The EFMD business magazine

The EFMD business magazine

Planting the seeds of change

Lea Stadtler and Gilbert Probst describe how the Ethiopia Commodity Exchange came into being and the lessons it holds.

Complex societal challenges transcend the capacities of a single organisation and even those of a single sector. Such challenges call for innovative, collaborative approaches, require modifications in our management education systems and pose new research needs.

In response, the University of Geneva in Switzerland created the Geneva PPP Research Center to serve as a hub and catalyst for related research projects. This article is based on one of the centre’s case studies and illustrates an innovative, collaborative approach: a pioneering public-private partnership (PPP) model initiated by Dr Eleni Gabre-Madhin to fight market inefficiencies that had for long caused famine and poverty in Ethiopia.

Here we summarise the case story, discuss concepts and topics that can be taught with the case and elaborate on implications that we see for management education.

In 1984 nearly a million people starved to death in the northern part of Ethiopia. At the end of 2002, 14 million people were again facing starvation.

Policymakers had extensively focused on the challenge of increasing agriculture production and road density in the country to address the problems linked to hunger, famine and rural poverty. However, they had rarely considered market inefficiencies as one of the main root causes of famine.

Researchers, including Dr Gabre-Madhin, had carried out studies showing that Ethiopia’s market integration was weak and transaction costs high. Yet nobody was doing anything about it.

Our case takes this situation as a starting point and exemplifies what Dr Gabre-Madhin discovered during her studies: alarming social needs resulting from malfunctions in the commodity market.

More precisely, in some parts of the country the population suffered severe famine while food was available in other parts. Moreover, 28 million smallholder farmers were commonly caught in a daily struggle for survival. Challenges included poor information about prices and potential buyers and sellers, volatile prices, unreliable trading partners, high transaction costs, associated risks and a high level of contract defaults. From a buyer’s perspective, the issues were the unreliable supply and poor quality of food products due to a lack of standardised criteria.

Dr Gabre-Madhin was convinced that her country urgently needed formalised trust in the market and an infrastructure that went beyond roads.

She envisioned markets institutions that would be responsible for grading quality, introducing standards, issuing warehouse receipts, relaying market information to all relevant actors, co-ordinating trading, developing reliable payment and delivery systems, and ensuring contract enforcement.

Furthermore, these institutions had to be established in an integrated fashion – not in the piecemeal approach that the different donor interventions all over Africa used. She proposed her idea – a commodity exchange as a holistic platform – to the highest levels of the Ethiopian government.

The exchange she had in mind would not exclude people with a poor education or little capital. It would strive to balance the interests of all the relevant actors across both public and private sectors. Overall, the exchange would ensure more transparent, efficient and reliable trading for all concerned by adding technology and systems to the informal markets already in place.

Dr Gabre-Madhin knew that the stakes were high. Her idea involved nothing less than building a high-tech platform in a place that lacked the basic building blocks of modern commerce such as electronic banking, price information and grading standards. Moreover, farmers, traders and other stakeholders distrusted new market initiatives and offers.

For the full article, you can view the PDF.

Planting the seeds of change

See more articles from Vol.07 Issue 03 – ’13.

Latest posts by Lea Stadtler (see all)
Latest posts by Gilbert Probst (see all)
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