Friday, April 03, 2015

Stock exchanges cannot feed Africa

Another blog-post following on from the Geldof claim that more capitalism offers Africa hope.

The Ethiopia Commodity Exchange was started in 2008 with the help of foreign donors to improve food distribution in a country where millions often went hungry. By government decree, almost all buying and selling of coffee, sesame seeds, and navy beans for export must take place on the exchange. The government ordered export coffee trading onto the exchange shortly after it opened, hoping it would jump-start activity and help attract other business. That didn’t work: Small amounts of corn and wheat are traded, but coffee and sesame seeds account for about 90 percent of exchange volume. The ECX , which got funding from the U.S. and the United Nations among others, is one of at least eight commodity exchanges started in sub-Saharan Africa over the past two decades with the aim of improving food security for local populations. Many have failed, and only South Africa’s is thriving without government support.

Exchanges are a distraction from other initiatives that would better serve poor farmers, says Nicholas Sitko, a Michigan State University agricultural economist who’s based in Zambia, where a commodity exchange closed in 2012. “We’ve learned that no amount of money pumped into them and no amount of government effort to get them off the ground can force them to work,” he says.

According to Fekade Mamo, general manager of Mochaland Import and Export and a former ECX board member. “The objective was to bring about an equitable food supply system” in the country, Fekade says,“That has completely failed.”

Trading floors have flopped in Zambia, Uganda, Nigeria, Zimbabwe, and Kenya. Each one, analysts say, suffered from the same flaw: a top-down approach that’s better at attracting foreign aid than at improving farming practices and developing transportation and communications networks. Donors like exchanges because they look like institutions in their own countries, says Peter Robbins, a former commodities trader in London who’s studied African exchanges. And “African leaders like to show off trading floors to show how modern their countries have become,” he says.

“Every country does not need an exchange. Nor is it any good to establish them in places where they will fail.” says Shahidur Rashid, a food-security analyst with the International Food Policy Research Institute in Washington.

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