The executive
Over the years, the federal government has expressed the desire to have a vibrant non-oil economy, but has not really matched its talk with action. No doubt, there have been policies and blueprints to develop the sector to vibrancy, the laid-back, nay lackadaisical approach of government in performing its role as the enabler, has confined such lofty ideas to the doldrums. Save for services, entertainment and media that have been very active and the less-than-optimal contribution by agriculture to the economy, the non-oil sector’s performance is unsatisfactory. Despite all these, the private sector has been leaving no stone unturned in its bid to optimise the sector and contribute its quota to the diversification from the oil sector. Chief Executive Officer, AFEX Nigeria Exchange, Mr. Ayodeji Balogun, speaks with Kunle Aderinokun on developments in the agriculture sector, effort by his platform to advance the cause of farmers, particularly highlighting a number of initiatives geared towards enabling the sector to unlock its potential and accelerate its growth
What inspired the creation of the AFEX Nigeria Exchange and how has the journey been?
My aspiration to build a scalable and efficient commodities exchange market stemmed from my early years in Kigali, Rwanda. It was the year 2012 and I was working at the East Africa Exchange (EAX) in Kigali. It was a boom time for commodities trading and there was a significant rise in the numbers of exchanges that were being set up. In the same year, after an investment worth $7 million was used to develop the technology stack at EAX, I got approval to set up AFEX Commodities Exchange in Nigeria. I was tasked with one goal: to transform Nigeria’s commodities exchange market into a scalable, efficient, and profitable system.
One of the early goals was to leverage data and the trusted network of investors in the agricultural ecosystem to create a market infrastructure that could work for Nigeria. Since its founding in 2014, AFEX has developed and deployed a viable commodities exchange model for the West African market; building a strong supply chain infrastructure to support the securitisation of agricultural products. AFEX operates 85 warehouses in Nigeria’s key grain-producing areas and accounts for over 100,000 MT of total national storage capacity. Since 2014, the Exchange has reached over 200,000 farmers and traded over 200,000 MT of commodities with a total turnover of N28 billion.
Our mission is to support Nigeria’s food security while promoting a fair exchange of value among players in agricultural value chains. To achieve this goal, AFEX looks to introduce products that de-risk the sector, drive financial inclusion for rural communities, develop technology for data collection and market access and enable the deployment of capital.
As the CEO of the organisation, what were the challenges your team faced to scale the commodities market in Nigeria and West Africa, and how did you tackle them?
In the economies that we operate in, there has always been a gap in the production level of commodities, farmer’s access to finance and market, and information flow on how the commodities market operates. We decided to build the largest supply chain infrastructure for commodities in Nigeria that would then be leveraged to unlock capital for the sector and improve the livelihoods of farmers. We, therefore, created scalable solutions around storage, finance, and technology.
A key thing we had to do was to set up warehouses across the key grain-producing states in the country and provide storage as a service for the farmers. This means that instead of a farmer to rent warehouses or keep his grains in his house, where he will lose 20-30 per cent of the volume over time, you have a situation where you can bring it into a warehouse and he can pay for the three bags he is storing for 3 months and he stores it. So, it is stored as a service and then takes off the burden and the risk of storage off the farmer.
Also, we focused on facilitating farmers’ access to finance in form of inputs like fertilisers, seeds, and crop protection products while also being enabled to access support in terms of extension services that impart knowledge on good agronomic services. We don’t see our relationship with the farmers as transactional, we see it as a community we are building, and so trust is central to that system, but so is ensuring that they see much-needed value in the bundle of services that we are providing for them and can record growth year-on-year. When a transparent and fair market system determines what the true value of commodities is, which essentially covers the role of a commodities exchange, it helps to promote investments, it helps with transparency, and it helps with an equitable distribution of value across the system.
Lastly, AFEX built a technology-enabled Exchange that facilitates effective trading and settlement of commodity transactions, helping to structure and formalise the commodities markets. Through our technology stack, WorkBench and ComX, we can facilitate the aggregation and trading of grains through our expansive network of warehouses across the country, allowing farmers to access markets. The ComX app is the first digital trading platform for commodities in Nigeria with an increasing array of innovative commodity-backed securities, and a learn module that further facilitates the education and information needs I spoke about earlier.
