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Nonetheless, in light of the country’s development
imperatives, our project set the objective of
starting market operations in time for the
millennium harvest of 2007/08.
Given the urgency of our mission, we proceeded on
all fronts simultaneously, as we have started with
an “incubation period” in which we intensely
considered and debated ideas and best practices from
around the globe, due to the need to create it from
the ground up.
We visited Argentina, India, South Africa, China and
the United States (US), where we consulted with
dozens of exchange and regulatory experts in
far-flung countries. We spent hundreds of hours in
consultation with key policymakers and engaged with
at least one hundred private market actors. This
phase was vital to engaging in collective learning
and getting the necessary buy-in from our
stakeholders.
Today, 18 months from the project start and six
months ahead of schedule, we are well on our way to
achieving what was considered impossible at what can
only be whirlwind speed.
Two proclamations were passed by Parliament, in June
2007, just months after initial legal negotiations.
The rules that govern all the detailed procedures,
systems, and business conduct have been finalised.
An Arbitration Tribunal has been designed, and the
electronic systems that create a secure and
efficient commodity handling, trading,
reconciliation, and financial clearing and settling
platform are in final stages of development.
Warehouses have been identified, grading
laboratories designed and commodity standards have
been developed. A warehouse receipts system and
central depository for tracking and transferring
title to goods has been designed. Market information
displays have been procured and systems developed.
Our two initial partner settlement banks have been
selected and secure gateways and data transfer
protocols designed and implemented. Our trading
floor procedures and standardised trading contracts
have been designed. Our physical equipment is in
installation stage. Our processes and operational
procedures have been developed. Finally, the human
resources, including an international calibre
management team, to manage and implement these
processes have been mobilised.
In terms of the eco-system, the new regulatory body,
the Ethiopian Commodity Exchange Authority, was
established in October 2007 with the appointment of
the Authority Board made up of the Chairman, [Melaku
Fanta, minister of Revenues] and five board members,
including the Director General [Addisalem Balema
(PhD)] of the Authority. Our efforts have continued
with training for the Board and institution building
support.
More than 250 market stakeholders were trained
overseas and locally, and regional road shows were
held in 20 major market towns, with more than 1,000
participants around the country. Membership
requirements were developed and recruitment is
ongoing. The by-laws and structure of the National
Exchange Actors Association have been completed.
The immediate next steps in the coming weeks are to
finalise our systems integration testing, train our
members on the systems, and establish the Exchange
as a company and appoint its chief executive officer
(CEO) and the management team. Change is indeed in
the air.
Uniquely Tailored to Ethiopia’s Needs
The Ethiopia Commodity Exchange is an Ethiopian
exchange for Ethiopia, uniquely designed to meet
Ethiopia’s needs, tailored to the conditions and
realities on the ground, while at the same time
transforming our age-old agricultural marketing
tradition to modern levels of efficiency,
transparency, and security.
It is designed with an awareness and careful
selection of global best practices married to
Ethiopian traditions and sensibilities. It is not a
replica of any existing commodity exchange system,
but is rather a configuration of technology, rules
and procedures, and systems uniquely designed for
Ethiopia.
Our uniqueness can be seen in a number of ways: We
have developed in-house an entirely integrated
end-to-end software application system that is the
first-of-its-kind in the world; it integrates the
entire warehousing, trading, and payment settlement
system.
We have taken the bold step to build our own first
phase system, a complex undertaking that encompasses
registration of members and clients, receiving of
commodities in warehouse, issuing of electronic
warehouse receipt, transaction order processing and
execution, order matching and reconciliation, market
information dissemination, clearing and settlement,
and commodity delivery and logistics. This complex
system is entirely home-grown, built by our own
software architects and systems developers, exactly
tailored to our market needs.
Our Exchange is uniquely structured as a
private-public partnership commercial enterprise.
The Ethiopia Commodity Exchange is established as a
demutualised corporate entity with clear separation
of ownership, membership, and management. Thus,
owners cannot have trading stake, nor could they
have ownership stake. The management can be neither
drawn from the owners nor from the members.
At its inception, ECX is promoted by the government,
which will be initially its sole owner. At the same
time, the Exchange offers the sale of membership
seats, which are privately owned, permanently and
freely transferable rights to the stream of earnings
from trading on the Exchange. Members can thus
benefit from the appreciation of seat prices over
time.
The Exchange will be managed on commercial terms
with a professional and autonomous management team.
Our Exchange is the only exchange in the world that
will trade on the basis of standardised “spot”
contracts (for immediate delivery of goods) that are
designed in exactly the same way as “futures”
contracts (for future delivery of goods). Thus,
while we envisage futures trading, our Exchange
meets the needs of our market to provide security
and efficiency to the spot market.
Our Exchange breaks tradition with the trend of
other emerging market exchanges in that we are
starting with a physical trading floor - Trading Pit
- where buyers and sellers will physically meet to
bid on prices in an “open outcry” system, rather
than a purely electronic trading platform.
Our decision to start with open outcry, like our
decision to start with spot contracts, is entirely
predicated on meeting the needs of our own market
actors, whom we felt needed the transparency and
accessibility of a physical trading environment
before migrating to an electronic trading system in
the future.
Ours is unique in developing both a warehouse
operation where commodities will be sampled,
weighed, and graded according to ECX grades, using
international best practices of product
certification and inventory management, as well as
an internal clearing house, where the Exchange will
act as a counterpart to all trades. This helps us in
transferring payment as well as titles to goods in
warehouse from buyers to sellers.
Our desire to provide these additional services,
going beyond the normal scope of exchange
activities, stems from the need to overcome
Ethiopia’s constraints in both warehousing and
payment clearing. Over time, we envisage both of
these areas should be operated by third parties.
The Reach of the Exchange
The Ethiopia Commodity Exchange enjoys the unusual
position of appealing at the same time, with the
same instrument, to both the most traditional and
the most modern of Ethiopian sensibilities - from
small-scale farmers to sophisticated financial
sector professionals.
Our appeal extends to farmers, who can make
better-informed commercial decisions, as we do to
domestic market intermediaries, whose business can
be enhanced and transformed through our platform. We
also reach to exporters whose buyers can be assured
of contract delivery and product quality, as we do
to processors who can optimize their factory
operations with guaranteed quality and delivery.
Beyond these immediate stakeholders, the Exchange
appeals to transporters and logistics service
providers, who can tailor their services to this
market, to market information providers and
financial analysts who can develop new services to
the Exchange market, to commodity trainers and
academics who can develop new programs to meet the
needs of market actors.
We also recognise external interest in the Ethiopia
Commodity Exchange. A better functioning domestic
market makes Ethiopian products more attractive to
individual foreign buyers. A global trend for
strategic alliances between exchanges as markets
become more globalised suggests interesting
possibilities to cross-list our commodities of
interest in other markets, such as pulses and
oilseeds in emerging exchanges in the Middle East
and Asia.
The practice of local food aid procurement for
regional distribution suggests the possibility of
becoming a regional hub for food procurement, once
our platform is well established and conditions
permit.
The possibilities are broad. The potential is there.
We are ready. With a system designed to meets our
country’s needs, I see a bright future. We intend to
grow Ethiopia and grow with Ethiopia.
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