Delay in setting up new commodity exchange in Uganda due to elections

Workers arrange maize at a depot in Eldoret, Kenya. Farmers in the country should benefit from the East Africa Exchange through access to structured agricultural and financial markets. PHOTO | FILE 

By KABONA ESIARA

In Summary

• The regional commodity exchange had planned to extend its operations to Uganda at the same time as Kenya as it seeks to consolidate its operations in the East African Community.
• This delay will lock out Uganda's smallholder farmers from access to structured agricultural and financial markets.
• EAX manages warehouses, warehouse receipt systems, grain cleaning and collateral management services and also deploys a Nasdaq electronic trading platform. Ugandan authorities are pushing for a partnership where the two parties would share revenues.

The East Africa Exchange has delayed setting up operations in Uganda due to the country’s recent General Election. This delay will lock out smallholder farmers from access to structured agricultural and financial markets.

The regional commodity exchange had planned to extend its operations to Uganda at the same time as Kenya as it seeks to consolidate its operations in the East African Community.

The Ugandan commodity value chain is driven by traders and village agents who are known to reduce farmers’ profit margins to increase their own.

The Kampala middlemen transport maize and sell it at $0.21 per kg, while the same maize is traded at $0.32 per kg.

To reverse this trend, Ugandan authorities and the Rwanda-based EAX officials started negotiations but when Uganda went into elections, the talks were shelved.

“We should resume the negotiations with Ugandan authorities soon because the election period is over,” said Alfah Kadri, EAX manager.

EAX manages warehouses, warehouse receipt systems, grain cleaning and collateral management services and also deploys a Nasdaq electronic trading platform. Ugandan authorities are pushing for a partnership where the two parties would share revenues.

Uganda is the only country of the original Northern Corridor states where EAX has not set up its operations.

Last month, EAX opened four warehouses in Eldoret in Kenya.

READ: EAX opens in Kenya’s Rift Valley

The EAX enables farmers to benefit from a financing scheme, based on a collateral management model, where full protection is provided for financial institutions who in turn lend on favourable terms, including accepting the farmer’s grain as the sole collateral for advancing loans.

In Rwanda, where the exchange started operations in 2015, lenders’ appetite for the warehouse receipt system has been growing, boosted by futures contracts — a tool used on the commodity market to offset risk exposure.

As a result, this year, at least $100 million is expected from six lenders to finance 50,000 futures contracts, up from the $72 million in 2015 — a development that has eased funding for the agriculture sector.

READ: East Africa Exchange to lend grain farmers $70m

The lenders have also expanded their loan books to fund the downstream agricultural value chain — from production to marketing.