African Capital Markets News » Ethiopia

Ethiopia plans more bonds for $4.7bn hydropower dam

Tom Minney — Fri, 30 Sep 2011 08:10:38 +0000

Ethiopia has raised Birr 7 billion ($408 million) of debt to finance the $4.8 bn Grand Ethiopian Renaissance Dam on the Blue Nile River and plans to issue more bonds. Communications Minister Bereket Simon said the country is not raising funds from foreigners in a bid to demonstrate its economic resurgence, according to an interview on Bloomberg yesterday (29 Sept).
The 5,250-megawatt dam, also called the “Millennium Dam”, is scheduled for completion in 2017 with the first 700 MW to be generated in 2015. It is on the Blue Nile, the main tributary of the Nile River, about 30 kilometres from the border with Sudan. According to the report, the dam wall is to be 145 meters high and 1.8 kilometres long and the lake will be 1,680 square kilometres (Lake Tana is 3,000-3,500 square kilometres according to Wikipedia), reportedly mostly uninhabited forest in the western Benishangul-Gumuz region.
Prime Minister Meles Zenawi launched the project and construction in April. Ethiopia is busy with many giant hydropower, wind and other generation projects to use its potential to generate 45,000 MW of hydropower, 10,000 MW of wind and at least 1,000 MW from geothermal sources. It is becoming a regional electricity exporter to counteract shortages in the nine East African Power Pool (www.eappool.org) countries, including Kenya, Djibouti, Sudan and Uganda, which are to be connected by a regional grid by 2016. The country started exports to Djibouti in May, a transmission line to Sudan may be completed by January and a feasibility study for a link to Kenya has been finished. Ethiopia is seeking to diversify the fast-growing economy, which used to rely on commodities such as coffee for most of its foreign currency.
Bloomberg quotes Bereket: “Building a dam on the Nile has been the dream of every Ethiopian. For millennia, we have been looking at the Nile as if it has been a curse that took our fertile soil and benefited others while Ethiopia was impoverished.” Bereket is heading a “public mobilization council” to raise funds for the project.
Egypt depends on the flow of the Nile for all of its water. Previous President Hosni Mubarak opposed infrastructure projects by upstream nations, citing old treaties established by the British which favoured Egypt. However, Ethiopia announced the dam soon after Mubarak was deposed in February and the new government has reportedly sought details of the technical and environmental studies on the effect of the dam on Egypt’s Nile water flow. Bereket told Bloomberg that Egyptian and Ethiopian officials have met twice and relations are improving.
Zemedeneh Negatu, managing partner for Ernst & Young LLP in Ethiopia, told Bloomberg: “The financial capacity to build the dam I don’t think should be in doubt at all. Over the next six years, Ethiopia can collect from taxes somewhere between Birr 450 and 500 billion.” He said the dam is “very critical” for Ethiopia to achieve its industrialization goals and for neighbouring states.
Donations of a month’s salary by civil servants have been converted into bonds to help boost the nation’s savings rate, currently 5.5% of gross domestic product, Bereket said. The opposition have criticized funding pressure on civil servants.
Public funding is unlikely to be maintained as it would be “too taxing,” so private companies have been encouraged to buy the debt, which offers a coupon of 5%. There are also plans for bonds to be offered to the Ethiopian diaspora with returns above the London Interbank Offered Rate, while sales to farmers are planned “early next year,” he said. A “significant” portion of funding will also come from the government’s development budget, Bereket said. A National Bank of Ethiopia directive was issued in April compelling banks to buy government bonds equivalent to 27% of their loans each month may raise Birr 11 bn for development programs in its first year, according to Access Capital (www.accesscapitalsc.com), the Addis Ababa-based research group. That amount is likely to increase in subsequent years, it said in an April research note.
The Ethiopian Government plans to borrow Birr 398.4 bn by mid- 2015 to invest in industry and infrastructure. The World Bank said in June this may lead to the economy over-heating and debt problems, the. Annual inflation in Ethiopia was 40.6% in August, partly because the central bank boosted money supply.

Berbera Port-China deal – change in the Horn?

