In a landmark move aimed at revitalizing intra-African trade and combating food insecurity, commodity exchanges across the continent have joined forces to establish the AfCFTA Association of Commodity Exchanges under the AfCFTA Guided Trade Initiative.
This groundbreaking initiative was announced at the Intra-Africa Trade Fair 2023, held in Cairo, Egypt.
The AfCFTA Association of Commodity Exchanges represents a collective commitment to harness the power of structured marketplaces to connect farmers, producers, and buyers, fostering economic growth and addressing food insecurity.
By streamlining cross-border trade mechanisms, the association aims to increase intra-African trade by 33% and reduce the continent’s trade deficit by a significant 51%, according to UNCTAD estimates.
Below is the keynote address delivered by Mrs. Tucci Ivowi, CEO of the Ghana Commodity Exchange/Convener of the AfCFTA Association of Commodities Exchanges at the event held on November 14, 2023.
Statement on how Commodity Exchanges’ Infrastructure can facilitate cross-border trade mechanisms between different African markets, linked to the African Continental Free Trade Area (AfCFTA) Guided Trade Initiative
Good afternoon Excellencies, Distinguished Guests, Ladies and gentlemen.
We are here to discuss how the infrastructure of Commodity Exchanges facilitates cross-border trade mechanisms between different African markets, linked to the African Continental Free Trade Area (AfCFTA) Guided Trade Initiative.
We all understand the current state of affairs where Intra-African trade is low, but where, according to UNCTAD, AfCFTA has the power to increase intra-African trade by 33% and simultaneously reduce the continent’s trade deficit by a significant 51%. We are talking about trade, but we don’t do this in a void. We do so against a backdrop where one in five Africans go to bed hungry, and a staggering 140 million people across the continent face acute food insecurity, according to the World Bank 2022 Global Report on Food Crisis Mid-Year Update, with other sources quoting even higher figures.
As food insecurity in Africa continues to increase, due to crises stemming from climate change to global supply chain challenges following world events like the Pandemic and various national conflicts, the urgency for Africans to not only increase quality food production, but to be able to access it from within the Continent is clear. This is why the mission of Commodity Exchanges is so crucial. When we delve into numbers from the World Bank (World Development Indicators), we find that on average between 2017-2019, over 13% of Africa’s import spending was devoted to food and agricultural commodities. In some countries, like Benin and Comoros, food represents more than 40% of their imports, compared to less than 10% in Congo DRC, South Africa, Tanzania, and Zambia.
Still with a focus on food but also other critical commodities, data from the International Trade Centre (2021), reveals the immensity of the untapped potential for intra-African trade. We have a vast opportunity in metals, valued at around USD 5.5 billion, and food products, at approximately USD 3.8 billion. This isn’t just potential; it provides a roadmap for African Commodity Exchanges within the AfCFTA Guided Trade Initiative.
Commodity Exchanges are marketplaces where licensed buyers and sellers engage in the trading of commodity-linked contracts based on set rules and procedures. These Exchanges are hubs of policy information and market data such as local and global prices, and supply and demand data. They provide an essential function in price discovery, risk management, and transparent trading of agricultural products, minerals, and other commodities.
The benefits of well-functioning commodity exchanges are numerous. They connect rural producers to urban and international markets, encouraging increased production and reducing post-harvest losses. They facilitate small-scale farmers and producers to access wider markets, obtain fair prices, and manage risks associated with volatile commodity prices.
By improving quality infrastructure, such as storage conditions, transport links, communication networks, and seamless end to end trading platforms, interlinked across countries, now also supported by the Pan African Payment and Settlement System, we can empower farmers and traders to access domestic and international markets. This is a vital step toward bridging the trade gap in food.
However, many African nations lack well-developed commodity exchange systems, while others have made commendable progress. To further strengthen these systems, existing Commodity Exchanges have joined forces and just signed an MOU to establish the AfCFTA Association of Commodity Exchanges under the Guided Trade initiative of AfCFTA. This marks a historic and momentous occasion and signals a commitment to collaboration and collective action.
The formation of this association serves several critical purposes:
First, it strengthens commodity exchanges across the continent, fostering regional integration and reducing trade barriers. A unified association promotes cooperation, standardization, efficiency, and market transparency. This, in turn, lowers trading costs and enhances market accessibility.
Second, the introduction of risk management tools such as futures and options contracts through commodity exchanges can help producers and traders protect themselves against price fluctuations, making markets more predictable and secure.
Third, a regional approach to commodity exchanges enhances market liquidity, drawing together a broader spectrum of buyers and sellers.
Fourth, this initiative has the potential to attract foreign investors, leading to economic growth and infrastructure development across the continent.
Last but not least, it extends access to financial services and credit to smallholder farmers and producers, allowing them to invest in their businesses and enhance their productivity.
Practically speaking, there are key agricultural commodities that African countries can exchange with one another. From maize to rice, sesame to sorghum, and soybeans to cashew, the possibilities are vast. These opportunities allow exporting countries to share their surpluses with those in need, creating a win-win situation for all. Under the Guided Trade Initiative, our Commodity Exchanges will work together to identify priority commodities and countries and use our platform to start by trading a few of them. With the benefits such an Association brings, we believe we can tackle the barriers and demonstrate, in a small way initially, that this can be done.
We will require broader collaborative support to foster significant growth. Policymakers can enhance regulatory frameworks, ensuring transparency and stability, while development finance institutions play a vital role in providing financial resources for infrastructure development and much-needed trade financing vehicles. The private sector can contribute by participating actively, fostering liquidity, and innovating new financial products.
In closing, the establishment of the African Association of Commodity Exchanges is a bold and inspiring step forward. It represents a collective commitment to change the trajectory of African trade in agricultural and other commodities. Our journey ahead is challenging, but the potential rewards are immeasurable. We embrace this opportunity to work together with AfCFTA, as we unite our efforts towards transforming the lives of millions across Africa.