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ZMX launch set for March 31 as 3 banks pledge to extend credit

HARARE - Zimbabwe Mercantile Exchange (ZMX) is on course for a March 31, 2021 opening with the entire system on which the commodities exchange shall rise having been set up and tested while the entity is now licenced by the Agricultural Marketing Authority. The exchange is a partnership between FINSEC, TSL, CBZ and Government. Escrow chief executive Collen Tapfumaneyi told FinX that with the system having been set up and tested, work was now on integrations with all mobile network operators and mobile money operators to give farmers a seamless access to the exchange. The ZMX rules are in the final stages of review ahead of gazetting by the Minister. It is envisaged that the exchange’s infrastructure will be used for both strategic agricultural commodities like maize and wheat as well as non-strategic agricultural commodities such as soya beans, barley, coffee, groundnuts and macadamia nuts, among others. It is designed as a multi-currency platform and capable of trading in all legal tender. The March launch will coincide with the harvesting of wheat and the early maize crop. On Ministry of Agriculture licencing, Tapfumaneyi said that the department of plant quarantine finalising approval of identified TSL Limited and GMB warehouses as certified to issue warehouse receipts in accordance with the Warehouse Receipt Act. Inspection and interviews have already been conducted. Since the demise of ZIMACE, commentators have been signaling the need for a commodity exchange in the Zimbabwe. Advocates for the exchange related to the need for enhancement of value chains and price discovery mechanism while creating an attractive platform for investment within the country’s commodity and minerals market. Zimbabwean farmers are set to be the winners in the creation of the commodity exchange. Farmers have had to offload their produce at prices that are dependent on their desperation for cash.  Zimbabwe is chiefly an agricultural and extractive economy, and the establishment of a centralized, independent marketplace is a requirement and structuring the market for cost effective trade seems to be a step in the right direction. Farmers will experience stability and price consistency in the pricing of their produce emanating from contracts which offer protection against sudden price swings once this exchange becomes a reality. The Ethiopian Commodity Exchange (ECX) is modelled along this format, being a spot market premised on a warehouse receipting system specialising in export commodities. Agriculture Permanent Secretary John Bhasera told FinX that farmers will make use of the receipts for purchasing inputs in shops such as ZFC and Seed Co or for another round of funding. He said that the Grain Marketing Board which will receive seed capital from Government will be the main operator of the exchange and the WRS but not the main buyer. Industrialist Kumbirai Katsande said the exchange was a game changer as it will bring commodity prices to a reasonably agreeable price rather than what is currently taking place. “We have been crying for this exchange for 10 years now. It was moved from Industry and Commerce and taken to the Agriculture ministry and now the Finance ministry has managed to pull it off. The exchange will be able to deal with exchange rate volatility really quick... in real time, which will be a favourable position for our farmers,” Katsande added. The Ministry of Finance said that the exchange will be market driven although with guidance on strategic grains such as wheat and maize. “The ZMX, all in all, is a positive move... one which will lead us to price discovery, especially for grains. It is a move that if implemented the way we think, then arbitrage positions will be reduced heavily,” said National Foods CEO Michael Lashbrook. On liquidity problems he added: “the warehouse and receipt system will enable banks to fund farmers as there is notable collateral, hence easing all the liquidity problems faced before”. Tapfumaneyi said in terms of clearing and settlement, a bank had been onboarded while discussions with four other banks were at various stages of completion. A custodian had been secured while the second one was in final stages of the onboarding process. Three banks had pledged to extend credit facilities to farmers secured by warehouse receipts while discussions are in progress with other four banks to extend credit to farmers. "We have completed a of dry runs to test the process flows have been successfully carried out with all the participants. We have also done awareness and sensitisation campaigns around the country in partnership with farmer representatives, Ministry of Agriculture, GMB and Agritex personnel." Comment: Many commodity exchanges introduced in the 1990s in Asia and Latin America have proven to be sustainable, but in Africa, despite substantial donor support, success has been more elusive. Some binding constraints to successful commodity exchanges include small market size, weak infrastructure, an underdeveloped financial sector, lack of a supportive legal and regulatory framework, and unpredictable government market interventions. The previous foray into the commodity exchange experiment lasted a few years. A caveat that developing countries have not been successful in creating viable and sustainable commodity exchanges. Commodity trading has been stereotyped to always seem high tech and advanced so much that they remain unreachable to frontier economies. This is ironic as commodity trade dominated economic interactions since time immemorial. Trade is to the economy what breathing is to life. The demise of most floundering commodity exchanges falter because of government interventions. In this respect, a government initiated and regulated market, has GoZ branded all over it. Market infrastructure at best works without any government intervention and should have embedded within themselves self-regulation mechanisms. Government has the effect of offsetting the balance intended under the initiative. The exchange market is a strategy of managing price risk that is inherent in spot market by taking an equal but opposite position in the futures market to protect farmer’s business from adverse price change, therefore farmers will embrace it provided government interference is low. Exporters can hedge their price risk and improve their competitiveness by making use of futures market. The existence of futures market allows the exporters to hedge their proposed purchase by temporarily substituting for actual purchase till the time is ripe to buy in physical market.

  Fri Feb 2021