Archive for the 'Commodities' Category
July 25th, 2011 by Tom Minney
Tullow Oil plc (www.tullowoil.com) is expected to start trading on the Ghana Stock Exchange (www.gse.com.gh) from 27 July after allocating 3,531,546 ordinary shares of 10p each in a successful offer of up to 4,000,000 shares. The company says this is the largest primary share offer completed on the GSE and will more than double the market capitalisation.
The offer was open between 13 June and 4 July and shares were offered at 31 Ghana Cedis. During this period, 10,147 valid applications were received for 3,531,546 shares, representing 109.5 million Ghana Cedis ($72.3m). Everyone who submitted a valid application is to receive their shares in full, applicants are to have their GSE Securities Depository Accounts credited with their allotted shares today (25 July) and can start trading the shares on 27 July.
Tullow is also applying to the UK Listing Authority (www.fsa.gov.uk/pages/doing/ukla) to admit the extra shares to the Official List (they rank pari passu with previous shares) and to the London Stock Exchange plc (www.londonstockexchange.com) for the shares to be admitted to trading, also expected for 27 July. The same would apply to the Irish Stock Exchange (www.ise.ie).
Aidan Heavey, chief executive, said in a company announcement: “I am delighted by the success of our offer on the Ghana Stock Exchange, the largest primary share offer ever completed in Ghana. Ghana remains at the heart of Tullow’s investment decisions and underpins our long-term future in Africa.
“I would like to welcome all new shareholders, including Ghana’s National Basic Pension Scheme, to Tullow and thank them for their investment in the company. I look forward to updating all our shareholders with news of our progress, both in Ghana and beyond, over the coming years.”
BLOG PREDICTION: Look out for the rise of African financial institutions such as pension funds and life assurance. What do you think?
June 14th, 2011 by Tom Minney
The Egyptian Exchange (www.egyptse.com) is to introduce new products and trading innovations, including remote orders placed abroad, exchange-traded funds (ETFs), intraday trades and short selling. Mohamed Abdel Salam, chairman of the Exchange, told Reuters that transparency was up and political uncertainty was down in Egypt since the political uprising that overthrew former president Hosni Mubarak and this is bringing more investor confidence.
The trading changes had been delayed as the political mandate of the old government decreased. Some innovations could be introduced in July and talks on remote orders are to resume with the London Stock Exchange (www.londonstockexchange.com) on 20 June.
Mohamed Abdel Salam told Reuters in an interview on 13 June: “There are indicators that show the market is improving because of the revolution. First, it reduced political risk. In the past, things were vague. If the president were to die, would his son take over, or would the army? Many people have started trusting us now, and we are also trying to reduce transaction costs on foreign investors … so I think we will now introduce short-selling and intraday trade in the first days of July.”
He said that companies had been on time in publishing quarterly results, indicating the effects of the revolution on their earnings, and this improved the country’s credibility. In addition, since the changes institutional investors had become more prominent: “The market is becoming more stable, because institutional investors have begun to outnumber individual investors, who used to cause sharp market moves by their emotional trading.” Egypt is one of the African exchanges with very many active local individual shareholders.
He said the aim of the changes is to bring new energy into the exchange: “Egypt’s market is in need of new blood to be pumped in; it needs new products … It is unarguable that this is a main way to increase liquidity and volume.” Previously there had been moves to introduce short selling in 2008 but this had not been introduced in 2010 as scheduled.
Remote orders with FIX
The Egyptian Exchange aims to allow investors to place orders from abroad although trading would still have to be executed through a local broker. Investors could use the Financial Information eXchange (FIX) protocol (www.fixprotocol.org) to place orders and secure the details until the transaction was completed by the broker. The first link was due to be introduced via London in mid-2010, reports the agency, followed by links to centres in the Gulf. The Chairman said the delays had been caused by technical problems at the LSE and talks would resume this week on 20 June.
Another plan is for dual-listings with exchanges such as Qatar, Dubai, Abu Dhabi and Kuwait. Abdel Salam said: “There are Gulf companies that expressed a desire to enrol in the Egyptian stock exchange but I cannot disclose names now.” Several exchanges have been vying to form the centre of Arab trading.
Commodity trading in gold could be established through a fund and talks are on with Egypt’s Chamber of Metallurgical Industries. The Chairman said: “We want to introduce a new way to trade gold called ETC, standing for Exchange Traded Commodities; this should facilitate trading of raw gold, and Egypt is a strategic gold producer, so we should make use of it.”
