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Geldof’s Africa fund backs commodity exchange company

May 15, 2013

Bob Geldof’s 8 Miles African private equity fund has made its first investment, backing a start-up company that plans to build commodity exchanges across Africa and improve food security.

The rock star activist’s $200 million fund has joined Morgan Stanley and the International Finance Corporation (IFC), in providing a total of $5 million of seed capital in eleni LLC, co-founded by Eleni Gabre-Madhin, the former head of the Ethiopia Commodity Exchange (ECX).

Gabre-Madhin set up Kenya-based eleni in January with the intention of levelling the playing field for African farmers in need of greater price transparency as they contend with powerful and better-informed market participants.

“We have closed (an agreement) this week with the 8 Miles fund,” she told Reuters on Friday at the World Economic Forum on Africa.

Gabre-Madhin aims to challenge the dominance of the world’s commodity markets by exchanges based in developed nations.

“It’s time the world looked to our markets as a reference,” she said. “There’s no reason why we shouldn’t have a west African cotton index that the world refers to, or an east African coffee index or African sesame seed index.”

Africa is on the cusp of an agricultural revolution, Gabre-Madhin added, with only a quarter of its yield potential achieved and 70 percent of arable land uncultivated.

To fulfil its potential in agriculture, Africa also needs to have structured trade, she said.


Gabre-Madhin was widely praised for her work at ECX, which she co-founded and ran from 2008 to 2012. The exchange handled trades worth about $1.2 billion in 2011/12, with trading volume having risen to 601,000 tons from 138,000 tons in 2008/09.

ECX trades coffee, maize, sesame and white pea beans through an open outcry system.

Nairobi-based eleni aims to design, build and support similar exchanges elsewhere in Africa, Gabre-Madhin said.

“The Ethiopian experience is a scratch on the surface of what we’re going to do with Africa,” she said.

Gabre-Madhin wants to solve the problem of weak markets in African agriculture “by creating markets that take commodities from where they are produced and enable buyers to know how to get their hands on that commodity in a reliable, transparent, efficient way”.

While at ECX, 18 different African governments approached Gabre-Madhin about replicating the Ethiopian model, which she says is a sign of the widespread acknowledgement of the need for commodity exchanges on the continent.

Eleni is looking to launch two exchange projects within six months, she said on Friday, declining to name the countries involved.

Each exchange is expected to cost between $20 million and $30 million and will be financed through a consortium of private investors.

The investments by Morgan Stanley and the IFC were announced in January, but the backing from Geldof’s 8 Miles fund could raise eleni’s profile further as it seeks to raise an additional $200 million for new exchanges over the next three years.

The 8 Miles fund declined to give details on its investment in eleni.

By: Tosin Sulaiman

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Cornell food fight leads Gabre-Madhin to Battle Africa Scarcity

April 24, 2013

When Eleni Gabre-Madhin climbed onto a cafeteria table as a junior at Cornell University almost 30 years ago and begged students to end the tradition of dinnertime food fights, she was mocked.

No one seemed to share her frustration over wasting excess food when in her native Ethiopia starvation and famine had left at least 1 million people dead from 1984 to 1985.

Seventeen years later, armed with a doctorate in economics from Stanford University, Gabre-Madhin was heard by Ethiopia’s then-prime minister, Meles Zenawi. His government invited her to come back home to help stop the country from alternating between years of food scarcity and overabundance.

Gabre-Madhin, 48, accepted and in 2008 the Ethiopia Commodity Exchange was born. For the first time Ethiopian farmers had a trading floor, instead of signing contracts with private brokers, and access to more transparent pricing. It complemented efforts made before her to boost farming yields.

Now, as chief executive officer of her own company, Eleni LLC, she is trying to transport the idea of building commodity exchanges to other frontier markets. Based in Nairobi, she plans on opening offices in Dubai and Accra, Ghana.

