Archive for the 'Commodities Exchange' Category
January 12th, 2017 by Tom Minney
Another floor of shouting traders has just closed in New York, after CME Group (named after Chicago Mercantile Exchange) closed its open outcry trading pits. The trading floor still continues in pits on various commodities in the Chicago building that houses the Chicago Board of Trade, in an approach that dates back to when the building opened in 1930, writes The Economist magazine this week.
The Chicago exchange only has 9 pits, down from 32 in 2007, and closed one trading floor in 2015 that used to be very crowded and busy. Like the rest of the hyperactive world securities and commodities markets that used to heave with life, emotion, despair, greed, fear, ambition, deception and many other human conditions, gradually the computers have taken over.
The magazine writes: “In the end it was not scandal or terrorism that undermined open outcry; it was efficiency. Computers turned out to be quicker, cheaper and more precise than humans”.
It notes that CME Group was quick to understand that most business was in interest rates, stockmarket indices and currencies, not in traditional commodities. It picked up good volumes and made economies of scale in trading and clearing and then bought up other exchanges that ran into problems. Volumes continue to climb and a tumultuous year of surprising votes in UK and US have seen a big spike in activity and volatility. It provided US and UK traders with a record December and record-breaking volumes on exchanges such as the CME.
The Chicago Board of Trade was formed in 1848 and moved in 1856 to make space for 122 new members.
Chicago Board of Trade building, the figure on top is the goddess Ceres (photo Wikipedia)
April 1st, 2016 by Tom Minney
THIS STORY WAS PUBLISHED ON 1 APRIL MORNING FOLLOWING THE JOURNALIST TRADITION FOR THAT MORNING. IT SHOULD NOT BE TAKEN SERIOUSLY
As securities exchanges seek new products to boost liquidity and trading, a team of market experts announced backing for an exchange to trade southern and eastern Africa’s agricultural commodities. African Beef Exchange, headquartered in Gaborone, Botswana, launches today and brings together trading of a wide range of cattle and cattle products.
“We address the full range of this commodity – from savannah to sirloin” said CEO Bea Feater. “We offer cash trading and speedy T+2 international standard clearing and settlement and we will move towards futures trading along a 6 month exchange rollout roadmap.”
The ABE offers southern and eastern African countries the chance to quash arguments about which country produces the best beef. “We all know Botswana’s beef is the best in the world, except for the colleagues in Namibia, Zimbabwe and a few others. Now traders can put their money where their mouths are”, said Feater.
Key innovation is the settlement and clearing of physical commodity, enabled by a high-speed Chinese rail network currently under construction across the region. This will enable herders to “demat” the herds into specially padded train wagons for speedy T+2 settlement at kraals across the region.
The ABE is aiming to create a first in terms of sustainable energy usage and health, reversing the trend in which stockbrokers worry about their growing waistlines as they gaze at slow-moving trading screens: “We are creating a virtual trading room using advanced movement sensors and interactive technology. Traders will once again be able to trade better by rushing about, waving their arms and shouting, which will be better for their physical movement during trading hours. Our advanced system will capture the energy generated in order to provide energy for the order routing system. If you don’t move, the screen will gradually go to sleep.”
The full range of beef commodities will be traded, including futures (semen samples and calves) to post-trade in the form of ready-to-cook steaks. Interest is soaring as Africa’s top beef solutions continue to lead the cattle-loving world.
Trade confirmation will be exciting on African Beef Exchange
Cattle rushing to meet T+2 settlement deadlines
World-beating trade confirmation systems
October 13th, 2015 by Tom Minney
ECX buyers and sellers make deals. (Photo credit – John Humphrey. From www.globalisationanddevelopment.com)
The Ethiopian Commodity Exchange (ECX) has unveiled an online trading platform that has capacity for nearly 5,000 times more transactions than its current “open outcry”. Since the ECX was started in 2008 trading has been done on a trading floor in its Addis Ababa headquarters by dealers trading directly with each other, and about 200 transactions a day could be done.
Initially, dealers using the eTRADE Platform would be based at the ECX HQ’s trading centre. However, eventually market players will be able to trade electronically from anywhere. The platform will be gradually rolled out to newly built ECX trading centres in regional cities Hawassa, Humera, Nekemte and, in the near future, an additional 4 centres. The ECX has trained and certified more than 445 ECX trading members and representatives who are qualified to trade on the platform.
