EAC mulls regional commodity exchange
ARUSHA, Tanzania, July 1, 2011/African Press Organization (APO)/ — The East African Community and the Nicolas Berggruen Institute are in discussions to establish a regional commodity exchange.
A meeting held today at the EAC Secretariat headquarters in Arusha between the Secretary General Amb. Dr. Richard Sezibera and Nicolas Berggruen Institute Senior Advisor Ms Jendayi Frazer set the stage for the EAC bloc’s work towards the realization of a regional commodities market.
A regional commodity market can help solve the problem of thin markets by creating much needed mass and concentrating supply and demand in the East African Community.
Such an exchange could help address issues of price manipulation, often a problem in developing countries, increasing farmers’ incomes, and can also help in the development of other innovative financing tools for agriculture in particular and infrastructure in general.
EAC Secretary General Amb. Dr. Sezibera welcomed the plan to establish the commodity exchange by noting that one of the key principles of the EAC as a private sector-driven and people-centered Community is making sure the people of East Africa gain access to the tools of wealth creation.
Amb. Dr. Sezibera observed that one of the biggest challenges of the region is a population that is heavily dependent on agriculture – with over 80% of East Africans employed by the sector – yet the sector suffers various challenges ranging from low productivity, lack of infrastructure to get produce to markets, and limited value addition to what the region produces.
The EAC Secretary General noted that some of these challenges are in part responsible for the region experiencing regular occurrences of supply surplus and hunger at the same time.
“We don’t have a market for foodstuffs. The laws and regulations in the Community should allow for the development of these markets.
“A commodity exchange is one way to address these challenges,” he observed.
Nicolas Berggruen Institute Senior Advisor Ms Jendayi Frazer expressed her organization’s delight at working with the EAC to establish a commodity market. She said the Nicolas Berggruen Institute was “very proud” and “looking forward” to collaborating with the EAC in this venture and added that she saw EAC as critical in terms of creating the scale to move the region’s economies forward.
It is expected that the proposed regional commodity exchange will be actualized within the overall framework of a Public-Private Partnership arrangement. It will also ride on the framework of the EAC Food Security Action Plan and the EAC Climate Change Policy agreed to by EAC Heads of State at their last Summit held in April this year.
Also in attendance at the meeting were: EAC Deputy Secretary General iin charge of Planning and Infrastructure, Dr. Enos Bukuku; EAC Director for Trade, Dr. Flora Musonda; Ms. Anne Mpendo, Financial Economist, EAC-Financial Sector Development and Regionalization Project and; Mr Timothy Shortley, Senior Director for Africa at the Nicolas Berggruen Institute.
Notes to Editors
• A commodity exchange is a regulated market in which multiple buyers and sellers trade commodity-linked contracts (goods) with a pre-approved set of market agents and commonly agreed trade procedures. Delivery of goods can be on the spot and or specified for a mutually agreed future delivery date.
• Modern exchanges are centers of information, quality and market discovery and broadcast local and world prices, supply and demand data, weather, and relevant government actions.
• The price and product discovery function of the commodity exchange also helps private sector importers in developing countries have better product information and a better sense of market capacity when making production decisions.
• They also play an important role in connecting rural areas to the urban centers as well as linking small farmers to major buyers.
• A regional commodity exchange can also add liquidity to the market by virtue of the larger number of sellers and buyers of commodities which it pulls together. In other words, a regional commodity market can help solve the problem of thin markets by creating much needed mass and concentrating supply and demand in a specific location.
• Such an exchange could help address issues of price manipulation which is often a problem in developing countries as well as help in the development of other innovative financing tools for agriculture in particular and infrastructure in general.
• By reducing costs of transactions and enhancing information flows, an exchange can improve returns to market agents while reducing short term price variability and spatial price dispersion. The exchange also provides valuable information on the availability of different commodities at specific points in time.
• The regional commodity exchange envisaged in the case of the EAC is one that centralizes a number of trading places unto one trading platform. This means that the national commodity exchanges will also assume the role of being regional platforms for trade.
ABOUT NICOLAS BERGGRUEN INSTITUTE
Nicolas Berggruen Institute (NBI) is an independent, non-partisan think tank and consultance engaged in the comparative study, design of systems of governance suited to the new and complex challenges of the 21st century.
It aims to integrate the new possibilities of the information age with the best practices of efficient, decisive and meritocratic administration in Asia with the democratic accountability of the West. The knowledge society both enables and requires intelligent community, intelligent democracy and intelligent governance.
East African Community (EAC)