Tom Minney — Fri, 12 Aug 2011 09:54:18 +0000

Somaliland media sources and other rumours, including on Twitter, have suggested (12 Aug) that a deal on Somaliland’s Berbera port is imminent with China and Ethiopia. According to Somaliland media, Somaliland President Ahmed M. Silanyo, leading a high-level ministerial delegation, is in Beijing for his first China visit. Ethiopian officials are rumoured to be en-route to China for the announcement. This recent story on Somaliland media www.somaliland.press gives more details.
Berbera Port sits in a very strategic location on the Red Sea and plans to become a major port in the region for Somaliland, Ethiopia, South Sudan and Somalia. It could offer effective competition to Djibouti.
Somalilandpress.com last week reported presidential spokesman Abdullahi M. Dahir said the visit will focus on foreign investment, trade and development: “The aim of our trip is to seek foreign direct investment (FDI) projects from China in the fields of energy, mineral exploration and Agriculture. We are also going to seek assistance from China to implement water projects and other key infrastructures including transportation requirements (airports and roads).” The report added that the President was due to stop over in Addis Ababa for key talks with Ethiopian officials over a number of topics including the “Berbera corridor”, security and trade.
In March the same news source reported that the Somaliland Government plans to privatize the port and was holding discussions with Chinese firms. The Somaliland Foreign Minister, Dr Mohamed Abdullahi Omar had visited Beijing, China, after a visit via Addis Ababa over the port and other key areas, including security, and has apparently made several visits to China. The report says: “Both governments are pushing for foreign firm to invest in the port. According to sources close to the Government a number of firms expressed interest including the Hong Kong based, Hutchison Port Holdings (HPH), France’s Bolloré Africa Logistics and Holland-based, APM Terminals.” The latest www.somalilandpress.com report suggests that “Somaliland might lease the port to the global port operator and Hong Kong-based Hutchison Port Holdings (HPH) who might team up with another Hong Kong-based firm, PetroTrans Company Ltd, an oil and gas exploring giant which already won concession to explore oil in Ethiopia’s Ogaden region. The Chinese company plans to build gas transport infrastructure and processing facilities in Berbera where it will export.”
In February The Reporter newspaper in Ethiopia reported that Samson Wondimu, corporate communications head with the Ethiopian Roads Authority, said the Ethiopian and Somaliland governments were trying to secure the funds from the EU that would be used to rehabilitate the 245 kilometre long Togochale (boarder town)-Berbera road. Some 50 kms from the Ethiopian border, the road is rough and the asphalt road begins near the capital city, Hargeisa and goes up to Berbera.
The ageing asphalt road from Hargeissa to the port is in a very poor condition and it needs urgent rehabilitation. Berbera is an alternative gateway to Ethiopia and currently is said to be mostly used for food aid. But the Ethiopian Government plans to import parts of the country’s import via Berbera. The port also needs to be developed and it needs a substantial amount of investment.
According to Somaliland press, the first phase of the project, already approved by the EU, will be to conduct a study on how to develop the Berbera Corridor, a 850 km road. This could connected to a North-South (Cairo-Gaborone) highway. The news reported: “The second phase will be finding a reliable contractor for the job and investors. At the moment, its at the second phase and both Ethiopia and Somaliland have been in talks with a Chinese firm in Addis Ababa that is already constructing roads and highways in Ethiopia.” Mr Samson said the Ethiopian Government was finalizing work on the Jijiga-Togochale 67 km. road construction project launched 3 years ago with local construction firm, Akir Construction, due to finish soon.
Somaliland has been operating peacefully and democratically as a self-declared separate state since May 1991 and has been pushing for international recognition ever since. One key obstacle could be the African Union’s failure to take an African lead in opening this debate.
Kuwait reportedly recently gave Somaliland $10 mln to develop the airports.

