Nigeria is a commodities-driven economy. Since the scrapping of the Commodities Boards in 1986 in line with the deregulation of the economy, the Nigerian Agricultural Commodities market was left in the hands of local producers and private operators. The major processors like the Fast-Moving Consumer Goods Companies (FMCGC) like Nestle, Cadbury, Flour Mills, Nigerian Breweries, Olam, Guinness, etc, had to develop their own raw material supply chains by developing their own farms, partnering with some selected farmers to produce for them or work with local aggregators to supply them their needed commodities. This is how private markets like Dawanau grains market in Kano, Birnin-Gwari Grain Market in Kaduna and others developed.
In 2015, Securities and Exchange Commission (SEC), Nigeria, launched the Capital Market Masterplan 2015-2025. In that policy document, SEC planned to develop a thriving Commodities trading ecosystem where commodities, standardiSed commodities contracts and futures contract would be traded on licensed commodities exchanges with the concomitant advantages of price discovery, risk management, quality standards, access to capital, assured delivery etc.
The above initiative led to the licensing of Commodities Exchanges and the trading of commodities and commodities contracts on formal commodities Exchange.
The robust positioning and development of the Commodities Ecosystem as envisaged by the Capital Masterplan was not fully achieved because the then prevailing capital market legislation, Investments and Securities Act, 2007 had limited provisions for a commodities market.
In March,2025, Investments and Securities Act, 2025 (ISA, 2025) was enacted which repealed Investments and Securities Act, 2007. ISA, 2025 has 358 sections which are divided into 18 Parts. This new law has completely redefined, repositioned the Nigerian Commodities ecosystem in several ways. Section 357 expanded the definition of Securities beyond shares and bonds to include commodities, futures, contracts, options, and other derivatives or any other instrument deemed as securities which may be transferred by means of any electronic mode etc.
Section 224 -239 provided the framework for the commodities exchanges with other ancillary provisions like registration of commodities exchanges with SEC, power to SEC to prescribe minimum share capital for the Commodities exchanges, requirements for the incorporation of commodities exchanges with CAC, the power of commodities exchanges for self-regulation etc.
The definition of Commodities was made in its broadest terms in Section 357 to include precious metals, electricity, crude oil and gas, agricultural produce, livestock, currency, solid minerals, digital assets, by-products of commodities, processed commodities products and such other commodities as are customarily traded on the exchange. This definition has deepened the commodities market and enlarged the varieties of commodities that can be traded on an Exchange. Before now, the definition of commodities was restricted to agricultural commodities.
only. On the other hand, a warehouse is described in Section 357 as any commercial space, building, silo, cold chain, tank farm or compressed tank, vessel, vault, structure or other protected enclosure approved by the Commission to be used or useable for the storage or conditioning of commodities or buildings used for storage purposes.
One of the challenges that has hindered the development of commodities trading and the Nigerian commodities ecosystem is limited access to capital. The banks, other financial institutions and major investors complain of the absence of a law backing the issuance of warehouse receipts which will act as tradeable and transferable collateral in the funding of commodities transactions. One of the major turning points of the provisions of ISA, 2025 is the recognition of warehouse receipts as tradeable and investment assets. Section 240-267 provides for the operations of warehouses, warehouse owners, collateral management and the issuance of warehouse receipts as tradeable assets.