Can you give us some of the success stories recorded within the five years of operating in the commodities ecosystem and beyond?
Over our first five years, we built Nigeria’s largest supply chain infrastructure, and can now provide our infrastructure as a service to the market while unlocking capital for the commodities market in Nigeria. We are proud to pave the way for many firsts in the commodities ecosystem.
We released the first Asset-Backed Commercial Paper listed on an Exchange in Africa to bridge the financing gap between processors. We introduced Nigeria’s first-ever commodities index – the AFEX Commodities index (ACI) tracking the changes in price for four key agricultural commodities. We also worked with capital market players to structure debt securities to finance over 113,000 smallholder farmers. AFEX also listed the first Exchange-Traded Commodity in Nigeria – the Fair Trade ETC – on ComX.
ComX is a digital platform for trading and investing in commodities, which we launched in 2020. It reached 5,000 users in two months of its launch and won the Apps Africa Innovation Award for best in Agritech & Foodtech that same year. Since its launch in 2020, the trading platform has seen significant growth in turnover as technology has seen over N30billion in total turnover since its launch. Our Input Financing programme that unlocks financing for farmers has grown from serving 803 farmers in 2015 to 35,000 farmers in 2020.
These are a few among many milestones we have achieved since our inception. We have a laser-focus vision to be the reference point for commodities in Africa, and this continues to play a huge role in our contributions towards unlocking the potential of Africa’s commodity value chains.Through the development of innovative products and services around storage, logistics, and trade with access to finance and a ready market serving as a supporting pillar.
The problem of storage, logistics, and financing have been identified as key impediments to farmers’ productivity and sustainable food production in Nigeria. How has AFEX helped to create scalable solutions in these core areas?
Our value proposition to farmers has always been two-fold: access to finance and access to markets, which are two huge problems that smallholder farmers in Nigeria have historically been unable to surmount. By engaging with the Exchange, farmers will be able to gain access to finance in form of inputs like fertilisers, seeds, and crop protection products while also being enabled to access support in terms of extension services that impart knowledge on good agronomic services. At the end of the season, the farmers can also access larger markets through the Exchange as their products can be aggregated with that of other smallholder farmers and furnish the orders of Exchange clients on the processor side.
This process is a transparent one where farmers can get information on prices and determine for themselves when to sell considering that our storage infrastructure also allows the farmer to store their produce in AFEX warehouses that have certain quality parameters that ensure that the grains retain their value. We already have a process in place via our outreach structure, which allowed us to profile farmers and include them in our systems after which we disbursed loans in form of inputs and actively provided support for them through the production cycle up to harvest when we are now triggering our repayment structures, but also enabling the farmers to get access to a market for their leftover commodities.
Interestingly, AFEX has raised $50 million to finance Agri-SMEs in Nigeria. What does this initiative aim to address? And what’s the impact so far?
This initiative was aimed at eradicating the high cost of procurement incurred by processors. The mission is to provide low-risk working capital for stakeholders in the sector, which are transparent and have a highly valuable investment return. Hence, AFEX has developed the infrastructure for workable warehouse receipts, which allow commodities to be transferred to financial assets and listed under the borrower’s portfolio on the AFEX trading platform. This serves as an alternative solution for market participants to have easy access to finance, thereby, reducing risks and costs attributed to collateral financing. With the warehouse receipt system linked to financiers, the system will facilitate the financing of agriculture while allowing financiers to value and mark the commodities’ price to market on a real-time basis.
With all the challenges in Nigeria’s economy, particularly with regards to inflation and food production, how are farmers coping or finding alternatives?
Farmers are majorly feeling the brunt of inflationary pressures on fertiliser prices which could affect production this year. It will be important to know whether or not farmers are using more fertilisers this year than they did last year and our 2021 crop production survey report will reveal that. However, for AFEX farmers, our input disbursement programmes will help cushion the brunt of fertiliser prices on farmers and the potential impact on production.