Ethiopia to sell 18 more state-owned enterprises

Tom Minney — Wed, 10 Aug 2011 19:49:23 +0000

Ethiopia’s Privatization and Public Enterprises Supervising Agency (PPESA – www.ppesa.gov.et) has privatised 287 enterprises since 1995, according to a news report in the local Fortune newspaper. The agency plans to sell 18 companies in direct sales and 5 companies in joint ventures, estimating to collect Birr 1bn ($59 million) during the fiscal year to 7 July 2012.
During the 2009/10 fiscal year, PPESA sold 18 enterprises, an improvement of nearly 50% on the previous year.
Companies to be auctioned in the current year include Agriculture Mechanisation Service Enterprise, Coffee Technology Development & Engineering Enterprise, Kality Metal Products Factory, Bole Printing Enterprise and Coffee Processing & Warehouse Enterprise and it will offer joint ventures on Caustic Soda SC, Ghion Hotel in Addis Abeba, Ethiopian Mineral Development SC, Adola Gold Development, and Limu Coffee Plantation .
The privatization programme is likely to increase in the year to July 2013 and then tail off, according to the report.
The agency is also stepping up its own activities, according to its plan for the 2011/12 fiscal year. It will launch new projects for rubber trees, a coal-phosphate fertiliser complex, hydrogen peroxide and cement. It is communicating with 6 consultants tendering to supply 10,000 tonnes of clinker. The new plans are planned eventually to produce 5,000tn of hydrogen peroxide, 12tn of acrylic, 4,500tn of polyester, 300,000tn of urea fertiliser and 20,000tn of methanol. The rubber tyre plant could process up to 6,000tn of tyre sheets annually.
Last year it made Birr 3.9 bn ($229.5 m) from selling 24 companies (it received Birr 1.4 bn from down-payments and delayed payments) including: Adama Ras Hotel, Harar Ras Hotel, Errer Gota Farm, Ethiopian Hard and Soft Board Factory, Ethiopian Iron and Steel Factory, Bricks Products Processing SC, Abebo Agriculture Development Co, Anbessa Shoe Factory, Tabor Ceramic Production Services, Residential Houses Construction Co, and a number of textile factories.
The agency aims to support Government’s plan to boost industry’s contribution to GDP from the current 13% to 20% and plans to boost its own pretax profits from Birr 2 bn to Birr 5.2 bn in 2015, and increasing export earnings from its companies from Birr 645 million to Birr 1.8 bn (it made Birr 72 m in the fiscal year to July 2011).

Ethiopian Commodity Exchange now available on mobile phones

Tom Minney — Fri, 07 Jan 2011 15:09:08 +0000

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.

Africa features 7 of world’s top 10 economies for the coming year

Tom Minney — Thu, 06 Jan 2011 21:50:25 +0000

There has been much buzz about investing in Africa and the growth figures show that the markets make sense. According to today’s (6 Jan) daily chart by The Economist (www.economist.com), on IMF forecasts Africa has 7 of the world’s top 10 places for fastest growing economies for the 5 years from 2011-2015. (The magazine’s ranking excludes countries with less than 10 million poeple as well as Iraq and Afghanistan, which could both rebound strongly in the years ahead). Ethiopia, a non-oil economy with Africa’s second-biggest population, heads the list.
Looking back over the 10 years to 2010, sub-Saharan Africa was home to 6 out of the 10 fastest-growing economies. According to the editorial: “Over the period the simple unweighted average of countries’ growth rates was virtually identical in Africa and Asia. Over the next five years Africa is likely to take the lead. In other words, the average African economy will outpace its Asian counterpart.”
All the more reasons for regulators and those running the continent’s capital markets and private equity funds to make capital flows more effective and encourage local populations to have a bigger part in the growth. They should concentrate on streamlining regulations and tax systems that make it hard and costly to do business, and reduce the costs and time for doing business help people focus on productive growth.