The trading platform has been under construction for the past 2 years and was developed in-house at the ECX. It was unveiled on 8 October and, on launch day, a record $400,000 of coffee was traded according to this news release
A test run was done on 20 July with trading in local washed and unwashed byproduct coffee. ECX says 2,390 metric tonnes of farm produce has been traded on the platform so far with a trade value of ETB 120 million (about $5.7m).
ECX chief executive officer Ermias Eshetu said: “The inauguration of this eTRADE platform sets a new course for Ethiopia and brings with it unparalleled economic and social benefits. The platform inevitably breaks the physical and time barrier of the current open-outcry trading platform and provides the ECX with vital economies-of-scale to trade a number of additional new commodities.”
Transforming life for small farmers
The Investment Climate Facility for Africa (ICF) and other partners have been supporting the programme, according to this news release. William Asiko, CEO of ICF, said the platform would bring a revolution to Ethiopia’s agriculture sector: “The modernization of ECX will help to improve the business environment for stakeholders involved in the commodities sector and give Ethiopian agricultural products a competitive advantage.
“But for farmers, this modernization will be life-changing. It will enable farmers to get better pricing for their produce, thereby creating a more equitable distribution of wealth that has far-reaching social implications.”
The ECX was founded with the aim of improving agricultural marketing – a large part of its success is due to the large network of warehouses, quality controls and logistics up and down the country, and its main aim is to empower smallholder farmers, including through better information about prices. The current Government 5-year Growth and Transformation Plan II, launched from July 2015, sees state-run ECX serving 24 “agro-centres” with increased storage and warehousing facilities and better transport links.
Ermias, who became CEO in January after coming from Zemen Bank, said in April that the Government is establishing an enterprise to oversee the upgrading of warehousing, which will rely on a mixture of public and private capital. Donors including the World Bank and Bill & Melinda Gates Foundation are considering supporting what will require “huge investment,” he said.
One key tool for ECX has been its short message service (SMS) and interactive voice response (IVR) notifications of market data to farmers and others. This was introduced in 2011 in Amharic and English and gives real-time access to commodity prices. The SMS service processes 800,000 transactions a month and the IVR handles 1m calls a month, according to the news release. An upgrade was unveiled on 8 October which expands to Oromiffa and Tigrinya languages and introduces menu-based services (USSD) and new interfaces.
ECX mulls trading securities
Earlier this year it was also considering whether it could trade securities, including stocks and bonds, as part of its 5-year expansion plan. Ermias told Bloomberg in April: “We want to be a marketplace for any kind of stock, be it derivatives, agricultural commodities, financial instruments. That’s the ultimate vision.” He added that formal discussions have not yet begun on trading securities.
“With the two components, logistics and scalability, we will be able to introduce multiple commodities to the market,” he said. “ECX must offer the truly transparent marketplace for anything that’s going on in the Ethiopian economy.”
He said the market could move from coffee and sesame seeds, which account for more than 90% of volumes and are the two biggest generators of foreign exchange in Ethiopia, to sugar and grains such as corn and then add equities, government debt, power and metals.
Bloomberg cites Yohannes Assefa, the director of Stalwart Management Consultancy, a Dubai-based group working on Kenyan and Tanzanian exchanges, saying that ECX has capacity to expand beyond agricultural commodities within 12 months: “The existing platform is robust and the regulatory system is mature and well managed.”
The main problem would be changing government regulations, and Yohannes warned this “may require serious internal consultation before a change of policy.”
Exporters want futures
Bloomberg adds that coffee exporters such as Fekade Mamo, general manager of Addis Ababa-based Mochaland Import and Export, criticize the ECX for not allowing futures trading to hedge positions in a volatile global market. Ermias said it would take more than a year to build necessary steps for this, including insurance options for farmers in case they can’t deliver, better access to credit and the strengthening of the legal system.
Donors including USAID and the United Nations have supported the ECX when it was launched in order to boost efficiency of food markets in a nation where millions regularly went hungry. It had strong support from the Government, which decreed that exporters of coffee – Ethiopia is Africa’s biggest producer – must buy from traders on the bourse before they can export and within a year the ECX was the main route for coffee exports.