The Egyptian Exchange was closed from 27 January to 23 March after the popular uprising and it faced turbulence and pent-up demand when it did open. The benchmark EGX 30 Index closed on 13 June at 5,550.22, down 17.5% since the revolution although the trend has been positive since a low of 4,850.41 on 8 May.
February 1st, 2011 by Tom Minney
Cote d’Ivoire has formally reneged on $2.3 billion of Eurobonds, becoming the first nation to default since Jamaica in January 2010. The default comes after the strife-torn West African nation could not pay $29 million of interest which had become due on 31 December, and after a 30-day grace period had expired. However, the market appears to have faith the crisis will eventually end.
The problem stems from a stand-off following an election which all international and African observers say was won by Alassane Ouattara. However, the previous president Laurent Gbagbo has refused to step down and got an internal ruling to disallow hundreds of thousands of votes, meanwhile using the military to blockage Ouattara in a hotel where he is protected by 700 UN peacekeepers.
African states had earlier threatened force to remove Gbagbo, but more recently seem to be settling onto the usual compromise of a shared administration as demonstrated in Zimbabwe and Kenya. This is what Gbagbo seems to have been gambling on from the start, according to his early statements. Meanwhile Cote d’Ivoire hangs on the brink of renewed civil war, hundreds have died and thousands have fled into neighbouring countries.
According to a report on Bloomberg, Alcide Djedje, foreign affairs “minister” in Gbagbo’s administration, said in Addis Ababa, at the African Union summit: “We will be making the payment. We do have the money of course. We have been paying civil servants. I don’t have a date yet but we will definitely pay.”
Bloomberg cites an email from Thierry Desjardins, the Paris-based chairman of the London Club group of commercial bank creditors and vice-president of sovereign debt restructuring at BNP Paribas SA, which said they had not received the debt and this was an “event of default”. The trustee for the bond is Robert Rywkin, the New-York based trustee at Law Debenture Trust Co., and Bloomberg says he said his firm would send out a notice of an event of default “not more than a couple of days later,” once it has assessed the situation.
Surprising price bounce
Meanwhile the bonds price bounced back up. They were 36.25 cents for each $1 of nominal value in trading on Monday (31 January) but up to 40 cents by 4pm today (Tue 1 Feb), according to bid prices quoted on Bloomberg. This may be because the bonds will now trade including any interest that has been accumulated which the buyer can claim, according to Stephen Monks of London stockbroker Exotix Ltd. Bloomberg quotes Aviva Werner, general counsel at the New York Emerging Markets Traders Association said the bonds should, unless otherwise agreed, trade “flat”, which means the buyer doesn’t pay for accrued interest separately from the purchase price of the bonds: “It takes into account they might pay in the next week, month, year, so it’s an all-in price; the buyer is due to all past interest.”
Central bank closed
The region’s central bank, also known by its French acronym BCEAO, said it shut its offices on 27 January in the Cote d’Ivoire’s commercial capital, Abidjan. The Finacne Ministers of the West African Economic and Monetary Union had ordered it not to give Gbagbo access to national funds.
If the situation eases and a new government have access, then Cote d’Ivoire, which exports a third of the world’s cocoa, has sufficient reserves there to pay the interest. Most investors believe there will be funds to repay the bond.
Felix Domaus, of Erste Sparinvest KAG in Vienna which holds the debt in its portfolio fo developing market assets, is reported by Bloomberg: “This coupon is a small payment, it shouldn’t be any trouble to Ivory Coast’s cash flow in a normal situation. Investors will give Ivory Coast the benefit of the doubt, professional Ivory Coast investors are used to the necessity of being patient with this country.” However, he warned that patience could run out: “There will be some point in time when we investors will do something, accelerate payment or whatever.”
Standard Bank Plc in London noted “After some further downside, we believe Côte d’Ivoire 32s will be the best-performing sovereign Eurobond in 2011,” in its African Markets Revealed report on 17 Jan.
Origins of the debt
In 2000, Cote d’Ivoire reneged on $3.5 billion of “Brady bonds”, which were fixed income securities created as part of a debt restructuring plan for developing countries and named after former U.S. Treasury Secretary Nicholas Brady. It issued Eurobonds last April as part of its debt restructuring at a yield of 10.181%, according to Desjardins and data compiled by Bloomberg.
