Lagos soon to be endowed with a commodity exchange

Lagos, the continent’s fourth-largest financial centre by market capitalization ($40 billion), is in the process of establishing a commodity exchange. This initiative is likely to further undermine its Abuja counterpart.

After conducting a simulation exercise on November 15, the Association of Securities Dealing Houses of Nigeria (ASHON), which brings together the country’s brokerage firms, confirmed the launch « by the end of November » of a platform dedicated specifically to commodity trading. This initiative is explained by most of the analysts interviewed by the Nigerian brokers’ desire to diversify their sources of income, as the activity of traditional securities (equities, bonds) has been at half mast since the bursting of the oil bubble in 2014. In fact, with the NSE All-Share Index down 17% since the beginning of the year, ASHON President Onyewechukwu Ezeagu conceded in early November that the situation was « quite difficult ».

Evolution of the Lagos stock market index over a year: a market at half mast….
Source: Bloomberg

Named Lagos Commodities and Futures Exchange (LCFE), the new exchange will list a dozen agricultural products, including corn, millet, sesame and sorghum. The association also indicated that oil and gas will be traded, as well as currencies. Recently mentioned by the financial information agency Bloomberg, the project to establish a commodity exchange in Lagos received approval from the Nigerian financial regulator, the Securities and Exchange Commission (SEC), in June and will be led by Akinsola Akeredolu-Ale.

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Nevertheless, many observers are perplexed by the approach, pointing out that the country already has an exchange dedicated to agricultural products in Abuja, the Abuja Securities and Commodities Exchange. Launched in 1998, it has never really taken off, as market activity remains anecdotal. Will the future LCFE, which will be in direct competition with its Abuja counterpart, do better? Aware of the challenge ahead, Akeredolu-Ale warned that « trading activity will be weak in the first two years ».