In 2014 it traded ETB 26.2 billion birr ($1.3bn) worth of goods.
ETB 1.6m for trading seat
In May the 17th trading seat was auctioned and won by an individual, Abayneh Zerfu, who bid ETB 1.6m ($76,000), according to this story in Addis Fortune newspaper, which said there were 4 bids. The ECX manages the bid if a member sells his or her seat and they are only allowed to do this after trading for 3 years and meeting requirements. Yohannes Hamereselassie, member development specialist at the ECX, said the original price for a seat was ETB301,000.
The new e-TRADE facility (credit ICF Africa)
The ECX developers of the eTRADE platform (credit ICF Africa)
April 8th, 2015 by Tom Minney
Commodity exchange trading floors have failed in in Zambia, Uganda, Nigeria, Zimbabwe, and Kenya. However, this has not deterred donors, according to a recent article on Bloomberg, and at least 8 commodity exchanges started in sub-Saharan Africa over the past 20 years with the aim of improving food security for local populations.
Exchanges are a distraction from other initiatives that would better serve poor farmers, Nicholas Sitko, a Michigan State University agricultural economist who’s based in Zambia, where a commodity exchange closed in 2012, is reported as saying: “We’ve learned that no amount of money pumped into them and no amount of government effort to get them off the ground can force them to work,” he says.
Why were donors attracted to commodity exchanges, which analysts said suffered from the same flaw: a top-down approach that’s better at attracting foreign aid than at improving farming practices and developing transportation and communications networks. Donors like exchanges because they look like institutions in their own countries, says Peter Robbins, a former commodities trader in London who’s studied African exchanges. And “African leaders like to show off trading floors to show how modern their countries have become,” he says.
Even the famous Ethiopia Commodity Exchange, started in 2008 with the help of foreign donors including US and United Nations to improve food distribution in a country where millions often went hungry, has not proved as effective as desired. This is despite strong Government backing, including decrees that almost all buying and selling of coffee, sesame seeds, and navy beans for export must take place on the exchange.
According to Bloomberg: “With its buyers and sellers in coloured jackets and open-outcry trading floor displaying real-time market data from around the world, the ECX has been a prime example of what an exchange can and can’t do. The government ordered export coffee trading onto the exchange shortly after it opened, hoping it would jump-start activity and help attract other business. That didn’t work: Small amounts of corn and wheat are traded, but coffee and sesame seeds account for about 90% of exchange volume.
“Eleni Gabre-Madhin, who founded the ECX and served as its first director, says one obstacle for the exchange was that the state didn’t build enough warehouses to store bulky items such as cereals.” ECX Chief Executive Officer Ermias Eshetu said ECX will re-strategize from the bottom up in the Government’s next 5-year Growth and Transformation Plan II starting in July so that it can handle staple foods and is now allowed to license private warehouse operators to expand storage capacity.
Fekade Mamo, general manager of Mochaland Import and Export and a former ECX board member, was reported saying that Ethiopia’s fragmented, barter-based agricultural economy would have to modernize before it can benefit from a Western-style commodity exchange, according to: “The objective was to bring about an equitable food supply system.. That has completely failed.”
On the positive side, founder Eleni says farmers who use the exchange have seen benefits: Posting prices publicly has boosted their income, and centralized trading means buyers don’t default on contracts. Gary Robbins (no relation to Peter), chief of the economic growth and transformation office at the U.S. Agency for International Development in Addis Ababa, says commodity exchanges can encourage a consistently higher crop quality, a key condition for global trade, says. ECX
Eleni left the ECX in 2012 and has been working with investors, including International Finance Corp.—an arm of the World Bank—and Bob Geldof’s 8 Miles private equity fund, to establish an exchange in Ghana. Next she hopes to help set up one in Cameroon.
Shahidur Rashid, a food-security analyst with the International Food Policy Research Institute in Washington, says the problem is that conditions for success, such as large trading volumes, a strong financial sector, and a commitment to transparency, don’t yet exist in most countries: “A new institution should add value, and I struggle to find that value,” Rashid says. “Every country does not need an exchange. Nor is it any good to establish them in places where they will fail.” But he also says that under the right circumstances, exchanges can make sense.
