Tanzanian Mercantile Exchange: A New Dawn For Commodity Trading In Africa?

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...