Cocoa Prices
The European Cocoa Association and Federation of Cocoa Commerce Ltd. said there is a “significant slowdown” in flows from the country. World cocoa prices have hit one-year highs.
The previous sovereign debt default was in January 2010 when Jamaica defaulted on its domestic bonds, citing falling tourism and remittances because of the global recession.
January 18th, 2011 by Tom Minney
South Africa’s JSE Ltd (www.jse.co.za) traded 2.1 million commodity derivative contracts in 2010, up 12% on the previous year but still below the record 2.5 mn contracts traded in 2008. The JSE’s Commodity Derivatives market offers grain trading in white and yellow maize, soya, sorghum, wheat and sunflower seed. It also trades metals including gold, platinum, silver and copper and a crude-oil based derivative called the Western Texas Intermediate (WTI), reportedly the world’s most traded commodity.
White maize accounted for 46% of all grains traded on the JSE, wheat accounted for 27% and yellow maize 16%.
The JSE’s head of commodity derivatives, Rod Gravelet-Blondin, said in a press release today (18 Jan) that the local commodity derivatives market continues to attract new participants who aim to eliminate price risks in an increasingly volatile trading environment: “There is far greater understanding among farmers and millers of the uses of agricultural commodity derivatives as a tool to reduce price risk. Because we are a physical delivery market, farmers can lock in prices at the start of a growing season by taking out agricultural commodity derivatives, so that no matter what happens in the course of the year, they will be able to get their Safex price provided they deliver grain to the quantity and quality specified.”
In 2011, the JSE’s Commodity Derivatives market plans to consolidate and build. Gravelet-Blondin says: “That means encouraging new market participants, and continuing to educate people in the benefits and advantages of commodity derivatives.”
Farm productivity soaring in southern Africa
Production is soaring in South Africa and in neighbouring Zambia. South Africa’s maize crop was over 12 million tons in 2010, near a record and helped by relatively strong prices at the start of the growing season, above-average rainfall and better farming practices. Prices are down by about 30% from a year ago, with white maize for delivery in July 2011 now trading at about R1,400 a ton, unusually R80 less than yellow maize, traditionally lower priced and used for animal feed.
Gravelet-Blondin says this is due to: “..a large carry-over of white maize from the previous season, and export demand for South African maize is less buoyant due to improved yields coming out of countries like Zambia. Another factor contributing to the increase in size of the maize crop is the fact that we are now seeing yields of close to five tons per hectare, which is virtually double what we were seeing 10 or 15 years ago. This is due in part to biotechnology, but also to improved farming practices. South African commercial farmers are far more business-minded and professional than was the case 20 or 30 years ago.”
How commodity exchanges reduce risk
Safex was launched in 1995 to provide agricultural commodity derivatives trading as a mechanism to address price risk for producers and users. It started out offering grain futures contracts, but has since expanded its range of traded instruments. It is part of the evolution of risk control. Initially the government used to manage price risks for farmers and millers through price controls. When the market deregulated in the 1990s the price risk moved to farmers and users.
Grains trade on the basis of physical delivery meaning that any contract traded can result in physical delivery to a grain silo in South Africa. However, recently the JSE introduced cash-traded corn contracts, for which physical delivery is not required, which are based on prices set by the Chicago Board of Trade, part of the largest commodities trading market in the world. US corn contracts currently trade at a R450 premium to South African white maize, according to the JSE. These contracts are pure financial instruments which makes them appealing to a broader range of market participants.
Chris Sturgess, general manager at the JSE’s Commodity Derivatives market, says: “The price of South African maize is often correlated to the international prices set in Chicago. But South Africa maize prices fluctuate between import and export parity depending on whether there is a surplus or shortfall of maize. Many traders keep an eye on the spread between US corn prices and South African white maize and look for opportunities to profit from a widening or narrowing of this spread.”
The WTI oil contract can also help companies reduce their fossil fuel costs by buying WTI futures when prices are low. Should oil prices rise, companies will be able to offset higher fuel prices paid at the pump with profits made on the oil futures. WTI contracts on the JSE are traded in rand rather than US dollars, providing greater price transparency for local companies. Sturgess says: “This is something we are encouraging local companies with high fuel bills to explore… Companies can also reduce currency exposure through the JSE’s range of currency derivatives.”
Gravelet-Blondin says there is a greater level of sophistication among commodity derivatives traders seeking opportunities for hedging or profit. For example, it is possible to trade the difference between gold and platinum prices, on the basis that the two prices are correlated and any divergence in the spread provides an opportunity for profit.