January 5th, 2015 by Tom Minney
Rwanda Stock Exchange (RSE) says it is getting closer to introducing an Automated Trading System using trading technology from Nasdaq OMX. It will also link its trading infrastructure to the Central Securities Depository (CSD) and Real Time Gross Settlement System (RTGS) at the National Bank of Rwanda.
In March 2014, there was a report in The East African that the RSE was aiming to use the Nasdaq X-stream system installed at the East African Exchange (EAX) regional commodity market. The latest news from the East African Securities Exchanges Association EASEA press communiqué (available here) from the 24th meeting in Rwanda on 26-27 November was: “The RSE is in the final stages of automation of its trading system”.
Nasdaq describes X-stream as “a flexible, out-of-the-box solution trading multiple asset classes simultaneously on a single platform” on its website. It says X-stream is “the world’s most widely deployed matching technology” among market operators and is deployed in over 30 exchanges globally.
According to the March story in The East African: “John Rwangombwa, the governor of the National Bank of Rwanda, told Rwanda Today that though electronic trading had been delayed due to the heavy financial outlay required, RSE and EAX are now in advanced stages of sharing the NASDAQ system. .. We have been working on our side as a central bank to link the central securities depository. In the course of this year —in three or four months — automatic trading will be up and running.”
The report added: “While trade volumes on the RSE have been steadily increasing, its current manual trading platform makes it uncompetitive in particular among offshore investors.”
The RSE also reported that the bond market is becoming more “vibrant”, with quarterly issues by the Government of Rwanda. This was after work by a team made up of Capital Market Authority (CMA), Rwanda Stock Exchange (RSE), Central Bank of Rwanda and the Ministry of Finance and Economic Planning.
East African Exchange
The EAX was launched on 3 July 2014 by His Excellency President Uhuru Kenyatta of Kenya. It had been established by Tony O. Elumelu, CON, of Heirs Holdings, Nicolas Berggruen of Berggruen Holdings, Dr. Jendayi Frazer of 50 Ventures and Rwandan investment company Ngali Holdings. Acccording to a press release: “the EAX is a commodity exchange that aims to increase regional market efficiency and give the growing population, particularly smallholder farmers, better access to commercial markets.
“EAX will use NASDAQ’s OMX X-Stream trading platform for electronic trading and warehouse receipts so farmers can deposit their produce into EAX certified warehouses and access its services.
“At the formal launch, Mr. Elumelu said: ‘The EAX showcases our desire to identify far reaching investment opportunities, while ensuring that most of the value-adding aspects of Africa’s resource wealth stay on our continent. Africa must move toward greater self-sufficiency with private investment and strategic partnerships, just as we have done at EAX through our partnership with NASDAQ.’
“Nicolas Berggruen said: ‘EAX is complementing the EAC’s goal of regional economic integration, and putting in place a world-class exchange to create a globally competitive market for Africa’s commodities.’ EAX’s goal is to facilitate trade across all five East African Community member states. EAX is wholly owned by Africa Exchange Holdings, Ltd. (AFEX). EAX in Rwanda is additionally owned by local investment company Ngali Holdings.”
According to an earlier story on AFEX and its plans in Nigeria, Jendayi Frazer was key in U.S.-Africa policy for nearly 10 years and U.S. Assistant Secretary of State for African Affairs (2005-2009). Nicholas Berggruen has a charitable trust which funds the investment arm to take “a long-term, patient capital value-oriented approach”.
A story written in New York Times in March 2014 described “A commodity exchange, with its dozen terminals and state-of-the-art software provided by Nasdaq, held its first six auctions over the past year — a fledgling venture, but the kind that helps explain how a nation with no oil, natural gas or other major natural resources has managed to grow at such a rapid clip in recent years.
Rwanda Stock Exchange trading boards (2013 – credit The East African/umuseke.rw).
For 2104 photos of the Rwanda Stock Exchange and the East African Exchange see the New York Times website here.
December 30th, 2014 by Tom Minney
The Nairobi Securities Exchange is pushing ahead with plans to launch a derivatives market, including preparing product and contract specifications, and public education and stakeholder engagement meetings.
