AMBASSADOR ADDIS ALEM BALEMA (PHD), DIRECTOR GENERAL OF THE COMMODITIES EXCHANGE AUTHORITY

Fortune: What prompted the government to consider opening a commodities exchange and why now? 

Ambassador Addisalem Balema (Phd): The commodity exchange market is very important because it brings together producers and consumers. But not only do we try to bring together buyers and sellers as well as coordinate the demand and supply, but we try to discover the price of commodities within the country. Whatever price prevails in the exchange would be in line with the price of the commodity within the country. And that will help stop the market from being volatile with connected market activities and this facilitates the development of the country as a whole.

The Ethiopian economy is responding very well now and the market has to correspond to the development.

Amidst expectations that the commodities exchange centre would open in December, it has been postponed. What forced you to extend the launch?

The preparation is going very well but the exchange centre market did not get its equipment, especially the trading pit, which has not been installed. Hopefully, we will finalise it in March.

The board of the commodity exchange project has concerns on the draft membership rules and regulations it reviewed a few weeks ago. What specific amendments did the board recommend?

The commodities exchange project team drafted the rules, regulations and by-law and it has to be approved by the Commodities Exchange Authority which must review it. It is not a concern as it has been approved.

If the draft law is approved, what is remaining is the registration of members. In a situation where registration of members has still not kicked off, some observers are sceptical that the exchange would launch even in March. Do you share this concern? Why has registration not started yet?

The rules and regulations of membership registration have just recently been finalised. We have also approved some of the contracts that are going to be used in the market. Now we are in the process of drafting Authority rules and regulations (to govern itself) and hope to finish within the month. Then all the rules and regulations will be ready and we will be ready to start the campaign of registering members which will not be very difficult.

Once we put the rules and regulations in place and invite the stakeholders to come together and discuss the issues, we will also want to hear from all the stakeholders. But we are on the right track.

What makes producers and consumers associations eligible to become members of the exchange but not individual traders?

Individuals will also be members. The rules do not deter individuals from being members as long as they fulfil the requirements that are found in the rules and regulations.

The exchange market will have two types of members; individual and institutions like mercantile organisations. They can trade on their own or on producers behalf. We have put a lot of requirements in place to mitigate concerns about its traders’ positions in terms of financial strength and trading capacity. The member should also know how to trade on the floor, information acquired through an examination or test.

We also look at backgrounds, to uncover an history of market abuse or criminal activities concerning banks or trading enterprises. Members are welcome who can trade openly and transparently which benefits themselves and makes the market prosperous.

The concern is not only about seeming delays in membership registration. Equipment like announcement screens and the trading pit that were supposed to be installed inside and outside the exchange centre have not come to the country yet. Would all the equipment come in to the country and be installed before March?

The computer, screens and all other equipments are on their way here.

But why did it take so long?

I am not exactly sure about what happened because the project staffs do that. We are two institutions. The Authority is a regulatory body which is accountable to the Prime Minister. We control the activities, watch how the market behaves, how the market players interact with each other, how the market functions, whether it is open, transparent, and also free from abusive and malpractices and manipulation.

The project people take care of the market itself. They are responsible for implementation. We meet regularly and that is how I happened to know the delay was due to external factors. The problem is not on this side. The problem is on the supplier side. The suppliers may say they would supply equipment in December but may call you and tell you that they are not ready to supply it. From our side, the government is committed.

Provided that the access to information about this project in rural areas is too low, would it be appropriate to carry out a massive information dissemination campaign to create awareness about its need before you launch registration?

It is the project office that registers members. We approve the registration.

The exchange market, which is now at a project level, will have its own board, its own CEO and, when they start registering members, we are going to approve that by reviewing their past activities.

But we are going to do the campaign. The problem is the Authority, which is established by a proclamation, has not done much yet, and its director general has been working to create the right structure. We are now running commercials to hire staffs and once we recruit the right people the main job would be not only regulating the market but also getting the information to everyone such that this market will prosper and contribute to the overall development of Ethiopia.

How many members do you need to start up?

We will start with 50 to 100 members because not everyone directly purchases or sells commodities. This market is conducted through brokers.

A producer in Humera or in Moyale, for example, will trade through a broker, possibily for a small commission, which is market management.

Would 100 people be enough to represent a nation with a population of over 80 million?

They would not represent them. They will trade on their behalf. If you go to the United States (US), there are a couple of hundred brokers that directly participate in the pit of the exchange market but millions of producers always pass through them.

As former Ambassador to China, were there similar exchange markets there? Were they successful?

In the early 1990’s exchange markets flourished in almost every province of China. But in the process, they started consolidating. Rather than having a small market, it is better for the market and stakeholders to have centralisation.

There are now three major exchanges for a country of one billion people in Dalian, Guangzho, an hour flight from Beijing, and the capital.

The exchanges are growing very fast and many contracts are being traded, contributing to the rapid development of China.

The Chicago Board of Trade and Mercantile Exchange are now merging and will finalise in March.

Beginning from March, there will be one market in Chicago. Together with New York, most traded commodities in the huge US economy filter through these exchanges.

Is there a model on which the exchange is based? What is unique to this country?

We tried to learn from activities and practices from China, India and the US. Like this Authority, there is the Commerce Trading Commission in the US that regulates exchanges.

But, while they depend on a futures market where goods may become available after time periods up to one year, we are starting with a spot market where actual commodities already in warehouses are traded. We facilitate cash trades through verbal shouts side-by-side with electronic trades.

After gaining experience we may move to futures trading.

A commodity exchange depends on the functioning of allied sectors like banking, insurance, transport, IT and telecom services. Are all these sectors in a position to act jointly to make the exchange a success?

We need clearing institutions so participants do not have to know each other individuals to rely on smooth functioning. We are now working with a couple of select banks on this now  but will expand to others.

The government is also spending a lot of money on ICT. One of the prime purposes is the development of marketing in this country.

What impact will the exchange have in promoting the commercialisation of agriculture in Ethiopia?

It is the most important thing because it is the soul and heart of the our activities. By promoting trade, making it fair and transparent for everyone, revealing daily prices and also by effecting contracts, which must be respected by every player, it adds to the development of the economy as a whole. People will also start producing what is important and what is selling in the market.

When do you expect to see a change?

We will start following changes with our own experts and analysts that we are going to hire within the coming two to three weeks. We will closely follow the market and actors - how they behave and trade - because we care about the growth and transparency of the market so that the public benefits.