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Guidebook on African Commodity and Derivatives Exchanges

24-jan-2014

Commodity exchanges are highly efficient platforms for buyers and sellers to meet; primarily to manage their price risks better, but also to improve the marketing of their physical products. They have significant, well-documented development benefits, making economies more inclusive, boosting the links between agriculture and finance, and making the commodity sector more efficient and competitive. Africa was home to one of the world’s first commodity exchanges – in Alexandria, Egypt over 150 years ago. The importance of bringing commodity exchanges to the region was recognized by policy makers in the Abuja Treaty of 1991. Further endorsements came in resolutions adopted by African Ministers and Heads of State. These resolutions were clear in their intent: governments should, in partnership with the African business sector, develop and support commodity exchange initiatives; identify and remove barriers to the establishment and operations of commodity exchanges; and procure government requirements across the trading floors. The first “modern” commodity exchanges created in the continent were in Zimbabwe and Zambia in 1994 and in South Africa in 1995. The second, wave started in Ethiopia in 2008. The Ethiopian Commodity Exchange (ECX) which was mainly driven by government and donor support has built a reasonable volume, and has shown that a commodity exchange can be successful in spite of infrastructure and commodity sector development challenges. Many of the economic conditions in the continent are ripe for a continent-wide commodity exchange which also has the potential to boost the continents pursuit of green and inclusive growth through introducing sustainability benchmarks in commodity sector value chains. We are now in the third wave of African exchange development, with numerous national initiatives alongside a number of ambitious and well-funded sub-regional and regional initiatives. Some of the world’s largest exchange groups are interested in the continent. In this respect, African governments face an important policy choice. As noted by Festus Mogae, former President of Botswana and Chairman of the Bourse Africa Advisory Board, “the opportunity for Africa to achieve its development potential is unprecedented, and the international environment has changed, and continues to change, in ways that open up new possibilities, new potential and new paths to progress for our Continent. The big question is whether Africa is to do this as 54 separate countries or as Africa.”1 Available technology now presents a veritable opportunity for the benefits of a pan-African exchange platform in lieu of singular exchanges in different countries. In view of the challenges that may face the inception of commodity exchanges, a more effective public-private partnership approach is needed to promote the emergence of viable commodity exchanges. The private sector has significant expertise on issues of decisions on ownership pattern, financial arrangements, technology choice or selection of the contracts to be traded. However, exchange initiatives still require appropriate government and development partner support. The public sector in this respect has the responsibility for providing the appropriate legal and regulatory frameworks. Africa is the world’s current frontier for commodity exchange development, attracting the interest of domestic investors as well as some large international commodity exchange groups. With the competitive global business environment, it is now time for African countries to put place viable exchanges that offer the services demanded by the continent’s economies.

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