This follows the news on 19 Dec that the Capital Markets Authority granted NSE a provisional licence to set up and operate a derivatives exchange and approved the NSE’s Derivatives Exchange Rules and related documentation.
According to a press release put out by the NSE, acting Chief Executive Andrew Wachira said: “The NSE will now establish a globally competitive derivatives exchange that will enable spot and futures trading of multi-asset classes including equities, currency, interest rate products as well as varied forms of agricultural commodities contracts. The exchange has invested in the development of the derivatives market to ensure that it will meet global standards including mechanisms for trading, clearing and settlement of the instruments traded.”
NSE’s derivatives market is modelled on the derivatives market at the Johannesburg Stock Exchange (JSE), which offers trading in futures and options on equities, bonds, indices, interest rates, currencies and commodities.
The latest move is in line with the strategic plan of the NSE. According to a report on Bloomberg earlier this year in February this envisages market capitalization soaring fourfold to KES 7.2 trillion ($79 billion) by 2023 from KES1.85 trillion.
Nairobi Securities Exchange (credit: Diana Ngila, Nation Media Group)
NSE Chairman Eddy Njoroge noted in the press release: “Derivatives are among the most affordable and convenient means companies can cushion themselves against interest-rate fluctuations, exchange-rate volatility and commodity prices. Derivatives also boost liquidity in the underlying assets. The establishment of a derivatives market is a step towards growing the NSE brand and shareholder value and is also in line with Kenya’s Vision 2030 of deepening our Capital Markets and making Nairobi the financial services hub of East Africa.”
According to Bloomberg, a system for trading derivatives has already been installed. The law to allow creation of the futures market was passed in Dec 2013 and rules were submitted for approval by mid-February.
“Derivatives” get their name because their value is derived from another asset class such as a share, a physical commodity or an index. The JSE was ranked the 6th largest exchange by the number of single stock futures traded and 9th by the number of currency derivatives traded in 2012 in the World Federation of Exchanges Annual Derivatives Market Survey, according to the press release.
May 28th, 2014 by Tom Minney
Trading at ECX, (credit www.ecx.com.et)
A dynamic African builder of turnkey commodity exchanges, eleni LLC, has teamed up with pan-African Ecobank through a Memorandum of Understanding (MoU) to work together to accelerate development of African agriculture. Ecobank was also recently announced as a keystone investor in the Ghana Commodity Exchange being set up by eleni, reported here
Ecobank Transnational Incorporated (ETI), with 600,000 shareholders and listed on the Nigerian and Ghana Stock Exchanges and the Bourse Regionale des Valeurs Mobiliers (BRVM), is the parent company of the leading independent pan-African banking group, Ecobank. It is incorporated in Lomé, Togo and has presence in 35 African countries as well as France, Dubai, London and Beijing.
The co-founders of eleni LLC are Eleni Gabre-Madhin, Keith Thomas and Jawad Ali, who previously established and led the Ethiopia Commodity Exchange. The ECX traded $1.4 billion in spot contracts during its 4th year of operations and can claim to have improved the lives of millions of smallholder farmers in Ethiopia.
Their new firm, eleni, was launched last year as a turnkey commodity exchange builder for frontier markets skilled exchange investors as announced in January 2013, including Morgan Stanley (www.morganstanley.com), with a string of profitable and successful exchange investments and market centre worldwide, and the International Finance Corporation (www.ifc.org) who had put up seed capital of $5 million. Its business model is to provide design, finance, build, technology and operations support services. It has projects in Ghana, Cameroon, Mozambique, and Nigeria and aims to transform African agriculture through creating functional commodity exchanges using its experience. In May 2013 Reuters reported that Bob Geldof’s 8 Miles private equity fund had made eleni its first investment, joining 8 Miles and the IFC were co-investors into the GCX alongside Ecobank.
Ecobank, represented by group chief executive Albert Essien, and Gabre-Madhin for eleni signed the MoU on 22 May during the African Development Bank meeting in Kigali.