IFC to offer $20 million guarantee facility for Ethiopian coffee producers

Tom Minney — Sat, 11 Sep 2010 20:24:55 +0000

The International Finance Corporation (www.ifc.org) is investing $21 million to guarantee coffee crops. The facility would be to support the Ethiopian Coffee Initiative run by Technoserve (www.technoserve.org), part of a Coffee Initiative across 4 African countries.
According to a report on www.afrik-news.com, one tranche of $10 million is to be set up with local NIB International Bank. The IFC, which approved the project in July, says in a press release that Technoserve will work with coffee farmer cooperatives to improve their business management skills; train them to improve quality of the coffee; facilitate access to credit by developing a business plan for each washing station (“wet mill”) for processing cherry coffee and present it to the partner banks; facilitate their access to markets by linking them to key buyers; provide working capital; and provide farmers with agronomy and extension services to improve their yields.
The revolving IFC guarantee facility will be for up to $10 million, and is accessible to national banks to participate.
The total size of the financing programme over the 3-year period is expected to be US$21 million. Up to 20% of the program will be for equipment loans of a 3-year maturity while the remaining 80% will be harvest working capital loans of up to one year.
The targeted region is situated in semi-forest areas in South-western Ethiopia. Most specialty coffee production in Ethiopia only uses organic fertilization and, as such, does not rely on inorganic fertilizers and/or pesticides.
In terms of process, the selective picking (only the ripe coffee cherries are harvested) is done by hand, a labor-intensive process. This kind of harvest is used primarily to harvest the finer Arabica beans. Cherry is then transported from the fields to the collection points and subsequently to the wet mills. Under this project, the processing promoted used a newer procedure called “machine-assisted wet processing” or “mechanical demucilaging”, with the wet mills able to process 1.0 or 2.4 tons/hour. After overnight fermentation, the resulting coffee beans (“parchment”) are dried in the sun on large raised drying tables for a period of 7-10 days in order to achieve the desired moisture content of 11%.
Afrik-news.com reports that Technoserve is working with Ethiopian farmer cooperatives to train them and improve their business skills and the quality of their coffee production. The project targets up to 160 farmers cooperatives which represent some 90,000 local farmers.
Technoserve, which has more than 40 years’ experience in providing business solutions to development problems, including through agricultural production, says its Coffee Initiative is funded by the Bill and Melinda Gates Foundation and it has also been supported by leading Wall Street philanthropists.
The IFC says it is stepping up its projects in Ethiopia. It has a programme with the Ethiopian Commodity Exchange (ECX) to design financial instruments and advocate for any regulatory changes needed so that banks can accept warehouse receipts as collateral for loans.
It opened a new representative office in Ethiopia in November 2008, and recent projects include a $11 million investment to support gold exploration at the Tulu Kapi Gold Project in Western Ethiopia, and a $55 million investment in Derba Midroc Cement Company to help address the country’s cement shortage.
IFC says its strategy in Ethiopia focuses on proactively developing new investment projects, supporting public-private partnerships that promote economic growth, and mobilizing direct investments to key sectors of the economy, including agribusiness, financial services, health and education, infrastructure, manufacturing, and tourism.
When IFC Vice President for Business Advisory Services Rachel Kyte visited in July she said: “Ethiopia is a country of high potential, including in agriculture, manufacturing, renewable energy and services. IFC is committed to assist Ethiopia’s government in creating an enabling environment for business and to support private sector investment in key sectors of the country.” (from press release).
IFC is also conducting several advisory services programs provide support to improve the investment climate, and promote better access to finance through measures such as the warehouse receipt finance program, to name a few.

From the web: www.technoserve.org
TechnoServe was founded in 1968 by Connecticut businessman Ed Bullard. While volunteering at a hospital in rural Ghana, he was struck by how difficult it was for hardworking people in the area to lift themselves out of poverty. So he created an organization to transform lives by providing poor people access to productivity-enhancing tools— hence the name TechnoServe: Technology in the Service of Mankind.
Bullard’s work was guided by two core principles, revolutionary at the time: the power of private enterprise to transform people’s lives, and the lasting value of providing a hand up rather than a handout. These principles have remained at the heart of TechnoServe’s efforts, even as our work has evolved to focus on improving living standards on a larger scale, to transform entire communities and countries.
Today, TechnoServe focuses on developing entrepreneurs, building businesses and industries, and improving the business environment. All our work revolves around helping people identify and capitalize on good business opportunities that help to transform the lives of the rural poor, by generating jobs and markets for their products and services.
We work with a range of public- and private-sector partners, such as the U.S. Agency for International Development, the Rockefeller and W.K. Kellogg Foundations, Bill & Melinda Gates Foundation, Google.org, Lenovo, Cargill and numerous individuals.
In keeping with our private-enterprise approach, we track and evaluate our impact using business metrics, including wages paid and supplies bought from the rural poor. We also track and evaluate the social impact of our work.
The results are evident in villages and towns throughout Africa and Latin America, where thanks to TechnoServe, businesses are thriving, economic activity is robust, and hardworking families have jobs and steady incomes. These changes have sustained improvements in infrastructure, health, education and other vital community social services.

