Lecture on Building a Commodity Exchange in Africa

Introduction

• Big Idea: Build a commodity exchange to transform a billion lives in Africa.
• Questions Explored:
  • What is a commodity exchange?
  • How to reach a billion people?
  • What would be done differently and what to avoid?

Ethiopia Commodity Exchange

• Background:
  • Established in 2008 to connect buyers and sellers reliably and efficiently.
  • Aim: Enable trading without personal connections, ensuring quality, quantity, delivery, and payment.
• Impact:
  • Changed age-old farming practices in Ethiopia.
  • Created hope and economic improvement for farmers.

Why Big, Bold, and Beautiful?

• Big Impact:
  • 20 million farmers connected to trustworthy markets in four years.
• Bold Approach:
  • Overcame weak telecom infrastructure by providing real-time market prices.
  • Used electronic display boards in 180 market towns, SMS to 800,000 subscribers, and a call-in service with 1.2 million calls/month.
  • Created a zero-default market with T+1 clearing and payment.
• Beautiful Outcome:
  • Traded $1.4 billion annually without any defaults.
  • Empowered farmers with knowledge, improved negotiation, quality, and production.
  • Increased farmers' share of export prices significantly (e.g., coffee share from 38% to 70%).

Expanding to the Rest of Africa

• Market Challenges:
  • Payment, delivery, and quality issues are common across Africa, not just Ethiopia.
  • Historically, all regions except Africa have been served by organized commodity exchanges.
• Vision for Africa:
  • Use appropriate technology, including cloud and mobile, to connect markets.
  • Build markets community by community, country by country, and link them intelligently.

Strategy for Building African Markets

• Technology:
  • Utilize technology that fits local conditions and stage of development.
  • Employ cloud and mobile technology to expand access.
• Smart Growth:
  • Adopt a Star Alliance model for linking regional markets.
  • Connect regional markets intelligently based on commodities (e.g., coffee, cocoa, cotton).
• People-Centric:
  • Focus on building markets that serve people's needs and aspirations.

Success Story: Humera, Ethiopia

• Background:
  • War-torn area with distrust in market systems.
  • Farmers hesitant to trust the new commodity exchange.
• Outcome:
  • Successful pilot with sesame farmers changed perceptions.
  • Demonstrated reliable market functioning and payment.
  • Transformed farmers' trust and relationship with markets.

Conclusion

• Key Message:
  • Transforming lives through markets that serve real needs is possible.
  • A market for a billion people in Africa can be built.
  • Encouragement to stay tuned for developments.