According to the press release, Essien said: “As well as increasing market transparency and reducing transaction costs, commodity exchanges play a crucial role in the monitoring and assessment of risk. Instruments such as warehouse receipts reduce uncertainty and improve access to finance across the value chain. We look forward to collaborating further with eleni to enhance Africa’s agricultural financing capabilities.”
Gabre-Madhin added: “We are very excited to be working with one of Africa’s leading financial institutions, with a solid pan-African focus, as this opens up a tremendous opportunity to establish the leading platform for commodity-related payments and transactions across the continent.”
Ecobank signs for $1.8bn of trade finance
Also at the meeting, the African Development Bank (AfDB) and Ecobank signed a $200m trade finance facility, which has 2 components and will support approximately $1.8bn of trade transactions in Africa over 3.5 years. It includes a $100m unfunded risk-sharing facility to bolster Ecobank’s capacity as an international confirming bank for trade transactions originated by issuing banks in Africa, and another $100m trade facilitation loan which will be used by Ecobank to provide trade finance support to local corporates and SMEs in Africa.
According to a release issued by Ecobank, Mr Essien said on 21 May: “This facility would greatly support international and intra-regional trade in Africa..We look forward to an ever-deepening collaboration with the AfDB to provide vital trade finance support to promote regional integration and the development of SMEs across Africa.”
May 14th, 2014 by Tom Minney
The Nairobi Securities Exchange (www.nse.co.ke) is pushing ahead fast with its demutualization plans and will sell up to a 38% stake in an initial public offering (IPO) in June. According to a report on Reuters, NSE chief executive Peter Mwangi said the NSE will offer up to 81 million shares, subject to regulatory approval.
The offer price will be set by the IPO advisors closer to the offer date. The bourse will use the funds for new products and enhance transparency.
Reuters quoted Mwangi saying: “We want to list through an IPO on the main market. We need to open this listing before 30 June. That conversion from a private to a public company will position us to be a very effective player.”
“We are playing in a sweet spot where the frontier funds think Africa is rising. East Africa is a hot spot on the African map and we are the gateway into that east African region.”
Soaring profits, new products
The NSE’s pretax profit more than doubled to KES 379m shillings last year from 2012. It has been lifted by a surge in trading turnover after the 4 Mar 2013 presidential election went peacefully. The dynamic Nairobi exchange is a mutual company owned by its stockbrokers, and demutualization is the process converting into a private for-profit company, as reported on this blog. The ordinary shares have a nominal (par) value of KES 4 shillings ($0.05) each.
Kenya’s Capital Markets Authority is reviewing the exchange’s advanced plans to offer currency and interest-rates futures and options. The NSE futures market will offer standardized contracts for currency futures that will be traded. Mwangi said: “We are seeing more and more international investors who might want to invest in Kenya and they might want to hedge the currency risk.” Local banks offer foreign-exchange forward contracts, which are negotiated directly with buyers, but they cannot be traded.
Mwangi added that part of the funds raised in the IPO will be used to bankroll new products such as derivatives, exchange-traded funds (ETFs) and Sharia-compliant indexes. The NSE has already led the way with a number of FTSE-branded index products and is working with the CMA and CDSC to introduce a real estate investment trust (REIT) market in Kenya and trading platform and a futures and commodities exchange.
The 60-year-old Nairobi stock exchange has been diversifying through new sources of revenue including sales of publications, provision of services through the Broker Back Office (BBO) and data-vending. It bought a prime commercial property in Nairobi’s Westlands area to tap into rental income, according to a report in Standard Digital.
The region is enjoying many benefits from increasing regional integration under the East African Community (EAC). The Nairobi bourse is a key player in the East African Securities Exchange Association (EASEA), which aims to standardize regulations and operations within the region to make cross-border investing easier. Members are the Dar es Salaam Stock Exchange (DSE), the Rwanda Stock Exchange (RSE), the Uganda Securities Exchange (USE), and the Central Depository and Settlement Corporation (CDSC). It also has a memorandum of understanding with the Somalia Stock Exchange Investment Corporation (SSE) under which it will have primary responsibility for the technical development of the Somalia Stock Exchange including identifying the most suitable partners and expertise.
Regional integration has also boosted expansion among listed firms and investor confidence after the discovery large quantities of gas and oil across several east African countries. There are many cross listing between the exchanges.
