AFEX plans to enter Côte d’Ivoire first in 2022, with the other three countries to follow in 2023, says Balogun from Abuja, where the exchange is based.
The exchange, Balogun says, aims to help Africa feed itself through a period of rapid demographic growth. The key elements that agricultural producers need to achieve the scale to do that are finance, storage and market access, he argues. The company aims to bring food producers and investors together, Balogun says. “We see ourselves as a double-sided market.”
The company’s Nigerian exchange trades maize, cocoa, soya bean, paddy rice, sorghum and ginger. It also supports securitisation and trade finance for those commodities. The platform has 250,000 farmers, most of whom don’t have a bank account. Membership of the exchange is also open to investors.
Nigeria’s population is projected to hit 263 million in 2030 and 401 million in 2050. According to the company’s 2021 Crop Production Survey and Forecast, the country’s food ecosystem is “fragmented and fragile,” marked by low adoption of technology and financing to increase farmers’ productivity and reduce the high rate of post-harvest losses.
- “If we can solve the problem in Nigeria, it can be replicated elsewhere,” Balogun says. “We have an African vision.”
- AFEX, which in October expanded to Kenya, also trades in export commodities such as cashew, ginger, cocoa and sesame.
- That gives the exchange a supply of US dollars, and AFEX does not have major problems in accessing the greenback, Balogun says.
Debt and equity fundraising
AFEX Nigeria, which was created in 2014, has a similar set of shareholders as the East Africa Exchange, set up with the Rwandan government in 2012.
Balogun is currently seeking $200m in short-term debt, which will be used to finance the firm’s Nigerian operations. AFEX aims to close the debt sale by the end of December or early January, he says. FSDH Merchant Bank is managing the sale.
The “big goal”, Balogun says, is to attract Nigeria pension funds to invest in AFEX. Many pension funds have large holdings of government treasury bills, but Balogun argues that AFEX’s asset-backed commercial paper can add value to portfolios. “We are trying to create an alternative asset on the market.”
- AFEX can provide yields 200 basis points higher than T-bills, Balogun says, in a “high impact” investment that can help pension funds hit their environmental, social, and governance criteria.
- The fact that food commodity prices in Nigeria rise when the naira weakens creates a natural hedge against risk that the naira will further depreciate, he adds, arguing that food commodities are the only asset that do this.
- The company is also preparing documentation for a Series B equity fundraising worth about N28.9bn ($70m). The sale of equity is likely to start in the first quarter of 2022, and Balogun aims to close the sale by mid-year.
- A further Series C equity fundraising is planned for 2023, with no decision yet on the amount.
Bottom line
AFEX is betting that securitising food commodity assets can help it break through and attract institutional investors.
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