Following the passing of the Commodities Exchanges Act 2015, the
Tanzanian Mercantile Exchange (the TMX) will begin operating in Dar
es Salaam this September. After many years in the pipeline, it is
hoped the TMX will play a key part in encouraging vital domestic
and foreign investment into Tanzania, as well as being in the
vanguard of the latest generation of commodity trading venues in
Africa. We take a look at the effect this Exchange could have on
the Tanzanian economy.
I am not saying we should build the
Chicago Mercantile Exchange... But within the limitations of the
particular countries there can be an appropriately designed
exchange, or form of an exchange that facilitates better trade,
[and] improves or modernises the current system.
Learning from experience
Since the Cold War environment prevented the first African
commodity exchange in Egypt from taking off in 1961, the Ethiopian
Commodity Exchange (ECX) remains the role model for a number of
African countries in forming their own commodity exchanges. In the
immediate aftermath of ECX's initial success, many countries
attempted to replicate Ethiopia's successes but with much less
reward. In a short period, commodity exchanges were opened –
and in some cases closed – in Zambia, Uganda, Nigeria,
Zimbabwe and Kenya. With many African economies, especially the
export economies, suffering due to the unstable oil price and the
knock-on impact for other commodities, the question remains whether
lessons can be learnt from the less successful commodity exchanges
to enable the new generation of commodity exchanges to provide much
needed liquidity to these commodity-dependent economies.
Helping to sustain economic growth
Initially, the TMX will be trading spot contracts for cashew
nuts as their season begins in September, but then is expected to
expand to maize, rice, sesame, sunflowers and coffee, with the
intention over the medium term to move towards developing futures
contracts. With the Agricultural Council of Tanzania estimating
that 70% of the population of Tanzania engages in agricultural
activities, a more efficient agricultural sector is a vital source
for employment in a country where 44% of the population is under 15
years of age. A more efficient agricultural sector is of paramount
importance in encouraging vital domestic and foreign investment for
a country looking to sustain its impressive economic growth, with
the TMX insisting that "it would [have] achieve[d] its main
objective when a Tanzanian farmer would be in a position to choose
his cropping pattern based on the spot and futures prices
disseminated by the Exchange, rather than the practice of sowing a
particular crop based on current prices."
So, how will the TMX help secure this powerful legacy? Guarantee
of payment obligations Firstly, the TMX will assume a Central
Counterparty (CCP) role in all trades, in effect guaranteeing the
sellers' delivery obligations and the buyers' payment
obligations under all trades. By providing performance security,
both buyers and sellers are able to have much more confidence in
the markets, especially important as they plan investment into
their production and supply chains. The guaranteeing of performance
obligations is of vital importance for producers who, in the words
of Mr John Chaggama, the CEO and Managing Director of the TMX, have
"been victim to fragmented, disorganised markets."
Improving communication of market information
Secondly, the TMX is taking a comprehensive and advanced
approach to the dissemination of market information and are
intending to use advanced technology to underpin this. The TMX is
intending to install electronic tickers in strategically important
regional production sites, create a mobile phone SMS messaging
service and operate a 24/7 automated telephone line, along with the
more conventional website and newspaper published data. As well as
being an exciting example of how technology can be harnessed to
improve underlying structural inefficiencies, the wide
dissemination of market information amongst rural communities in
Tanzania will assist producers of agricultural products in their
day-to-day crop management, as well as in making their strategic
investment decisions over the medium term.
For commodity traders operating in a highly sophisticated,
interconnected marketplace, the difficulties of operating in
African economies with basic infrastructure, insufficient
warehousing, decentralised market places and counterparty
uncertainty are significant.
While it is too early to say with any certainty whether the TMX
will give a significant boost to commodity trading across Tanzania,
or whether the founding of the TMX represents a growing trend
towards a new generation of institutional commodity trading
platforms in Africa, such developments are surely to be welcomed
and will be watched closely by commodity traders.
A letter of credit in the Nigerian context is the assurance a foreign seller receives from a Nigerian Bank that it will be paid for the goods it has made arrangements to have delivered to a Nigerian buyer...
No food and related products shall be manufactured, imported, exported, advertised, sold or distributed in Nigeria unless it has been registered in accordance with the provisions of the Act and the accompanying guidelines.
The Israeli Parliament (Knesset) Finance Committee recently approved, following a long legislative process, the Joint Investment Trust Regulations (Foreign Fund Unit Offerings), 2016.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).