This week has witnessed a major continental convening at the Sheraton Addis where the two-day event brought together several hundred stakeholders including various exchange initiatives from Rwanda, Ghana, Nigeria, Zambia, Zimbabwe and South Africa and market regulators compromising the US Securities and Exchange Commission, African policymakers, as well as banks including Africa EX-IM Bank and major investors.

Organized by the Ethiopian Commodity Exchange (ECX) and the United Nations Development Program (UNDP), the convening deliberated on how best commodity exchange initiatives practiced in some of the African nations could be replicated in other states in the continent and serve as ideal venue to transform the development of Africa as it is now left as a much desired continent expected to bail the world out of the prevailing food supply shortage where 17 African nations have been represented at the event. Eleni Gebremedhin (Ph.D.), CEO of the ECX, spoke to The Reporter’s Hayal Alemayehu about the significance of convening, Commodity Exchange in Africa, and ECX experiences so far since its establishment three years ago. Excerpts:



The Reporter: Commodity Exchange in Africa is one of the major regional events that took place in Addis this week with ECX and UNDP organizing the convening. What was it about?

Eleni: The convening is intended to first bring together the key stakeholders including those who have not previously participated in such dialogue such as bankers, technology providers and regulators. We have been basically talking about the design and model of the African way to do quality exchanges. We try to get a sense of what Africa’s perspective is on exchange options and the structure of ownership, the roles of the private sector, regulators and the government in such markets across the continent. So what came to be the first discussion point was deliberating on what should be the model of African commodity exchange before discussing the establishment of such continental exchange platform. Seventeen African countries including Zambia, Malawi, Uganda participated in the convention represented by there regulators and government officials including ministers.

So will the convening eventually lead to the establishment of an African Commodity Exchange?

The way I see it, it is like the Star Alliance model. You have many airlines, each serving their own market, by their own constituencies, with each having specific needs in the network that they are operating. But once these airlines are established, it makes sense to form an alliance along the network lines where we have common interests because all of us may not have the same interest. That, I think, is the direction we will be going to but before that we have to be able to establish our own respective networks and markets.

Are there such kinds of regional market in Africa and the world?

Not in Africa. But there are scores of regional exchanges elsewhere around the globe. There are many exchange alliances. There is an alliance between Chicago Central Exchange and Argentina Exchange, New York Exchange and Eurex, one of the world's leading derivatives exchanges, just to mention some of the major ones. This is a very important trend witnessed around the world and I am sure that it is what we are going to consider in Africa eventually. But before we [African countries] go for that we have to first develop and serve our own market and when we have that common interest between us we could form the alliance. I think we are going to do both. And I think it is important if I mention the experience of Ethiopian Airlines to show this. Ethiopian Airlines has a network or alliance with a number of international airlines such as South African Airways and Lufthansa. South African Airways and Lufthansa are not interested to provide service for Ethiopian domestic destinations because it simply does not make sense for them as it does for the national flag carrier. But Ethiopian Airlines has a code sharing agreement with a number of international airlines for cross Atlantic flights and for flights around the world. But when it still comes to domestic flight services in Ethiopia, these alliance airlines don’t show interest in the Ethiopian domestic market. So where they have interest, they have established code sharing agreements with Ethiopian Airlines. So this is the way we should conceive our regional and international exchange alliances.

You said upon the launching of the Commodity Exchange in Africa convening Monday that this will transform Africa over the coming five years. But given the poor infrastructure among and even between neighboring African countries, do you think that could be something achievable?

