Ethiopia Commodity Exchange: ... growing the market and growing Ethiopia.

Author:Gabre-Madhin, Eleni
Position::Eleni Gabre-Madhin - Interview
 
FREE EXCERPT

Q What is the rationale behind the Ethiopia Commodity Exchange (ECX)?

The basic concept is that the traditional agricultural market here in Ethiopia was characterised by very high risks related to doing business--the risk of contract default, the risk of delivery and of payment failure; and on the buyer side, of getting the riglit quality and quantity contracted. That meant there was a narrowed scope of the market, because in order to mitigate these risks, people would only trade with people that they knew. It was localised trading or trading in short distances. In a sense, what economic historians have characterised as a dramatic shift in economic growth can only occur when trading becomes anonymous. E-commerce is probably the best example of this as you can trade with anybody, faceless and nameless, anywhere in the world and be sure that the contract will be enforced.

The other thing that characterised Ethiopia's agricultural markets was high costs. Very high costs of doing business, costs of finding a buyer or a seller and also coordinating that exchange. So, there were many localised markets but no mechanisms to connect with each other. Therefore, the ECX is really both a way to reduce risk and to better coordinate markets and reduce costs.

Q When was the ECX founded, and what was your role in it?

Well, the concept of setting up the Exchange really took off in 2006. We launched and started trading in early 2008. During the interim period the laws were drafted, the IT design was done, the clearing house was set up, as was the warehouse receipting system. Trading members were recruited and trained. This was a very intensive period, and I was the project head starting from 2006, pretty much from the inception of the idea, and later I took on the role of CEO.

Q What challenges did you find once the ECX was established and more importantly, how did you overcome them?

In view of the problems in the market referred to, our core value proposition in putting up the Exchange was integrity. Firstly, we guarantee the integrity of the product, through quality certification and the warehouse receipting system. Secondly, we assure integrity of the transaction, through a trading system with standard trading rules and contracts and a clearing house where all payments are settled on the day after trade, that basically creates a zero defauh market. The third piece of integrity, and one of the most important, is integrity of the actors. People only traded...

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