Duringthe just-concluded eighth Northern Corridor integration projects summit held early this month in Nairobi, Kenya, the Heads of State directed capital markets regulators in Rwanda, Uganda and Kenya to expedite the harmonisation of legal frameworks governing regional commodities exchanges.

To this effect, a legal team, comprising of regulators from the three states, was set up to harmonise the laws by July next year, according to Eric Bundugu, the deputy executive director at Rwanda’s Capital Markets Authority.

The legal framework entails the law on commodities exchange and the law on the warehouse receipt system.

Bundugu said the local commodities exchange law is before Parliament, while that on the warehouse receipt system is being reviewed awaiting Cabinet approval before it is tabled in Parliament.

Rwanda hosts the East African Commodities Exchange (EAX), which started operations last year. The exchange enables smallholder grain farmers to sell their produce throughout the year at premium prices, thereby defying factors affecting the agricultural sector like bad weather, price fluctuation and lack of access to finance.

Besides Rwanda, EAX is also registered in Kenya and Uganda.

However, it has not yet been able to set up in these countries largely as a result of the lack of uniform commodities exchange laws in the region.

Once in place, Alfa Kadri, the EAX manager, said they will be able to fast-track regional expansion and work with other exchanges to facilitate the grain trade.

"Looking at the commodities exchange from a regional perspective will enable traders to get volumes at a lower cost and also serve the market better,” he said.

He said people will be trading at a lower transaction cost.

"It will also help standardise prices because the exchanges will be moving grains from areas where there is surplus to areas with shortages, thus removing price volatility. In cases, where we will have a surplus in Uganda, we will be able to supply Kenya, Rwanda or Burundi,” Kadri explained.

EAX currently operates 15 warehouses in Rwanda and is the only commodities exchange in the region which has an electronic trading platform.

Kadri said they are setting up warehouses and recruiting staff in Kenya and Uganda, as well as training farmers in these countries to understand how the exchange works.

He added that it is very important for every commodity exchange to institute systems that can enable it fulfill its function smoothly.

He said for a commodity exchange to set up, there was need to study the market to understand its needs, know the supply and the demand, the regulations that house the establishment of a commodities exchange, how to standardise the products and the mechanisms of storing them.

"We also have to look at the policies that would impact on the operations of a commodities exchange like is there a warehouse receipt law, commodities exchange law and is the spot market a functional one where everybody understands how the grading and specification of the products is done.”

Part of the technical team working to harmonise the laws include the bureau of standards bodies which Bundugu said would establish a minimum standard requirement for the traded commodities.

Bundugu said since the commodities exchange was a new concept in the region, they will start with a few commodities which include maize and beans.

And after three years, if need be, the law will provide for addition of other highly traded produce.