Bond market coming to Ethiopia, and experts review T-Bills

Tom Minney — Thu, 25 Mar 2010 14:37:02 +0000

Ethiopia may soon have corporate bonds, paving the way to a bond market, according to a press conference last week by Prime Minister Meles Zenawi. According to a report in the respected Fortune (www.addisfortune.com) weekly newspaper, the Prime Minister told media on 18 March that state-owned enterprises would start issuing bonds within weeks.
State enterprises such as the Ethiopian Electrical Power Company (EEPCO), the Ethiopian Telecommunications Corporation, Ethiopian Shipping Lines and Ethiopian Petroleum Enterprise are to offer bonds with nominal values of over Birr 100 million (US$7.4 million) and the interest rates could be higher than bank deposit rates. The proposal was tabled by authorities at the central National Bank of Ethiopia (www.nbe.gov.et) and is hoped to spur competition in the banking sector, according to its proponents.
Prime Minister Meles Zenawi is quoted by editor Tamrat Giorgis as saying: “Priority was given to controlling inflation, not in checking real interest rates [on deposits].” Inflation was very high in the past but was now down to 8%.
Tamrat wrote: “With inflation driven to record high double-digit figures last year and borrowers accessing money from the banks on negative real interest rates, savers are believed to be on the losing end. Banks hardly pay over 4% interest on deposits. This is the minimum bank deposit rate imposed by the central bank, although commercial banks are allowed to pay higher than that. On the other hand, commercial banks in the country charge as high as 16% interest on their advances and loans.
“Macroeconomic policymakers in the Federal Government have not been much concerned with the impact of this imbalance due to a negative real interest rate, which could discourage national savings. Their priority was, however, laid in keeping inflation at bay.
“Now inflation is down to a single digit (8%), the Federal Government is contemplating pushing real interest rates on lending to the positive, pressuring banks to create a competitive market. Even when the Federal Government cut down on its domestic borrowing in order to ease the cap imposed on banks so that they lend more following a robust performance of tax collections this year, the banks remained paying the minimum interest rate on deposits.”
He cites some commentators who warn that the high value of the bonds mean they are unlikely to have much impact on the retail market and only a few will be able to invest in them.
Last Sunday Capital newspaper (www.capitalethiopia.com) reported that experts of Ethiopia’s Ministry of Finance and Economic Development, the World Bank and the International Monetary Fund were meeting in Addis Ababa to discuss mechanisms for a regular fortnightly auction of treasury bills in a bid to regulate the money supply.

COMMENTARY FROM AFRICAN CAPITAL MARKETS NEWS:
Research by local investment house Access Capital www.accesscapitalsc.com the year average inflation rate peaked at 46% in February 2009 and year-on-year inflation at 64% in July 2008. The rate since fell quickly, as predicted accurately by the Access Capital report.
The debt market in Ethiopia has long been limited to Treasury Bills and some exchanges between banks. Recently there were only 28‐day, 91 day and 182‐day Treasury Bills available and the yield is described as “minimal”, reflecting the lack of investment alternatives. (Unfortunately the NBE website appears to be out of order to give present statistics).
A few years ago, when this author discussed issuing bonds with one local parastatal with massive multi-billion investment programmes, they said this was a good idea but it turned out more advantageous to finance their with loans including at low interest rates from the Government-owned Commercial Bank of Ethiopia (CBE).
According to the national Plan for Accelerated and Sustained Development to End Poverty (PASDEP) 2005/6-2009/10: “Regarding future plans on the development of capital markets, the pre-conditions that are critical for the establishment of capital market are not yet ready. The accounting and auditing practices are rudimentary in Ethiopia, and the minimum requirements to establish effective supervisory and regulatory institutions are not yet well in place. It is therefore, believed that the establishment of a corporate bond market which involves less risk both to participants of the market and the stability of the business environment should come first. The latter will help create some of the necessary conditions for the establishment of a capital market. To this end, the NBE has conducted a study on the feasibility of establishing a corporate bond market in Ethiopia and follow up studies are planned to be undertaken in 2006/07.”
The NBE underwrote the the EEPCO Millennium Bond, a first diaspora bond issued in 2008 just after the year 2000 in the Ethiopian calendar, by the state-owned power company and marketed by CBE, making the Government the borrower. Interest rates were set at 4%, 4.5% and 5% respectively for 5, 7 and 10 years bonds. The nominal was US$ 100 and minimum investment $500 or its equivalent in selected convertible currencies. Eligible investors are holders of the Ethiopian passport who are residents outside of Ethiopia, and citizens of foreign countries who can trace their origin back to Ethiopia.
Some work would be needed to develop a efficient bond market, and it could take some time.