“I decided right there in that Cornell cafeteria what I was going to do for the rest of my life: make sure we never see another famine in Ethiopia,” Gabre-Madhin said in her orange- and-blue decorated office in Kenya’s capital. “At that time people were talking about producing more as a solution to food security. I decided to figure out how to distribute it.”

Meeting Table

Her success in doing that has caught the attention of other world leaders, including PresidentBarack Obama. His administration invited her to participate at the Group of Eight Camp David summit last year on food security. At the meeting table, she sat between U.K. Prime MinisterDavid Cameron and Russian Prime Minister Dmitry Medvedev.

She has also been recognized by the African Green Revolution Forum, backed by former United Nations Secretary General Kofi Annan, which awarded her the 2012 Yara Prize for improving agricultural markets on the continent. She received the award for “visionary and remarkable leadership in managing the transformation process toward an efficiently functioning market,” according to a statement released by the group.

Gabre-Madhin stands apart from other academics for having the gumption to transform her theories into practical solutions, said Chris Barrett, an economics professor focused on agriculture at Ithaca, New York-based Cornell.

‘Real World’

He, Gabre-Madhin and Paul Dorosh co-authored a book chapter showing that technical advances in sub-Saharan African farming can only be successful if growers also have ready markets to sell their products. It was published by the International Food Policy Research Institute, or IFPRI, in Washington in 2002.

“The hallmark of Eleni’s work was her ability to link intuition grounded in theory with complex realities she would see on the ground,” Barrett said in an e-mailed response to questions. “Very few researchers have either the skills or the courage to put their ideas into action in the real world.”

Gabre-Madhin fled Ethiopia along with one of her two sisters and her mother in 1975, a year after the revolution that brought Mengistu Haile Mariam to power.

They joined her father in Rwanda, where he was working as the UN Development Programme representative. Gabre-Madhin began accompanying him on field visits to the countryside and observed that peasant farmers were doing backbreaking labor.

No Tools

“I saw that this small-scale agriculture, with no tools by people who were uneducated and living in grinding poverty, it was clear to me that these farmers were stuck,” she said.

She did her secondary education at a boarding school run by Christian missionaries called Rift Valley Academy in Kijabe, in central Kenya, which opened in the early 1900s.

At only 15 years old, Gabre-Madhin said she had already come to a realization that Africa must lead its own development, after reading “How Europe Underdeveloped Africa” by Walter Rodney. Its theme: how Western economic players gained the upper hand and exploited the continent’s resources.

Literary figures also had influence. They include Kenyan novelist Ngugi wa Thiong’o, who wrote of Africa cutting loose from colonial rule only to confront a new set of injustices by the succeeding autocratic regimes.

“I started to think about how some countries were so poor and other aren’t, and that dependence on the West isn’t a good thing,” she said. “I made a 10-year plan that I was going to get a Ph.D. in agricultural economics and I would be an African intellect who would solve Africa’s problems.”

Michigan, Stanford

An idea that took shape as an economics major on scholarship at Cornell grew as Gabre-Madhin earned her master’s in agricultural economics at Michigan State University in East Lansing and a Ph.D. in applied economics from Stanford in California.

She looked beyond neoclassical economics by studying a perspective known as new institutional economics, which also considers the legal and social environment in which markets operate. The theory, which incorporates factors such as business management, negotiation costs and ideological stances, was spawned by 1991 Nobel prize-winning economist Ronald Coase. Gabre-Madhin’s thesis on the transaction costs of Ethiopia’s grain market won the outstanding dissertation award from the American Agricultural Economics Association in 1999.

The paper offered a solution to an ages-old issue in African agrarian societies: how to find markets to distribute crops where they’re needed and plan ahead for food shortages during bumper harvests. It proposed stronger buyer-to-seller connections through the efficiencies of a commodity exchange.

Food Deficit

When famine strikes, as was the case in Ethiopia, there’s often no mechanism in place to guarantee food can move from areas of surplus to those in deficit. On the other extreme, bumper harvests can trigger a wave of price decreases, hurting farmers who then often let crops go rotting in their fields.

