By Otai Michael (DAI) and Murigi Macharia (PSCU)
The integration process of the East African states moved a notch higher with the official launch of the East Africa Exchange (EAX) in Kigali, Rwanda recently. The exchange is ex¬pected to change the dynamics of commodity trading by guaranteeing farmers better market access and address challenges relating to fi¬nancing for agriculture sector.
According to the governor of the National Bank of Rwanda (BNR), Claver Gatete, the primary agriculture is considered highly risky business and commercial banks often shy away from lending to the sector whose output is often influ¬enced by whether conditions. More¬over, even when the harvest is good, fluctuations in prices of agricultural commodities has also kept farmers in perpetual uncertainty as they are un¬able to determine or even know in ad¬vance the price at which they will sell their produce.
Under such circumstances, farm¬ers cannot offer sufficient guarantees about ability to repay bank loans—a situation that has kept lending to ag¬riculture very low even though the sector is the source of livelihood to a majority Africans who live in rural areas.
Gatete who spoke during the pre¬sentation of the Monetary Policy and Financial Stability Statement on Feb¬ruary 15, said that through the com¬modities exchange, farmers will be assured of selling their produce at a good price and such information can be used to guarantee commercial bank loans.
Officials said the launch of the EAX through which the establishment of the regional commodity exchange will be facilitated, is aimed at economic transformation and regional integration that will benefit the partner states.
The new initiative will provide a regional commodity exchange that connects buyers and sellers throughout East Africa and one that creates broader access to markets and the global economy. Through the new project, the farmers and traders will connect on price transparency real time.
The five partner states include Kenya, Uganda, Rwanda, Burundi and South Sudan. Ethiopia and Tanzania are observers to the Northern Corridor Integration Projects, whose 6th Summit in Kigali provided the platform to launch the EAX.
President Uhuru Kenyatta rang the bell to officially launch the EAX witnessed by Presidents Paul Kagame (Rwanda), Yoweri Museveni (Uganda), and Salva Kiir of South Sudan.
President Kenyatta said the new project under the Northern Corridor Integration projects will be a truly East African Exchange.
He said the East African Commodities Exchange will greatly assist both businessmen, investors and small farmers who have for long been exploited by middle men.
Additionally, said a jubilant president Kenyatta, the new financial project will provide fair and decent prices for commodities from regional farmers, stabilize prices of grains and play an important part towards regional food security.
Ugandan Ministers attending the Summit
The main goals of the new initiative, which bring to over 15 the ongoing projects under the Northern Corridor Integration projects include enabling small-scale farmers access credit, capture value and catalyze further growth and providing an integrated East African Market with small –scale economy to enable the sector be truly globally competitive.
The other goal of the new EAX is to enable the deepening of East Africa’s capital markets so that its entrepreneurs and enterprises can unleash the prosperity of their own making for the benefit of their societies.
To be a fully regional exchange, the EAX will be opened to all regional investors. It also embraces the Public-Private Partnership (PPP) spirit to encourage both private and public investments from the region.
The EAX aims at establishing operations for a comprehensive end-to-end agricultural trading solution that adds value by putting in place inventory and warehouse management systems to combat post-harvest losses, improve food security and provide reliable inputs required for agro-processors.
The EAX will also provide access to collateral management to unleash agricultural financing and thereby transform agricultural stock to a financial asset, with products ranging from maize, beans, tea and coffee.
EAX began operations in 2013, with Paul Kukubo being its founding CEO. Mr Kukubo is the former chief executive of the ICT Board of Kenya and also founder of Kenyan based ICT startup, 3Mice.
EAX chief executive officer Paul Kukubo at a past Press briefing on the features of a commodity trading platform in Nairobi. Photo/FILE
The commodities exchange is targeting the 130 million people in the East Africa Community trading bloc which is plagued by poor infrastructure and inefficient distribution channels.
EAX has established an auction facility and spot trading for agricultural and non-agricultural commodities, but will also develop futures trading across East Africa.
The regional exchange has deployed the world’s leading trading technology Nasdaq OMX X-Stream to facilitate e-trading in the local market.
EAX is a subsidiary of Africa Exchange Holdings Ltd (Afex), creating a network of commodity exchanges across Africa , is a joint venture comprised of Berggruen Holdings, Heirs Holdings, and 50 Ventures. It is financially supported through the private investment of Afex and Ngali Holdings, a local investment company in Rwanda.
How it works
A commodities exchange is a kind of market place where agricultural and non-agricultural commodities are traded on contract basis. They in¬clude spot contracts where prices are agreed on and payment is done on delivery at a later date, usually after two days. The other often used meth-od of exchange is the futures contracts where the seller and the buyer agree on a fixed price for a certain quantity and quality of the commodity to be delivered on a particular date. The advantage is that it protects a farmer against losses in case prices fall and at the same time also protects the buyer against price increases in future.
According to the statement, EAX Rwanda will initially establish an auction for agriculture produce such as maize, coffee, tea, beans, rice to en¬able small-holder farmers gain access to good prices for their commodities in the region. Powered by technology provided by NASDAQ OMX (Nation¬al Association of Securities Dealers Automated Quotation), the exchange will also deal in non-agriculture com¬modities such as minerals and will at a later date develop a futures trading across the east African region.
“EAX will also uplift national and regional economies by reducing market barriers to trading, provid-ing a transparent regional economy through a secure mechanism that facilitates financing to farmers and traders,” the statement added.
According to the statement, EAX Rwanda is the first regional exchange that aims at complementing regional economic integration as outlined by the Common Market Protocol, “in¬creasing liquidity and sustainability of regional financial and commodity markets [and] supporting the EAC’s competitiveness globally.”
It is a subsidiary of AFEX, co-founded by Heirs Holdings, Berggru¬en Holdings, 50 Ventures and Rwan¬dan-owned Ngali Holdings.
“AFEX has been set up to trans¬form commodities trading in Africa, starting with agriculture in Rwanda. It will provide small scale farmers with better access to global markets, and create social value that will em¬power them for the long term.,” Tony O. Elumelu, CON, chairman of Heirs Holdings, is quoted as saying in the statement.