10 May , 2006
Forum Discusses Final Plans to Establish Pan African Commodities Exchange in Botswana

The Africa Union, United Nations Conference on Trade and Development, Pan African Commodities Platform and Botswana International Financial Services Centre with the support from the Ministry of Finance and Development Planning, have just concluded discussions on the formation of an African-owned commodities exchange to stimulate the economies of African countries.

In a move to establish a Pan African commodities and derivatives exchange (PACDEX Africa), Botswana was chosen as the venue for a groundbreaking forum initiated by the African Union, Pan African Commodities Platform and United Nations Conference on Trade and Development. The forum was hosted by Botswana International Financial Services Centre (IFSC) in association with the African Union (AU), Pan African Commodities Platform (PACP), a private sector company and the United Nations Conference on Trade and Development (UNCTAD). It took place in Gaborone from 8th to 10th May.

In his opening speech, Mr Anthony Aderndoff, CEO of PACP, stressed the economic and development factors that influence the decision of establishing PACDEX in Botswana. “We plan to locate the proposed PACDEX Africa in Gaborone because of its positive credit rating as the only country in Africa with a current AAA rating with forecasted GDP growth rates 2005-2009(F) 5.2%. The location will also provide our employees as well as our customers with the necessary security in terms of safety and technology as well as absence of foreign exchange controls that are debilitating for industry and trading. There will be representative offices in all the African countries of operation.”

The forum was a result of commitments from the Arusha Declaration and Plan of Action on African Commodities, signed by the ministers of trade of member states of the African Union at an extraordinary AU session in Tanzania in November 2005, approved by the summit of Heads of State, held in Sudan in January 2006.

The declaration affirms the African Union’s commitment to urgent development of the commodities sector, on which most African nations rely heavily. About half the countries on the African continent depend heavily on their merchandise export income from commodities, and as a result are highly vulnerable to price variations on international markets. In many African countries three or four commodities represent the main source of export earnings, government revenue and employment.

HE Madame Elisabeth Tankeu, AU Commissioner Trade and Industry, said: “The issue of commodities has always been a source of great concern to the African leaders, since commodities are the core of the African economies. The pricing mechanism of the African products has shown a relative declining tendency as compared to the prices of manufactured products of developed countries, detrimental to the development process of the continent.”

“Therefore the future existence of the African Commodity Exchange should be able to respond to the objective needs of the Africans to contribute to the regulation of commodity prices and to lay the foundation of the development of the continent. The exchange will offer the following: trade services for intra African trade as well as to the international marketplace; an economic answer to the need for growing the demand for African commodities and exports; and ownership of the commodity exchange through a franchise or shareholder business model.”

She added that this will also lead to an increase in the “African supply in semi-finished and finished products.”

Mr Paulo Gomes, an Executive Director at the World Bank expressed appreciation for the initiative because it allows Africa to fill the investment gap to achieve the Millennium Development Goals. He said this will improve the climate to attract foreign direct investment. He commended the AU for playing a leading role in the implementation of this project.

The AU Arusha Declaration urges full discussion on commodity exchange initiatives, and in particular to enable private sector parties to take part in the deliberations, with a view to establishing Africa’s own commodities exchanges.

“The opportunity exists for the creation of a Pan-African Exchange which will bring to reality one of the core ideals of African integration,” said Ms Leonela Santana-Boado, Coordinator Exchange in Commodity Branch of UNCTAD.

“Properly regulated commodity exchanges can contribute greatly to the achievement of government economic and developmental goals. Commodity exchanges can fill the institutional gap left overly by hasty liberalization and provide three basic functions: price transparency, price discovery and reduced transaction costs. The Pan-African Exchange will be majority African, majority private-sector owned, with ownership spread over many African countries. UNCTAD considers it a pleasure to have been invited to this conference as well as being part of this project.”

Recent years have seen the rapid creation and growth of new commodity exchanges in developing countries.

In his opening remarks, the Botswana Minister of Finance and Development Planning, Honourable Minister Baledzi Gaolathe, said: “Botswana is indeed pleased to play a facilitation role in a pan African commodities initiative that already has the endorsement of the African Union. The African commodities market offers growth opportunities and advantages to a large cross section of the stakeholders.  The establishment of a commodity exchange should therefore enhance Africa’s individual economies.  Trade is vital to realizing Africa’s growth potential, reducing poverty and achieving the Millennium Development Goals.”        

“We are pleased that Pan African Commodities Platform and their strategic partners have selected Botswana as the country to locate the Headquarters of the envisaged group of commodity exchanges through out Africa. This decision demonstrates the confidence Pan African Commodities Platform has in the enabling economic framework that the Government of Botswana has put in place to enable the establishment of a pan African commodities exchange, namely the Botswana International Financial Services Centre, (BIFSC).”

“We are honoured to be part of this bold initiative,” said IFSC Chief Executive Officer, Mr Alan Boshwaen. “The conference could pave the way for the establishment of a proposed Pan African Commodities and Derivatives Exchange (PACDEX Africa) based in Botswana. That would be a significant development of our financial services sector and a huge step towards Africa’s economic consolidation.”

The underlying economic purpose of a commodities and derivatives exchange is to enable commodity producers to sell their produce in advance to protect them against possible price falls, and to allow consumers and traders to buy in advance to protect against possible price increases. 

It is envisaged that the creation of such an exchange, or exchanges, would provide the producers and traders of African commodities with a much-needed vehicle to achieve volume and liquidity, market expansion, accessible information, technology and knowledge, and sustainable international development and competitiveness.

“The inefficiencies in the African marketplace, international competition, loss of revenue for the African countries, and the opportunity within the current commodity bull run are some of the reasons this exchange could exist. Exchanges normally help to define better quality standards, speed up the process of product standardisation, improve the discipline in the market place, and remedy the weaknesses of the market place. In addition, exchanges create incentives for market participants to produce commodities that meet exchange specifications, and behave according to exchange rules,” explained Mr Anthony Adendorff.
 
PACDEX Africa, owned by the African states, is the continental organization that will provide technology and capacity for the roll-out of national exchanges on a franchise basis. The objective is for PACDEX Africa to facilitate the roll-out of national exchanges in all 53 African countries over time.

ENDS

NOTES FOR EDITORS:

For further information on PACDEX please contact Anthony Adendorf by email: anthony@pacp.com or Letsebe Sejoe on +267 360 5000 or letsebe@ifsc.co.bw

For more information on Botswana IFSC please contact Rachel Mothibatsela on +267 360 5000 / rachel@ifsc.co.bw or visit www.ifsc.co.bw