I know South Africa, through the Johannesburg Stock Exchange (JSE), and SAFEX (South African Futures Exchange) has a listing for Exchange – traded currency Futures and for Agricultural Futures respectively – and that’s about all I know about Futures Markets in Africa ( because maybe that’s all there is to know?)
I strongly believe that Africa can have a very robust and all that Futures Market if we are willing to work towards putting the mechanisms in place. I mean, we have the “items” that should warrant an active and thriving Futures Market. Take your pick from the following: Crude Oil, Gold, Silver, Cocoa, and Corn etc… We have them all! right? Right!
I have had some experience (both good and bad) concerning Futures Markets, commodities trading etc that make me believe, it is quite “easy” to get a Futures Market going in a lot of countries in Africa.
My most memorable experience concerns the Initial Margining process. Here we go:
So the Chicago Mercantile Exchange (CME) and the Intercontinental Exchange (ICE), and I think all the other Futures Exchange Markets use the SPAN model in the initial margining process.
A while back, I was challenged at work to “try” replicating the model for our own purposes. So I began the process and quickly realized, yah, ok, this is going to be a long one!
Between figuring out how our commodities offset in terms of spread credits, to figuring out all the other factors in the model, risk arrays and scanning losses, outright margins, inter-commodity credits etc, my work was cut out!
A few months later, after: spending enough time on the New York Mercantile Exchange (NYMEX), ICE and Chicago Board of trade (CBOT) websites, creating a good number of spreadsheets, having continuous and incessant conversations with contacts I knew that had more knowledge on the workings of SPAN model than I did (that I was sure to thank later), I finally had IT – Yeeeeehhh!!
Then now, I had to translate that into something that means something for our business – a whole totally different story altogether. I was tried and tested, but I grew tonnes from the experience.
What is stopping us from getting on the learning curve to developing Futures markets in Africa? We already have Stock exchanges that are doing ok – how about getting the Regulatory machinations going so that some time in the future, we can have a Commodities Market going? We can learn the basics from the other World Futures Exchanges and build our own! I, for one, would just TOTALLY, love being on such a “band – wagon” 
My dear, the idea is excellent, practical and would benefit a whole lot of people economically and all. In fact, I too have spent quite some time thinking it through.
IMHO, its not time yet. That’s the truth of the matter. Not untill our markets have a semblance of transparency and ingrained ethical practices will we be in position to implement and freely trade more alternative investment papers i.e financial derivatives.
That aside, I think its time, the idea got going. The futures markets would really go a long way in aiding the development of the continent.
Yep…Get the Idea going – thats what we need….Seriously by the time we get to the Regulated Status like is the CME etc…..its going to be a while….
I just wish ” we” knew where to begin – someday if it gets moving – give me a heads up – I trust I have plenty to offer
Hallo Cynthia,
Thank you for your piece “Futures/ Commodity Markets in Africa – Is there a future for?”
It is quite informative.
Please inbox me at @hotmail.com to thresh out that matter.
Kind regards
Nice blog,
i think there is a future and a present for futures and commodities markets. I think that is one of the missing links. I think the key is simplicity we do not have to jump right into
complicated models –
I think the first step particularly i the agricultural area would be to establish a process of issuing forward contracts and allow farmers to use this forward contracts to access loans or sell this contracts or insure this contracts and eventually
Also i should note, that waiting for the government to act or establish this is a losing proposition, i think the opportunity is out there for someone to set this up, the big opportunity in Africa lies in organizing markets and streamlining businesses.
Actually let me add to my previous comment.
A while ago i was working on a project similar to Kiva, but around agriculture, instead of lending small businesses money the idea was targetted towards farmers – instead of lending money to farmers it was aimed sharing the risk with farmers through contracts. anayw long story short the idea had too many moving parts and i had a full time job – so it languished but i still think about it and may try it on a small scale when i return to kenya.
Oh Wow Louis – I like! Where have you been
– and Thanks!
I like the simplicity you are proposing at the onset!! And I am beginning to see how that CAN work. Honestly though, for me, the problem I think I have is “How and Where to I start” I don’t have a lot of confidence in our Capital Markets you see
And – I hadn’t thought about it from the KIVA – Like angle.
Thanks for the insightful comment – and feel free to visit…
I will have to see you kando….
Hi again Cynthia…
I actually understood the above. lol.
Volume 6 of CFA: I read how traders from all over US would go and trade in Chicago and how the prices fell so much that some of them would throw the grains into the river for the cost of going back with it was too much. Then later in the year, there would be shortage. Then futures trading was borne – you know the story.
I had a big smile on my face as I read this for this was yet another entry point for an entrepreneur in Kenya. It was comforting to know that only S.A had a futures market in Africa so this would be a sure deal with crazy margins. And given the quarrels that Kenyans farmers engage the Government on price every other year, this would be a win win solution for both. This is the same problem Chicago faced those centuries ago.
And then I watched the news and saw that we are yet to get our equities market in order.
Loved this.
Regards
Marvin – See now you really have to get that Charter
– Maybe we can be at the “fore-front” to making a Futures Market in Kenya happen!
Great information, I will be linking back to you and going to look around at your other posts.
check this out:
http://www.pbs.org/wnet/wideangle/episodes/the-market-maker-full-episode/5293/
Louis – Thanks a bunch!
You are the 3rd person to send me something relating to Dr Eleni and the ECX. One person saw this and sent me a message saying – “I saw this and it reminded me of you”
Do you think in Kenya we have the “commitment” it would take to get an exchange going? I think especially in terms of say Tea or Coffee and the Auctions we currently have and the politics involved with that….
All in all – Well – I guess “we” are on the right track – at least we have people actively in thought processed relating to this and God Knows we have people with the expertise!
Like I said – I know someday, my input will go a long way to seeing a KCE ( Kenya Commodities Exchange).
Thanks again!
[...] take a minute to read my blog post on Futures Markets in Africa and subsequent comments and I think a lot of us think its about time – now for some [...]
I have read your blog and I have just been It just thrilled me. In the last four year I have worked to establish ACFEX- A pan-Africa Commodities exchange. Please visit http://www.acfex.com and spread the word.
Jacob.
Thanks! Will contact you off the blog
Hello Cynthia
It is an interesting idea I realy liked it. I also belive there is a future for Africa to develop a futures market.
By the way, I am working my Masters thesis in introducing futures trading in Ethiopian Commodity Exchange. I want to explore the opprunities and challenges in introducing futures trading. Therefore, to work my thesis i wanna a favour from you.
I need to ask u, what are the basic challenges and oppprtunities that exists in Africa to develop a futures market?
Thanks in advance