By Sola Oni
Five leading national dailies recently broke the news with different captions that the Lagos State Government is set to raise $2 billion by floating Agricultural Commodities Notes in partnership with the Lagos Commodities and Futures Exchange (LCFE) to guarantee food security. The story emanated from the visit of the Lagos State commissioner for agriculture, Abisola Olusanya, her finance counterpart, Rabiu Olowo, and their respective permanent secretaries to LCFE as part of the preliminary discussions to activate what is gradually becoming Lagos State and a Commodities Market Agenda.
For the avoidance of doubt, the Lagos State government is not the owner of LCFE. It’s just a mere similarity of name. As emissaries, the commissioners held a closed-door meeting with some of the board members and management staff of LCFE, as well as other key stakeholders, on Governor Babajide Sanwo-Olu and his team’s plan to reform agriculture in the state with special emphasis on food security. By the strategic plan, the state is prepared to leverage the commodities markets space to raise the initial capital.
Lagos State towers above its peers over the years in sourcing funds from the capital market for infrastructure projects. For instance, in 1992, Lagos Island Local Government floated a N100 million municipal bond to build Sura Shopping Complex. The state government itself had raised huge amounts from the market on several bases, of which the latest was the N100 billion issued last year to finance infrastructure. On a comparable basis, Lagos State has a more viable economy. It accounts for over 60 percent of economic activities in Nigeria. The state has demonstrated proven creditworthiness over the years.
The beauty of government bonds is the issuance of Irrevocable Standing Payment Order (ISPO) which hedges bond holders in the event of default. Many state governments had in the past taken advantage of the market to mobilize funds for infrastructure development. The Lagos government’s decision to raise a long term fund through the LCFE is a smart one. Nigerian commodities space is a virgin land waiting to be tapped. Although food inflation in Nigeria dropped from 22.28 percent in May to 21.83 percent in June, it is still higher than headline inflation of 17.75 as at June.
A peep into the challenges of food security in Lagos State is quite revealing: The state has fragmented markets that makes their location cumbersome. The markets are generally dirty despite the efforts of the waste management section. Lagos State is literally the hub of traffic congestion in Nigeria with attendant effects on logistics issues. It is no longer news that the state is the headquarters of substandard and adulterated products while the markets in this economic centre of Nigeria are not integrated with international markets. Any market that lacks central logistics, market governance, especially the sanctity of contract, social responsibilities and central legislation and others cannot compete in the global market space.
The federal government should take a cue from Lagos State’s commodities market agenda to address the pain points of the operators in the agricultural space in Nigeria. Post-harvest storage risk is everywhere. Apart from weak incentives and structures, farmers’ profit margin is poor and demotivating. It is appalling that after 60 years of Nigeria’s independence, there is no reliable database of those operating in the agricultural sector while inadequate trading capital is a norm.
The proposed capital injection into the agricultural sector in Lagos State has profound benefits: It will accelerate economic growth and development in the state, consolidate value chains, open the eyes of the federal government and other states to renew the option for medium and long term capital formation through commodities exchanges, enhance job opportunities, data gathering and position the state government to intervene in the market activities at any time.
The body language of the two Lagos commissioners and their permanent secretaries looks exciting while the LCFE is awaiting the offer. The need for market reform and food security in Lagos State is a metaphor for other states in the federation. There is a compelling need for the Central Bank of Nigeria (CBN) to do a comprehensive impact analysis on its various interventions in agriculture and the worrisome level of food inflation. We all know and appreciate the debilitating effects of insecurity on the agricultural sector in Nigeria today. This may present an escapist route for the government to defend itself by blaming it on insecurity. But what accounted for the lackluster contribution of agriculture to the nation’s Gross Domestic Product (GDP) before the activities of herdsmen ? The sector has suffered untold neglect.
This is where the utilisation of commodities exchanges presents an ample opportunity for the government at all tiers for capital raise. The market also enables farmers to trade agricultural products’ receipts electronically through commodities brokers. This explains why the proposed controversial N50 billion, which the CBN’s governor, Godwin Emefiele, said would be sunk in Nigeria Commodity Exchange (NCX) will make a better investment decision if it is shared among the commodities exchanges in Nigeria or optimized to set up a central cleaning system for all the commodities exchanges.
Sola Oni, a communications consultant, chartered stockbroker and commodities trader, is the chief executive officer, Sofunix Investment and Communications Limited, and can be reached on firstname.lastname@example.org