…Partners TSL Limited, CBZ Bank and Finsec
HARARE – Government has allocated US$500 000 as shareholding capital to trigger the launch of a commodities exchange, Zimbabwe Mercantile Exchange (ZMX) and a Warehouse Receipts System, which will be launched next year in March.
The establishment of the commodities exchange is part of efforts to develop a market-oriented agricultural sector where the underlying spot market for physical commodities functions effectively.
ZMX will operate under a smart partnership between the public, private and development sectors. The public sector will be represented by Government, the Securities and Exchange Commission of Zimbabwe and the Agriculture Marketing Authority. Trading platform Finsec, TSL Limited and CBZ Bank will partner from the private sector while World Bank, FAI and IAPRI are providing developmental assistance.
Speaking at the soft launch of ZMX on Monday, Escrow group chief executive Collen Tapfumaneyi on behalf of Finsec said that the commodities exchange will help alleviate some of the problems faced by producers and end users of commodities in Zimbabwe. The exchange will be anchored on the Warehouse Receipt System.
He said the National Agriculture Policy Framework Pillar VI committee prioritised operationalisation of a warehouse receipt system as a precursor to a commodities exchange and has since been working with development partners and the private sector to achieve this.
“Work on systems, process flows, guidelines and supporting regulations has been done and a pilot program is already underway.”
It is envisaged that the 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. The exchange will be launched in March when harvesting of wheat and early maize crop begins.
Features of the marketplace include trading based on futures and option contracts, Trading of commodities beyond the scope of agricultural commodities, Warehouse Receipts which will be used as a delivery mechanism for derivatives obligations and a clearing house to reduce the risk to counterparties in trading.
Finance Minister Mthuli Ncube said ZMX will provide an organised market of players across the agricultural commodities value chain which include small scale to large-scale farmers, buyers, regulators, retailers, banking institutions and warehouse operators. This will close the existing arbitrage gaps caused by middlemen and stimulate price discovery.
Warehouse receipts will act as evidence of delivery by the farmers and specify the quality and quantity delivered to a particular location by the farmer. The warehouse operator stores agricultural commodities and is legally liable to make good any value lost through theft or damage by fire and other catastrophes. The operator however has no legal or beneficial interest.
Ncube said that during the pilot phase, the main buyer, the Grain Marketing Board will be admitted on these technologies to allow farmers to deliver maize and issued with Warehouse Receipts, to trigger participation in buying maize and wheat on ZMX.
Tapfumaneyi noted that the exchange will be modelled along the Pakistan Mercantile Exchange and the Brasil Bolsa Balcao in Brazil which offer both spot market trading and derivatives/futures markets.
The market is now awaiting the gazetting of an SI which is specific to a commodities exchange particularly covering clearing house operations.
Tapfumaneyi is confident that the model adopted is scalable although it depends on the functioning of the underlying spot markets. Where spot markets are underdeveloped, or substantial market failures exist, a commodity exchange will not function.
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.-Financial Express.