“While most people see middlemen and brokers as evil and wanted to get rid of them, I wasn’t convinced,” she said. “They were doing the job that commodity exchange brokers do but off the back of a truck.”

After Stanford, she worked as a researcher at IFPRI with a one-year stint as senior economist at the World Bank working on rural development. In 2002, she was asked to speak at a conference in Ethiopia’s capital, Addis Ababa, about bolstering agricultural markets in the Horn of African nation. She caught the attention of then-prime minister Meles from the audience. He asked her questions for almost 45 minutes, she said.

Donor Funds

She answered his call and relocated to Ethiopia with IFPRI to become the leading architect and eventually chief executive officer of the Ethiopia Commodity Exchange, or ECX. It has grown with more than $29 million in pledges from donors over five years including the U.S. aid agency, the European Union, the World Bank and the UN.

The ECX, owned by the government with more than 350 members and 800 staff, handled $1.4 billion trading 640,000 metric tons of coffee, sesame, white pea beans and a small amount of corn in an electronic system last year. It connects to a network of at least 55 storage-warehouses of crops across the country and guarantees traders a next-day payment.

Ethiopia is the world’s fifth-biggest coffee producer, according to the International Coffee Organization. It is also the fourth-largest grower of sesame, according to the UN’s Food and Agriculture Organization.

Human Development

Still, the country remains one of the world’s poorest, ranking 173 out of 187 nations on the UN Human Development Index, which measures indicators including the level of poverty, health and education. The country has made steady gains improving life expectancy, schooling rates and incomes in the past three decades, according to the report.

Gabre-Madhin has an ambition to make custom-fitted exchanges across Africa and otheremerging markets.

To do that, she resigned from the ECX last year and created Eleni LLC with $5 million fromMorgan Stanley (MS) and the World Bank’s International Finance Corp. The company pays her a salary. This week, she was elected to the board of Syngenta AG (SYNN), the world’s largest maker of crop chemicals, based in Basel.

While African commodity exchanges have become a favorite idea among donors, the approach so far in countries including Zambia and Kenya has been impractical and top-down and has failed to address farmer’s basic needs, Peter Robbins, a former commodities trader, said in a phone interview from London.

Pest Control

Smallholder farmers still suffer from poor cultivation practices and lack extension services, pricing information and modern tools including storage facilities, grading and weighing machines or pest control, said Robbins, the author of “Stolen Fruit.” They need to organize into larger groups to increase their bargaining power and earn more money, he said.

“If you just concentrate on the pinnacle, the commodity exchange, then you haven’t done much for the people you want to get to: the small-scale farmers,” he said. “Most of what’s going on is very abstract.”

Gabre-Madhin, the mother of two boys age 12 and 15, minored in comparative literature at Cornell. She continues to nurture her creative side with hobbies that include writing poetry, acting in amateur theater and she’s an avid reader.

“I have sons now about the age I was when I already knew what I wanted to do with my life, and they seem more interested in video games,” she said, adding that one wants to be a lawyer and the other a scientist.

Gabre-Madhin said she believes being a woman has added to her success even though she’s never been formally taught by a female economist or found a woman mentor in her field.

“We’re talking about changing the power dynamics in a market, transferring power from the most powerful economic actors,” she said. “These are very tough things. And to have a woman who is still feminine, is still gentle, still smiles, presenting those ideas and being very rigorous in the principles and the analysis behind it; I think it is such a contrast that it’s very powerful.”

To contact the reporter on this story: Sarah McGregor in Nairobi at

To contact the editor responsible for this story: Nasreen Seria at

Reporter: Sarah McGregor

Editor: Nasreen Seria

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Eleni’s mission – Interview: Dr Eleni Gabre-Madhin

April 1, 2013

The four-year-old Ethiopian Commodity Exchange (ECX) is a runaway success. The floor, crowded with dealers, handles spot trades amounting to $1.2bn annually in coffee, wheat, maize, haricot beans and sesame. By 2012, some 2.4m farmers were represented via 193 cooperatives registered as sellers.