On households, the brunt is felt more, worsening food insecurity threats created by low production, high post-harvest losses due to lack of storage, and declining income levels.
Specifically, what is AFEX doing to support the government’s agenda in this regard?
We recognise the Central Bank of Nigeria’s efforts in promoting sustainable production of commodities for a food-secure nation. Beyond the capabilities we have gained through farmers’ aggregation and outreach structures, our valuable data insights across the value chain could be accessed by both the private and public sector and harnessed to enable adequate planning both for policy at the government level and advocacy and execution for active players in the sector.
At AFEX, we see data as an infrastructure for the future. We have the largest database of credible farmer data complete with bank verification numbers and land coordinates. The way we think about Capex’s around buildings and warehouses and balance sheet, we feel data is also the balance sheet item that in five years the players with the most extensive data will be the most competitive in the space. Technology allows us to gather data and analyse it a lot more efficiently to create knowledge and insight.
Tell us about the recently launched 5-year Impact Report, the gap AFEX filled, next milestones.
Our five-year impact report highlights the full impact of AFEX’s activities over the years in enabling productivity, trade, and access to finance to rural households through the use of innovative technology, and in structuring Nigeria’s commodities ecosystem. Measuring impact is now more important than ever. Having grown significantly over the last five years, with a data-backed strategy, we decided to gauge our impact in these communities, which aligns with the 17 Sustainable Development Goals set by the United Nations – SDGs 1, 2, 5, 8, and 12 advocating for no poverty, zero hunger, gender equality, decent work, and economic growth, and sustainable production and consumption.
Over the last five years, AFEX has built a network of over 200,000 farmers and cumulatively facilitated over 200,000MT in trades, matching orders from producers and brokers with buyers on our trading platform at fair prices. And we are glad that most of the farmers registered with AFEX live above the national poverty line.
This journey with the SDGs will serve as a guide for AFEX’s 10X growth. Over the next five years, AFEX aims to scale 10 times in the capacity and capability. We will build inclusive markets; establishing an efficient trade infrastructure with one million MT storage capacity that supports a robust supply chain network while also enhancing the livelihoods of one million smallholder farmers, aggregating one million MT trade volumes, and facilitating funding of $500 million.
Our vision remains to be the reference point for commodities in Africa.
What are the opportunities for the commodities market in the coming years?
Given the increasing attention in the space and how underserved the market is, there exist numerous opportunities across the value chain, from pre-production to production and ultimately consumption. Broken down, we at AFEX have identified opportunities from SMEs that link the different stages in the value chain and provide essential agricultural services, to wealth creation by unlocking alternative investment opportunities through commodities trading for Nigeria’s retail and institutional investors. The list is endless as the value chain continues to develop and grow exponentially.
What’s your assessment of the agriculture sector and the non-oil sector of the economy and highlight their contributions or otherwise to the nation’s GDP.
Over the years, agriculture has proven to be resilient, despite the slow real growth in the sector, as the sector accounts for about 1/3 of the jobs in the country. Last year, the sector contributed tremendously to the economy’s recovery from a recession caused by the global pandemic. With this in mind, we believe the sector is yet to unlock its potential as the fund inflow into the sector has averaged less than four per cent of both domestic and international capital in the last five years.
Looking back on your journey as CEO, trendsetter, and agriprenuer, what do you wish was done differently that will serve as a piece of advice to a young and budding investor, entrepreneur, or CEO out there?
In the years to come, the tools needed for success in life are beyond building complex financial models and creating insightful decks. They require understanding people (millennials and tech-natives particularly) and how to keep them continuously motivated. They require understanding of the world’s wicked problems (poverty, financial inclusion, climate change and adaptation) and how to create commercially viable solutions. The first thing I advise is to seek knowledge to be able to build businesses; businesses that will last. The second is grit; you can fall 10 times in a year and you have to be able to stand back up eleven times. Finally, leadership assumes followership, and without followership, there is no leadership and the only point you have that followership is when people can trust you, and that comes down to being ethical in your conduct.