24 February 2013

Rwanda: First Commodities Exchange Unlocks Markets for Farmers

The creation of a commodities exchange, the East Africa Exchange Rwanda (EAX Rwanda), gained pace last week with the appointment of its senior management team--the chief executive officer and the chief operating officer.

A group of officials to kick start operations of the exchange have already been in South Africa for training and are scheduled to return to the same country for more drills in managing a commodities exchange, according to the governor of the National Bank of Rwanda (BNR), Claver Gatete.

As the regulator of the finance sector, BNR will also oversee operations of EAX Rwanda,

a subsidiary of Africa Exchange Holdings (AFEX) that is creating a network of commodity exchanges across Africa. The exchange is expected to change the dynamics of commodity trading by guaranteeing farmers better market access.

Gatete said that EAX Rwanda will also address challenges relating to financing for agriculture sector.

Primary agriculture is considered highly risky business and commercial banks often shy away from lending to the sector whose output is often influenced by whether conditions. Moreover, even when the harvest is good, fluctuations in prices of agricultural commodities has also kept farmers in perpetual uncertainty as they are unable to determine or even know in advance the price at which they will sell their produce.

Under such circumstances, farmers cannot offer sufficient guarantees about ability to repay bank loans--a situation that has kept lending to agriculture 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 presentation of the Monetary Policy and Financial Stability Statement on February 15, said that through the commodities exchange, farmers will be assured of selling their produce at a good price and such information can be used to guarantee commercial bank loans.

The exchange will initially facilitate trading in coffee, tea and maize. Minerals such as gold, wolfram, coltan that the country is endowed with will also be traded at EAX Rwanda. The exchange was launched recently at the World Economic Forum in Davos by President Paul Kagame.

A statement issued by AFEX last week, said Paul Kukubo, the chief executive officer of the Kenya Information, Communication and Technology Board has been appointed the chief executive officer of EAX Rwanda. The chief operating officer is John Bosco Sebabi who is currently the director general of operations at BNR.

How it works

A commodities exchange is a kind of market place where agricultural and non-agricultural commodities are traded on contract basis. They include 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 method 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 enable small-holder farmers gain access to good prices for their commodities in the region. Powered by technology provided by NASDAQ OMX (National Association of Securities Dealers Automated Quotation), the exchange will also deal in non-agriculture commodities 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, providing 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, "increasing 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, Berggruen Holdings, 50 Ventures and Rwandan-owned Ngali Holdings.

"AFEX has been set up to transform 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 empower them for the long term.," Tony O. Elumelu, CON, chairman of Heirs Holdings, is quoted as saying in the statement.

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