Making the market, the story of the Ethiopian Commodities Exchange

The making of the market – this article by Dr Eleni Gabre-Madhin, CEO of the Ethiopian Commodities Exchange ( gives a fascinating, self-critical and revealing account of the creation of the exchange and the sometimes breakneck pace at which the market grew and took on new commodities such as coffee. It’s very good, and well worth reading in full,

Particularly important is the idea that a commodity exchange will only have traction in Africa if it improves the lives of smaller rural farmers and traders. Eleni puts focus on “the market institutions needed for quality grades and standards, warehouse receipts, market information, coordinated trading, payment systems, and contract enforcement. All of these, I argued, should be established in a holistic and integrated fashion, rather than in the piecemeal approach observed all over Africa in different donor interventions. I pushed further, presenting for the first time the idea that a commodity exchange was precisely the holistic platform that would integrate all of these elements.”

These were the aims of the ECX, according to a 2005 concept paper: “a commodity exchange would build the needed institutions from the ground up for grading and certifying quality, issuing warehouse receipts, trading, relaying market information to all actors, enforcing contracts, and ensuring payment and delivery. But that was not all. Ethiopia’s commodity exchange would be designed to serve smallholder farmers and small traders, it would not exclude those with less education or less capital, and it would balance the interests of all actors and of the public and private sectors. A commodity exchange would not aim to eliminate traditional markets around the country, but rather to build up these informal markets by adding technology and systems to bring more transparent, more efficient, and more reliable trading to all concerned.”

Later she details the achievements, including: “The value of ECX trades has risen by 368% to reach US$1.1 billion in 2010–11 (NB the Ethiopian fiscal year-end is in July, its calendar year in September, due to a different calendar). Our storage operations have grown from one warehouse in Addis Ababa to 55 warehouses in 17 regional locations, and from 5,000 tons to a total capacity of 250,000 tons. In 2010–11, we graded, weighed, stored, handled, and delivered 4.7 million bags without a single delivery default.

“Membership is at 243, and our clients, who trade through our members, number about 7,800. Farmer cooperatives representing 2.4 million smallholder farmers make up 12% of our membership. We have electronically linked our clearinghouse to 10 partner commercial banks, and we settle US$20m or more daily on a “T + 1” basis (that is, the day after trade)— the only stock or commodity exchange in Africa to do so. In other words, anyone can sell to anyone in Ethiopia and be assured of payment the next morning. We have not had a single payment default, shortfall, or delay since our start. This is a financial revolution in itself.

“Our market data reach far and wide. We ‘push’ price data in real time, in less than 2 seconds, to outdoor electronic ticker boards in 32 rural sites; to our website, which attracts visitors from more than 107 countries daily; to 256,000 mobile subscribers through instant messaging; and to the radio, TV, and print media. Users can also “pull” market data through our toll-free phone-in service, which received more than 1m calls in September 2011. That’s 61,000 calls each trading day, of which 70% were from rural users. This is nothing short of an information explosion in Ethiopia, and we are pushing further still.”

She adds that farmers are now getting 70% of the end price, compared to 38% before the ECX, and this means more investment in production and quality, with volumes in some grades tripling. A new financing system means farmers can use warehouse receipts as collateral for bank loans, bringing new financing to rural areas.

Many are interested in potential for commodity exchanges in Africa as a way of increasing agricultural productivity and combating poverty but it is worth recalling that the ECX only launched after nearly 15 years of studies and research both in Ethiopia and other African markets. It shows that big development success stories are not achieved overnight, or without deep thinking and strategy, coordination and hard work, as well as determination to keep going through mistakes, hostility and downturns.

It also shows the a major contribution markets will play in Africa’s coming development.


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