January 18th, 2011 by Tom Minney
The new Commodities Exchange of Zimbabwe (COMEZ) is open, but no date is yet set for the start of trading. At the launch on 14 January, Industry and Commerce Minister Welshman Ncube said the exchange would be managed by the State, banks and farmers’ unions, according to a report in Bloomberg’s Business Week.
Zimbabwe previously had a thriving Commodity Exchange, which was closed in 2001 when the Government gave the monopoly on corn and wheat trading to the Grain Marketing Board. COMEZ will end the GMB monopoly, although the State will continue to play a strong role.
Bloomberg quotes Ncube saying: “We should create a transparent, open and accessible commodities market where both buyers and sellers can participate knowing the prevailing prices.”
To start with the new commodities exchange will trade only grains, cereals and oil seeds. The chairman of Comez, Wilson Nyabonda (the previous president of the Zimbabwe Commercial Farmers Union) said that private investors would be able to acquire shares in COMEZ.
Zimbabwe needs 2.09 million metric tons of corn (maize) the staple food according to the UN World Food Programme and the Food and Agriculture Organization, but the last harvest was 1.35 mn mt and 1.68 mn Zimbabweans depend on food aid. The winter wheat requirement is stated at 410,000-450,000 according to some sources, and the harvest was reported at 10,000 mt.
According to a recent report in the businessdigest of the Zimbabwe Independent, agriculture in Zimbabwe is recovering well, particularly tobacco, partly aided by subsidized fertilizer. However, there is a huge need for financing to rehabilitate irrigation schemes and improving farms, as well as supporting the recently settled “A2 farmers”.
There is a trend to set up commodity exchanges, with strong backing from donors. The leader in Africa is SAFEX, the commodities and futures arm of South Africa’s JSE Ltd (www.safex.co.za). Next is the new and fast-growing Ethiopia Commodity Exchange (www.ecx.com.et, trading started in April 2008). There is an Agricultural Commodity Exchange for Africa (www.Aceafrica.org, based in Malawi but serving smaller farmers in 5 countries) and Nigeria has Abuja Securities and Commodities Exchange. ZamACE in Zambia is active (www.zamace.com), followed by Uganda Commodity Exchange (www.uce.co.ug). Malawi and Kenya ACEs (www.kacekenya.co.ke) for the domestic market appear to have run out of donor funding, according to web reports and the Kenyan Government and the East Africa Grain Council are considering a replacement in Kenya. Projects and studies are underway in Ghana and Tanzania and Sudan is watching developments with interest.
Commodity exchanges are part of a move to try to revitalize agricultural productivity in Africa and should be seen as part of a holistic solution, including agricultural extension, support infrastructure for small farmers including quality warehousing, and finance as well as market price information.
January 7th, 2011 by Tom Minney
The dynamic Ethiopian Commodity Exchange (www.ecx.com.et) is further spreading its information feed, and now customers can access general information and their accounts through SMS and voice telephone (“Interactive Voice Receiver” or IVR) systems, according to an article in Ethiopia’s Fortune newspaper. This is an information feed, not the automated trading systems being installed by stockbrokers on the Nairobi Stock Exchangeas highlighted on 29 Dec on this blog, as ECX trading is still done on a physical trading floor.
One key aim of the ECX is to help Ethiopian agriculture become more efficient and productive by letting farmers all over the vast country get current information on what’s going on in commodity markets. The mobile phone systems should ensure that information is cheaply and quickly available to a wide range of farmers.
The new system cost Birr 1.2 million (USD72,500) and it lets customers anywhere retrieve general information, including Ethiopian and international commodity prices, and details of their personal accounts on the ECX trading floor. All the information divulged through IVR or SMS is obtained directly from the ECX’s market data system.
Information is available through either “push” or “pull” services within 2 seconds. Through the “push” service, subscribers are provided with information about transactions as each deal is completed on the ECX trading floor. The mobile phone text messages include the volume of commodities transacted and the corresponding value (price).
The “pull” service means that subscribers send text messages to request commodity prices, the price difference from the previous day’s listings, and the volume sold. Both suppliers and buyers can use this system to access their personal account information. The IVR system is accessed by username and password.
The newspaper quotes Ahadu Woubshet, chief officer of Market Data for the ECX: “The seller or supplier will be able to find any information about their product in the warehouse. The buyer will also be able to view his ECX account information at any time and place.”