Mwangi said they wanted to attract more listings on the NSE’s Growth Enterprise Market (GEMS) which is aimed at small firms wishing to list their shares. There is only one listing, property developer Home Afrika so far. The NSE hopes to attract more listings through easier listing terms such as allowing business owners to offer a minimum of 15% if the shares in the market. Mwangi told family business owners who may be reluctant to lose control: “With 85% you have effective control of your company but you enjoy all the advantages of being listed. We are in a sense offering the best of both worlds.”
The NSE is a key member of the African Securities Exchanges Association and an affiliate member of the World Federation of Exchanges (WFE) and intends to become a full member.
March 14th, 2014 by Tom Minney
Photo credit: Government of Ghana
Investors aim to finalize fund-raising for a new Ghana Commodity Exchange (GCX) during the coming month. A private-public consortium has been put together to create a regional hub for trading commodities, including Ghanaian institutions Data Bank Agrifund Manager Ltd, Ecobank Ghana Ltd, UT Bank Ghana Ltd and a minority shareholding by the Government of Ghana, and international investors such as the International Finance Corporation (IFC, part of the World Bank Group), the private-equity 8 Miles Fund, and eleni, a company which describes itself as Africa’s “premier commodity exchange promoter”.
According to an announcement by eleni, the consortium partners and the Government of Ghana have jointly signed a Letter of Intent with the aim of completing the investment process by April 2014 and launching the GCX over the coming 12 months.
Dr. Eleni Gabre-Madhin, chief executive officer of eleni, is noted for the successful creation of the Ethiopian Commodity Exchange (ECX) as we saw in this story last year. Her model is different from many consultancy models as she is primarily an agricultural economist interested in helping farmers and production while making markets more efficient. She does not see the commodity exchange as only a trading screen, but as a key part of modernizing the whole agricultural marketing system. Successfully improving warehousing, storage, logistics, crop quality and farmer financing are all critical to the success of the venture, in her view.
According to yesterday’s announcement (13 Mar): “A second consortium is also in formation for a large-scale investment in warehouse and logistics infrastructure and equipment in 8 delivery sites around Ghana, as a strategic eco-system partner to the GCX.”
Ghana’s President John Dramani Mahama had announced the GCX on 25 Feb in his second State of the Nation address: “As part of efforts to create an orderly, transparent and efficient marketing system for Ghana’s key agricultural commodities to promote agricultural investment and enhance productivity, the Government has committed itself to the establishment of a Ghana Commodity Exchange (GCX) and associated Warehouse Receipt System (WRS).
“This move is to encourage market access and fair returns for smallholder farmers and to facilitate the formalization of informal agricultural trading activities. It is expected that the establishment of the Ghana Commodity Exchange will position it as a West Africa regional hub for commodity trading activities.”
Agriculture accounts for 22.7% of Ghana’s fast-growing $73 billion GDP and employs 41.5% of the 29m population, according to statistics website Quandl.
The GCX will start with spot and futures trading of agricultural commodities, including maize, soybeans, paddy rice, palm oil and groundnuts. Once these and the related deliveries of actual crops are settled, the GCX aims to introduce other key agricultural and
non-agricultural commodities and to position itself as a future regional trading platform.
According to Gabre-Madhin: “We can think of no better time and no better place than Ghana today to start a new thrust of developing an efficient and transparent price discovery platform. Ghana’s exchange has every potential to become a leading West African hub for globally traded commodities and we are excited to partner with the consortium to bring this idea to reality. The African commodity exchange momentum is real.”
Robert Dowuona Owoo, former head of policy, research and IT at Ghana’s Securities and Exchange Commission, is the GCX Project Coordinator. The SEC had commissioned a feasibility study on a commodity exchange in 2010 and set up a technical committee.
According to Samuel Ashitey Adjei, MD of Ecobank Ghana Ltd: “This exchange will undoubtedly have a transformative impact on our economy and we are very pleased to
be backing it.”
IFC and Soros invest in feeding data to farmers
IFC and the Soros Economic Development Fund have both invested $1.25 million of equity in Esoko, a Ghanaian technology firm, to help provide small holder African farmers and businesses with timely crop information that can be shared via text messaging. According to its website, Esoko can also transmit weather data and farmer helplines to agricultural experts.
