Billionaire-Backed Rwanda Commodity Exchange Plans Expansion

(Updates with EAX appointments in final paragraph.)

Feb. 21 (Bloomberg) -- EAX Rwanda, a commodities exchange backed by billionaire investor Nicolas Berggruen, said it plans to expand in East African nations amid growing investor interest in agriculture on the continent.

The bourse, based in the Rwandan capital, Kigali, will start spot trading of agricultural products by July in the first step of a plan to establish a regional exchange in the five- nation East African Community, said Jendayi Frazer, who was U.S. assistant secretary of state for African affairs from 2005 to 2009 and is now a partner in the project. EAX’s use of a Nasdaq OMX Group platform will give other traders in the region immediate access to the market, she said.

“We hope to be regional right away,” Frazer said in an interview in Nairobi, the Kenyan capital. “Our aim is to build on the decades of work that’s been done in the East African Community to integrate the regional market and make it globally competitive.”

EAX is among at least three commodity-exchange initiatives in Africa as investors tap nations that are among the world’s biggest producers of cocoa, coffee and tea. Eleni Gabre-Madhin, who founded the Ethiopia Commodity Exchange in 2008, has formed a company partly funded by Morgan Stanley that plans to set up platforms across the continent. Financial Technologies (India) Ltd., a Mumbai-based company, is working with regulators in Botswana to develop a bourse. Ghana, the second-biggest cocoa grower, announced plans in 2011 to set up its own exchange.

Agriculture Investment

Africa has attracted “increased large-scale foreign investment in agriculture in recent years,” with more than half of the 56 million hectares (138 million acres) of land sought globally by investors located in sub-Saharan Africa, according to the African Development Bank.

Most trade in commodities in Africa is done informally, often involving middlemen, according to Sara Menker, founder and chief executive officer of Gro Ventures, the continent’s first privately funded commodity data and analysis service.

About 90 percent of Africa’s agricultural production comes from farms that are 2.5 hectares or less, while buyers can involve entities including domestic processors to international food companies, she said in an e-mailed reply to questions on Feb. 19.

“Two of the key benefits that the establishment of the exchanges will bring about are price transparency and improved access to financing,” Menker said. “Price transparency allows farmers to maximize the amount they get for their crops. And warehouse depositary receipt systems will enable them to raise finance against crops stored in warehouses and buy inputs to prepare harvests for the next season.”

Employment Provider

Agriculture provides employment for more than 80 percent of the people living in the five-nation East African Community and the industry is the biggest contributor to the region’s $79.2 billion economy, according to the trade bloc’s website.

EAX settled on the EAC because it had moved further ahead of other regions in Africa in integrating its agriculture markets, Frazer said on Feb. 14. “The environment is ripe for this initiative.”

The EAC’s members include Kenya, which is the world’s largest exporter of black tea and Uganda, Africa’s biggest coffee shipper. Tanzania, Rwanda and Burundi are also part of the bloc. Kenya and Tanzania are also the biggest producers of pyrethrum, while Rwanda ranks as the eighth-largest producer of the plant that’s used to make insecticide, according to the Food and Agriculture Organization.

Commodities Traded

Pyrethrum, coffee, corn and wheat are among the commodities that may be traded first on the exchange, according to Rachel Breaux, spokeswoman for Ngali Holdings Ltd., a closely held Rwandan investor in the exchange. EAX Rwanda is investing an initial $10 million in the venture, Ngali Chief Financial Officer Irene Ndikumwenayo said.

The bourse will invest in programs to educate small-holder farmers about the benefits of exchanges and is working on a mobile platform that will deliver pricing information to growers, Frazer said. EAX may also help develop warehousing capacity in the region, she said.

Other shareholders in EAX Rwanda include Frazer’s 50 Ventures and Berggruen Holdings, a part of the Nicolas Berggruen Charitable Trust. Heirs Holdings of Nigeria, whose chairman Tony Elumelu is the former chief executive officer of United Bank for Africa Plc, also has a stake.

Berggruen, 51, is founder of the Nicolas Berggruen Institute, a think tank whose stated mission is to improve global governance.

Nigerian Plans

EAX Rwanda’s parent company, African Exchange Holdings Ltd., has held talks with Nigeria’s government about establishing an exchange in Africa’s biggest oil-producing nation, Frazer said.

“Nigeria is the next market we’ll focus on,” Frazer said. “We’re very interested in starting an exchange there.”

Once spot trading is established, the exchange expects to introduce futures trading, “possibly next year,” Frazer said. EAX will also eventually begin trading other commodities including metals, minerals and electricity, she said.

EAX Rwanda yesterday announced it appointed Paul Kukubo as its chief executive officer and John Bosco Sebabi as chief financial officer. Kukubo is the founding CEO of the Kenya Information Communication and Technology Board, while Sebabi is a director-general at the National Bank of Rwanda, it said in a statement.

--Editors: Ana Monteiro, Vernon Wessels, Karl Maier