The ECX, which started trading coffee in April 2008, and long been disseminating information via price tickers onto electronic display boards and its website; as well as radio, television, and print media. From the start there were 30 price tickers in different parts of Ethiopia.Ahadu told Fortune: “The tickers helped create change in the quality of exported goods. Once farmers learned that prices depended on quality they started focusing on that.”
Since then the ECX has added 150 electronic display boards, produced by Wavetec, a Dubai company which has done similar work for the Dubai Financial Centre and 11 stock markets in Africa, including South Africa’s 2 SAFEX markets, now part of the JSE Ltd. Seven display boards are in the ECX’s headquarters (central Addis Ababa) including a 29 metres board on top of the building.
The full cost of the project is included in a loan from the World Bank (www.worldbank.org) under a “Capacity Building Programme of Latest Information Dissemination System Project”.
Fortune reports that Achim Fock, senior economist at the WB Ethiopia Office and task manager of the bank’s Rural Capacity Building Project, said: “The WB dedicated about USD7 million to support and modernise the ECX’s operations”.
Apposite LL Co., a company reportedly incorporated in the US in October 2007 which opened its Ethiopia branch in December 2007, installed the new IVR and SMS system for Birr 0.5 million, after beating a wide range of other shortlisted firms. Ethio-Telecom was paid Birr 750,000 for installing the service. The system was supposed to go live in October 2009 but implementation took longer than planned.
Fortune quotes Adam Abate, managing partner of Apposite: “We delivered the design of the system in a short time. However, the contractual and the system integration process with Ethio-Telecom (then Ethiopian Telecommunications Corporation) took longer than expected. The integration of the SMS and the IVR system, billing arrangements, and extending a fibre connecting the system to the ECX’s headquarters were some of the processes that took so long.”
The pilot phase was launched in late December and Ethio-Telecom has made 36 IVR lines available under the telephone number 929. These lines can service 1,000 people per hour.
“The company has promised to increase the lines to 100 by February 2011, which will increase the system’s capacity to service 20,000 people daily,” Ahadu told Fortune.
October 22nd, 2010 by Tom Minney
A new multi-asset exchange The Global Board of Trade Ltd. (www.gbot.mu) started trading operations in Mauritius on 18 October. It is owned by Financial Technologies (www.ftindia.com) an Indian company which operates exchanges.
GBOT is an international multi-asset exchange based in Mauritius, offering an electronic exchange platform with efficient clearing and settlement systems to ensure counterparty guarantee for all trades. It trades commodity and currency derivative products including precious and base metals, energy, “soft” agricultural commodities, as well as currency derivatives starting with six currencies on its electronic exchange platform.
It hopes to expand to more African currencies and other products. GBOT chairman, Mr Venkat Chary, was reported as saying: “We are going to begin small and then expand the array of commodities.” Local media says GBOT cost $50 million to establish.
GBOT is regulated by Financial Services Commission (FSC). Mauritius is a strategic location at the crossroads of Africa and Asia and offers a way for global investors to access many of the world’s fastest-growing economies. The new exchange is in Ebène, 25 km south of the capital Port-Louis.
The Financial Technologies Group describes itself as a global leader in setting up and operating tech-centric next-generation exchanges in emerging but fast-growing economies from Africa to Asia and Middle East to South-East Asia. The Group operates one of the largest exchange networks comprising 10 exchanges and 6 ecosystem ventures which address upstream and downstream opportunities around exchanges, including clearing, depository, information vending, and payment gateway among others.
FT on 31 August opened trading on its Singapore Mercantile Exchange (SMX -www.smx.com.sg) and it aims to launch the Bahrain Financial Exchange (BFX) shortly. According to the Financial Times newspaper, the SMX cost US$55 million to open.
Navin Ramgoolam, Prime Minister of Mauritius, launched GBOT on 15 Oct and said it established in the country as a strategic business and financial gateway between Asia and Africa, according to local news reports. He added that it would add depth to the domestic financial markets and bring new dimensions to financial services systems by providing knowledge, technology and business know-how.
Media reports cited Jignesh Shah, the vice chairman GBOT and chairman of the Financial Technologies Group: “The launch of GBOT will be a landmark development in redefining Africa’s commodity and currency derivatives landscape. Our new exchange will be instrumental in unifying the fragmented African financial markets and in bringing the world to Africa and the African potential to the world and to its own people.” The exchange will help commodity dealers and investors and could fit into regional arrangements such as the Common Market for Eastern and Southern Africa.
