projects that we have launched with AGRA, USAID and DFID, which have enabled us to expand and strengthen the link between upstream agricultural activities like production and input provision, and downstream activities like storage and trading.
JA: We have the impression that AFEX Nigeria is a value-driven organisation. What are its values, and do they include sustainability?
AB: There are three things that we identify as our core values: Empathy, Excellence and Execution. They underline all the work that we do as a company, ensuring that we keep people at the centre when crafting products and solutions; we rely on data and feedback to ensure that we are always churning out the best work and improving on our processes; and we ensure that we are always getting the work done.
Sustainability comes in as central in our processes, which led us to prioritize the development of ancillary infrastructure - making it possible to offer a platform where producers share in the benefits of other global and local market participants. Both farmers and commodity merchants are enabled to trade seamlessly and access financial markets, with the presence of trust at every point of the process.
JA: What are the next milestones that AFEX Nigeria plans to reach in 2020?
AB: The key thing that we are frontloading is our commodities investment platform ComX, which will be going live in January 2020. It will give retail and institutional investors an easier way to gain exposure in the Nigerian commodities market: enabling them to invest and trade in agricultural commodity contracts at the click of a button.
Side by side with the introduction of ComX to the market, AFEX intends to strengthen our education platform, EdEX, to equip the market with the knowledge that will be required for them to take maximum advantage of the opportunities available in the sector.
These two activities will be carried out with our link with producers still firmly in place, as we continue to work towards unlocking finance and reaching one million farmers by 2024.
JA: What is your outlook of the Nigerian agriculture sector over the medium term (3-5 years)?
AB: The Nigerian agriculture sector has achieved several great strides in the past years with an increased focus on the backward integration structure instituted by companies operating in the country. In the face of the recession faced by the country, the sector contributed an average of 24.89% in the last three years to the GDP, helping to cushion the decline in oil performance. On the export front, sesame, cocoa and cashew continue to remain dominant, generating N14.83 billion, N10.81 billion and N2.91 billion in foreign exchange, respectively.
Moving forward, the increasing integration of the domestic commodity markets into the supply chains of manufacturing companies, the adoption of agriculture by youths and the expanding investments by public, private and non-governmental organizations will be key elements in driving agriculture in the next 3 - 5 years. We anticipate that the sector will experience a growth of 3 – 4% over the period.
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