Esoko CEO Mark Davies said: ““Our platform was developed by African software engineers here in Accra, Ghana, and has been a totally local, market-driven initiative” said. “IFC and SEDF have a strong track record of helping local companies get the funding and advice needed to expand into new regions and markets. With their support we hope to export this African technology all around the world.”
Current market information and efficient markets will help farmers to make educated, cost-effective decisions when buying and selling their crops, to farm more efficiently and to get better value for their crops. Transforming the warehousing and logistics across the economy, as was done in Ethiopia, transforms the economics of agriculture and is likely to result in increased food production and better livelihoods for farmers without increasing consumer prices.
March 14th, 2014 by Tom Minney
The Nigerian Government is planning to privatize the Abuja Securities and Commodities Exchange (www.abujacomex.com) by mid-2014, according to Arunma Oteh, Director General of Nigeria’s Securities and Exchange Commission (SEC). According to an interview on Bloomberg, the aim is to revive trading.
Oteh said: “The Government wants to privatize the only commodity exchange and it had committed to doing it by the end of last year. It didn’t meet that deadline, but it’s planning to do something by the middle of 2014.
“We have a number of both domestic players and international players who are very interested. They’d rather acquire the privatized exchange, so they’re trying to see how far the government is going with this initiative and if not they’re prepared to seek a registration for a new commodity exchange.”
One of the key investors interested is local firm Heirs Holdings Ltd, based in Lagos but with interests across Africa in banking, energy, real estate and agriculture. Chairman Tony Elumelu said in an interview in December the company wants to acquire the Abuja exchange when it is sold or else it will apply to the SEC to set one up.
Heirs Holdings is an investor with Berggruen Holdings and 50 Ventures in African Exchange Holdings Ltd (AFEX www.africaexchange.com). This facilitates an exchange using NASDAQ OMX technology which can be accessed anywhere in the world through the X-Stream electronic trading platform. Other key figures in AFEX include managing partner Jendayi Frazer, who was key in U.S.-Africa policy for nearly 10 years and U.S. Assistant Secretary of State for African Affairs (2005-2009) and Nicholas Berggruen whose charitable trust funds the investment arm to take “a long-term, patient capital value-oriented approach”.
AFEX has set up the East African Exchange (EAX www.ea-africaexchange.com) in Kigali, with the first node launched in Jan 2013 and the first regional auction – 50 metric tons of maize at $398 per metric ton – between a Ugandan seller and Rwandan buyer in November 2013. Expansion is planned for Kenya and Uganda to build a regional exchange.
AFEX also set up an electronic warehouse receipt system in Nigeria last November, working with the Nigerian Grain Reserve Agency and the Agriculture Ministry. This links farmers and traders as part of the groundwork to set up a commodities exchange, according to Bloomberg.
According to AFEX website: “Warehouse storage is critical complementary infrastructure to any commodity exchange. Properly managed warehouse facilities allow farmers to safely store their harvest without worrying about loss of value until market prices are favorable. An electronic warehouse receipt (e-WR) is issued by the warehouse and represents the stored commodity and is the security instrument that is traded on the exchange. It is only transferable through the electronic system, avoiding issues such as side selling, theft, forgery, etc.
“Berggruen Holdings signed a Memorandum of Understanding establishing a strategic partnership with the East African Community (EAC) Secretariat to support the goals of regional economic and financial integration. With this strategic partnership, AFEX will seek to share its strengths, expertise, experience, technologies, methodologies, and resources in order to advance the goal of regional integration of capital markets.”
“Our vision is to create lasting institutions that will capitalize on Africa’s agricultural potential, support African farmers, achieve food security, provide energy security, and improve Africa’s overall global trade competitiveness.”
Nigeria has a fast-growing population which is already 170 million people. It produced Africa’s third-biggest cocoa harvest in 2013 and produces cotton, sugar and other crops.
The ASCE website says it was originally set up as a stock exchange in 1998 and started electronic trading in 2001 and was converted into a commodity exchange 3 months later and brought under the supervision of the Federal Ministry of Commerce. The website does not appear to have been updated recently.