According to reports, GBOT’s managing director and CEO, Mr Joseph Bosco, said the exchange would start with 12 brokers, and would also be looking at opportunities in Uganda, Tanzania, Nigeria and Egypt. It lists “members and partners” including State Bank of India (Mauritius) Ltd., Bank One, Arab Global, One Financial, Afrasia Bank, Mauritius Commercial Bank, Banque des Mascareignes, Barclays Bank and Bramer Banking Corporation and global media corporations Bloomberg and Thompson Reuters.
Singapore exchanges:
Singapore also has Singapore Exchange Ltd (www.sgx.com) in expansionary mood with ambitions in Australia and Europe, and Singapore Commodity Exchange (www.sicom.net). Singapore is battling Hong Kong to be trading centre for Asia. Bloomberg newsagency reported on 15 Oct that the Asia-Pacific (with 38% share of the world total in the half year to June) has overtaken North America (33%) as the world’s biggest derivatives market amid increasing demand for futures and options contracts in the region’s fast-growing economies.
The new SMX, owned by GBOT parent FT, initially offers trading in 4 products: a gold futures contract with physical delivery, West Texas Intermediate and Brent crude oil contracts, and a euro-US dollar futures contract. SMX Chief Executive Thomas McMahon was reported as saying the SMX was also planning for a big shift in trading of over-the-counter derivatives products.
October 22nd, 2010 by Tom Minney
Thomson Reuters (thomsonreuters.com), a leading source of trading information, is providing real-time prices and data from the Global Board of Trade (www.gbot.mu) a multi-asset class exchange based out of Mauritius. The agreement for this was announced following the official opening of the Global Board of Trade exchange on 15 October. GBOT “offers a range of commodity derivative products including metals, energy, agri-soft and currency derivative products.”
Finance professionals using Thomson Reuters Eikon or Thomson Reuters 3000 Xtra desktops will be able to access real-time data from GBOT for gold and silver contracts and five currency futures: EUR/USD, GBP/USD, JPY/USD, ZAR/USD and USD/MUR. The data includes bid and ask prices, volumes, latest trades and related information and news on the commodities and currencies.
Russell Haworth, Managing Director of Middle East & Africa, Thomson Reuters, commented in a press release: “Thomson Reuters is proud to be a part of this historic moment for the Global Board of Trade and welcomes the agreement which will help bring the data from this new multi-asset-class exchange to the rest of the world. Mauritius is well positioned to become a hub for trading in the continent.
“Thomson Reuters is encouraged by the growth prospects for Africa and the increasing demand for information and insight into this vibrant market. We are committed to helping their financial markets further develop and prosper.”
Joseph Bosco, Managing Director and Chief Executive Officer of GBOT commented: “Having Thomson Reuters on board to disseminate real-time data from GBOT to its global network is a very significant development for us. As an international multi-asset exchange from Mauritius, we will ensure global investors get access to the fastest growing economies of Africa. We will definitely benefit from the wide reach and network of Thomson Reuters. We are proud to associate with a reputed information services provider like Thomson Reuters and look forward to working together to create mutually beneficial opportunities”.
GBOT is the latest African exchange to be added to Thomson Reuters real-time data offerings, and follows the recent starts of real-time data offerings from the Lusaka, Nairobi, Nigerian and Ghana stock exchanges.
March 15th, 2010 by Tom Minney
LIVE FROM SECURITIES AFRICA/CITIBANK 5TH ANNUAL AFRICAN INVESTMENT CONFERENCE, LONDON
Experts launching the 5th Annual Africa Investment Conference, organized by Securities Africa and Citigroup, said they could see more growth coming in the 2nd biggest continent.
David Cowan, Africa Economist with Citigroup Global Markets, says that African countries had survived the global downturn, firstly because their financial systems were not so leveraged. However, impacts through the real sector are starting to show, where private sector credit growth has slowed dramatically in the second half of 2009 and banks are using surplus funds to buy government securities, collapsing yields.
He notes that the agricultural and informal sectors have held up well and “still account for a large, and growing, percentage of GDP”. Commodity prices are rebounding, either short term or part of a long-term “super cycle”, and the decision is not yet in, whether this brings more blessings or curses, especially as many countries are oil importers.