It also runs 55 warehouses all over the country, as well as offering a wide variety of services. Farmers can use warehouse receipts as collateral for loans. The exchange sends out latest prices across the country by SMS and IVR (interactive voice response) to ensure small farmers are up to date with the latest market prices and get better deals from buyers. There are 800,000 mobile subscribers and over 1m call-ins from rural areas. Overall, the farmers’ share of export earnings has climbed over the years, nearly doubling, and this has encouraged more production. In October 2012, Dr Eleni Gabre-Madhin, who designed, built and ran the ECX, handed the institution over to new Ethiopian management, and many wondered what she would do next. The waiting ended in January, when she announced that Morgan Stanley and the International Finance Corporation are investing $5m in equity in a new company she will head, eleni LLC, based in Nairobi, Kenya. The new company will incubate and support the formation of new commodity exchanges across Africa.

‘When we go forward with eleni, we will leverage technology trends: the mobile revolution and cloud computing’

AB: What is the opportunity for Eleni?

Gabre-Madhin: We have taken three lessons from our Ethiopian experience for the new initiative to go across Africa: One: It can be done. You can create a commodity exchange that is world class and that is situated in a developing economy. There was a lot of scepticism that the idea was even possible and that it could be tailored to also include the small actors.

Second: It can be commercially viable. People were not sure when we started whether it was financially sustainable, so the ECX had public-sector backing as there wasn’t any evidence to draw up a business model of a profitable commodity market, although I had argued that we could make earnings in three years. We broke even in the second year and became profitable by the third year, and this has been continuing to the fourth year. We can be attractive to private investors. We are not only doing good for people, but also doing good business.

Third: It is not only about an exchange, but really about setting up an exchange ecosystem. In Africa we need to think holistically, going beyond just the trading floor, to a whole ecosystem approach, ensuring adequate infrastructure in storage, quality management, mechanical commodity handling, transport logistics, packaging, market intelligence and a whole host of other systems.

What we have learned from the Ethiopian experience is that we need to do it differently. We won’t just set up the exchange. Rather the investment will be to build the whole ecosystem, to ensure a viable outcome.

Our technology approach will also be different. In Ethiopia we built an end-to-end technology application. However, when we go forward with eleni there are two technology trends we will leverage. One is the mobile revolution – we will be able to go further than in Ethiopia as the reach of mobile elsewhere in Africa is quite a bit more extensive.

The second is cloud computing. We will be developing technology that is much more present in the cloud and that will enable us to carry out support and technology upgrades in a more seamless and cost-effective manner.

AB: Which countries are you expecting to work in?

Gabre-Madhin: There are many opportunities. Our emphasis will be on developing exchanges and their ecosystems in countries where they do not currently exist at all. It is a little bit easier to start from scratch in some stages. One of the projects we are discussing involves an existing exchange which has not been functional.

Most of the time, the reason these exchanges have not taken off are because of gaps in the ecosystem. We believe we have the capacity to deliver the right model and put the entire ecosystem in place, and, if we garner the commit-ment at the highest level, we can achieve our objective of creating vibrant exchanges across the continent, even in countries where they have not been successful before. We are a knowledge company and we are passionate about what we do. Our edge is to be innovative and think through what will work in each context, how we can push the envelope even further to improve people’s lives, and how to do it better continuously.

AB: How many countries or projects will you tackle?

Gabre-Madhin: We are aiming for two or three in the next 18 months and then engage more projects. Our plan is to have a 12-14-month window per project.

AB: How will the new company work?

Gabre-Madhin: We are forming partnerships with different strategic partners that will bring in both the talent and the finances. The key word is ‘leverage’; we are forming consortia with both investors and like-minded partners. We have learned enough from our experience and from failures in other contexts to have a very good idea how to go forward in a bold, smart and fast way.

We have had a lot of interest from investors, but we were very conscious about choosing investors that would bring in a lot of expertise to enable us to meet our ambitious and aggressive business targets. That is why we have Morgan Stanley, the IFC and other investors, who bring a lot of expertise. It is still too early to list the other entities that we are in process of forming partnerships with.