From the foregoing, ISA, 2025 has made robust provisions to reposition the commodities market. It has defined the depth and breadth of the market, the products, market participants, trade instruments, assets and charted prospective market dynamics. With its provisions, it can now be said that apart from the equities, fixed income, OTC, and the new digital markets, the commodities market is the new frontier and investment destination in the Nigerian capital market. However, a law is as effective and impactful as the operators are able to implement it. The coast is now clear and their job is now cut out for the regulator, SEC, the operators and other stakeholders of the commodities ecosystem to take advantage and harness the expansive provisions of ISA, 2025 to create wealth and deepen the commodities ecosystem. SEC has done very well, its management team and staff deserve our commendation for envisioning, coordinating, driving and achieving the promulgation of ISA, 2025. The major five major Commodities Exchanges in Nigeria, namely, Nigerian Commodities Exchange, Afex Commodities Exchange, Lagos Commodities and Futures Exchange (LCFE), Gezawa Exchange and Prime Commodities Exchange have operated for some years. The new ISA, 2025 has enlarged the horizon and the scope of their market. There are many opportunities to explore. Our Agricultural commodities such as Maize, Oil palm, Cocoa, Sorghum, Ginger, Cassava, Rice and fruits are in high demands in the local and international markets. Every community in Nigeria is producing one exportable agricultural commodity or the other. Trading them on the exchanges will raise their demand and create incentives for farmers to produce more. Price volatility will be ameliorated. One of the challenges facing the commodities exchanges is the issue of generating sufficient volumes of commodities to satisfy the demand. Our farmers are usually smallholders. However, involving Aggregators can solve this challenge. Gold is currently being traded on LCFE. Trading Gold and other solid minerals such as Lithium are greenfield waiting to be catalyzed and explored. Three minerals that are shaping the 21st Century like Lithium found in large quantities in Nassarawa and Ekiti states, Noibbium in Kogi, Cobalt in Zamfara and Kaduna can be traded on the Exchanges. Crude oil, refined petroleum like PMS and gas can be traded on the Exchanges as they are being traded in Switzerland, London. Cows, Goats, Sheep, pigs can be traded on the exchanges very profitably. The Independent Petroleum Producers Group (IPPG) can sell futures contracts on the exchanges on their oil in the terminals using their stock receipt to raise money to continue producing instead of relying on high interest bank credits. The Bureau de Change can trade their currencies on the commodities exchanges. The FMCGC can now buy their raw materials from the Exchanges saving themselves the cumbersome overheads. The Financial Advisers, Issuing Houses and Portfoilo Managers such as Stanbic IBTC Capital, Renaissance Capital, United Capital, FCMB Capital, CardinalStone, Vetiva Capital, Mega Capital, Heritage Capital etc should come to create and innovate products to open and boost the market.
The potential drivers of the commodities market are there waiting to be attracted. The Nigerian Banks are recapitalizing with 2026 as deadline. After recapitalization in 2026, the banks will be buoyant with fresh capital looking for new markets with good returns on investment. The commodities market is that new market. Can the Exchanges, stakeholders, operators, the investment banks and issuing houses package new products to attract the banks. With ISA, 2025, the commodities can now be moved from the farm gates, mining fields, oil fields etc to the warehouse, quality checked, warehouse receipts issued which can be traded on the commodities exchanges. This transparent transaction flow is a bargaining chip for the banks. Say what you want to say, the banks have traditionally driven nascent market to new heights in Nigeria. They reinvigorated the money market, the fixed income market and the equities market. Can we attract them to the Commodities market now that ISA ,2025 has repositioned it. The Insurance sector is recapitalizing and with the new capital, they can undertake big ticket insurance of commodities market assets. The FMCGC are looking for opportunities to reduce their overheads in raw materials procurement. Can the Commodities Exchanges and their aggregators/ commodities brokers assure them of constant, qualitative and sustainable supply of commodities to enable them switch their supply chain through trading on the exchanges. The singsong of the Federal Government is to diversify the economy to the non-oil commodities sector. A vibrant commodities ecosystem is a veritable way to achieve this over-emphasied government vision. The farmers are challenged by post-harvest losses, a result of low patronage and non-competitive prices for their commodities. The new commodities market as envisaged by ISA,2025 can address these challenges. The much desired 1Trillion Dollar economy can be better achieved by government intervention and patronage of the commodities ecosystem. In the recent past, major stakeholders have played milestone roles. Association of Securities Dealing Houses of Nigeria(ASHON) has promoted LCFE. It needs to direct its members to invest in the commodities market. Chartered Institute of Stockbrokers has enriched its curriculum with Commodities and Derivatives syllabus. CIS needs to join in the market sensitization. CSCS Plc in collaboration with SEC is working assiduously to reduce the settlement and transaction from T+3 to T+2 and ultimately to T+1. This will impact positively on the commodities market. Chartered Institute of Bankers needs to incorporate Commodities business in their curriculum.
Beyond its regulatory roles, Securities and Exchange Commission (SEC) with its enormous influence can help chart the pathway by leading the Commodities Exchanges and operators to attract the banks, financial institutions, FMCGC, development financial institutions, multilateral financial institutions to the reinvented commodities market. With ISA, 2025, the future is exciting for the commodities market in Nigeria.
Dr. Umunnaehila is a Chartered Stockbroker, a commodities broker, a Financial, Economic and Management Consultant who holds a Ph.D in Business Administration from Babcock University,Nigeria. He is the CEO, AllwellBrown Consulting Ltd, an author, a seasoned scholar and Investment trainer. He is also a Fellow of Chartered Institute of Stockbrokers (CIS), Member, Chartered Institute of Securities and Investment (CISI), Member, Capital Market Academics (CMA) and a licensed Securities Dealer with Securities and Exchange Commission (SEC). He can be reached on aumunnaehila@allwellbrownconsulting.com
