Saturday, May 11, 2013

Africa: I am no economist but....

New Vision ( Uganda ) reports ( and yeah I just felt that maybe Bob Geldof should also be remembered for some other stuff as well hence the above ).

Geldof's Africa fund backs commodity exchange company
                                                                       Bob Geldof

CAPE TOWN - Bob Geldof's 8 Miles African private equity fund has made its first investment, backing a start-up company that plans to build commodity exchanges across Africa and improve food security. 

The rock star activist's $200 million fund has joined Morgan Stanley and the International Finance Corporation (IFC), in providing a total of $5 million of seed capital in eleni LLC, co-founded by Eleni Gabre-Madhin, the former head of the Ethiopia Commodity Exchange (ECX). 

Gabre-Madhin set up Kenya-based eleni in January with the intention of levelling the playing field for African farmers in need of greater price transparency as they contend with powerful and better-informed market participants. 

It would seem to me that it is a very good idea  also seems to be very ambitious.

"We have closed (an agreement) this week with the 8 Miles fund," she told Reuters on Friday at the World Economic Forum on Africa. 

Gabre-Madhin aims to challenge the dominance of the world's commodity markets by exchanges based in developed nations. 

"It's time the world looked to our markets as a reference," she said. "There's no reason why we shouldn't have a west African cotton index that the world refers to, or an east African coffee index or African sesame seed index." 

I struggle to see how to international markets will move to an African index just because one is available. I also don't see why an African index would improve returns to farmers. A world market is just that.

Africa is on the cusp of an agricultural revolution, Gabre-Madhin added, with only a quarter of its yield potential achieved and 70 percent of arable land uncultivated. 

To fulfil its potential in agriculture, Africa also needs to have structured trade, she said. 

That argument could cut  the other way as well. 

Gabre-Madhin was widely praised for her work at ECX, which she co-founded and ran from 2008 to 2012. The exchange handled trades worth about $1.2 billion in 2011/12, with trading volume having risen to 601,000 tons from 138,000 tons in 2008/09. 

ECX trades coffee, maize, sesame and white pea beans through an open outcry system. 

Nairobi-based eleni aims to design, build and support similar exchanges elsewhere in Africa, Gabre-Madhin said. 

"The Ethiopian experience is a scratch on the surface of what we're going to do with Africa," she said. 

Gabre-Madhin wants to solve the problem of weak markets in African agriculture "by creating markets that take commodities from where they are produced and enable buyers to know how to get their hands on that commodity in a reliable, transparent, efficient way". 

While at ECX, 18 different African governments approached Gabre-Madhin about replicating the Ethiopian model, which she says is a sign of the widespread acknowledgement of the need for commodity exchanges on the continent. 

Eleni is looking to launch two exchange projects within six months, she said on Friday, declining to name the countries involved. 

Each exchange is expected to cost between $20 million and $30 million and will be financed through a consortium of private investors. 

The investments by Morgan Stanley and the IFC were announced in January, but the backing from Geldof's 8 Miles fund could raise eleni's profile further as it seeks to raise an additional $200 million for new exchanges over the next three years. 

The 8 Miles fund declined to give details on its investment in eleni. 

This will be fascinating to watch.

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