Kigali, Rwanda, 17 April 2024 (ECA) -Efficient and effective financial and commodity exchange markets are crucial for economic growth, as well as for equitable, inclusive, and sustainable development of the continent, says Antonio Pedro, Deputy Executive Secretary, Economic Commission for Africa (ECA).
Mr. Pedro was speaking at a virtual High-Level Dialogue on Regional Commodity Exchanges as Means to Boost Investments, Production and Industrialization in Africa hosted by ECA Sub-Regional Office for Eastern Africa in Kigali, Rwanda.
According to the ECA Deputy Executive Secretary, a total of 14 commodity exchanges on the continent have agreed to harness their collective potentials under the African Continental Free Trade Area (AfCFTA).
“This action has the potential to facilitate the efficient trading of agricultural and non-agricultural commodities under the Agreement, and assuring the continent of food-security, and market efficiency through sharing knowledge and best practices,” he said.
Additionally, he said there has been an increasing wave of awareness by African policymakers on the importance of efficient financial and commodity exchange markets as crucial for growth, as well as for equitable, inclusive, and sustainable development.
Mr. Pedro mentioned that initiatives, like the Ethiopia Commodity Exchange and the East Africa Exchange in Rwanda, have set precedents towards integrated commodity market systems in the region.
“These developments are commendable linkages into the capacity of Africa’s vast human, agricultural and mineral resources to advance development, while positioning the continent as a global powerhouse and destination of choice for climate action and investments – both domestic and external,” he said.
Commodity exchanges are platforms that facilitate the trade of agricultural and mineral products and derivatives contracts based on these commodities. They can play a vital role in promoting regional value chains, enhancing food security, diversifying exports, and reducing price volatility.
He noted that globally, the number of commodity exchanges has increased significantly over the last century. There are 125 exchanges worldwide, of which only 15 are located in Africa.
The ECA advocates for developing regional commodity exchanges because Africa has a large commodity base that can support regional exchanges and the development of regional value chains.
Jean Ngabitsinze, Minister of Trade and Industry, Rwanda said regional commodities exchange are important for increasing investment output and industrialization throughout Africa.
“These exchanges are centralized platforms by design that make it easier to aggregate, standardize, and improves market issues by lowering transactions costs and promoting transparent pricing. In addition to encouraging price discovery, this economic infrastructure,” said Mr. Ngabitsinze.
“By aligning supply chains more closely with market demands and providing an outlet for surplus production. This exchange underpins the development of our missing industries, such industrial linkages essential for shifting from primary agriculture to value added manufacturing.”
He noted that Commodity Exchange can be a key driver of its success, promoting intelligent trade supporting the emergence of regional value chains and creating a more efficient satisfied food system across the continent.
Several African countries have created commodity exchanges such as the Ethiopia Commodity Exchange (ECX) , the East Africa Exchange (EAX) in Rwanda, and the Africa Mercantile Exchange (AfMX) in Kenya. However, success has been limited, food price volatility remains a problem in the region, and commodity exchanges face many challenges, such as lack of regulatory frameworks, inadequate infrastructure, limited access to finance, and low awareness among stakeholders.
Issouf Soumare, a Professor of Finance, Université Laval, Quebec City, Canada) says a successful regional commodity exchange can contribute to tackling some development challenges facing Africa and its regions that includes reinforcement of food security, reduction of poverty and inequality, solutions against climate vulnerability risk, reduce financial exclusion , attract more foreign investments in the commodity sector, development of the agribusinesses and the agro-industry,
“Overall, commodity exchange platforms are fundamental in supporting the economic development by creating jobs, providing better risk-coping mechanisms, and improving income for all market participants,” said Mr. Somoure.
Mr. Pedro noted that the main challenges of commodity exchange in Africa is the inadequate liquidity and underdeveloped financial markets impacting their access to finance.
“Inconsistent regulatory and legal frameworks, unpredictable market conditions and limited market infrastructure continue to affect the integration of broader agricultural value chains, and by extension, impacting the aspirations of the AfCFTA,” he said.
To resolve these challenges, he said countries should build resilient and integrated regional trading platforms that can withstand global shocks and support our local economies.
Issued by:
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Economic Commission for Africa
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