Awe: Commodities are Natural Hedge against Inflation
In this interview, the Head, Structured Trade and Commodity Finance, at The Alternative Bank, Mr. Gbenga Awe, spoke extensively on the commodities market, its potential, use as hedge against inflation as well as other industry issues. Nume Ekeghe presents excepts:
Introduce yourself and what you do at Alternative Bank?
My name is Gbenga Awe, and I am the group head of structured and commodity finance at Alternative Bank. The group comprises four verticals, including the mining sector, structured trade, trade finance, agric finance, and market and business intelligence
How big is the opportunity in commodity markets compared to money markets?
The opportunity is substantial. Commodity markets are influenced by geopolitics, which plays a crucial role globally. Recent events, such as Russia’s invasion of Ukraine, have demonstrated the impact on commodity prices worldwide.
In Nigeria, due to the informal nature of the sector, quantifying the market size is challenging. However, with data from the Nigeria Bureau of Statistics, an estimate of the commodity market size can be derived.
While money market figures are readily available through indices like the All-Share Index, the robustness of the commodity market doesn’t solely rely on easy quantification. Efforts to formalize the sector, including the establishment of commodity exchanges like the Lagos Commodities and Futures Exchange, aim to provide more transparency and data for accurate market assessment.
With the recent hike in MPR, investors usually tilt towards safer instruments and if the commodities markets and all these various exchanges are coming up, what will be the incentive to come there when there is a safer haven in high interest rates?
Long before the hike in MPR, investors have been flooding into commodity markets. Commodities bring to the table, a natural hedge against inflation. So, we have seen people entering the commodity markets for the past two years now. It has been growing.
At the apex of it, we have few players with deep pockets. So, what we have seen is over time, for commodities that have export value, the likes of soya beans, the likes of sesame, and the likes of cocoa, cashew, and Gold which is top on the chain when it comes to natural hedge against inflation. We also have our gold coins called AltCoin.
On commodities, Cocoa is currently doing about 10 million per ton and we were in Akure in January, then cocoa was about 5.5 million. So, you can see the effect of inflation on the price of cocoa. Even in the international market, the price of cocoa butter which was about $9,000 per ton in January is trending around $12,000. Now, so the effect of inflation within the country and the hike global commodity market is putting a lot of pressure on the commodity markets.
Sesame, three years ago, was doing about N750,000 to N850,000, currently, sesame is doing close to N2 million per ton because commodities is geopolitics and geopolitics rule the world and now there are imported pressures from our neighboring countries.
If we can focus on gold because gold seems to be a major commodity that we have and it’s something that we are not capitalising on right now. I understand that Alternative Bank has minted gold, can you speak on that, why gold and what are the opportunities for investors?
When we launched the Alternative Bank, by the way, it has been operational for close to a decade; we just decided to become a stand-alone last year; thanks to regulatory agencies that granted us approval. The launch was tagged ‘gold standard’ because of the exceptional nature of the bank.
We took a decision to be able to democratise that space to create investment, both for retail investors and for big boys. So, we source our gold within the country. We have adopted responsible sourcing because when it comes to gold, you need to check all the boxes for responsible sourcing. We source our gold in line with responsible sourcing and we decided to work with partners abroad because we currently don’t have any refinery in Nigeria. If you are to sell gold, we should sell gold in line with international best practices.
We have our partners abroad, we took the gold there, refined and now minted it into coins of 50 grams. And we brought it back into the country having paid appropriate royalties.
As at the time we started business, a kg of gold was doing N37 million, a kg of gold now is over N100 million and as I mentioned, gold is a natural hedge against inflation. So, what we’ve done for retail investors it may be difficult to afford the value of the 50 grams of gold which is the size of a coin. The coin is 99.9 nice that is 24 karat so we came up with the idea of tokenization for retail customers to get a share of a coin.
Presently the return on savings today is less than inflation.
So, in terms of the real value of money we are actually worse off. In an inflationary environment saving suffers. So, what we’ve done is we’ve created the opportunity for retail investors to put in money over time, they enjoy the upside that comes with the value of gold. The gold were bought at different intervals. At a point about N35 million per kg, it went up to N55 million and now, a kg of gold is way above N100 million.
We are also in a position to work with the federal government and the necessary ministry to develop a framework for sourcing precious metals in a responsible way.
With the fluctuations in exchange rates, how would this affect the price of gold coin in the future?
Fluctuation in the exchange rate will not only affect gold; it affects all commodities, especially as most commodities are internationally traded. All it takes is to go to Bloomberg or any forum, and you will get the price there.
When you want to go into investment, you must consult your investment or financial adviser because you need to know, and you should be able to do a projection of where this price will be. NOTE: The story continue online on www.thisdaylive.com