NSE to launch commodity exchange “by June”

Tom Minney — Sat, 13 Mar 2010 10:25:16 +0000

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.

Meeting to form body for African commodities exchanges and ECX launches speciality trading system

Tom Minney — Thu, 25 Feb 2010 12:45:02 +0000

The Ethiopian Commodity Exchange (www.ecx.com.et) was to host a consultative meeting of representatives from different African commodity exchanges this week on 25 February to form the African Commodity Exchanges Association. The CEO of the ECX, Dr Eleni Gabre-Madhin, was reported to have told a press conference in Addis Ababa that Ethiopia could offer to host the secretariat for the association. United States Agency for International Development (www.usaid.gov) sponsored the gathering.
The idea was first brought up at a United Nations Conference on Trade and Development (www.unctad.org) forum in Lusaka in September 2009. Its theme was: “Improving the Functioning of Commodity Markets in Eastern and Southern Africa through Warehouse Receipt Systems and Market-based Interventions.”
The previous day, 24 February, was a daylong “knowledge forum” held with the United Nations Development Programme (www.undp.org). This would involve sharing experience, best practices and challenges of establishing and working with commodity exchanges in Africa.
Participants were to come from Ghana, Nigeria, Uganda, Zambia, Tanzania, Sudan and Zimbabwe. Executives of the National Derivatives and Commodities Exchange of India and the South African Futures Exchange are also expected to take part. ECX has recently hosted groups from Kenya, Zimbabwe, Sudan, Ghana and the Philippines to look at Ethiopia’s experience and see how it helped the market.
Takele Teshome, programme analyst on Food Security and Recovery at the UNDP, reportedly says UNDP is funding the ECX with $1.5 mln a year, since 2008.
Last week on 17 February the ECX launched Direct Specialty Trade (DST), a new platform where producers of specialty coffee can transact directly with international buyers seeking to purchase premium beans on a fully traceable basis. In a press release by the ECX, Dr. Eleni said by coordinating buyers and seller, DST adds value to farmers, who can benefit from greater competition and to buyers, who can discover truly special coffees.
DST also enables trade of certified coffees, such as Organic certified, Fair Trade, RainForest, among others. She said DST is established as a monthly bidding session in which small farmer cooperatives and commercial growers may deposit specialty grade coffees in advance in ECX warehouses A condition for participation in DST is that farmers will receive a minimum of 85% of the final export price, a historic first for Ethiopia’s coffee farmers who normally are believed to receive below 40%, among the lowest share of the final price in the world. DST is an innovative way to enable direct trade that is reliable, fully traceable, transparent, and sustainable.
According to the release, on the first day, 44 lots of specialty coffee that came for the first DST session, their sellers being 35 primary cooperatives and 9 commercial growers, while 27 registered international buyers, representing coffee importers and roasters in North America, Europe, and Japan came to buy the high-quality coffee. The lowest price given was $2.15 dollars while the highest went as high as $4.02, according to Fortune newspaper (www.addisfortune.com).
Dr. Eleni said international buyers pre-register for the DST session and are able to order samples and to participate in a cupping session prior to the bidding: “DST closes the real gap between farmers seeking to benefit from the international market and buyers interested in tracing these coffees to their origin. DST also raises the visibility and profile of all Ethiopian coffee, and thus is a clear win-win for all.”