AB: Who will be your clients?

Gabre-Madhin: Our initial point of engagement is the government. Once we get the policy green light, we will set up and work with a private-investor consortium that becomes the key player in the project. We think that a public-private partnership is the right model for this type of undertaking. We also expect that some governments might take a minority share; we believe that this is good in terms of keeping government interest in the project and maintaining alignment. We are part of that investment consortium. We are not doing consulting projects, we are a design-build-transfer company, we deliver and have a stake in the project. We are the catalyst to bring together an investment consortium. We have the know how, we put together and implement the project and put a management team in place and support the operations for some period. Then we hand it over.

That is similar to what we did in Ethiopia with the management team that I formed and brought into the ECX. However in Ethiopia, instead of supporting the management, I was part of the management, and then handed it over. In the future, as I have done in the past, we will set up the project, find the funding, hire a project team, and implement the project scope and operations, just like in Ethiopia, but in this new model we would do all except the management.

AB: Is this going to be profitable?

Gabre-Madhin: I wouldn’t be setting up investment consortiums if I didn’t think they would be viable.

AB: Where will the revenue come from?

Gabre-Madhin: Exchange revenues depend largely on volumes traded. Transactional fees are the main source of revenue. But in terms of the operational scope, trading is only one out of five business operations for the ECX.

The others are: quality certification (laboratory-certified using standard equipment); inventory management and systems to do this; market data, in real time and at discrete times, and finally clearing and settlement.

If you want to split that further, in addition to inventory management there is a central depository business, and if you want to split the inventory management further, there is also delivery logistics once the funds have been transferred to the buyer through the clearing house.

Further, if you look at the whole ecosystem, outside the exchange itself, there is warehousing infrastructure, transport coordination, market intelligence. Training and certification is yet another business. So there are many parts to the ecosystem and thus many opportunities.

By the way, there is still work to be done in Ethiopia, where ECX operates 17 warehouse delivery sites and each site has multiple warehouses. My company will do a little bit of work helping ECX to devolve the warehouse operations to a third party, which is a much-needed next step, if the exchange is to scale up further.

AB: Will you build warehouses and other infrastructure in every country?

Gabre-Madhin: In some African countries, the private sector is more advanced. For instance, in some countries, we have already seen viable interest from private-sector companies to be the warehouse operator and to put up the infrastructure. There is no question that we should do it all. Our model is to coordinate and bring it all together.

In our view, there is a tremendous amount to be done, and there is room for many players and partners. Potential investors can see what happened in Ethiopia and say “I get it, and I want to be part of this in my country”.


Dr Eleni Z Gabre-Madhin gained her PhD in applied economics at Stanford University, following an MSc in Agricultural Economics from Michigan

State University, and BA in economics from Cornell University.

The American Agricultural Economics Association gave her an ‘outstanding dissertation of the year’ award in 1999 for her work on the Ethiopian grain market. She has worked as Senior Economist at the World Bank and Senior Research Fellow with the International Food Policy Research Institute (IFPRI) in Washington, as well as UNCTAD in Geneva.

She has written numerous publications and articles, including Reforming Agricultural Markets in Africa, has served on the government of Sweden’s

Expert Group on Development Issues, the Stiglitz Task Force on Africa, is a Founding Member of the Ethiopian Academy of Sciences, and serves on the Nike Foundation Advisory Panel on Girls in Rural Economies.

She was named Ethiopian Person of the Year in 2009, nominated Outstanding African Businesswoman in 2010, selected among the 50 Women Shaping Africa by The Africa Report in 2011, and awarded African Banker Icon in 2012.

She recently received the coveted Yara Prize for an Agricultural Transformation in Africa and was among New African magazine’s 100 Most Influential Africans in late 2012. ECX is the first company in Africa to receive the prestigious global CIO 100 Award for IT excellence applied to business in 2011.

African Banker 2nd Quarter 2013- Finance in Africa

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