Ayodeji Balogun is the CEO AFEX Commodities Exchange, Nigeria’s first private commodities exchange. In this interview, Balogun talks about how his startup is helping Nigerians profit from the commodities market.
Nigeria was recently said to be in a recession, with the Minister of Finance stating that the country will come out of it in the first quarter of 2021. What role can the commodity sector play to contribute to getting the country out of recession?
There has been an indication that income growth generated by agriculture is up to four times more effective in reducing poverty than growth in other sectors. Although earlier analyses viewed agriculture as a traditional low productivity sector that had to provide labour and other resources to fast-growing modern sectors, no country has been able to achieve a transition out of poverty without a dynamic agricultural and food sector.
If the proper investments are made in the agricultural sector, the current contributions being made to the economy by this sector can be doubled or even tripled because Nigeria has both human and natural resources to achieve this potential.
The commodity sector has been focused mainly on export and with large organizations as players in the sector. How is AFEX making the sector more accessible to the average Nigerian?
Over the past years, there has been a surge of interest in commodities and commodity trading. In ensuring that the commodity sector is accessible to the average Nigerian, AFEX has developed and introduced an array of securitized financial instruments backed by commodities that can serve as alternative investment products for investors. In addition to developing commodity-backed instruments, AFEX is also strongly engaged with Capital Market Operators and other Financial Institutions to offer commodity trading as an alternative asset class to investors.
The introduction of ComX is also intended to permanently change the nature of commodities investing in Nigeria and democratize this asset class by simplifying access to markets that were previously accessed by a relatively small club of sophisticated institutional investors.
How is Fair Trade ETC different from other commodity investment products?
The Fair Trade ETC is an investment product containing soybean, maize, and sorghum, in one contract. It enables investors to enjoy a return on investment with lower risks because the Fair Trade ETC delivers the average market performance of the underlying commodities, lowering the risk an investor is exposed to when they invest in individual commodity contracts.
How can the average Nigerian benefit from the Commodity Sector?
With ComX it’s as simple as getting on the app, reading up on the market through various learning resources that are made available by AFEX both on and off the platform, deciding on their investment strategy and trading and investing in their selected commodity-backed instrument.
Commodity trading is new for the average Nigerian, how viable is this sector as an alternative investment option?
Commodity trading goes back to even before stocks and bonds and other popular investment options. It was a significant business, linking different cultures and people together. From oil palms, cocoa, groundnuts, cotton etc. in the early days to the exchanges where these assets are now traded, commodities are still a popular investment vehicle.
Population growth increases the demand for commodities both locally and globally; hence with a strong demand for commodities, there is the potential to maximize return with commodity trading. Commodity trading provides the right climate for investors who are seeking investments outside of the traditional markets of stocks, fixed-income or savings. Commodity trading as an alternative investment option has a potential for a higher return on investment than that of conventional investments.
Another benefit of Commodities Trading is that they tend to protect investors against the effects of inflation. Generally, there is a high correlation between prices of commodities and changes in inflation Commodity trading can act as an effective inflation hedge for investors. Aside from being a viable portfolio diversifier, commodity trading offers investors a better risk-adjusted return on investment than traditional asset classes. Investors hoping to get into the commodity trading can consider investing directly in the physical commodity or any commodity-backed financial instrument available on ComX.
ComX is said to be a digital trading platform for commodity, how does the platform facilitate commodity trading and what other products can be traded on ComX
ComX is a simple yet innovative platform designed specifically for trading in assets backed by commodities. The platform allows investors to gain exposure to commodities as an alternative investment class by providing features that help in buying and selling commodity-backed instruments while analyzing and managing their portfolios.
At its heart, it is an impact investment platform that allows investors to make a decent at per or above market return while also giving back to a needy community. The platform also helps lower some of the barriers that prevented investors from investing in commodities, including market education, transaction costs, operational risks, and product availability.
All products traded on ComX are physically backed, thereby reducing the risk exposure of the investors. Products traded on ComX include Spots, ETCs, Forwards, and Asset-Backed Commercial Paper (ABCP).
What are the differences between ComX and ComX 2.0?
One of the exciting features in ComX 2.0 is the learn module which offers a rich library of commodity trading related content that educate users about the fundamentals of various commodities and the procedures involved in trading on the platform. Under the Community function, ComX 2.0 comes with the ability to create discussion topics within the community, allow investors send direct messages to each other as well as the ability to identify all certified communities on the Exchange. Other features of ComX 2.0 include trade insights for informed investment decision, improved user and social experience, and an enhanced personalized guide.
What benefit does the commodity market provide smallholder farmers?
Smallholder farmers often have limited access to markets and fair prices for their produce. A commodity market provides smallholder farmers with much-needed access to useful, timely, and transparent market and price information; this allows the smallholder farmer efficiently sell more products and be adequately remunerated for his work and investments.
Without a commodity market, the ability of the smallholder farmers to earn decent incomes from their produce is limited, and this will impact their level of productivity in subsequent seasons.
A vital aspect of the work of commodities exchanges and our work at AFEX is to unlock financing for agriculture. The pervasive view of agriculture as a high-risk endeavour dissuades the flow of capital into the sector, and to unlock finance, the first fundamental is to ensure that the risk profile is low and manageable. With systems for price discover and transparency that is provided by a commodities exchange, it becomes easier to monitor the flow of money in and out of the sector, and by extension measure and manage risk, increasing the amount of finance that is made available to value chain efforts over time.