Agri-Vie fund close to $100 million target, finding projects

Tom Minney — Tue, 19 Jan 2010 12:37:08 +0000

Agricultural private equity fund Agri-Vie (www.agrivie.com) will reach its target of raising $100 million for investment in agricultural projects by February or March, according to an interview with Reuters newsagency on 14 January. It says there is plenty of potential and plans a second fund of up to $300 million.
Earlier in January the fund, launched in March 2008, made 2 investments totalling $10 mln in 2 agricultural projects in Ethiopia and across the region, and it is close to finalizing a $4 mln investment in Tanzania.
Izak Strauss, executive director and chief investment officer, told Reuters they are also considering a second fund: “There is definitely an opportunity to do a second fund substantially larger than the first fund… probably (in the region of) $200 to $300 million.” This could launch in 2013 or 2014.
Agri-Vie, based in Cape Town, focuses on equity investments in a wide range of agribusiness in Sub-Saharan Africa, including processing and distribution. It is backed by the Development Bank of Southern Africa (www.dbsa.org) and private entities including W.K. Kellogg Foundation (www.wkkf.org).
Agriculture in Africa appears set for transformation from unproductive and undeveloped subsistence farming to more commercial farming as investors from Europe, Asia and the Middle East get large tracts of land and launch projects, often to tackle food insecurity in their own countries.
In the interview, Mr Strauss said Agri-Vie plans to invest up to $25 million into five new projects during 2010, including a new $4 million eco-tourism project in Tanzania.
Agri-Vie forecasts fast economic growth in East Africa, which it calls an “investment hotspot”.
He said Agri-Vie this month invested $6.7 million in New Forests Company (www.newforestscompany.com), a UK-based sustainable and socially responsible forestry company with established, rapidly growing plantations and prospects of diversified products for local and regional export markets. It has operations in Uganda as well as Tanzania, Rwanda and Mozambique. East Africa has been a net importer of sawn timber and electrical poles and NFC aims to replace these imports with locally-produced goods. NFC’s overall aim is to “deliver both attractive returns to investors and significant social and environmental benefits”, according to its website.
The company also invested $3.5 million in africaJUICE (www.africajuice.com), run by European and African entrepreneurs and establishing fruit production and processing operations to capture share in European and the Middle Eastern juice markets. The first farm is in Upper Awash in the Oromia region. africaJUICE claims the combination of ideal growing conditions in the area and Ethiopia’s closeness to target markets should help displace European companies’ reliance on importing fruit products from South America.
The company website says: “We plan to establish at least three production locations across Africa by 2014 and become a premier supplier of Fair Trade juice to the European market.”
Strauss said: “Its first operation is in Ethiopia, growing yellow passion fruit, mango and papaya… The first exports will happen from mid-this year.” africaJUICE is making a capital investment of some €12 million to rehabilitate and expand an existing state-owned fruit farm (“Tibila Farm”) to create a high-technology modern tropical fruit plantation and build a new processing facility, operating under Fair Trade principles.
According to africaJUICE’s website: “Our plan is to plant approximately 600 hectares of yellow passion fruit and 600 hectares of other tropical fruits such as mango and papaya over a period of four years. At the same time we will support the development of over 1,200 hectares of outgrowers (contract farmers) to supplement the supply and extend community participation. Our new fruit processing facility will produce pure juices, concentrates and purees which will be transported to market via established export routes.”
David O’Halloran, Director of africaJUICE, told African Capital Markets News: “Having started operations on the ground early in 2009, we are pleased with the progress so far on the new fruit plantings, infrastructure, operating approach and the processing plant and looking forward to juice production from mid-2010 onwards. We have also made substantial progress following our sustainable development philosophy with a number of initiatives underway or already executed and are excited that this new approach to development and investment is progressing well. We are also progressing well on the second and third projects and expect to be considering funding options for those in the coming 12-24 months”.