People are exploring ways to invest money. Commodity exchange can fill the void
TBS spoke to economist Professor Abu Ahmed, economics dept, DU, to learn his view on commodity exchange
Multi Commodity Exchange (MCX), the largest commodity trading platform in India and the seventh-largest in the world, has signed an agreement with the Chittagong Stock Exchange (CSE) to provide the port-city bourse with consultancy to build the country's maiden commodity exchange.
A commodity exchange creates a marketplace for commodities trading under the set rules and regulations and promotes the right grades of commodities as well, especially the agricultural ones. The commodity exchange will open a new investment frontier for investors.
The Business Standard spoke to noted economist Abu Ahmed, Honorary Professor, Department of Economics at the University of Dhaka, to shed light on the country's investment environment, including the country's first-ever commodity market.
The country is going to launch its first commodity exchange, and the government has already signed a contract with an Indian company to provide consultancy for the project? What is your take on the initiative?
The Bangladesh Securities and Exchange Commission (BSEC) has permitted the CSE to launch the commodity market a year back. It is, undoubtedly, a good initiative to introduce a commodity market for investment.
As Bangladesh does not produce that many items like developed countries, we should start the market with a few items. But there are many things to make the market functional like commodity standardisation and warehouses for keeping the commodity.
New investments will come when the market is launched, and our farmers will benefit from the market. It is a positive move because most countries worldwide with medium and/or large economies have a commodity market. Even our neighbouring country, India, has a commodity market.
What measures should be taken as the doors to this new investment opportunity are opened, since this is something new for us? How should the market be run?
Bangladesh will need to look into the practices of the global commodity markets. For the time being, we will not be able to bring all commodities to the market like perishable commodities. We will need warehouses for preservation facilities of the commodities.
Some problems may arise in the beginning. For example, If someone began hoarding the commodities, it would be illegal. It will be against the competition law. The government will have to launch the platform, keeping all these issues in mind.
But what I want to say is we need to start a new investment opportunity. We should run the market on a trial and error basis, tackling issues as soon as they come up. When the market is established, ultimately, the farmers will benefit from the commodity market.
The market should be such that traders can also buy the products and make profits. I think many problems will arise initially, and it may also happen that a particular group of people will try to take control of the market. But we will have to start it as soon as possible.
Can the commodity market fill the void of major investment opportunities for the rising higher middle-class of Bangladesh?
Of course. Not only the commodity market, I think there is a considerable prospect of the gold market in the country as an investment instrument. The gold market is open in foreign countries, but unfortunately, we could not establish the gold market as an investment vehicle as in Bangladesh [until now].
The government has formulated a gold policy, but the large-scale investment has not taken off. Some gold shop owners control the whole gold market. We will have to set up a market for gold too.
India's export of gold and gold ornaments is worth around $45 billion per year. Our gold industry will not flourish until it is free from the hands of the gold shop owners. Our gold needs to be hallmarked for its purity.
Now people buy gold and bring them home. It is not the thing to bring home. It will be kept in the custody of licensed commercial banks. The gold will be traded in the auction market like the stock market.
The regulatory authority is supposed to look after it. The commodity market is one of the major options for investment for the rising higher middle-class of our country.
It can be difficult for us to implement the commodity market, but we should start experimenting to see what happens on a small scale. You will have to do whatever it takes to make an investment-friendly economy.
Considering the current avenues of investment available in Bangladesh, how important is the commodity trading platform?
People in Bangladesh are not finding ways to invest their money. Our rich people and the upper-middle class are looking for options where they can invest their money. People cannot be rich by investing their money for interest in banks. People never make that profit by making risk-free investments.
A fixed deposit receipt and bonds are defensive instruments. You will not find FDR culture in other countries. There is a bond, which is a part of the stock market. We will have to broaden the space for investment.
If you do not create new space for investment, people will launder their money. They say people launder money; if you do not generate investment opportunities, where will they keep their money? I think many people launder money only because they do not find options for investment.
The government cannot broaden the share market, the government's bond market does not take off, the government does not have a gold market, and the government does not have a commodity market. With due respect, I would ask those decision-makers: where will the rich invest?
But, if you are in the USA, you can invest in the hedge fund, the gold market, and the commodity market. The whole world is open to you.
But in Bangladesh, the government has limited the options for its own people. As there is no place for investment, they are taking some of their money abroad. That is precisely what is happening in Bangladesh.
I will request the Chittagong Stock Exchange to take the initiative and improve it bit by bit. If there is any glitch, that can be corrected. Until they start the initiative, they cannot understand how it works.
