The Ethiopia Commodity Exchange (ECEX) Eleni Gabre-Madhin August 23, 2007

There is nothing as powerful as an idea whose time has come Victor Hugo

ECEX…An idea whose time has come As Ethiopia is poised to transform its agrarian economy, so too must Ethiopia’s marketing system take the country into the new Millennium. It is time to enter the modern age of globally connected trading systems, relying on technology and know how, while tailored to Ethiopia’s realities and conditions. It is time to forge a new partnership between the private and the public in the new arena created by market liberalization.

As Ethiopia is poised to transform its agrarian economy, so too must Ethiopia’s marketing system take the country into the new Millennium.

It is time to enter the modern age of globally connected trading systems, relying on technology and know how, while tailored to Ethiopia’s realities and conditions.

It is time to forge a new partnership between the private and the public in the new arena created by market liberalization.

The Vision The vision driving the Ethiopia Commodity Exchange (ECEX) is to revolutionize Ethiopian agriculture through a dynamic, efficient, and orderly marketing system that serves all.

The vision driving the Ethiopia Commodity Exchange (ECEX) is to revolutionize Ethiopian agriculture through a dynamic, efficient, and orderly marketing system that serves all.

Current grain market structure SMALLHLDR (SS) STATE FARM (SF) COMMERCIAL (CF) CONSUMERS: DOMESTIC RETAILERS WHOLESALERS (DEFICIT) BROKERS WHOLESALERS (SURPLUS) RURAL ASSEMBLERS COOPS EGTE EXPORTERS PROCESSORS FOOD AID AGENCIES

Structure with Exchange SMALLHOLDERS STATE FARM COMMERCIAL (CF): CONSUMERS: DOMESTIC RETAILERS WHOLESALERS (DEFICIT) COMMODITY EXCHANGE WITH MEMBER-BROKERS WHOLESALERS (SURPLUS) ASSEMBLERS COOPS EXPORTERS PROCESSORS FOOD AID AGENCIES EGTE

Why Ethiopia gains Commercialization of smallholder agriculture is core pillar of poverty reduction strategy Need to capitalize on gains of recent rapid economic growth (past 3 years) Large domestic market, 2 nd largest maize producer in Africa Rapid export growth in key commodities  A better functioning domestic market is key to sustaining and scaling up growth

Commercialization of smallholder agriculture is core pillar of poverty reduction strategy

Need to capitalize on gains of recent rapid economic growth (past 3 years)

Large domestic market, 2 nd largest maize producer in Africa

Rapid export growth in key commodities

 A better functioning domestic market is key to sustaining and scaling up growth

Impact on smallholder livelihoods? Power and participation : Farmers are better able to negotiate prices given market transparency Quality : Farmers are able to get market premium for value added to the product (post-harvest handling) Market access : Farmers are not restricted or captive to local market, can access national market Risk management : Farmers can lock in prices through futures contracts Planning : Farmers can use futures prices for planting decisions

Power and participation : Farmers are better able to negotiate prices given market transparency

Quality : Farmers are able to get market premium for value added to the product (post-harvest handling)

Market access : Farmers are not restricted or captive to local market, can access national market

Risk management : Farmers can lock in prices through futures contracts

Planning : Farmers can use futures prices for planting decisions

The What : Substance

ECEX…An Ethiopian Exchange for Ethiopia A marketplace for all Integrity (product, transaction, actors) Efficiency Transparency Risk management

A marketplace for all

Integrity (product, transaction, actors)

Efficiency

Transparency

Risk management

Integrated ECEX activities Membership management Trading system Contracts Price information transmission Arbitration to resolve disputes Market surveillance Risk management Grading and certification Warehousing and receipts Clearing and settlement (Financial, Physical)

Membership management

Trading system

Contracts

Price information transmission

Arbitration to resolve disputes

Market surveillance

Risk management

Grading and certification

Warehousing and receipts

Clearing and settlement (Financial, Physical)

Design Options of ECEX (1) One exchange, one warehouse, one grading center (2) One exchange, several warehouses/ grading centers (3) One exchange with satellite exchanges and warehouses/grading centers

Design of ECEX A single national multi-commodity exchange based in Addis Ababa Operation of a trading platform using combination of open outcry (floor) and electronic trading platform A network of 10 ECEX warehouses in surplus areas A network of 20 ECEX remote access terminal centers 200 Market Information Points (Rural Electronic Price Tickers) at district level Internal clearing and settlement system with partner clearing banks

A single national multi-commodity exchange based in Addis Ababa

Operation of a trading platform using combination of open outcry (floor) and electronic trading platform

A network of 10 ECEX warehouses in surplus areas

A network of 20 ECEX remote access terminal centers

200 Market Information Points (Rural Electronic Price Tickers) at district level

Internal clearing and settlement system with partner clearing banks

The ECEX Edge… Integration COMMODITY EXCHANGE COMMISSION Laws and Regulations Market Information Remote Access Arbitration Tribunal Trading System Data center Exchange Warehouses Grade certification Warehouse receipt Exchange Clearing Banks Clearing and Settlement National Exchange Actors Association EXCHANGE MEMBERS

Trading mechanism Buyer instructs broker to post bid Farmer, cooperative, or trader brings product to Exchange-operated warehouse The warehouse draws samples and issues a Product Certificate and Warehouse Receipt Seller instructs broker to post offer ECEX Trading Floor Order Matching Market information transmission Clearing and settlement Market surveillance Risk management Member database Disaster recovery Data center ECEX Back Office Buyer deposits funds into settlement account in Exchange partner bank

Market information transmission

Clearing and settlement

Market surveillance

Risk management

Member database

Disaster recovery

Data center

Beyond agriculture: From a sack of grain to a sack of money PRODUCT Finance Information Technology Legal Infrastructure Warehouses=Banks Power the system Self-regulatory Electronic trade

ECEX Sites

Market Information At woreda level, electronic information transmission to the local market (200 sites) Prices will be transmitted of prices on ECEX Addis Ababa trading floor in real time Prices of other markets (off Exchange) will also be transmitted Turning the model around: the market goes the last mile

At woreda level, electronic information transmission to the local market (200 sites)

Prices will be transmitted of prices on ECEX Addis Ababa trading floor in real time

Prices of other markets (off Exchange) will also be transmitted

Turning the model around: the market goes the last mile

Creating new opportunities: spillover impacts for economy More technology, better designed means improved access to the market mobile telephony satellite radio other technologies Banking: New financial products tailored to small market players Services: Transport, logistics, certification, insurance, academic Role of self-regulation by trade associations

More technology, better designed

means improved access to the market

mobile telephony

satellite radio

other technologies

Banking: New financial products tailored to small market players

Services: Transport, logistics, certification, insurance, academic

Role of self-regulation by trade associations

Trajectory from here on ECEX site Trading system development in progress Contract design in progress Proclamations to establish ECEX and Exchange Authority with Council of Ministers Active training and communications campaign Membership drive to start Starting Bell by Millennium Harvest 2000 (December 2007)

ECEX site

Trading system development in progress

Contract design in progress

Proclamations to establish ECEX and Exchange Authority with Council of Ministers

Active training and communications campaign

Membership drive to start

Starting Bell by Millennium Harvest 2000 (December 2007)

The Winds of Change are Here - Can Ethiopia Do It? Necessary political will Commitment by all actors Catalyst for change A winning value proposition to…. Empower farmers’ choices, grow our agriculture, and transform Ethiopia

Necessary political will

Commitment by all actors

Catalyst for change

The future awaits… YICHALAL !!