Banking on board
In May 2014, pan-African Ecobank Transnational and eleni signed an MOU to establish a cooperative framework to promote and accelerate the development of Africa’s agriculture.
Agricultural businesses in Africa have traditionally struggled to secure capital from banks due to fears about risk exposure. Typically only large businesses such as major exporters have been approved by banks for loans. Although micro-financing has become available to very small farmers, there still remains what Gabre-Madhin calls a “tremendous missing middle”, which comprises the majority of traders who process and bring goods to market.
Embracing commodity exchanges is a way to bring them into the fold and alleviate banks’ concerns, Gabre-Madhin says, because commodity exchanges remove risk through their receipt and warehousing systems by turning commodities into guaranteed assets.
This has already been accepted in the West, where banks are energetically engaged in commodity trading, but it hasn’t caught on yet in Africa, Gabre-Madhin says. Fortunately, she found a partner willing to endorse her views. “Ecobank said, ‘We’re in, we believe commodity exchanges are the way to do this’,” Gabre-Madhin says, noting that the support of a well-established pan-African bank is a solid endorsement of how commodity exchanges are good for banking.
Another advantage from the union will be eleni drawing on Ecobank’s experience and infrastructure to better improve its own clearing and settlement procedures. She recognises the need for continued improvement, hence her company’s emphasis on innovation, embodied by eleni XLab. “The eleni XLab is a core initiative that focuses us to always look, always strive for and always believe in the possibilities,” she says.
The lab will be situated on the first floor of the offices where it will offer a space for thinking and experimentation to find solutions to challenges in frontier markets – such as weak infrastructure, skills and capacity – through three primary means, she notes.
First, through research into understanding how people in a particular place interact with a commodity exchange. This means in Ghana, for example, getting into the heads of so-called market queens – organised female wholesalers with influence and capital – and understanding how they want to use an exchange, Gabre-Madhin explains.
Second, through the simple two-way process of learning: “There’s no one model or truth we’re trying to impart,” she says. “We’re interested in finding out and developing what works.” And, finally, through innovation experiments and working with partners to evolve eleni’s business model.
“We want to be in a position to find the next M-Pesa,” she says, referring to the mobile-phone-based money transfer and micro-financing service that took Kenya and Tanzania by storm. To help it achieve that, eleni is in talks with numerous potential partners.
These include Google, Stanford Institute for Innovation for Developing Economies, NYU Centre for Technology and Economic Development and MIT Media Lab, whose interests stem from expanding mobile-based information transfer, and accessing countries to potentially build banking innovations.
Inspired by example
From the Tracon Tower rooftop, 30-year-old Loza Mariam Saifu, an innovation associate at eleni, was born and lived in Addis Ababa until, aged five, she and her parents moved to the US.
After working as an assistant to a commodities trader in the Chicago Mercantile Exchange (CME) she returned to Ethiopia, a choice influenced by Gabre-Madhin and her work at ECX.
“I heard and read about her for five years,” Loza says. “I even realised she was an alumna of my university, Cornell University, and I wanted to go to Ethiopia and give something back. I know that sounds a cliché, but this is my home.”She landed an internship at ECX, where she heard about Gabre-Madhin starting a company; Loza made contact and now she’s been with the company a year, while witnessing the economic changes in the city.
It’s a lot easier than before, regarding everything really, goods and services – there’s been a huge change,” Loza says. “Getting an office like this before wouldn’t have been possible as there wasn’t enough investment or businesses.”
Loza and Gabre-Madhin, like most of the Ethiopia-born staff at eleni, switch from speaking flawless English to speaking Amharic and back again with astonishing ease. There’s no denying that their analyses of how Ethiopia is changing and of the sort of transformational roles commodity exchanges can have in frontier markets certainly seem to make sense.
Gabre-Madhin believes that creating national commodity exchanges is a necessary precursor to any pan-African exchange. She envisages a system akin to Star Alliance in the airline industry, whereby each country and commodity exchange retains its national identity and advantages but agrees on partnering in mutually beneficial circumstances. She notes how CME started out small as a local venture serving 82 grain merchants on the Mississippi River, before growing into a global powerhouse.
“You need national foundations first – let’s get markets where people need them. That will work and change lives rather than any theoretical ideas about linking up Africa.” But a pan-African exchange that could transform Africa’s competiveness in global commodity markets is certainly possible within a decade, she adds, once national institutions are established.
“This initiative requires great political will, and we’ll have to align the financial sector as well as the information and communications technology sector, and really even the underlying legal framework,” she says.
She would like to see faster progress, while acknowledging that it takes time for everything to come together when so many stakeholders are involved in such a complex ecosystem that has a strategic impact on a country’s economy. But she is upbeat. “There’s a huge amount of interest to mobilise the African continent,” Gabre-Madhin says. “And we’re a company set up to respond to a real need that is only expanding.”