The slowdown in remittances and aid has not been as bad as expected, with multilaterals such as African Development Bank, World Bank and International Monetary Fund, stepping up funding. African countries are largely in strong fiscal positions, and this has not changed much despite efforts to help their economies through the crisis. Although many central banks eased rates, in many cases the commercial banks did not follow! Some countries missed the chance to introduce structural reforms. Inflation is likely to be low in the first half of 2010, but could pick up depending on food prices.
He says “growth should continue to pick up” for 2010-11, and this could be fast in some countries although constraints such as power shortages will continue to hold it back. There could be more spending, especially as many countries face elections in coming months, and political uncertainty could restrain some foreign investment, particularly portfolio inflows. Africa is not likely to be competitive in manufacturing, but could have advantages in food as the Northern hemisphere switches to healthier eating more fruit and vegetables, and Africa could also add value and benefits to food products.
Commodity prices are likely to be drivers of growth and Africa could benefit from a period of high and stable commodity prices, depending on governments making necessary structural changes to get the best benefits. There is also a rebalancing from external to internal growth drivers.
Securities Africa’s Dexter Mahachi sees better government, increased accountability and more democracy as a major driver of African growth. “They are managing their finances better” he says, adding this provides a good platform for sustained and better economic growth rates. “Consumer stocks across Africa have attracted investor interest, consumer stocks in Ghana, Kenya, Nigeria. There has been quite a boom in growth and urbanization in all these countries.
“For 2010-2011 we expect the bullish outlook to continue improving. The fundamental picture is not economic growth from more resources, but also economic growth from better policies”.
March 13th, 2010 by Tom Minney
The Nairobi Stock Exchange (www.nse.co.ke) has set mid-2010 as the target to launch a commodities exchange. It will be a joint effort by the National Cereals Produce Board (www.ncpb.co.ke), the Kenya Agricultural Commodities Exchange (www.kacekenya.com), Eastern African Grain Council (www.eagc.org) and NSE.
The exchange aims to protect farmers against price turbulence, including seasonal variations in prices for farm produce that diminish earnings and cause tonnes of produce to go to waste. The trading platform will feature futures contracts on commodities, whether in stores or in the fields, so that a farmer can sell his produce ahead, locking in a specific price. Her or his responsibility is then to deliver the produce to the required quality and quantity on time. It also reduces the role of middlemen who buy commodities low during the market gluts often seen in harvest season.
According to a report in Business Daily newspaper (www.businessdailyafrica.com), Dr Adrian Mukhebi, the KACE chairman, says: “The plan is at an advanced stage and the market should open before June this year.” Deloitte & Touche is searching for two senior managers who will act as the link between NCPB and the commodities exchange. This is part of a restructuring proposal for NCPB that splits its commercial wing from the strategic reserve function as well as the establishment of the commodities exchange.
NCPB will use its silos and warehouses to store produce earmarked for trading at the commodities exchange.
“The market will initially trade major grains produced in East Africa, including maize, wheat, rice and beans but will ultimately trade other agricultural commodities, including inputs such as fertilizers and seeds,” said Dr Mukhebi.
The paper also quotes some sceptics, who say the policy framework is not ready and the project is being rushed after the great success of the nextdoor Ethiopian Commodity Exchange (www.ecx.com.et). It cites Mr Daniel Mbithi, the secretary of the Kenya Coffee Planters and Traders (KCPT) association which runs Nairobi Coffee Exchange: “We do not have the necessary legal framework for this market. The current sense of urgency is merely the product of recent reports that a similar market has been established in neighbouring Ethiopia,” he said.
Legal and regulatory frameworks could include a Commodities Exchange Act and a Warehouse Receipts Act, as well as investments in infrastructure such as roads and in NCPB facilities to fit them with modern equipment like sievers and driers to enable hold grains for longer periods.
Dr Mukhebi, however, said the commodities exchange would be regional in outlook and would benefit farmers from Kenya, Tanzania, Uganda, Rwanda and Burundi. “We have also partnered with the EAC Secretariat to catalyse the establishment of a harmonised legal and regulatory framework for the exchange in the region.”
In 2008, the Eastern Africa Grain Council, in partnership with NCPB and Lesiolo Grain Handlers set up a pilot maize receipt warehousing in Nakuru but the project funded by Equity Bank has performed below expectation due to prolonged drought and government price controls. However, Government reportedly increased the price it offered beyond the price offered at Lesiolo and the initiative died.