Trade Ministry Pools Funds to Facilitate Commodity Trading at NSE

The Ministry of Industry, Trade and Co-operatives has announced that investors looking to indulge in commodity trading at the Nairobi Securities Exchange (NSE) will pay 5 million shillings to facilitate the exchange.

According to Dr. Chris Kiptoo, the Principal Secretary for the State Department of Trade stated that the pooled funds will be used to establish the Kenya National Multi Commodity Exchange’s (KOMEX) ecosystem infrastructure.

Dr. Kiptoo urged investors to subscribe to the equity shareholding of the exchange and further added that the government has set aside at least 2 billion shillings as authorized capital for the exchange, which is expected to have government and private sector shareholding.

See: Commodity Prices to Continue Rising as Supply of Fresh and Dry Foods Decline

Farmers, farm co-operatives, individual investors, financial institutions, institutional investors, and foreign investors are among the targeted sectors.

“Once established, KOMEX will launch a physical warehouse with commodities under a warehouse receipt system, with the later introduction of derivatives trading in commodities,” said the PS.

A warehouse receipt is a necessity as it provides proof of ownership of commodities stored in a warehouse.

The Kenya Farmers Association, Kenya Planters Cooperative Union, Kenya National Trading Corporation, and the National Cereals and Produce Board are some of the government and private-owned entities likely to be converted to warehouses.

When the platform was first launched in 2018, a total of 21 agricultural products were expected to be traded, says Dr. Kiptoo.

The anticipation was that the exchange would be up and running by June 2018 but following the debate by the Cabinet, it was settled that it becomes operational in February 2019.

Commodity trading at NSE will ensure an organized market through a unified platform that negates the constraints faced by both smallholder farmers and consumers.

Consecutively, the exchange will make sure that farmers get farm gate prices. Moreover, additional benefits like appropriate storage facilities and warehousing will be enjoyed by primary producers, miners, and farmers during bumper harvests.

Also Read: Market Performance Positive as NSE Share Values Register an Upward Trend

It will also facilitate local, regional and international trade, enable price discovery, offer risk management system as well as providing stability in product quality, guaranteeing better profit margins, and reducing risks associated with lending to the agricultural sector.

The Capital Markets Authority (CMA) agrees that Kenya is ready for the inception of structured commodity markets, and derivatives market.

“Kenya’s financial market has reached the level of sophistication from which the country can move to the next stage…” CMA notes in its 10-year master plan.

In 2019, the parliament enacted the Warehouse Receipt Bill 2018 expected to realize the full potential of the agriculture sector.

The Bill includes the reduction of post-harvest wastage, the elimination of middlemen, streamlining the logistics sector, and enabling ease of credit access to farmers.