Wednesday, August 13, 2014

In conversation: Eleni Gabre-Madhin

With her new company, Eleni Gabre-Madhin aims to take the commodity exchange momentum that started with the Ethiopian Commodity Exchange, to the rest of Africa. Report by James Jeffrey in Addis Ababa.
The offices of commodity exchange company, eleni, occupy the top two floors of Tracon Tower, where one can gaze north and south along the teeming wide thoroughfare that is Churchill Avenue in the heart of Addis Ababa. Construction cranes can be seen silhouetted against the Ethiopian capital’s skyline, hovering over a landscape and an economy very much in transition.
Eleni, which specialises in building and supporting the operations of exchanges for frontier markets in Africa, also has possession of the tower’s roof space, where the plan is to open a gym and maybe even a cafeteria.
Currently there are only about 10 employees within this wide-open sprawling office space, and employees admit the premises moved into a month ago are a little cavernous presently. But that’s all part of the plan.
“I learnt from my experience with ECX, where we ended up bursting at the seams,” says Eleni Gabre-Madhin, chief executive of eleni, launched in February 2013, and former chief executive of the Ethiopian Commodity Exchange (ECX). “So when we moved in here I went for a little extra room. Which we are going to need – we’re ramping up.”
Gabre-Madhin is credited as being one of the key founders behind the success of ECX, which, since its launch against the odds in 2008, has grown to handling spot trades amounting to more than $1.2bn annually in coffee, wheat, maize, haricot beans and sesame. By 2012, some 2.4m farmers were represented by 193 cooperatives registered as sellers, with a network of 55 warehouses spread across the country.

Now Gabre-Madhin aims to repeat the same success of ECX in other African countries although she emphasises that there will be no cookie cutters found when it comes to the execution: “I’m not interested in taking the Ethiopian model and replicating it,” Gabri-Madhin says. “This is about scaling out and putting on our innovation visors. Innovation is in our DNA.”
When I met Gabre-Madhin, she had just returned from a visit to Ghana, where the Ghana Commodity Exchange (GCX) is due to be launched by early 2015. Other countries that have established a memorandum of understanding (MOU) with eleni to establish commodity exchanges include Cameroon, Nigeria and Mozambique. Gabri-Madhin’s Ghana trip also included a stop-off in Tanzania for high-level discussions about establishing a commodity exchange there. Other countries having similar talks with eleni include Sierra Leone, Kenya and Angola.
“The African commodity exchange momentum is real,” Gabre-Madhin says. “Ghana’s exchange has every potential to become a leading West African hub for globally traded commodities.”
Key to eleni’s approach is tailoring commodity exchange models to the needs and capacities of local markets. That’s why in Ethiopia, where telecommunications are often strained, and rudimentary in rural areas, ECX offers a service allowing farmers to call a number and hear automated messages relaying up-to-date trading information in the Amharic, Tigrigna, Oromifa and Guragigna languages.
Telecommunications in Ghana are more robust, enabling eleni to focus on leveraging mobile technologies, including exploring ways to take advantage of computer cloud service technologies to minimise costly infrastructure and streamline upgrading capabilities. “There’s a mobile revolution all other Africa, so we want to find out how to use that better,” Gabre-Madhin says. “We want to do things nimbly, and lower costs offered to markets.”
At the same time, eleni can draw on lessons learned from ECX to the advantage of new commodity exchanges. Currently, ECX and its 55 warehouses have reached their storage capacity limits, the result of not enough investment being allocated for infrastructure and its potential expansion at ECX’s creation, Gabre-Madhin says, noting that within the next two years its most likely ECX will look for investors to expand its warehouse manifesto.
As a result of ECX’s experience, Gabre-Madhin points out, GCX aims to secure enough private investment for the exchange and for its accompanying warehouse system, thereby providing more flexibility for storage and capacity growth.
“We’re not leaving anything to chance,” Gabre-Madhin says.
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.”
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