Owing to a number of impressive achievements, the Ethiopian Commodity Exchange (ECX) and its CEO are regularly featuring in Ethiopian media. The ECX being the only commodity exchange in Africa outside South Africa, UNDP is making a film about the enterprise in an effort to inspire similar developments elsewhere on the continent. For a limited number of export commodities – coffee, sesame, haricot beans, maize and wheat – the ECX is now the central trading place. The ECX CEO Eleni Z. Gabre-Madhin received visitors from the Norwegian Embassy and Innovation Norway 21 January.
Transformative impact on trading and finance
In February 2010, the ECX is launching a direct speciality trade opportunity for high quality coffee where international buyers and Ethiopian producers can interact directly through an auction, dramatically enhancing traceability. The ECX is also driving innovation in other sectors. Partnering with seven Ethiopian commercial banks, the exchange is operating an internal clearing house and ensuring prompt payment. The ECX is in also in dialogue with the telecommunications sector about developing new tools for disseminating market data.
Positive change for local farmers
Price information from the exchange is distributed to local farmers through several electronic channels, keeping them up to speed on market developments. The establishment of the ECX has also had a positive impact on the incentives of market actors. ECX traders now have the incentive to get local producers as clients and educate them in making the most of the market. While producers previously actually had the incentive to degrade the quality of their produce by adding water or even dirt to increase the weight, dissemination information about the new quality system and the possibilities for getting higher prices for better quality has meant that the ECX can already detect significant increase in the supply of high quality coffee and sesame.
A unique undertaking
The ECX is a product of a hybrid model merging non-profit and for-profit activity, keeping ownership, membership and management separate. As a not-for-profit enterprise, it is fully government owned, having been established based on funding from a consortium of donors. In the longer run, however, the ECX is to be sold to private investors and turned into a profit-making business.
The exchange is membership based in that members own trading rights and make profit by trading on behalf of themselves and client producers. The original set of 100 founding members was recently expanded and prices for membership increased through competitive bidding. In the latest round the average price for a membership seat was 150,000 birr, while the highest bid was astonishing 3.3 million birr.
The ECX recovers its operations cost through auctioning of memberships and a total of five separate but integrated businesses. In addition to the core trading business, the ECX is doing quality certification, inventory management, clearing and settlement and market data dissemination. Some of these non-core activities are likely to be outsourced when other companies develop to offer the services. Already in its second year, the ECX is experiencing net profits. These will be reinvested in the exchange, in particular for a new warehouse and testing equipment.
During the Norwegian delegations visit ambassador Kjemprud noted that “the ECX not only makes trade more efficient, more transparent and more beneficial to the producers, it also helps change the perception in some quarters about Ethiopia as a backward country where business is difficult. In Africa it is only South Africa which has similar arrangements like the ECX.”
Read more: The ECX website
See also: Innovation Norway