Absolutely so! The whole economic climate is in a very important stage of transition. And the reason that there is this big transition is the fact that the demand and supply fundamentals are out of alignment. It means that there is less and less supply than demand globally, which has lead to reduction in global stocks of food commodity, which in turn leads to increased volatility of prices, and which, unfortunately, have a very negative impact on the poor. So as things stand now, what you have to look for is where in the world we can increase food supply. And as it happens, Africa is the only continent on the planet where there is very large untapped arable land for cultivation to increase production for the global market. So Africa is about to explode on the global commodity scene because there is no other place on earth where investment could make sense when it comes to invest in agricultural production now. As agricultural production increases in Africa to provide food not only for the continent alone but also to the world, then, I think what is going to happen is that there will be a tremendous pressure on having organized market that can easily provide a supply chain that is reliable and efficient for the surplus production from Africa. That is where commodity exchanges play a very important role. As such, commodity exchanges are very critical, if not the only component for the new commodity order that is shaping up in which Africa will rather become an exporter than a mostly importing continent.

You have mentioned that stock exchanges in Ghana and Tanzania, which had been established a decade or two ago, are now trading five million and two million dollars a day while ECX, formed only three years ago, is transacting a 20 million dollars trade a day. But traders here are forced to trade via the ECX while those in Ghana and Tanzania…

…Let me correct you. There is no place where you can buy or sale stocks in Ghana expect the Ghana Stock Exchange and there is no place in Tanzania where you can buy or sell stocks expect the Dare es Salaam Stock Exchange. It is exactly the same model whether it is in the Johannesburg or the New York Exchanges or in those countries. That is how it works elsewhere as well. That said, the IMF and the World Bank were promoting the formation of stock exchanges in Africa than a commodity exchange because agriculture was not very fashionable back then and African countries were advised to move fast out of agriculture and go to industrialization. But that is not as effective as the commodity exchange in Africa where there will be limited number of players in the stock exchange.

Could you tell me the benefits that accrue from the establishment and the operation of the ECX to the traders?

The ECX has brought transparency to the market so that the information it provides to the all types markets has enabled both sides of the market and convergence between the local and international prices particularly when it comes to the coffee trade. The transparency has allowed the narrowing of the margin between the local and the international prices so that higher share of the final price will go to the producers. And these has helped producers to significantly raise the volume of their quality produces as they now know the quality  produces fetch premium prices.

Some people say that some commodities including destined to be traded on the ECX trading floor are being traded outside the ECX, with less control to avoid such practices by the concerned regulators. What do you have to say about that?

That is entirely possible. As long as we are human beings we are usually attached to the old system of doing business since the imperial regime where coffee and other produces were making their way directly to Sudan while they were supposed to pass through the auction floor. That does not come as a surprise. That might change in tandem with the market system. Now more produces are being traded at the ECX not least because of the regulators or so but because the market at the ECX is more attractive. When that is not the case there could be such cases where traders might opt to go the other way. We actually do forecasts on the basis of about 75 percent of the market share and we don’t necessarily have to go for 100 percent of the market.

Some claim that there are traders playing as both suppliers and buyers at the ECX trading floor while that is against the rules of the Exchange. What is your take on that?

We have to think about that very carefully. We have two types of traders on the trading floor. These are people trading on their own account and people trading as intermediary members who are essentially brokers with clients. The clients can be buyers or sellers because the intermediaries are representing either side. On the other hand, the coffee proclamation in Ethiopia does not allow suppliers of coffee to be buyers of coffee at the same time except for the case of the byproduct of the coffee which the exporters can sell back to the domestic market. The reason for that is exporters should export the coffee and fetch foreign currencies than reselling the coffee in the domestic market. This is to encourage export and foreign exchange earning and, as such, it has nothing to do with the structure of the ECX.

The ECX is all about domestic transaction or domestic market as we know it. Do you have any plan to turn the floor to incorporate regional or international transaction platforms?

That requires a fundamental discussion among policymakers and stakeholders. We now are protecting our domestic exporters as we do our domestic banks from international competitors. If we allow the trading floor to incorporate international transaction platforms where the likes of Star Bucks could come and trade here, we will quickly move out the domestic players from the market who anyways will not have as much capital and market access as the foreign giants do. We don’t have plans to do so and that, as I say, requires a fundamental discussion amongst policymakers and stakeholders.